Puerto Rico's financial oversight board tries to halt electric company’s debt restructuring

Although Puerto Rico got out of bankruptcy last year, there is still $10 billion in unresolved debt from the island’s electric company. 

The U.S. financial oversight board that manages the island’s finances has carved out an agreement with bondholders who own part of the debt, which they believe could reduce the amount owed by 80%, according to an Aug. 25 press release.

The plan is the latest move by the Financial Oversight and Management Board to end what has been a long road of restructuring the Electric Power Authority's debt, the largest of any public American corporation when it declared bankruptcy in 2017.

The board recently filed a new debt-restructuring plan that would reduce the electric company's debt to $2.5 billion, an amount that excluding pension liabilities. 

Board Chairman David Skeel said the plan offers "a fair recovery" for creditors without "overburdening the people of Puerto Rico."

He has argued that the new plan would allow the electric company to “remain a sustainable utility, continue critical investments, and complete the transformation of Puerto Rico’s energy system to provide reliable energy and support Puerto Rico’s economic growth and fiscal stability.”

Still, the plan can only go forward if it is approved by a U.S. judge in a federal bankruptcy court.

If such a judge signs off on an order, it could have a two pronged effect, also raising power costs bills on the island. Some still face continuing power outages. 

Last year, ADN reported in early October, about 101,000 Puerto Ricans faced power outages for about two weeks in the wake of Hurricane Fiona. 

Many Puerto Ricans already pay almost twice as much as customers in the U.S. mainland for unreliable electricity, according to an Aug. 28 report filed by NBC Latino News.

The debt-restructuring plan would also stick a “legacy charge” with Puerto Rican customers.

If the “legacy charge” is approved by Puerto Rico’s Energy Bureau, the agency that regulates island energy policies, its clients will have to pay an additional 5% in their monthly electric bills, the board said in its press release.

As a result of the upcharge, Puerto Rican commercial bills would skyrocket by about $35 while residential bills would jump an estimated $9.

About 1.4 million customers could be spared the new charge depending on how much power they consume. Those who use less than 425 kilowatt-hours a month would probably evade the upcharge, according to the board.

The average Puerto Rican family uses an estimated 200 kilowatt-hours per month, a fraction to what U.S. mainlanders use.

According to the U.S. Energy Information Administration, mainland residential customers use about 886 kilowatt-hours on average.

Island electricity users have already faced to at least seven electric rate increases over the last year, according to NBC.

The island’s Power Authority, which is a public corporation, declared bankruptcy in 2017 with several other local government entities as well as the public employee retirement system under the Promesa law.

That law was passed during the Obama administration and installed a new U.S. financial oversight board to help restructure the island’s debt in a federal court, in part because Puerto Rico is excluded from the U.S. bankruptcy code.

“We hope that we will be closing not just the chapter but most of the book on the largest public sector bankruptcy in the United States,” Robert Mujica, the board’s executive director, said in a meeting with reporters.

The island was soon devastated however by Hurricane Maria and lost its electrical grid, triggering the world’s second longest blackout and the most significant municipal bankruptcy in American history.

Three thousand people died as a result of Maria’s power outages as many faced lack of medical services due to electrical failure. While the grid has been partially rebuilt, it still causes both brownouts and blackouts.