Governor: Puerto Rico's Power Company Will be Privatized

On Monday, Puerto Rican Gov. Ricardo Rossello announced that the island's bankrupt power company will be privatized. Puerto Rico Electric Power Authority (PREPA) is valued at $4 billion but has a debt of approximately $9 billion.

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The remarks were made two days before PREPA is due to submit a post-Hurricane Maria revised fiscal plan. The deadline for PREPA – along with the Puerto Rico Aqueducts and Sewers Authority (PRASA) and the Commonwealth – to submit the plans is on Wednesday.

“The Puerto Rico Electric Power Authority has become a heavy burden on our people, who are now hostage to its poor service and high cost. What we know today as the Puerto Rico Electric Power Authority does not work and cannot continue to operate like this,” Rossello said.

The three-phase sale process would start with defining the legal framework, opening the market to buyers then awarding and hiring of selected companies.

However, U.S. District Judge Laura Taylor Swain and the seven-member federally appointed Oversight Board will have to approve the governor's plan before it can go forward.

"We have long said that a full operational and financial transformation of PREPA — including private investment — is necessary to deliver the resilient, reliable, and cost-effective power system that Puerto Rico needs for its economic recovery," a spokesman for the Oversight Board said.

"The Oversight Board welcomes the Governor's announcement, looks forward to reviewing the Government's plans and intends to incorporate any transformation of PREPA into the revised Fiscal Plan, which it expects to certify on February 23, 2018."

Rossello added that PREPA’s electrical grid is not designed for to support the island’s current needs. The governor said the greater power demand is in the northern part of the island, while the main generation plants are in the south.

He further said the infrastructure of the company is nearly 30 years older than the industry standard.

“With this transformation of PREPA, you will cease being its hostage,” Rossello said.

“The public corporation has had a historically deficient administration that has maintained a virtual monopoly on power generation in Puerto Rico.”

Hurricane Maria, which struck late last year, largely destroyed the electrical grid and many residents are still without power, over 100 days later.

“The Puerto Rico Electric Power Authority will cease to exist as it deficiently operates today. Over the next few days the process will start, through which PREPA assets will be sold to companies who will transform the generation system into a modern, efficient, and less expensive one for the people,” the governor explained.

But, one expert highlighted that there some components involving any sale of the electricity company was being ignored.

“One of the key considerations that Gov. Rossello neglected to mention in his announcement was that PREPA's bondholders — as well as municipal bond insurers MBIA and Assured Guaranty — have a permanent contractual lien on the utility's net revenues,” analyst Mark Palmer pointed out.

"We believe it would not be feasible for Puerto Rico to sell PREPA's assets without the net revenue lien following those assets to the benefit of AGO [Assured Guaranty], MBI [MBIA] and bondholders. We also believe that before a privatization of the utility could occur those creditors would have to be satisfied such that it could exit the Title III debt restructuring. While Puerto Rico may attempt such an end-around maneuver, we doubt that it would pass muster with the courts," Palmer said.

Power bills on the island are double the average of those on the U.S. mainland, partly because imported petroleum products supply three-fourths of the energy consumed in Puerto Rico, according to the U.S. Energy Information Administration.