Although Governor Wanda Vázquez Garced indicated yesterday that the restructuring process for the Puerto Rico Electric Power Authority (PREPA) debt cannot be at the expense of the Puerto Rican people, her administration is working on a bill seeking to amend a law approved three years ago to reorganize the public corporation and impose up to four new charges on the electricity bill.
The bill to implement the Restructuring Support Agreement (RSA) with PREPA bondholders would establish the already known transition charge to pay bondholders and another fee to cover pensions, while opening the door to an additional subsidy charge and, if necessary, a financing charge, according to documents examined by El Nuevo Día.
According to two versions of the draft bill that would lead to renegotiating PREPA's obligations, that public utility´s restructured debt will be transferred to a new public entity, which will be called Prepa Revitalization Corporation (Preparc).
This new entity will have three directors who will be selected by a recruiting firm; they will be independent - although appointed by the governor – and receive a salary, but will not be subject to the Government Ethics Act.
The drafts of the proposed law for the implementation of PREPA's Adjustment Plan examined by this newspaper establish that the entity that will inherit PREPA's debt will not be subject to over a dozen local laws, a matter agreed to by bondholders, three municipal insurance companies and the Oversight Board in the RSA approved last year.
Message to bondholders
The Fiscal Agency and Financial Advisory Authority (FAFAA) is drafting the bill, but yesterday Vázquez Garced - who completed the endorsements requirement to continue in the race for the governorship - suggested she would withdraw her support for the agreement reached by the Board.
"It is a reality that PREPA's debt is not being paid. We have to look for alternatives, but not at the expense of the Puerto Rican people. That is our position," Vázquez Garced said.
"Bondholders, when negotiating, should take into consideration that other measures must be taken, but it cannot be at the expense of the Puerto Rican people," the governor insisted during a meeting with members of the United Retailers Center.
If the drafts examined by this newspaper are signed into law, PREPA's successor entity would not have to comply with the laws approved to monitor the contracting of private resources and the Government Accounting Act. Nor would it have to comply with fiscal discipline laws approved to implement PROMESA.
Last year, El Nuevo Día anticipated legislative changes looming in PREPA when it examined the agreement with creditors.
According to both drafts, the debt Preparc issues to renegotiate PREPA's current bonds will not pay taxes, and even if PREPA does not generate enough electricity sales to cover the transition charge, PREPA's successor will not be able to invoke the protection of PROMESA Title III.
No changes to the law
Furthermore, based on the drafts, the central government and the Legislature will not be able to make any amendments to the law until the last cent of the restructured PREPA debt is paid, and that would take at least 40 years.
Meanwhile, the proposed fees - which will be charged by a manager or administrator hired by Preparc – cannot be touched either, unless they have to be adjusted to pay restructured bonds and this, without the intervention of the regulatory body.
According to the draft, customers will be divided into groups: non-governmental customers, those receiving subsidies and customers with power generation systems (GDC). And this last group, in turn, will be divided into "exempt" and "non-exempt" customers.
To ensure that customers with their own generation systems pay their share, Preparc will install a "GDC" meter, paid by the customer (whether individual, cooperative or microgrid), which will serve to determine the transition charge they will pay. This charge would be reviewed "from time to time".
"Customers shall not be permitted to evade the imposition of Transition Charges or reduce their responsibility for Transition Charges by disconnecting and subsequently reconnecting to the System or by withholding from the Servicer any information required in order to assess Transition Charges or determine the Customer’s status," the draft states.
The draft also states that clients will pay a transition charge, but also a subsidy charge if so decided. This fee would allow PREPA to charge lower rates to low-income customers.
As established in the RSA, the transition charge will start at about 2.7 cents and will increase gradually until it reaches a cap of 4.55 cents per kilowatt-hour around year 24 (of the agreement) and would remain without changes until year 40, when renegotiated bonds would be fully paid.
Besides, PREPA would include a pension charge that has not yet been established and Preparc would be authorized to charge another "financing charge" if they deem it necessary.
These drafts on PREPA's RSA come at a time of growing opposition to a second deal with bondholders in five years.
Similarly, yesterday afternoon, Judge Laura Taylor Swain, accepted a request for the London Economics International (LEI) firm to disclose an analysis of the agreement reached in the public utility.
In short, LEI's analysis establishes that even with multiple adjustments within PREPA, the public utility would have to increase its rates each year to meet their obligations with bondholders, pensions and other obligations.
The Board's call
The RSA should be endorsed by the federal court, but this week, its debate was once again postponed - for the third time - at the request of the Board. This, so the Legislature can endorse the agreement.
And to that end, the Board yesterday urged the Legislature to endorse the bill to implement the RSA.
For the Board, the agreement is the only mechanism to avoid putting PREPA into receivership and also represents the prelude to an improvement plan that would make way for a more reliable and efficient system.
However, Senate President Thomas Rivera Schatz immediately said that the legislative conference is not going to endorse any agreement “increasing anything for any Puerto Rican”
"That increase is not going to happen," the pro-statehood leader said.
If the drafts are signed into law, Preparc and PREPA will be completely separate entities. Preparc will be the "sole and exclusive" owner of transition fee revenues - which would be used to pay PREPA bondholders - and the financing charge, if established.
Preparc was founded in 2016 when PREPA reached the first agreement with bondholders under the direction of Alix Partners and executive Lisa Donahue. Then, the Legislature approved the bill and former Governor Alejandro García Padilla turned the bill into Law 4-2016.
Law 4-2016, provides that Preparc's board of directors will have three directors, who are only exempted from filing financial statements with the Office of Government Ethics.
Law 4-2016 establishes that the Puerto Rico Energy Bureau (NEPR) would have the last word on rate matters.
The language of the new bill that FAFAA is working on, in contrast, requires the NEPR to adopt regulations to implement the charges related to the RSA. But the statute does not allow NEPR to analyze the appropriateness or reasonableness of these charges. As a result, transition and pension charges would be imposed on customers.
According to the explanatory statement of a draft dated January 9 and including Spanish and English versions of the legislation necessary to implement the RSA have, this law will open the way for PREPA to finish its Title III proceedings.
To questions from El Nuevo Día regarding the charge for pensions, FAFAA said the document examined by this newspaper is a draft and therefore could have changes.
According toFAFAA, the document will allow PREPA to comply with all its obligations and complete the bankruptcy process.
Ricardo Cortés Chico collaborated with this story.