Puerto Rico board says new PREPA forecasts shouldn’t be considered

The Puerto Rico Oversight Board and Puerto Rico Fiscal Agency and Financial Advisory Authority said the judge in the Puerto Rico Electric Power Authority bankruptcy case should reject objecting bond parties’ request to reopen the case to hear new evidence.

The bond parties objecting to the proposed plan of adjustment said in late April projections showed PREPA will have a much greater ability to pay off its debt than had been claimed but the board and FAFAA disagreed this should lead to a new hearing.

In an opposition document filed Friday, the board said the bond parties didn’t meet the requirements for a discretionary motion.

The Puerto Rico Oversight Board objected to bond parties’ request that the court consider new electric projections.

The board termed the 2024 LUMA Energy projection, used by bondholders to support greater debt payment, as a “draft” that shows the amount of electricity generation PREPA may need in the future. The board said it used a 2023 plan projection based on the amount of electricity that “may be sold to and paid for by customers.”

The board said bond parties ignore the “additional costs” associated with electric generation.

Reopening the record to admit this projection without admitting other evidence would be prejudicial, the board charged.

After the confirmation hearing the U.S. Department of Energy announced a $450 million grant to Puerto Rico to provide solar energy and battery backup to Puerto Rico’s most vulnerable residents, which the board said, will likely reduce demand for electricity.

Allowing the LUMA Energy projection “evidence will harm judicial efficiency by setting an unmanageable precedent that each time a new projection or data set is generated that has some connection (however remote) to PREPA’s electricity generation or sales, the record must be reopened,” the board said.

The bond parties pointed to a U.S. civil case procedures rule to request the hearing on the new evidence but this rule “likely does not apply because no judgment has been entered,” the board said. Even if there had been a judgment, the objecting bond parties fail to meet the rule’s standard “because the purported evidence did not exist prior to or during the confirmation hearing … and its inclusion now will not change the outcome of the hearing.”

The opposing bondholders that made the request are Assured Guaranty Corp., Assured Guaranty Municipal Corp., PREPA bond trustee U.S. Trust, the PREPA Ad Hoc Group, GoldenTree Asset Management, and Syncora Guarantee.

Cate Long, Puerto Rico Clearinghouse principal said, the board and FAFAA “assumed a near total collapse of future loads when every other jurisdiction in the world is projecting higher electricity demand from electric vehicles, increased data consumption and higher standards of living.”

The commonwealth’s population decline mostly reversed while economic growth has been better than projected, Long said. “Notably the Oversight Board misrepresented future revenues and debt capacity in the commonwealth plan of adjustment and now the Puerto Rico government sits on $9 billion of cash when it was projected they would have $3 billion in excess cash. The underestimation of future PREPA loads is why BlackRock, Nuveen, et al., are so anxious to get the Contingent Vehicle Instruments that will give them all the future upside from a fiscal plan that intentionally underestimates future revenues and overestimates future costs.”

The final day of the confirmation hearing for the board-proposed plan of adjustment was March 18. U.S. District Court Judge Laura Taylor Swain has yet to rule on the proposed plan.

A spokesman for GoldenTree did not respond to a request for comment on the board’s court filing. Assured Guaranty declined to comment.

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