All of Puerto Rico Electric Power Authority's stakeholders must make financial contributions to restore PREPA to financial stability, the authority's chief restructuring officer Lisa Donahue told lawmakers Tuesday. She didn't indicate whether the bondholders' contribution would require a debt restructuring.
Donahue's statement to the Puerto Rico House of Representatives Committee on Small and Medium Businesses, Commerce, Industry and Telecommunications reiterated points in the authority's proposed business plan. A version of the plan was released publicly and a more financially explicit version was handed to creditors on June 1.
The authority owes $8.3 billion to its bondholders and about $700 million to banks, Donahue said Tuesday. The authority's next bond debt service payment is due July 1. A default on this payment would put the entire bond debt into default, creating the largest monetary bond default in United States municipal history.
"We estimate that the [electricity] rate deficit is currently approximately 7.8 cents per kilowatt hour," Donahue said. "To eliminate this deficit, the recovery plan requires burden sharing by all stakeholders, including PREPA's management and employees through labor and operational savings, governments and municipalities through timely payment of energy bills and reform of the contributions in lieu of taxes system, and PREPA's creditors through creating a sustainable capital structure."
PREPA plans to seek investments in building new infrastructure and maintaining existing infrastructure. PREPA's forbearing bondholders have offered to invest money for these purposes.
PREPA's base rates have not been increased since 1989, Donahue said. Consumer's pay this base rate plus an additional rate connected to the cost of fuel.
The committee has sent letters to Donahue in the last two months indicating its opposition to rate increases for consumers. "In the [1974] trust agreement there is a requirement to raise rates to cover debt and [PREPA] hasn't," Donahue said. "This is something we hear about continuously in our negotiations with our creditors." PREPA's rates should already have been raised in the past, she said.
"A primary goal of PREPA's restructuring process is to maintain rates at stable levels significantly below historical highs, and to bring down the costs of energy and reduce rates over time as PREPA achieves its transformation," Donahue said.
The business plan released on June 1 indicated that over the next 15 years PREPA would spend $2.3 billion on new capital investment and $4.5 billion on maintenance capital spending.
Representative Angel Matos García asked Donahue if it might make sense to have outside parties not only build new infrastructure but also finance it. Donahue agreed this may be an attractive option. When the June 1 plan estimated that PREPA would have to spend $2.3 billion on capital improvements, it was operating on conservative assumptions, she said.
PREPA plans to use request for proposals to not only attract construction firms but also the "most flexible and cheapest" capital to the people of Puerto Rico, Donahue said. An independent power provider may do the financing as well as the construction.
