Sending Office: Honorable Raul M. Grijalva
Urge U.S. District Court Judge Laura Taylor Swain and the Puerto Rican Legislature to Oppose an Insufficient Debt Restructuring Agreement
Please join us in signing letters to U.S. District Court Judge Laura Taylor Swain, the Speaker of the House of Representatives of Puerto Rico, and the President of the Senate of Puerto Rico urging them to oppose a new debt restructuring agreement for the
Puerto Rico Electric Power Authority (PREPA).
The Institute for Energy Economics and Financial Analysis (IEEFA) estimates that under the terms of the agreement, the residents
of Puerto Rico will pay more than $23 billion in additional rates over the next 48 years above current levels, plus hundreds of millions of dollars to cover administrative expenses. Also, the deal would ensure that the first priority use of every rate dollar
that comes into PREPA goes towards paying off the debt rather than improving the Puerto Rican power system.
Puerto Ricans are still recovering from the devastating impacts of Hurricane Maria. The agreement would add insult to injury while also destabilizing the Island’s efforts to grow its economy, decentralize its electricity system, and move towards a renewable
The new PREPA debt restructuring agreement is not a good transaction for Puerto Rico. We encourage our colleagues to sign onto our letter to help Puerto Ricans get a better deal.
If you have any questions or wish to sign on to the letters, please contact
Auburn.Bell@mail.house.gov or by phone at x5-6065.
Raúl M. Grijalva
Member of Congress
We write today in strong opposition to the Restructuring Support Agreement (the “RSA”) reached on May 3, 2019 between the Puerto Rico Electric Power Authority (“PREPA”), the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Financial
Oversight and Management Board for Puerto Rico (“FOMB”), the Ad Hoc Group of PREPA Bondholders, and Assured Guaranty Corp. for the restructuring of $8 billion of legacy debt issued by PREPA. The RSA is not a good transaction for Puerto Rico and we respectfully
urge you to reject it.
Policy experts agree that the terms and conditions of the new PREPA RSA are excessively generous to creditors.
Despite recommendations on the need to significantly reduce Puerto Rico’s overall debt stock, with some economists proposing a total reduction of approximately 80 percent,
the RSA generates a reduction in the principal of the existing PREPA bonds of only 22.5 percent. In addition, the legacy debt charge that will be added to the amount billed to PREPA’s residential and commercial customers will be higher under this RSA
than under the RSA dated July 30, 2018, apparently to induce the participation of Assured Guaranty Corp., one of the bond insurance companies that enabled the issuance of excessive debt by Puerto Rico. It is unacceptable that after 10 months of additional
negotiations to reach a sustainable debt restructuring agreement for PREPA, the residents of Puerto Rico end up with an insufficient reduction in principal and paying higher legacy debt charges.
Moreover, the new RSA is inconsistent with the applicable certified Fiscal Plan, a condition for plans of adjustments stipulated in the Puerto Rico Oversight, Management, and Economic Stability Act of 2016. According to the New Fiscal Plan for PREPA certified
by the FOMB on August 1, 2018:
Puerto Rico’s future economic growth and vitality depends on affordable and reliable power. For too long, electricity provided by PREPA has been expensive and unreliable. PREPA’s problems were made incalculably larger by Hurricanes Irma
and Maria, which leveled PREPA’s infrastructure and knocked out all electricity across the Island and left thousands without power for several months. The New Fiscal Plan for PREPA provides a roadmap to shedding this history and emerging from these storms
by creating a new power sector for Puerto Rico that will: provide electricity below 20 c/kWh; deliver low-cost, clean, and resilient power; rebuild and maintain a modern, reliable grid; implement operational efficiencies to lower cost and
improve service; and establish a fiscally responsible entity.
Currently, PREPA’s customers pay approximately 22 c/kWh.
The legacy debt charges in the new RSA would increase existing prices by up to 21 percent, making the achievement of 20c/kWh very unlikely.
Contrary to the New Fiscal Plan for PREPA, the new RSA would cause considerably higher electricity rates for decades to come.
Furthermore, the new PREPA RSA conflicts with Puerto Rico’s short-term and long-term goals to grow its economy and stabilize its finances. Both the Puerto Rico Energy Public Policy Act of 2019 signed into law by Gov. Ricardo Rosselló
and the New Fiscal Plan for PREPA certified in 2018 by the FOMB
recognize that Puerto Rico’s future economic growth depends on achieving affordable energy. Higher electricity rates are detrimental to the local economy, causing businesses both large and small to operate with reduced margins, leaving them less able to expand
and hire new employees. The new RSA will accelerate the outmigration of businesses and residents, this downward spiral will deplete what is left of Puerto Rico’s economic foundation.
Additionally, the new RSA hinders efforts to make Puerto Rico’s electric system more reliable and resilient. It is imperative to remember that for years PREPA has been operating with inferior physical infrastructure and the residents of Puerto Rico continue
to experience frequent power outages. According to the New Fiscal Plan for PREPA, the utility needs to make massive capital investments to upgrade its old generation plants, and repair the fragile transmission and distribution system that was destroyed by
Hurricane Maria. However, the new PREPA RSA would ensure that the first priority use of every rate dollar that comes into PREPA goes towards paying off the debt. The transaction does not guarantee improvements to the
utility’s vulnerable physical infrastructure to guarantee the basic needs of PREPA’s residential and commercial customers.
For the reasons stated above, we respectfully request that you reject the new PREPA RSA and recommend the parties to continue their negotiations.
Raúl M. Grijalva
Committee on Natural Resources
e-Dear Colleague version 2.0