Puerto Rico Gov. Alejandro García Padilla introduced legislation to reform the Puerto Rico Electric Power Authority, a step PREPA's creditors are requiring for them to accept reduced debt payments.
The legislation proposes a new governing structure that would be independent of partisan politics, the governor said in a press statement WEdnesday. Gubernatorial appointments to PREPA's board will be staggered to reduce political influence on the utility.
If passed, the legislation would adjust the authority's practices for hiring and managing personnel, to assure a more professional workforce, PREPA executive director Javier Quintana Méndez said in written statement. The legislation would introduce a competitive bidding process for soliciting third party investment in PREPA's infrastructure. It would refinance PREPA's outstanding bonds through a new securitization that would reduce PREPA's indebtedness and cost of borrowing. It would introduce measures to improve the authority's collection of unpaid bill from both public and private entities.
It would allow PREPA to participate in public-private partnerships for the financing of capital projects, Quintana Méndez said. It would pave the way for major necessary capital investments.
The legislation would authorize the Puerto Rico Energy Commission to work on an accelerated timeline to review changes to the current rate structure. "We need all stakeholders to come together and share the burden of social and economic responsibility," Quintana Méndez said. Many observers expect PREPA to seek an increase in the authority's base rate for consumers.
"The restructuring support agreement which we expect to sign any day now with the fuel line lenders and the ad hoc bondholders – one of the milestones is passing acceptable legislation," PREPA chief restructuring officer Lisa Donahue said in a video on the El Nuevo Día news web site. "So in the event that we are not able to pass it, then there will be an option for people to walk away from the restructuring support agreement."
The proposed agreement says the legislation is to pass by the end of this legislative session. The legislature has until the end of Nov. 12 to adopt the 159 page bill.
In a story posted Monday on the El Vocero news website, Senate President Eduardo Bhatia Gautier and House President Jaime Perell- Borrás said there would be little time to evaluate the legislation.
As of June 30 PREPA had $9.4 billion in outstanding debt, of which $8.6 billion was bond debt. A default on this debt through a distressed debt exchange, which PREPA is seeking, would be the biggest municipal bond default in United States history.
PREPA has reached preliminary deals with a group of bondholders and its lines of credit holders. It is still negotiating with the insurers of its bonds, Assured Guaranty, National Public Finance Guarantee, and Syncora Guarantee.
The bondholders and the lines of credit holders are in a forbearance agreement with PREPA that is scheduled to end Friday morning.