Facing deadline, Puerto Rico seeks to overhaul power company
Puerto Rico is preparing to overhaul its heavily indebted public power company as the United States territory faces a July deadline to approve a new budget and make a US$400 million payment to the utility's investors amid growing concerns public agencies could go bankrupt.
A long-awaited restructuring plan submitted to creditors, which calls for investing at least US$2.3 billion in the island's Electric Energy Authority and revising rate structures, was met with scepticism on Tuesday. Some critics warned that a power rate increase would further harm the struggling local economy. Power bills in Puerto Rico are already average twice those of the US mainland.
"An increase will not benefit anyone," said Puerto Rico Resident Commissioner Pedro Pierluisi. "It's going to affect our battered economy and even the authority's own revenues."
Lisa Donahue, the authority's chief restructuring officer, said in a summary of the plan released late Monday that everyone including creditors and the government will have to bear the financial burden of a company that holds more than US$9 billion in debt.
"The existing rate structure is not sufficient to cover costs and current debt service requirements, but the rate deficit cannot be borne by the ratepayers alone," the plan states.
The plan also proposes to convert plants so they can burn both natural gas and fuel oil, as well as create private-public partnerships to help build new plants and operate the system.
Officials have not publicly released the full plan, citing ongoing negotiations with creditors. They expect it will be approved by month's end.
However, concerns remain about the measures proposed, said Stephen Spencer, a managing director with Los Angeles-based investment bank Houlihan Lokey, an adviser to bondholders.
"While elements of the plan were positive from our perspective, there were also aspects that were unworkable and will require further negotiation," he said in a statement.
The bondholder group offered in April to invest US$2 billion to improve the power company's finances and infrastructure, but Donahue said some elements of that plan would not work.
Economist Gustavo Velez said in a phone interview that the public power company should quit producing power and become only involved in distribution.
"It's a monopoly," he said. "They have to bring in private companies that can produce energy ... . The plants are obsolete. They are inefficient and have serious infrastructure problems, and the authority does not have the money to update them."
Puerto Rico is struggling with US$72 billion in public debt and is in its eighth year of recession.