PROMESA—Energy In Puerto Rico Amidst The Debt Crisis

Author:Mr Joshua Sturtevant and Morgan Gerard
Profession:Sullivan & Worcester LLP
 
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Renewable energy industry participants are hungrily eyeing the tiny U.S. commonwealth of Puerto Rico, trying to determine whether the island's debt crisis-driven troubles - which recently put a halt on development activities on the island - are at an end. Until recent issues arose, the island was a hotbed of renewable energy activity. High energy prices, high insolation and the promise of 20 MW-plus deals with a government-backed utility generated excitement throughout the solar community. However, the widely reported debt crisis on the island, which has seen the government default on debt obligations, has caught the nascent solar industry up in its wake.

Despite Puerto Rico's financial crisis, unreliable electric grid and overwhelming poverty, early movers are contemplating a return to the island betting on the idea that, when push comes to shove, the United States wouldn't allow the island - and 3.5 million American citizens along with it - to sink into the financial sea. A bill that would provide some relief, the Puerto Rico Oversight, Management, and Economic Stability Act or "PROMESA" (House Bill H.R. 5278 / Senate Bill S. 2328), is currently on the table. PROMESA is in the stage o freconciling the different drafts passed by the House and Senate for presentation to President Obama, and its implementation could have far-reaching ramifications for the debt-ridden island and help drive renewed activity in the development of badly needed renewable energy resources.

Puerto Rico and PREPA's Debt Crisis—A Primer

The purpose of PROMESA is to establish an Oversight Board as a method for Puerto Rico "to achieve fiscal responsibility and access to the capital markets." In recent years Puerto Rico borrowed money through the issuance of $70 billion worth of municipal bonds to combat declining government revenues and finance the operations of the territory. More than $9 billion of the Commonwealth's climbing debt is owed by the government-owned public utility company, the Puerto Rico Electric Power Authority (PREPA).

Established in 1941, PREPA is government-instrumentality and the island's monopoly energy utility with approximately 1.5 million citizens in its service territoryone of the largest operating areas in the United States. However, until 2014 PREPA was an unregulated entity with very little fiscal or operational oversight which some complained was used for political purposes. Poor financial decisions were made by the utility and politicians, including the incentivization of large corporate customers by providing essentially "free"...

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