This column was originally published in Spanish by El Vocero on February 20, 2025
It is indisputable that for over two decades the Puerto Rico Electric Power Authority took on more debt than its customers, the people and businesses of Puerto Rico, could afford to pay back though electricity rates. Previous governments made decisions that caused the energy system to deteriorate, pushing PREPA towards bankruptcy long before PROMESA was enacted.
Then some investors saw an opportunity, taking a bet buying the distressed debt of bankrupt PREPA. Now, as the people of Puerto Rico suffer from the effects of a rapidly deteriorating power infrastructure, and as PREPA needs resources to repair the energy system to the level that the people deserve and pay for, several of those investors insist that the people of Puerto Rico bail them out.
PREPA continues to be deeply unprofitable. Its assets mainly consist of a dilapidated electric grid and old diesel power plants. Electricity prices are already among the highest in the nation. A massive power outage just hit the people as they rang in the New Year. The Oversight Board cannot agree to a settlement until we find a balance between bondholders’ interests and Puerto Rico’s need for reliable electricity. This cannot be a one-sided deal.
The Oversight Board previously reached agreements with creditors for 10 other bankrupt government entities. Before PROMESA, Puerto Rico’s debt amounted to $58,000 per household. The Oversight Board’s actions saved each Puerto Rico household over $25,000, and it saved Puerto Rico in total over $50 billion in principal and interest payments.
At the same time, the Oversight Board has been negotiating a balanced deal with PREPA creditors, and we succeeded. Just about half of PREPA’s creditors, including over a third of bondholders, agreed to our Plan of Adjustment. Those in agreement include some major asset management firms like BlackRock Inc. and other creditors who appreciate what is at stake.
The Oversight Board has been willing to compromise. But a group of bondholders led by hedge funds continue to demand more than the people of Puerto Rico can reasonably pay. Those non-consenting bondholders have refused to compromise. This is documented in court filings that show virtually the same offer, the same demand, over and over.
Just last month, those bondholders said again that they feel PREPA owes them $12 billion in principal and interest, and asked the Puerto Rico Energy Bureau to include this massive debt in the electricity rate the Energy Bureau is just reviewing. This would add as much as 7 cents to each kilowatt hour charged on Puerto Rican’s electricity bill this year alone – and that does neither include interest or any investments to improve the grid, nor pension payments to retired PREPA employees. These endless and unreasonable demands simply prolong PREPA’s bankruptcy and increase legal costs.
The Oversight Board cannot agree to this. The non-settling PREPA bondholders and the Oversight Board have competing interests and responsibilities. What is at stake for bondholders who invested in a bankrupt PREPA? Profits. What is at stake for the Oversight Board? Puerto Rico’s future.
Through our analysis of Puerto Rico household income, electricity demand, and needed investments to repair and stabilize the grid no matter what company operates it, the Oversight Board determined that PREPA cannot pay more than $2.6 billion to bondholders and other non-pension creditors. If the Oversight Board were to agree to pay creditors more, the government would have to make tough choices, affecting residents and the economy.
We will continue to work on a fair deal for PREPA. We are committed to ending PREPA’s bankruptcy as soon as possible on terms that are in the interests of Puerto Rico. That is our mandate under PROMESA.
