Puerto Rico bureau approves PREPA transfer to defaulting company

The Puerto Rico Energy Bureau approved the Puerto Rico Electric Power Authority transfer of $12.8 million to AES-Puerto Rico to help shore up the company, which on June 1 defaulted on municipal bonds. 

The bureau voted 4-1 on Wednesday to release money in a PREPA escrow account to AES with the condition it is only used for operating expenses. AES is a private operator that provides 21% of the electricity PREPA transmits.

AES-Puerto Rico had $65 million of revenue in the first quarter of 2023, down from $69 million in the first quarter of 2022, according to the firm's unaudited figures. In June, it missed an $18 million interest and principal payment on outstanding municipals it priced through a conduit in 2000.

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While PREPA has been in bankruptcy since summer 2017, it has been paying its bills on time to AES. The $12.8 million is in addition to PREPA's regular payments and is aimed at improving AES's finances. It is to be disbursed through October.

Puerto Rico's government passed a law several years ago requiring AES to ship coal ash, a product of its coal-fired plant, off the island. The led to higher costs than anticipated in its power purchase operating agreement with PREPA. This has been a key factor pushing AES to default.

Puerto Rico Clearinghouse Principal Cate Long said the Puerto Rico Oversight, Management, and Economic Stability Act "was established to get the Puerto Rico government and their public corporations back to credit markets at 'reasonable rates.' Unfortunately, PREPA's refusal to renegotiate rates paid to AES for electricity after imposing additional environmental costs on the generation provider is just another in a long string of bad faith efforts by the commonwealth which have caused a financial crisis for the government's counterparties.

"Similarly, Puerto Rico has stalled the restructuring of the Puerto Rico Industrial Development Corporation (PRIDCO) for several years," Long said. "Instead of learning 'fiscal responsibility' the island has perfected administering the most damage on those they do business with."

AES-Puerto Rico's municipal bonds were issued through the Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority.

AES-Puerto Rico did not respond to a request for a comment.

When PREPA was asked for a comment, a spokesman referred to the comments PREPA's executive director made at the July 5 PREPA governing board meeting, found in this Spanish-language video.

In the aftermath of AES-Puerto Rico's default, it has entered a standstill agreement with its bondholders.