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Homeweather and natural disastersPREPA bondholders dispute damages to Puerto Rico's power grid

PREPA bondholders dispute damages to Puerto Rico’s power grid

  • Bondholders in Puerto Rico's power utility PREPA claim damages to the island's power grid following hurricane season were grossly exaggerated.
  • They have protested the Federal Oversight Board's motion to appoint new leadership to transform the bankrupt utility.

An electrical crew attempts to repair power lines that were knocked over Hurricane Maria passed through on September 27, 2017 in Corozal, Puerto Rico.Getty Images

A large group of bondholders of Puerto Rico's beleaguered power utility say that the extent of the damages to the island's power grid have been grossly exaggerated and that the Oversight Board has overstepped its authority by attempting to appoint a chief transformation officer to manage the bankrupt utility.

In a legal filing, the Ad Hoc Group of PREPA bondholders — which hold collectively over $3 billion of the utility's uninsured bonds, accounting for about 37 percent of the $8.3 billion debt outstanding – details observations made by Derek HasBrouck, an engineer and consultant to the electrical utility industry, who the group retained to survey the damages of the electrical grid after Hurricane Maria.

The remarks made in the declaration state that preliminary analysis of Puerto Rico's utility grid is largely intact, with 95 percent of transmission assets and the vast majority of the distribution system mainly unscathed. Additionally, it said the generation units that were operational prior to Hurricane Maria are in "serviceable condition."

For the damage assessment — which was conducted aerially via a two-day helicopter review and supplemented by ground visits — HasBrouck's team "visually evaluated all generation plants on the island, all 230 kV transmission corridors (including substations) as well as the 115 kV transmission lines co-located in these corridors, and a statistically meaningful sample of distribution circuits," the filing states.

The bondholders say that PREPA's lack of preparedness ahead of Hurricane Maria has only intensified the inefficient post-hurricane response that has been characterized by "incomprehensible decision-making, and the apparent continuation of the political machinations that have long plagued PREPA," as made evident by its "disastrous contract" with Whitefish Energy, which after intense scrutiny was officially cancelled this week.

"Public utilities that wanted to help PREPA were told to contract through Whitefish, which created still more delay. One utility manager stated that it took a few days to determine who was in charge and then another week to negotiate a contract with Whitefish. As a result, their crews first arrived in San Juan 36 days after Hurricane Maria hit Puerto Rico."

Whitefish Energy personnel will remain on the island working on repairs until the end of November due to a 30-day cancellation clause in the contract.

At a press conference Thursday in San Juan, PREPA Director Ricardo Ramos reiterated his commitment to restore 50 percent of the island's electricity by Nov. 15, and also disclosed that New York state would be sending a team of 350 people to Puerto Rico in response to island Gov. Ricardo Rossello's official request for the mutual aid agreement on Sunday.

However, PREPA has requested that these utility crew members pay their own logistics — lodging, food, fuel for equipment — as "PREPA is in no position to provide financial resources at this moment," Ramos said.

In addition to emergency personnel from New York, 220 basket trucks and other special equipment will be sent to repair the electrical system.

The Ad Hoc Group also takes aim at the federal Financial Oversight and Management Board's motion to appoint Noel Zamot as chief transformation officer of PREPA, they allege it has entirely overstepped its authority.

"Nothing in PROMESA gives the Oversight Board the unilateral right to appoint a 'Chief Transformation Officer' ('CTO') – a newly minted term with loaded implications – with all of the operating powers of a receiver and more, including: "the development and implementation of a power restoration plan… including . . . ensuring grid restoration design choices (e.g., decisions on microgrids) are compatible with long-term capital and transformation plans for PREPA," it said.

Zamot, a retired Air Force colonel who was born and raised in Puerto Rico, was chosen by the Oversight Board to lead the transformation of PREPA and the rebuilding of the electricity sector following Hurricane Maria. He spoke at the Board's public meeting in San Juan on Tuesday.

Zamot said he envisions a "wide ranging transformation" for PREPA that will require maximizing "federal funding and private investment" but that his immediate priority will be to "get the lights on as soon as possible."

However, the bondholder group believes Zamot does not have the proper qualifications for the role due to him having "no electric utility experience, which must be a key prerequisite for anyone overseeing the operations of the nation's largest publicly-owned utility."

The Ad Hoc Group agrees that PREPA needs a management change, and would like to see an independent party with substantial electric utility management experience run PREPA.

However, due to a ruling by federal Judge Laura Taylor Swain, who is currently overseeing the island's bankruptcy-like proceedings, that she does not have jurisdiction to appoint a receiver, the Oversight Board would first need to consent for such a receiver to be appointed under Commonwealth law.

The bondholders ask for the court to implement a few key requirements going forward in order to improve recovery efforts, including "ordering that all substantial contracts be publicly posted immediately upon entry by PREPA into those contracts, and requiring the Oversight Board to publicly post its approval of each substantial contract."

A hearing is scheduled for Nov. 13 on the request to appoint a CTO for PREPA.


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