To Help Pay Off Bondholders, Solar Panel Owners Will Be Hit Hard in Puerto Rico

Environmentalists have long been accused of being closet austerians: hair-shirted hippies shaming everyone else for their wasteful ways. The Green New Deal even wants to take away your burgers, and you’ll only be able to watch television when it’s windy out.

Yet it’s always been the capitalists, the people most opposed to curbing carbon emissions, who are the ones crimping on regular people’s lifestyles. In Puerto Rico, it’s the bona fide austerians — those looking to impose painful cuts to the public sphere — who are getting in the way of environmental progress, pitting payouts to bondholders against sustainability in almost every sense of the word.

The fight against austerity and the fight for the planet are one and the same. At 22 cents per kilowatt hour, Puerto Ricans pay higher electricity bills than their counterparts in any state in the continental U.S. A deal to restructure debt incurred by the island’s sole electric utility, the Puerto Rico Electric Power Authority, or PREPA, could raise electricity prices by 13 percent starting in 2020, funneling funds to the same bondholders who helped land the island in billions of dollars worth of potentially illegal debt.

As it raises rates, the restructuring agreement could further thwart the island’s transition away from fossil fuels — a goal agreed upon by Puerto Rico’s legislature last month. For the next nearly half-century, residents with solar panels could end up paying bondholders twice: once for the electricity they get from the grid, and again for the power they generate for themselves.

An analysis from the Institute for Energy Economics and Financial Analysis, or IEEFA, found that the agreement — meant to settle just over $8 billion of debt — could, after principal and interest payments, end up costing Puerto Ricans $23 billion through 2067. The deal allows the roughly half of PREPA bondholders included in the settlement to swap out their bonds for a new class of bonds whose repayment is pegged to ratepayer bills, and recover up to 75 percent of their initial investment — far higher than what financial analysts predicted just months ago.

The agreement was brokered between a group of PREPA bondholders, the utility, the Washington-appointed Fiscal Oversight and Management Board, or FOMB, and the Financial Advisory Authority and Tax Agency of Puerto Rico, or AAFAF, on behalf of the island’s government. They’ll need more bondholders to sign on to move forward, after which point the deal will need to be approved by Southern District of New York Judge Laura Taylor Swain, who’s overseeing the bankruptcy-like negotiations outlined by Congress under the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA.

The deal has been opposed by several environmental organizations on the island, including Cambio, the Sierra Club, and El Puente Puerto Rico, as well as Senate Minority Leader Eduardo Bhatia. Tomás Torres Placa, the consumer interest representative on PREPA’s board, voted against it. UTIER, the union that represents PREPA workers, has come out strongly against the agreement as well. “We categorically oppose it and denounce this agreement with the bondholders as disastrous for all Puerto Ricans,” Ángel Figueroa Jaramillo, union president, said in a statement this week, “because the projections to pay the debt are unreal, which will result in an increase in the rate for all energy consumers on the island.”

An employee of the Puerto Rico Electric Power Authority (PREPA) repairs power lines that had been affected by Hurricane Maria, on April 18, 2018 in San Juan, Puerto Rico.

Already, El Puente Puerto Rico Director David Ortiz said, “people are having to make decisions about whether to pay their electricity bill or put food on the table. Or between paying the bill and being able to get medicine.” Ortiz has been part of a broader push in the aftermath of Hurricane Maria to transition the island to running on renewable power. Since Puerto Rico doesn’t have coal, oil, or gas, all of those incumbent fuel sources need to be imported from the U.S. mainland, driving up prices and creating a host of environmental justice issues. The island’s geography and existing infrastructure make transmitting that power from one end of the island to the other — across its mountainous center — costly and prone to disruption given the sorry state of PREPA’s infrastructure. Adding to that cost is the $1 billion oil traders — including Royal Dutch Shell — are alleged to have cheated PREPA out of over the last several years, selling the utility low-quality oil at exorbitant prices. Beyond fuel prices, PREPA has paid tens of millions of dollars to third-party consultants that ratepayers are on the hook for as well.

