Puerto Rico governor signs bill for partial privatization of PREPA

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Puerto Rico Gov. Ricardo Rosselló signed a bill to partially privatize the Puerto Rico Electric Power Authority, potentially affecting the authority’s $8.9 billion in outstanding debt.

The law aims to sell the utility’s power generation units and make a concession of its transmission and distribution system, according to a statement from the governor. The concession may involve a leasing arrangement, as was done for the island’s main airport.

Buyers wouldn't assume the power authority's debt. Rather PREPA would use proceeds from any sale of a power plant to pay off a portion of the debt, an observer said. On Wednesday, Rosselló said that the money would be used at least partly to contribute to the utility’s underfunded pension system.

After a power plant was sold, PREPA would give a portion of the consumer money flowing to it to the new owner.

On April 19 the Puerto Rico Oversight Board certified a fiscal plan that assumed the utility would go through a privatization. It didn’t spell out assumptions about debt service payments or bondholder recoveries.

Moody’s Investors Service Vice President Rick Donner said he believed there would be considerable private equity interest in purchasing or leasing PREPA assets. He also said that the involvement of private equity is likely to lower electrical costs.

“The bill that Governor Rosselló of Puerto Rico signed today essentially authorizes the governor to proceed with a ‘market sound[ing]’ and identify any and all potential private sector interest in the development of a new energy system in Puerto Rico,” said Puerto Rico Senate Minority Leader Eduardo Bhatia in an email. “Notable is that the bill does not authorize any sale before the Puerto Rico legislature prepares within 180 days a statement of public policy specifically mandating what the new system will look like in 30 years.

“Sen. Larry Seilhamer has been driving the efforts that should lead to a renewable directive similar to Hawaii's 2045 Energy Plan,” Bhatia continued. “I am working very closely with Sen. Seilhamer in a bipartisan effort to strengthen the role of the 2014 Puerto Rico Energy Commission, a necessary regulator in the new privatized environment. Of interest is the fact that there seems to be agreement that Puerto Rico should decentralize its energy generation, transmission and distribution into 15 micro-grids with an increasing presence of solar energy.”

The governor said the island’s Public-Private Partnerships Authority would oversee the potential leasing of the transmission and distribution grid.

The transformation and privatization process is planned to take place over 18 months: the first will focus on preparation, the second will be to receive offers and evaluate them, and the third will be to negotiate approvals.

Donner, who is Moody’s PREPA analyst, said the timeline is ambitious.

The governor, Oversight Board, and advisory teams plan to form a working group to guide the process.

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PROMESA Puerto Rico Electric Power Authority Puerto Rico