Puerto Rico Gets $3.5 Billion Plan to Fix Teetering Utility

A joint venture including two U.S.-based energy companies is proposing a $3.5 billion plan to modernize Puerto Rico’s cash-strapped power utility, which may be pushed to default on its debt.

York Capital Management LP, which manages about $26 billion, and energy firms NRG Energy Inc. and ITC Holdings Corp. are offering to build natural-gas generators on the island through their consortium, Puerto Rico New Generation Partners. In return, the junk-rated power authority, called Prepa, would agree to purchase electricity from the group for 30 years, Thomas Atkins, senior director at NRG Energy said in a telephone interview.

Prepa has almost $9 billion of obligations and is negotiating with its creditors to potentially reduce that debt load. The new proposal comes as Lisa Donahue, Prepa’s chief restructuring officer, is set to give the utility’s creditors her plan on Monday. Caribbean Business earlier reported the New Generation Partners proposal.

Commonwealth officials are encouraged by the companies’ interest, Melba Acosta, president of the the island’s Government Development Bank, said in an e-mailed statement. She said any award will be made through competitive bidding.

“At this stage of the process, we are not entertaining any particular proposal regarding our modernization plans,” Acosta said. “We are focused on discussing our plan to transform Prepa and reach a fair agreement with bondholders.”

Savings Pitched

The joint venture’s proposed investment doesn’t address Prepa’s debt load or require the utility to sell bonds to finance upgrades. It would save Prepa an estimated $1.5 billion annually and potentially reduce its average cost per kilowatt hour by nine cents. Residents on the island pay about twice as much for electricity than people on the U.S. mainland.

Under the plan, the consortium would build and own as much as 1,500 megawatts of natural-gas fired generators plus an additional 400 megawatts of solar projects, allowing Prepa to cut its reliance on expensive fuel oil. The group would raise the approximately $3.5 billion cost, with ITC Holdings spending as much as $500 million to build new transmission and distribution lines across the island.

The new gas-fired units would be built in southern Puerto Rico and use existing infrastructure to bring gas onto the island. That would avoid the fights over new pipelines that have sunk past modernization plans.

Bondholder Plan

Donahue declined to comment on the new proposal through Jose Echevarria, a Prepa spokesman.

A group of Prepa bondholders in March offered a $2 billion plan to upgrade the utility’s facilities. Donahue has said that proposal prematurely assumes full and timely payment of debt and wouldn’t meet environmental standards.

“Our interests are aligned,” Stephen Spencer, managing director at Los Angeles-based Houlihan Lokey, an adviser to Prepa’s bondholders, said in an e-mailed statement about New Generation Partners’ plan. “Our goal is the improvement of Prepa and therefore we welcome the introduction of any creative solutions that will benefit all Prepa stakeholders.”

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Puerto Rico Gets $3.5 Billion Plan to Fix Teetering Utility

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