Puerto Rico’s Utility Company Files for Bankruptcy Protection
The Puerto Rico Electric Power Authority (PREPA), which is a government-owned power and utility company, has filed for bankruptcy protection against its creditors.
The utility company has sought bankruptcy protection in the United States District Court of Puerto Rico under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). That legislation, which was signed into law by former U.S. President Barack Obama, allows Puerto Rico to receive assistance from the U.S. government in the event of a financial crisis on the island.
The Financial Oversight and Management Board for Puerto Rico, which was created by U.S. Congress under the PROMESA, has recently approved the budget for the commonwealth island for fiscal-year 2018. After the board approved the budget, it also authorized PREPA’s bankruptcy filing.
In a statement, following the bankruptcy request, the chair of the oversight board, José Carrión, said that Puerto Rico’s restructuring support agreement (RSA), under which the government’s bondholders make claims, could make it difficult for the commonwealth state to achieve the desired results from restructuring.
“The RSA created a significant risk it would push electric prices materially higher and endanger the entire PROMESA mission of eliminating the fiscal emergency,” said Carrión.
“By making it more expensive to live and do business in Puerto Rico, the RSA made it even harder to turn around the Commonwealth’s negative economic growth over the last decade,” added Carrión. “If that cannot be changed to sufficient positive growth, no restructuring can be successful.”
Restructuring talks between PREPA and its creditors went on for almost three years. During the same period, two separate deals between the parties fell through, following which PREPA filed for bankruptcy protection.
PREPA has been criticized for charging customers high prices and importing heavy oil to burn as fuel. The utility continues to rely on fossil fuels for electricity generation and has failed to invest in renewables in a timely manner.
Puerto Rico’s public utility ended up in bankruptcy about two months after the commonwealth state’s government announced its own form of bankruptcy. The government of Puerto Rico filed for similar bankruptcy under the PROMESA in May as it struggled with mounting debt along with millions in unpaid pension liabilities.
“Puerto Rico Budgets Certified, PREPA Filing Approved,” Bankrupt Company News, July 3, 2017.
“Puerto Rican power utility files for bankruptcy,” Reuters, July 2, 2017.