Oversight Board rejects second PREPA fiscal plan in two weeks

The Puerto Rico Oversight Board has rejected two local government-proposed Puerto Rico Electric Power Authority fiscal plans in the past two weeks in a continuation of a struggle between the board and the local government over fiscal matters.

The board, through General Counsel Jaime El Koury, sent two letters concerning problems it had with the proposed fiscal plan and fiscal 2023 budget on Tuesday to Gov. Pedro Pierluisi, House President Rafael Hernández Montañez, and Senate President José Luis Dalmau. 

In the letters, El Koury gives Pierluisi until sometime next week to submit a revised compliant fiscal plan. He also provides a timeline for the adoption of a budget compliant with the fiscal plan in which the board will certify a budget on June 30. 

His letters on Tuesday follow a longer 10-page, single-spaced letter specifying multiple problems with the governor’s proposed PREPA fiscal plan that El Koury sent to Pierluisi on May 25. 

"After six years of fiscal oversight and now almost one year of private sector management and hundreds of millions in expert advice, PREPA, LUMA and the [Oversight Board] cannot come up with a budget and fiscal plan that is credibly balanced,” said Tom Sanzillo, director of finance at Institute for Energy Economics and Financial Analysis. “I am not surprised but I am speechless." 

LUMA Energy took over the transmission and distribution functions for electricity on the island in the summer of 2021. 

El Koury, in one of the letters, said Pierluisi’s revised proposed fiscal plan had a combined entity deficit of $97 million or 8% for the coming fiscal year. “Pursuant to [the Puerto Rico Oversight, Management, and Economic Stability Act], PREPA must propose a fiscal plan that reflects balanced budgets in each fiscal year,” El Koury said. By “combined entity,” El Koury meant the transmission and distribution system (“GridCo”), the generation plants and related assets (“GenCo”), and the management/administrative functions (“HoldCo”). 

At LUMA Energy’s proposed revenue allocations, “aggregate expenses of GridCo and GenCo account for 118.4% of available resources,” El Koury wrote. “This deficit is the result of increases in certain expenses without reductions elsewhere.”

“Moreover, HoldCo reflects total FY2023 expenditures of $142 million, … $91 million higher than its projected FY2023 budget reflected in PREPA’s 2021 Certified Fiscal Plan, indicating an increased operational footprint that goes against the restructuring objectives outlined in PREPA’s 2021 Certified Fiscal Plan,” El Koury wrote.

PREPA’s bondholders are currently in mediation talks concerning the terms of a PREPA debt restructuring taking place as part of PROMESA. Pierluisi, through the Puerto Rico Fiscal Agency and Financial Advisory Authority, the board, bond insurers, and other creditors are also participating. PREPA has about $8 billion of bond debt and about $1 billion of other debt. 

Pierluisi, Hernández Montañez, and Dalmau didn’t immediately respond to a request for a comment.

On Tuesday the Puerto Rico House of Representatives passed a fiscal 2023 General Fund budget 11.3% higher than the level the board is proposing. The House budget has not been passed by the Senate nor signed by the governor yet. Even if all this were to occur, the board has the power to impose its own budget.