Under pressure, the legislature there passed a bill to move away from pricey and precarious fossil fuels, an energy bill that several U.S. news outlets dubbed a “Green New Deal for Puerto Rico.” The measure, passed in April, set a goal of getting the island to 100 percent renewable power by 2050. Solar advocates are skeptical, though. Details on how the system would reach that ambitious goal remain scant. It leaves the door open to PREPA’s privatization, which would both threaten union pensions and benefits, as well as sell pieces of the utility off to for-profit bidders, likely including fossil fuel interests. The utility’s leadership appears eager to head in the opposite direction, too, embracing a natural gas infrastructure build-out in line with the types of fossil fuel investments called for by the Trump administration. The most recent Integrated Resource Plan PREPA submitted to the Puerto Rico Energy Bureau proposed prolific natural gas use, and to source just 24 percent of its power from renewable sources by midcentury. Should the restructuring agreement go through, fees for bondholders could counteract the solar taxes the bill sets out to nix.

Gov. Ricardo Rosselló has argued that any higher rates will be balanced out by other cost-saving changes to the grid in the next several months, but those plans also remain vague. “We have a very certain and definite increase weighed against some very speculative changes,” said Cathy Kunkel, an energy analyst with IEEFA. “It’s totally counter,” she said, to both the energy bill and PREPA’s most recently available fiscal plan, which they’re required to submit to the FOMB for approval. “Both said that the target was to get rates below $0.20 per kilowatt hour (kWh).”

If the latest resettlement agreement is approved, the first new charges under the deal would come this summer, with a $0.01 cent/kWh charge on electricity bills. The charge would max out in 2043, at $0.45/kWh — around $220 a year for the average household. Aside from raising already high prices, the resettlement agreement would penalize solar energy in particular. Those who install solar panels before September 30, 2020, would be grandfathered in and could avoid paying the fee on self-generation, although they would have to begin paying back bondholders after 20 years through a $0.04/kWh annual charge.

“We’re borderline from being in another major blackout,” Ortiz told The Intercept. “And we don’t need to get hit by a hurricane. When people start to stop being able to pay electricity because of these negotiations, that’s a whole different type of blackout.”

This isn’t the first time Puerto Ricans have been asked to shell out to bondholders. A restructuring agreement on COFINA bonds approved by Swain in February will hand bondholders involved in that decision an estimated $1 billion in profits, according to an analysis of public filings by the watchdog group LittleSis. Among them is GoldenTree Asset Management LP, which snapped up hundreds of millions of dollars worth of Puerto Rican bonds for cents on the dollar in the aftermath of Hurricane Maria. They could reap $160 million in profits from the COFINA deal, to be paid back by sales taxes. Should Swain approve PREPA’s latest restructuring agreement, GoldenTree stands to recover around a 70 percent return on their initial investment from hiked ratepayer bills.

Worth noting as well is that there has yet to be a formal, independent audit of the debt, billions of dollars of which — including PREPA’s — could be illegal. Shortly after taking office in 2017, Rosselló dissolved the committee tasked with conducting one.

Island residents, meanwhile, are being squeezed on multiple fronts. The FOMB has insisted on increasingly draconian cuts to public services on the island and scaling back labor protections. In what’s become a kind of pattern on the island, the governor’s office will propose a series of cuts to the FOMB — a process outlined by PROMESA — and that body will reject them, seeking still-deeper cuts. Most recently, they’ve demanded pension cuts, tuition increases at the University of Puerto Rico, and new work requirements for food stamps. These changes are all part of a plan, shared by the FOMB and Rosselló, to attract investment to the island. He hopes to siphon $400 million from federal aid to Opportunity Zone projects, essentially a suite of generous tax cuts for investors created by the GOP-led Tax Cuts and Jobs Act of 2017.

Raul Grijalva, chair of the House Natural Resources Committee — which has jurisdiction over PROMESA and the FOMB — came out against the PREPA restructuring agreement. To relieve hardship on the island, though, Ortiz and others hope Congress will embrace two proposals: Dissolve the FOMB, and absolve the debt. As a candidate, Rep. Alexandria Ocasio-Cortez called for abolishing the FOMB. Presidential candidates Sens. Bernie Sanders and Elizabeth Warren — joined by Sens. Kamala Harris and Kirsten Gillibrand — reintroduced legislation earlier this month to provide comprehensive debt relief to the island, including a thorough audit. Sanders and Warren have each called for a “Marshall Plan for Puerto Rico,” including massive public investment in recovery and long-term resiliency efforts.

“The president of the United States has asked his own debt to be forgiven multiple times. Why can’t we do that for Puerto Rico? In our case, it’s more serious because we’re talking about 3 million people, not one person who’s already rich,” Ortiz said.