Bonds

Five years ago, when I visited Puerto Rico in the wake of deadly Hurricane Maria, relief organizations brought solar-powered lights to replace the power grid that had failed catastrophically.

 In the wake of severe damage to its energy infrastructure, Puerto Rico privatized its bankrupt public power utility with the promise to deliver more effective services.

This promise has yet to be delivered on.

After Puerto Rico Electric Power Authority (PREPA) transferred to private control, blackouts increased, power restoration times slowed, and rates skyrocketed.

Five years later, Hurricane Fiona once again damaged the power grid, knocking out power to the island for a historic, weeks-long blackout.

When I visited this fall, I heard enormous frustration from Puerto Ricans about the lack of progress.

PREPA remains in bankruptcy and in a state of physical disrepair. As a result, the Financial Oversight and Management Board (FOMB) is negotiating a new debt deal. But Puerto Ricans worry that it will increase rates, double down on expensive fossil fuels, continue to deliver poor service, and still fail to pull the utility out of insolvency.

The proposed deal does little to strengthen the island’s power grid, as millions continue to struggle to turn on the lights and keep refrigerators running for food and medical supplies.

The plan also threatens to raise already record-high electricity rates.

The average price of electricity in Puerto Rico is 27 cents per kilowatt hour, nearly double the average price in the continental United States.

Although the deal would exempt the lowest-income households from the majority of proposed rate increases, it leaves the rest of Puerto Ricans — including so many working and middle-class families who have suffered from the hurricanes, the pandemic, and inflation — on the hook to repay the debt through sky-high energy prices.

The Institute for Energy Economics and Financial Analysis (IEEFA) estimates that the proposed repayment plan will increase electricity rates by an additional 14-28%, which would be one of the highest rates in the country.

 Instead of rebuilding a greener grid, in line with a Puerto Rican law passed in 2019 to transition to 100% renewable sources by 2050, LUMA, the holding company created by a coalition of energy companies to run the Puerto Rico power grid, is also doubling down on fossil fuels.

Fossil fuels, including diesel, fuel oil, natural gas, and coal, comprise a significant portion of PREPA’s power mix. These fuel systems depend on expensive imports to keep the lights on, and ultimately result in more costly power.

 In fact, fuel costs currently make up 60% of PREPA’s budget. A continued dependence on fossil fuels will drive rates up even higher and prolong Puerto Rico’s dependency on fossil fuels.

The plain truth is that Puerto Rico’s families, its energy infrastructure and its negative growth economy can carry the debt load this plan would require.

The debt plan undermines the ability for Puerto Rico to effectively rebuild its grid and significantly increases the basic cost of living for residents. It’s a lose-lose-lose plan for green energy, disaster resilience, and Puerto Rican residents.

While all of this might seem far away for some New Yorkers, the debt restructuring process is happening right here, in the federal courtroom of New York’s Southern District Judge Laura Swain.

As Swain considers next steps, we urge the court to embrace a solution that can bring service, stability, and solvency to the island.

The federal government has set aside $12 billion to help rebuild Puerto Rico’s grid. If used effectively to rebuild a greener and more resilient grid, this federal lifeline can be a substantial downpayment toward affordable, reliable, cleaner energy for Puerto Ricans.

The federal funds must also be supplemented with other solutions to address PREPA’s borrowing needs over the next 50 years.

Between the federal government, insurance companies, investors, lenders, and relief organizations, a pool of resources can be created that provides a fair settlement for PREPA’s bond holders, is affordable for its people, and sets Puerto Rico’s energy system on a sustainable and fiscally sound course.

New York City returned from the brink of fiscal collapse in the 1970s and has established a successful debt program as a major player in the municipal bond market.

With thoughtful planning and collaboration, Puerto Rico can rebuild its energy infrastructure, strengthen its economy, and restore its credit on the global bond market.

But it can’t do that alone.

It’s in the interest of all stakeholders to forge an agreement that addresses bondholder claims without jeopardizing the well-being of Puerto Ricans.

I urge Judge Swain to return the current FOMB proposal for more work and to insist that all parties structure a deal that prioritizes the affordable, reliable and clean electricity grid that is necessary to support a thriving future for Puerto Rico.

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