March 22, 2017
Today, the Subcommittee on Indian, Insular and Alaska Native Affairs held an oversight hearing on the status of the Puerto Rico Electric Power Authority (PREPA) Restructuring Support Agreement (RSA).
PREPA, the state-owned, self-regulated monopoly that operates as Puerto Rico's public utility, provides power generation to the 3.4 million Americans residing on the island. The utility faces major structural and operational inefficiencies and is $8.9 billion in debt. The current RSA, which is the framework for ongoing voluntary restructuring negotiations over PREPA's debt obligation and related structural reforms, is set to expire on March 31, 2017.
Puerto Rico Resident Commissioner Jenniffer González asked Governor Ricardo Rosselló “when do you understand any agreement will be reached – a month, weeks, how much longer?” But Gov. Rosselló’s technical advisor couldn’t give a concrete answer in spite of the looming March 31 deadline.
With a major bond payment of $455 million due on July 1st, Subcommittee Chairman Doug LaMalfa (R-CA) stressed the importance of finding a consensual agreement for the utility to keep the lights on in Puerto Rico.
“In order to get PREPA back on track and stabilize the power generation for the residents and the businesses of the island, serious decisions need to be made by leaders in the Government of Puerto Rico, the Governing Board of PREPA and the various creditor communities. The island cannot afford a delay any longer,” LaMalfa stated.
Witness Stephen Spencer, testifying on behalf of certain funds managed by Franklin Advisers Inc. and OppenheimerFunds, Inc., talked about the dangerous outcomes of a jeopardized RSA.
“Failure to close this deal would have ramifications far beyond PREPA," Spencer stated. "Failure to close a deal negotiated over two years would call into question Puerto Rico’s good faith in negotiating other restructuring."
Members reviewed efforts of the Oversight Board, established under PROMESA (P.L. 114-187), to support ongoing voluntary restructuring agreements and facilitate additional consensual negotiations between creditors and various other debt-ridden instrumentalities within the Commonwealth.
"One of the most difficult issues the Oversight Board has had to tackle in advancing the PROMESA agenda has been determining as accurately as possible just what the Government of Puerto Rico’s revenues and expenses are," Oversight Board Chairman José Carrión said.
"This is a far more challenging task than you, as federal lawmakers, may imagine," Carrion added, in reference to the fact that the Government’s most recent audited financial statements cover the period ending June 30, 2014.
Under PROMESA, the Oversight Board has tools, including subpoena power, to conduct an independent analysis of the financial condition of the Commonwealth and its covered instrumentalities.
Click here to view full witness testimony.