Judge grants US$300m loan for Puerto Rico power company

A federal judge on Monday approved a US$300 million loan for Puerto Rico's power company that officials say will help keep the troubled agency operating until late March.

The ruling comes just days after the judge had rejected an initial US$1 billion loan request made by a federal control board overseeing the US territory's finances. The judge had said officials did not provide sufficient evidence proving the Puerto Rico Electric Power Authority needed the money, so the board submitted a revised request for US$300 million on Friday.

Hours before the judge approved the request, Governor Ricardo Rossello maintained that the company still needed a US$1 billion loan to keep operating in the months ahead.

"There's no money," he said. "We're in a precarious situation."

The board did not immediately respond to requests for comment after the loan was approved. It had said in a previous filing that it plans to request more loans in upcoming weeks.

Gerardo Portela, director of Puerto Rico's financial authority, said in a statement that the power company will keep seeking all kinds of financing sources to help fund its operational and reconstruction needs. He also praised the judge's ruling.

"The approved financing will provide PREPA with a much-needed lifeline while safeguarding the operation in the near term," he said.

The initial US$300 million would come out of the government's general fund, but officials needed permission from the court to do so given, that the island is undergoing a bankruptcy-like process to restructure a portion of its US$73 billion public debt amid an 11-year recession.

RUNNING OUT OF CASH

Rossello stressed that the United States territory is running out of money and also needs a separate, billion-dollar loan that US Congress approved in October for disaster recovery. Federal officials said in December that they were withholding the funds because they believed the government still had enough cash available.

The federal control board recently warned that Puerto Rico's power company could see a US$1.2 billion loss in revenue in the first six months after Hurricane Maria, which hit on September 20 and destroyed two-thirds of the power distribution system. Nearly 250,000 customers remain without power more than five months after the Category 4 storm.

On Sunday, government officials announced that they were reducing the power company's operating reserve by 450 megawatts to help save US$9 million a month. They said customers would not be affected but warned it could destabilise a power grid heavily damaged by the hurricane.

The power company is US$9 billion in debt, and Rossello announced in January that he plans to privatise the company in the next 18 months.

Puerto Rico had a very high reserve margin for its generation prior to the hurricane, according to Susan Tierney, a senior adviser for Denver-based consulting company Analysis Group, who testified before a US Senate committee on power restoration efforts in Puerto Rico.

Tierney told the Associated Press that the island's reserve margin was 90 per cent, compared with 15 to 20 per cent in the US mainland. She said 90 per cent was still high even when taking into account the island's geography and need to import fuel, among other things.

"There's room to retire some generation," she said.

A December 2017 report prepared in part by the Electric Power Research Institute found that Puerto Rico's power company could reduce its reserve margin as it rebuilds after the storm. It also recommended that a study be conducted to establish a new reserve margin closer to 50 per cent.

PREPA is operating with infrastructure nearly three times older than the industry average. The US territory experienced frequent blackouts even before the hurricane, including an islandwide outage in September 2016.

- AP