The financially-embattled Puerto Rico Electric Power Authority (PREPA), Puerto Rico’s publicly owned electricity provider, said Nov. 4 that it is backing Gov. Alejandro Garcia Padilla’s submission of the PREPA Revitalization Act for consideration to the Legislative Assembly.
Javier Quintana Mendez, Executive Director of PREPA, said: “This bill will facilitate PREPA’s transformation and usher in a new era of efficiency, reliability and safety at PREPA. We need all stakeholders to come together and share the burden of social and economic responsibility. With this legislation, we can realize the debt relief and savings offered by the creditor compromises and make the changes and investments needed to ensure that PREPA can provide the people and businesses of Puerto Rico with reliable power, stable rates and outstanding customer service for generations to come. Now is the time to act and enable PREPA to move forward with this transformation that represents the foundation for a stronger, more prosperous Puerto Rico.”
In this bill, the governor is requesting that the legislature approve:
- Enhancements to governance processes so that PREPA can implement an independent, non-political, staggered board structure;
- Adjustments to PREPA’s practices for hiring and managing management personnel;
- Changes to PREPA’s processes for collecting outstanding bills from both public and private entities;
- Implementation of a competitive bidding process for soliciting third party investment in PREPA’s infrastructure;
- Refinancing of PREPA’s outstanding bonds through a new securitization that will reduce PREPA’s indebtedness and cost of borrowing; and
- Reforms to PREPA’s ability to collect payment from municipalities.
For months now, PREPA has been trying to work out debt relief with creditors. AES Corp. (NYSE: AES), which owns a coal-fired power plant that supplies PREPA with electricity, has reported problems with getting paid for that power. PREPA also faces heavy investment to convert some of its oil-fired capacity to natural gas, including a plan to have an outside company build it a dedicated liquefied natural gas (LNG) import facility for its big Aguirre power plant.
Said AES in its Nov. 5 quarterly Form 10-Q statement about the situation: “On June 28, 2014, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the ‘Recovery Act’) was signed into law, which allows public corporations, including PREPA, to adjust their debts. As a result of this event, on July 6, 2014, PREPA entered into a Forbearance Agreement with its lenders in order to permit an opportunity for negotiation of a possible financial restructuring of PREPA. In February 2015, the negotiating position of PREPA was weakened when the federal court deemed the Recovery Act unconstitutional. Despite this setback, PREPA has managed to extend the expiration of the Forbearance Agreement several times, with the last deadline being October 30, 2015. However, the insurer group of the bonds decided not to extend the agreement beyond the previous September 15 deadline, although the group continues to hold discussions with PREPA. As per the conditions of the Agreement, PREPA has delivered a restructuring plan with the final version presented on June 1, 2015 in order to lead the institution into an efficient and sustainable business model.
“The plan calls for a ‘shared burden’ among all stakeholders, contemplates capital investments, and specifies a greater role for private enterprises in the utility’s operations, particularly in the generation component. It also recommends revising PREPA’s price structure, including a likely hike to electricity bills. In September and October 2015, PREPA reached certain agreements with most of the bondholders and bank lenders, which involved reductions of capital and interest rates and options to either convert existing credits to term loans or to exchange their principal for new securitized bonds. PREPA continues negotiations with the remaining bondholders represented by the bond insurers group guaranteeing those bonds, to try to reach an agreement on the remaining debt.
“AES Puerto Rico’s receivables balance from PREPA as of September 30, 2015 was $83 million, of which $28 million was overdue but subsequently has been collected. As the events pertaining to the Forbearance Agreement continued to unfold, as of September 30, 2015, we concluded that there was no indicator of an impairment of the long-lived assets in Puerto Rico, which were $638 million and total debt of $530 million. Therefore, management believes the carrying amount of the asset group is recoverable as of September 30, 2015.”