Federal oversight board orders changes to PREPA budget

Dive Brief:

The federal oversight board that reviews Puerto Rico's finances on Monday sent notices to the island's power and water utilities, saying their proposed budgets are not compliant with the board’s fiscal plans.
The budget of the Puerto Rico Electric Power Authority (PREPA) would spend too much on labor expenses and "does not adhere to various required budget milestone guidelines," the board wrote. The utilities have until Wednesday to submit updated plans to the board.
Separately on Monday, Puerto Rico Gov. Ricardo Rosselló signed a regulatory reorganization bill that will consolidate the island's electricity, water and telecom regulators — a move that critics say will allow him to strengthen control over the island's utilities.

Dive Insight:

The flap over PREPA's budget is the latest tussle between Puerto Rico's government entities and the Federal Oversight and Management Board (FOMB).

Set up by Congress in 2016, the FOMB is charged with reviewing the finances of Puerto Rico’s public entities to help steer the territory — more than $73 billion in debt — out of bankruptcy.

That job took took on a new complexity last year when Hurricane Maria devastated the island, wiping out the PREPA electric grid. Now the board must oversee not just the financial restructuring of PREPA, but the contracts and budgeting to rebuild the transmission and distribution system.

The FOMB flexed those oversight muscles this week, telling PREPA and the water utility that their plans do not align with the financial aims of the board.

Specifically, the board wrote that PREPA's budget "does not comply with the operating and maintenance labor expenses as laid out in the Oversight Board PREPA Fiscal Plan," highlighting salaries, wages, medical expenses and the Christmas bonuses customary in Puerto Rico as problem areas.

PREPA was more than $9 billion in debt before the hurricane hit, and the FOMB said its budget does not comply with milestone guidelines set by the board to track the utility's progress out of bankruptcy.

"Certain key documents and data points required for reasonability testing of projections and budget-to-actual reporting are still outstanding," the letter read.

PREPA has until Wednesday to submit updated plans to the FOMB or risk having a budget dictated by the federal board.

"The revised proposed PREPA budget shall include a breakdown of operating labor and maintenance expenses, including allotted amounts for the Christmas bonus and healthcare insurance contributions, along with any supporting information and documentation," the FOMB wrote.

If no replacement budget is submitted, the FOMB will submit its budget for Rosselló's approval by Aug. 17, the board said in a letter. That could touch off another jurisdictional spat with the governor, who last month sued the FOMB over an earlier fiscal plan for the government that Rosselló said would increase "the conditions of poverty in Puerto Rico." He lost the challenge last week when a federal judge upheld the FOMB's authority.

The board also survived jurisdictional challenge this spring brought by the Puerto Rico Energy Commission, the island's former energy regulatory body, which said it should have jurisdiction over PREPA's contracting. The FOMB has since reviewed many of the billions of dollars worth of contracts awarded for grid restoration by PREPA, issuing comments in each, but never refusing to approve one.

In the shifting regulatory landscape of Puerto Rico, even that island energy regulator is no more. On Monday, Rosselló signed legislation that groups the island's utility regulators under a single entity. The electricity regulator, now known as the Energy Board, will have five members appointed by the governor and confirmed by Puerto Rico legislators.

Critics say the reorganization is a move from Rosselló to consolidate power over the utilities, but the governor said Monday he only intends to cut wasteful spending.

"The bureau maintains the same powers. This is only an administrative consolidation. There were a series of redundancies that we could saw," he said, according to Caribbean Business. The administrative, financial, legal, human resources functions, among others, can be consolidated," he added.