Dive Brief:

• Puerto Rico exited bankruptcy Tuesday but its electric utility, the Puerto Rico Electric Power Authority (PREPA), is still struggling with about $9 billion in debt and last week Gov. Pedro Pierluisi canceled a plan that would have raised power rates for almost five decades in order to pay bondholders.
• Consumer advocates and the Financial Oversight and Management Board (FOMB) for Puerto Rico supported the decision to cancel the debt restructuring deal, which had been reached in 2019. A new agreement is expected to be negotiated or reached through mediation, the management board said.
• Creditors, however, are wary. Mammoth Energy is owed more than $340 million through a subsidiary and PREPA is "running out of excuses," CEO Arty Straehla said in a statement. "It is well past time for them to make their creditors whole."

Dive Insight:

PREPA's debt restructuring deal reached with bondholders in 2019 was signed in a different economic world and canceling it was the right move, according to the FOMB. 

"The global COVID-19 pandemic, rising fuel prices because of Russia’s attack on Ukraine, and rising inflation left Puerto Rico with a different economic reality," FOMB said in a statement. The board was formed in 2016 to oversee the island's fiscal management.

The restructuring agreement would have cut PREPA's debt by more than 32% and it included "significant protections" for residents and businesses, FOMB said. But it needed approval from lawmakers, who refused without changes to key terms in the deal, the oversight board noted.

The canceled debt restructuring deal would have raised Puerto Rico's electricity prices by between $0.027/kWh and $0.046/kWh for the next 47 years, according to the Institute for Energy Economics & Financial Analysis (IEEFA).

"There are alternatives for ensuring that bondholders are treated fairly without raising rates. Pierluisi needs to take a closer look at those alternatives," IEEFA Director of Financial Analysis Tom Sanzillo wrote in a Friday blog post. Canceling the debt deal "was a good decision," he said.

Sanzillo was also critical of the island's plan to use natural gas as a bridge to reaching 100% renewables by 2050. "From an electricity standpoint, the governor’s plan to increase natural gas usage 'in the short term' is illogical and impossible, given the infrastructure investments required," he wrote.

In February, the Biden administration and Puerto Rico launched a joint effort to accelerate the growth of renewable energy resources and strengthen the island's grid, promising 2022 will be "a year of action" in the territory's transition to 100% clean energy over the next three decades. Billions in funding from the Federal Emergency Management Agency (FEMA) will go to strengthen the island's grid. 

After Hurricane Maria destroyed its electric grid in 2017, Puerto Rico signed several deals with Cobra Acquisitions, a subsidiary of Mammoth, to restore service across the island. The company says it was paid for some of the work, but fears amounts in arrears could be lost through the debt restructuring process.

Mammoth says it is owed $344 million, including $117 million in interest charges, for work completed almost three years ago.

PREPA wasn't immediately available to respond to requests for comment.

"I think it is important that PREPA be held accountable," FOMB member Justin Peterson said at the board's Feb. 25 meeting. He noted that Mammoth CEO Straehla had discussed the situation with him over lunch recently.

"We want to work with FEMA and work with the process and make sure that everything that deserves to be paid is paid," Peterson said.