Velázquez and Menendez Introduce Resolution Opposing Harmful Debt Restructuring Plan for Puerto Rican Power Authority
June 29, 2023
Washington D.C.— Today, Representative Nydia Velázquez (D-NY) and Senator Bob Menendez (D-NJ) introduced a bicameral resolution calling for a sustainable, economically viable, and fair debt restructuring plan for the Puerto Rico Electric Power Authority (PREPA).
Between 1974 and 2016, PREPA made numerous bond issuances, resulting in over $8 billion in current outstanding bond debt, the most debt of any Puerto Rican public entity.
The lawmakers introduced the resolution in response to a proposed debt agreement from the Financial Oversight and Management Board (FOMB) that would raise monthly energy bills for Puerto Rico residents and small businesses by up to 13% on top of rates that are already double the average price for electricity in the continental United States.
“The people of Puerto Rico pay exorbitant rates for unreliable electricity that often fails when it is most needed. This unsustainable electricity is driving outmigration and hurting the Puerto Rican economy. The FOMB’s proposal will only succeed in making things worse,” said Congresswoman Velázquez. “I’m proud to lead my colleagues in calling for a debt restructuring plan that doesn’t burden Puerto Ricans with higher costs and paves the way for a transition to renewable energy.”
“The rebuilding and sustainability of Puerto Rico’s electrical grid is critical to the island’s economic future. For too long, residents and small businesses have suffered under the combined weight of some of the highest energy rates in the nation coupled with the lowest reliability. Since before PROMESA was enacted, I have consistently raised concerns about how the restructuring process would disadvantage the people of Puerto Rico for generations. Unfortunately, the initial debt restructuring plan for the Puerto Rico Electric Power Authority (PREPA) is wholly inadequate and puts the island on an unsustainable path that will hurt its people and inhibit economic development by further increasing energy rates,” said Sen. Menendez. “I encourage all stakeholders to ensure that any amended Plan of Adjustment prioritizes Puerto Rico’s residents and small businesses.”
In 2022, the FOMB filed a restructuring plan for PREPA that proposed to reduce almost half of the debt and impose a ‘‘legacy charge’’ for consumers who do not benefit from subsidized electric rates. Experts estimate this plan could force more than 12,000 small businesses to close and provoke 25,000 lost jobs in 2024.
On June 23, 2023, the FOMB filed a 2023 Certified Fiscal Plan for PREPA acknowledging that the latest proposed restructuring plan is not sustainable, and announced that it would present an amended restructuring plan for PREPA by July 14, 2023.
In the resolution, the lawmakers urge FOMB to present an amended restructuring plan that is economically viable for the people of Puerto Rico, allows for the rehabilitation of the electrical system on the island, and does not impose additional electric rate increases for residents and business owners.
Over 50 organizations from the commercial, energy, and financial sectors have expressed strong opposition to this agreement and have endorsed Velázquez’s and Menendez’s resolution.
Among the supporting organizations are the Citizen Commission to Audit the Public Debt, Sierra Club, Center for Popular Democracy (CPD), Alliance of PREPA Employees, Espacios Abiertos, the Puerto Rico Chamber of Commerce, the Puerto Rico United Retailers Association, CAMBIO PR, Sembrando Sentido, Alianza Comunitaria Ambiental del Sureste (ACASE), Mayagüezanos por la Salud y el Ambiente, Toabajeños por la Salud y el Ambiente, Amigos del Río Guaynabo, and Policy Link.
“Any future debt restructuring plan must include, at a minimum: providing for the capital and operational resources needed for Puerto Rico to achieve a stable, reliable and resilient electrical system that includes a rapid transition away from fossil fuels and citizen participation in this transformation; the efficient use of available federal funds; and a reduction in debt levels sufficient to achieve affordable and competitive rates below 20 cents/kWh,” the multisector coalition wrote. “The proposed PREPA debt restructuring plan will have the opposite effect, all but ensuring that Puerto Rico continues to be shackled to a dysfunctional and expensive system.”
“The FOMB’s Plan of Adjustment is premised on extracting further rents from commercial and residential energy consumers –that is, ordinary citizens– to satisfy the unsecured claims of PREPA’s bondholder-creditors. To do so, the Board once again employs erroneous and overly-optimistic assumptions about the short and long-term development of Puerto Rico’s economy. Meanwhile, it treats unsecured bondholders with a deference they are not owed under the principles of US Bankruptcy law. We urge the Board to put forth a Plan that impairs not ordinary citizens –already impoverished third parties who had nothing to do with PREPA’s bankruptcy– but those creditors who knowingly invested in PREPA’s risky and unsecured debt instruments.” -Eva Prados, Executive Director of the Citizens’ Commission for the Integral Audit of Public Credit.
“This Plan stretches Puerto Ricans’ energy burden to the limit, and probably past it. Hence, it is infeasible. The FOMB should draft a new plan in close consultation with all stakeholders and its experts, to develop an agreement that aligns with Puerto Rico’s energy policy, promotes human and economic development, encourages the transition to distributed renewables based on rooftop solar systems, and gives PREPA the funds necessary to enable that transition in a just, affordable and sustainable fashion.”- Maritza Maymi, Puerto Rico Legislative Coordinator at the Sierra Club.
“During the last 7 years, Puerto Rico has been undergoing a restructuring debt process that will catapult our people into poverty for the next 30 years. A debt restructuring process that experts have said will send us into default once again in less than 10 years. Over 10% of our population has left and those who have stated cannot afford housing, healthcare, essential services, and the rising cost of living. If approved, the PREPA restructuring plan will continue this legacy of extraction and suffering for the benefit of a few rich bondholders. This unaudited and illegal debt needs to be canceled and a new deal needs to be made that benefits the people and not profits.” – Julio López Varona, Co Chief of Campaigns at the Center for Popular Democracy.
“The people of Puerto Rico and the Island’s economy cannot afford the electricity rates proposed in the current debt restructuring plan of PREPA. Electricity in Puerto Rico is unreliable and already too expensive. The current plan will further increase its cost and reduce Puerto Rico’s ability to invest in improving the unreliable and failing system. It will increase the cost of living for the millions of Puerto Ricans living under the poverty line–all of which are US citizens–furthering their economic insecurity. Puerto Rico’s electrical system needs a fresh start. This plan, however, cements PREPA’s legacy of unsustainable debt.” –Cecille Blondet, Executive Director of Espacios Abiertos.
In the resolution, the lawmakers call on the FOMB to take immediate action to prevent a significant increase in out-migration from the island, business closures, unemployment, and cost-cutting in other areas. The resolution also urges the improvement of the island’s electrical system.
The resolution is also cosponsored by: Rep. Adriano Espaillat (D-NY)
For a copy of the resolution, click here.