PUERTO RICO’S MASSIVE OUTAGE,PREPA’S UPHELD BOND PLEDGE: OUTLOOK
January 7, 2025
MASSIVE POWER OUTAGE AND REVENUE BOND PLEDGE BEING UPHELD ARE SIGNS OF CHANGE NEEDED FOR PUERTO RICO’s PREPA; AGVP ADVISORY OPINES
Puerto Rico welcomed 2025, as a massive power outage impacting 90% of Puerto Rico electricity customers took place. And also taking place was an Appeals Court ruling that PREPA revenue bondholders pledge and lien on revenues to pay debt service was perfected and enforceable and upheld. Both these recent events relate to important next steps to strengthen PREPA to once again become a strong electric utility.
While the storms of the past have adversely impacted the power grid, prior to the devastation of Hurricane Maria, there was steady progress being made on a plan to maintain the island grid better. External evaluations reflected improved availability and reliability data. That ended as the devastation was felt from the 2017 storm; island politics ended the responsibility of the professional and local management of PREPA ; and investors, oversight boards and courts failed to arrive at any consensus on how to move forward. The federal government, too, failed to work towards a structural plan to make PREPA responsible for utility governance and management.
There needs to be a federal effort now if possible to restructure PREPA that considers the outstanding debt; strengthens local management and governance of the utility; and establishes a strong federal presence such as a TVA or BPA structure that can provide structure and security to get the electric system to a reliable and affordable place.
Without such a plan, the failures of the past decade will only continue. The precedent for major action included: when California’s energy deregulation failed and all three investor-owned utilities lacked credit to buy power, the state of California stepped into the failure and with federal tax-exempt bonds brought some stability for the private sector to then respond and return. During the nuclear construction boom and unparallel capital requirements in the 1970s that resulted in several investor-owned utilities on the verge of failure, federal tax-exempt bonds were issued by municipal joint action agencies secured by hundreds of cities as an answer. For example, the bankruptcy of Duke Energy was averted with the formation of the North Carolina joint action agencies.
An answer to get PREPA back to investment grade standing and operationally ready for resiliency, could be an agency such as TVA to provide oversight and financial strength but with the utility governance to be local and PREPA management returned to perform what is needed to run a modern electric system. And to be accountable for progress.
Puerto Rico is part of the US and should be treated as such with a plan that recognizes the importance of bondholders; understands the unique nature of an island electric system without transmission to a broader market; and is based on the principal of affordable and reliable electric service.
Dan Aschenbach
AGVP Advisory
agvpadvisory.com
