WASHINGTON, D.C. – January 12, 2015 – (RealEstateRama) — Today, the Subcommittee on Energy and Mineral Resources held a hearing on the circumstances leading to the current financial crisis faced by the Puerto Rico Electric Power Authority (PREPA), the state-owned, self-regulated monopoly that operates as Puerto Rico’s public utility.
“Today we took a step forward to uncover the origins of Puerto Rico’s fiscal failures and identifying solutions to solve them. Energy will be central to this effort and building a foundation of prosperity for the island’s next generation,” stated Chairman Rob Bishop (R-UT). “Arguments being made that enacting Chapter 9 for Puerto Rico without broader fiscal reform are naïve.”
“PREPA represents one of the greatest problems currently facing Puerto Rico. Going forward, PREPA not only needs to address its overwhelming financial crisis, but it must also address the systemic issues that hamstring its ability to become an efficient and adaptive utility,” stated subcommittee chairman Doug Lamborn (R-CO). “Unfortunately for PREPA there is no easy solution. Blanket grants of debt restructuring would be irresponsible, and would merely punt the hard decisions to future generations.”
PREPA currently owes more than $9 billion in outstanding debt. This debt has arisen due to PREPA’s reliance on outdated energy infrastructure, contributions in lieu of taxes that have provided free electricity to approximately 20% of PREPA’s customers, and workplace deficiencies within PREPA.
PREPA’s current rate structure has disincentivized modernization and upgrades to both transmission and generation facilities. Because PREPA’s profit increases are linked to fuel cost increases, becoming more efficient would result in decreased profitability.
The organizational structure of PREPA has promoted bureaucracy and politics over a meritocracy, while providing benefits that are untenable for PREPA to maintain as it seeks financial solvency.
After months of negotiations, PREPA reached a restructuring agreement with 70% of its bondholders on December 23, 2015. However, this plan is contingent upon a number of outside actors meeting specific deadlines, including approval by the Puerto Rican legislature by January 22, 2016.
The Subcommittee on Indian, Insular, and Alaska Native Affairs will hold a hearing on January 26, 2016, to review broader fiscal, economic, and political challenges facing the island.
Click here to view witness testimony and video footage of the hearing.
Contact: Committee Press Office 202-226-9019