Oversight Board officials said yesterday that the agreement between the Puerto Rico Electric Power Authority (PREPA), the Ad-Hoc PREPA bondholder group, and four municipal insurers is the safest way to transform the public corporation and avoid legal disputes that could significantly increase electricity rates.
In an interview with El Nuevo Día, Kyle Rifkind, Board Restructuring Officer and Deputy General Counsel, and Alejandro Figueroa Ramírez, in charge of the island's energy transformation, and economist Ricardo Fuentes said that PREPA's debt Restructuring Support Agreement (RSA) must be analyzed in the context of the changes in the public corporation, such as the construction of a reliable and resilient power grid.
They also noted the agreement will end with the uncertainty regarding the appointment of a trustee, as certain creditors requested in court.
"When we renegotiated the RSA, we made a structural change. Now, transition charges, the amount added to the customer's bill, is fixed and capped," Rifkind said.
According to Rifkind, in 2017, the Board rejected PREPA's first RSA because it required an increase in electricity rates to pay bondholders. That reality opened the door for businesses or people with purchasing power to disconnect from PREPA's power grid and switch to renewable energy, thus forcing low- and middle-income families to pay for the reduction in electricity demand.
"In this agreement, that risk was transferred to bondholders," the lawyer argued.
"Not having a solution to the portion of the debt makes it more difficult for us to make improvements to the power grid," said Figueroa Ramírez, adding that the issue is key to attract investment for that infrastructure.
This way, Rifkind and Figueroa Ramírez sought to counterbalance a study by economist Ramón Cao, who concluded that the RSA and PREPA's fiscal plan will increase electricity rates by up to 47 percent over the next five years, raise prices and may possibly result in the loss of more than 68,000 jobs.
Board officials did not say yesterday whether they conducted any study on the economic impact that the RSA and PREPA's fiscal plan would have on the economy.
Nor did they answer whether the local economy could absorb the effect of rate increases resulting from the RSA and the fiscal plan.
However, they expressed reservations about Cao's conclusions. Fuentes pointed out, for example, that PREPA's electricity demand projections are in line with a shrinking and aging population, and he also seemed to doubt that an increase in electricity rates will cause a collapse in the economy.
In general terms, Cao estimated that rate increases could result in the loss of about 68,000 jobs over five years and that the gross product would contract by 8 percent.
However, Fuentes recalled that it took almost 20 years for the island's industrial sector to lose some 80,000 jobs after Section 936. He added that Hurricane María, which is considered a major disaster, contracted the island's economy by about 7 percent.
If the RSA does not go forward
However, the most important element for the Board and its advisors seems to be the scenario in PREPA if the RSA does not go forward and bondholders prevail in court.
PREPA has not paid its bondholders for almost five years. According to the Board, that debt, which could be immediately due if bondholders prevail in court, is close to $4 billion, an amount the public corporation does not have.
If PREPA were to honor the current bonds, Board estimates indicate that, in about five years, electricity rates would increase 7.7 cents per kilowatt-hour (c/kWh) vis-à-vis the maximum transition charge that was negotiated with creditors and that is about 4.5 c/kWh.
That cap on the RSA proposed transition charge, however, does not include what would have to be paid to fuel lines, the Unsecured Creditors Committee, and PREPA pensions.
The Board´s defense of the agreement in PREPA comes at a time when the Manufacturers Association requested Governor Wanda Vázquez Garced to withdraw the RSA and renegotiate its terms. The request was included in a letter signed by Carlos M. Rodríguez, president of the organization.
However, that request did not seem to move forward, yesterday from Washington D.C., Vázquez Garced endorsed the RSA before the consideration of Judge Laura Taylor Swain.