Hatch Demands Audited Financials From Puerto Rico

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By Llewellyn Hinkes-Jones

Feb. 10 — Sen. Orrin Hatch (R-Utah) demanded that Puerto Rico provide detailed financial statements by March 1 before the Senate Finance Committee, which he chairs, puts together a debt-restructuring mechanism for the island.

Puerto Rico is in talks with creditors over the country’s distressed debt. In a Feb. 10 letter to Puerto Rico's governor, Hatch estimates the current debts and unfunded public pension liabilities at over $117 billion. As a U.S. territory, Puerto Rico can't file for bankruptcy, and island representatives warned of default if an agreement isn’t reached by May 1 .

Hatch's letter demands details of the Commonwealth’s Annual Finance Report. Puerto Rico’s Government Development Bank has stopped publishing yearly reports since 2013 because of delays from various fiduciary units, including three retirement systems.

The letter also requests additional details on the source of outstanding debt, and questions spending allocations on issues such as education. A recent report noted that Puerto Rico had “40% fewer students and 10% more teachers than a decade ago.”

Debt Restructuring, Energy Plan

A major source of the country’s debt problems comes from the Puerto Rico Electric Power Authority (PREPA), the island’s sole energy provider, which owes about $9 billion to bondholders and other creditors. The utility is dependent on imported oil to generate electricity, for which it sometimes pays on the order of $100 per barrel, even as global oil prices have collapsed to a level below $30 a barrel.

In a 2012 presentation, PREPA proposed a switch to liquefied natural gas (LNG), which would lead to $500 million to $1 billion in savings a year and avoid fines under the U.S. Mercury and Air Toxics Standards.

But those calculations were based on the construction of the Via Verde gas pipeline and the Aguirre offshore terminal, neither of which has been completed. The Via Verde project was abandoned in 2012 over environmental concerns. The Aguirre project was initially approved by the Federal Energy Regulatory Commission in July 2015, but is under appeal following a request for additional details by the National Oceanic and Atmospheric Administration.

Risk of Dependence on LNG

In a 2015 report, the Institute for Energy Economics and Financial Analysis (IEEFA) sharply criticized the commonwealth’s sole focus on LNG, which it described as transitioning from one fossil fuel to another, even though the island is “blessed with abundant wind and solar energy.”

The IEEFA report notes that any savings from a switch to LNG could easily be wiped out by a spike in LNG prices. According to IEEFA Director of Finance Tom Sanzillo, for the switch to make sense “essentially, LNG prices can’t be much higher than what they are right now, which is around $2-$3/Mcf.” One Mcf equals 1,000 cubic feet.

“The island could easily be focusing more on solar, wind, and energy efficiency,” Sanzillo said. “All of which would bring more jobs and fuel the local economy, whereas LNG would only bring a handful.”

Puerto Rico offers no incentives for energy efficiency. In 2011, only 1 percent of its electricity came from renewable sources.

Puerto Rico previously enacted a Renewable Energy Portfolio standard that would require 15 percent renewable energy by 2020. But in 2014 the government renegotiated contracts for six solar projects to include new minimum technical requirements for energy storage to account for issues with PREPA’s grid.

A bill proposed in January would have delayed implementation of renewable energy targets in favor of paying down Puerto Rico’s debt, but it was sharply opposed by local business and labor groups.

To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at ljones@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com