Letter to Puerto Rico Gov. Rosselló and PROMESA Chairman Carrión: ‘Strong Medicine’ Needed for Order and Accountability at PREPA; A Responsible and Transparent Recovery Is Possible
Aug. 3, 2017 (IEEFA.org) – The Institute for Energy Economics and Financial Analysis today sent a letter to PROMESA Chairman Jose B. Carrión III and Puerto Rico Gov. Ricardo Rosselló calling for the appointment of an inspector general to take over the management, operations, and restructuring of the Puerto Rico Electric Authority.
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The letter, by IEEFA Director of Finance Tom Sanzillo, recommends Carrión and Rosselló name an Independent Private Sector Inspector General (IPSIG) to run PREPA.
“The inspector general’s mission would be to institute improvements, root out waste, fraud and abuse, and establish reliable internal controls and reporting that form the basis for sound budget and energy planning,” Sanzillo wrote.
The proposal contrasts with one being pushed by Assured Guaranty (AG), an insurer of much of PREPA’s debt, and it aims to serve the larger interests of Puerto Rican households, businesses and the Puerto Rican economy as opposed to those of bondholders.
“We contrast this proposed reform to AG’s proposal to appointment a receiver for PREPA. The receiver’s mission would be to raise electricity rates (to levels that are clearly unsustainable) and to pay bondholders. AG offers no plan for the operational improvement of PREPA or for improvements in its financial reporting. By comparison, governance by an IPSIG can serve as integral part of your administration’s solution and support PROMESA’s needs for oversight needs of PREPA,” the letter states.
Sanzillo said IEEFA research and analysis over the past two years around PREPA’s deteriorating condition have led to three major conclusions:
- Residential electricity prices that are not in the range of 12 cents per kWh are detrimental to Puerto Rico economy recovery and growth.
- PREPA will be able to re-enter the capital markets as a going concern only if its debt is limited to $2-$3 billion debt as opposed to the $8-$9 bondholders are seeking.
- PREPA’s dysfunctional and probably corrupt management practices prevent it from adopting sound energy plans, operational improvements and a tighter system of internal financial controls.
The letter strongly cautions Chairman Carrión and Governor Rosselló from accepting a debt-workout proposal Assured Guaranty has put forth.
“The history of fiscal workouts shows that AG and other financial stakeholders can and should spend their time more efficiently by facilitating a realistic debt reduction package as part of overall fiscal reform of PREPA. If AG and other insurers and stakeholders do not participate in a serious debt-reduction process, they risk prolonging a highly public, fractious process and the imposition of even deeper principal discounts,” Sanzillo wrote.
“The time is long overdue for the various financial stakeholders in PREPA to stop their highly destructive self-pleadings. It is time now to adopt options that solve PREPA and Puerto Rico’s problems and bring those responsible for its current situation to task.”
IEEFA in several published reports has urged more transparency at PREPA, a reasonable reduction in bonded indebtedness, less reliance on imported fuel for electricity generation, better-informed grid maintenance and improvement plans, and a general modernization of planning and strategy.
Media contact: Karl Cates, [email protected], 917.439.8225
About IEEFA: The Cleveland-based Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.