News Is My Business / January 13, 2016
By Larry Luxner
WASHINGTON — A restructuring deal between the deeply indebted Puerto Rico Electric Power Authority and most of its creditors came under scrutiny during a Tuesday oversight hearing here by the House Subcommittee on Energy and Mineral Resources.
The panel, chaired by Rep. Doug Lamborn (R-Colorado), came 10 days before a Jan. 22 deadline for Puerto Rico legislature to vote on the massive “restructuring support agreement” or RSA. The deal, finalized Dec. 23, would satisfy 70 percent of the bondholders of PREPA, which is $9 billion in debt.
“This hearing is not about Chapter 9 of the bankruptcy code. It will focus on other issues,” warned Lamborn, though the Q&A that followed the presentation of prepared testimonies quickly zeroed in on that very subject.
Appearing at Tuesday’s panel, whose rather bland title — “Exploring Energy Challenges and Opportunities Facing Puerto Rico” — belies the massive crisis weighing down on PREPA — were Lisa J. Donahue, the utility’s chief restructuring officer; Josen Rossi, president of the Puerto Rico Institute of Competitiveness and Sustainability; Jorge San Miguel of Ferraiuoli LLC, a San Juan law firm; Jaime L. Sanabria Hernández, co-president and general manager for finance and administration at EcoEléctrica LP, and Carlos Rivera Vélez, chairman of the Puerto Rico Manufacturers Association.
“PREPA represents one of the greatest problems currently facing Puerto Rico,” Lamborn said in a prepared statement. “Going forward, PREPA not only needs to address its overwhelming financial crisis, but it must also address the systemic issues that hamstring its ability to become an efficient and adaptive utility. Unfortunately for PREPA, there is no easy solution. Blanket grants of debt restructuring would be irresponsible, and would merely punt the hard decisions to future generations.”
Donahue, who was appointed to her current position in September 2014, said she’s confident the utility can survive, but criticized “the structural challenges within PREPA as a result of shifting political agendas with subsequent administrations, making it very difficult for a long-term business to actually operate.”
San Miguel urged Puerto Rico’s legislature to approve the RSA and to encourage independent power producers such as EcoEléctrica and AES to invest on the island.
“It’s clear that the private market is much more efficient in power generation,” he said, urging “long-term concessions or private-public partnerships that allow the private sector to seek the most efficient capital, construct at the greatest speed, and operate with the greatest efficiency.”
He told the panel that “quite a few world-class investors are waiting to see what happens” with the deal and PREPA’s proposed integrated resource plan (IRP), which calls for 83 percent of the island’s electricity generation to be powered by natural gas and renewable sources by 2030, up from 48 percent today.
“Most of the assumptions made in the IRP are rather conservative, so they assume PREPA will be carrying a great part of the capital expenditures,” he said. “But that should not be on PREPA’s back. Let the private sector do it. They do it much more efficiently — and those efficiencies are passed on to consumers.”
Puerto Rico Resident Commissioner Pedro Pierluisi agreed that “we need more private capital in the energy sector” — but that it’s very tough to attract that capital given the island’s current fiscal mess.
“Ms. Donahue spent 15 months negotiating a debt restructuring deal with the major creditors of PREPA, and managed to get a deal from 70 percent of them,” he said. “The challenge now is, how do we at least attract the others to be a part of this deal?”
Access to Chapter 9 protection would definitely help, the lawmaker suggested.
“We didn’t have it when we started, and we still don’t have it,” Pierluisi said. “Some people really don’t like Chapter 9, but bear in mind that one of its benefits is that when you have Chapter 9, a federal bankruptcy judge can enforce the plan on all creditors, and you wouldn’t have the issue you still have today.”
Donahue insisted that “with Chapter 9, we’d be able to get super-priority financing, so that could be used as a bridge. Chapter 9 would facilitate the deal very quickly and would pull in the holdouts — to the extent there are holdouts — so we don’t have an Argentina problem. It would allow us to move on to the next phase.”
But San Miguel said that’s no solution at all — nor is it right.
“I wouldn’t come begging as an American citizen begging anything from Congress unless I’ve done everything I can, and just need some assistance to finish the job,” he told the panel. “As a person who believes in our right to statehood, we can’t as a jurisdiction ask for more stateside rights without the responsibilities. The principal proponents [of Chapter 9 protection] are people who do not wish Puerto Rico to become a state. They want the goodies of the state, but not the responsibilities.”