PROMESA

THE APPOINTMENT OF JUSTIN M. PETERSON TO THE BOARD

            Today, President Donald Trump appointed Justin M. Peterson to the Fiscal and Supervisory Board for Puerto Rico. I was alerted to the appointment by a source in DC and was told that he was appointed by the President to “bring transparency to the Board.” What does that mean?

            From day one of its operation, the Board’s workings have been shrouded in mystery. Every so often it has meetings open to the public, but it is clear that all decisions have been made beforehand and rehearsed for public consumption.  I have attended or watched all its meetings and only once has there been any public dissent. Ana Matosantos voted against one of the Board’s fiscal plans for the Commonwealth. We also know that the Board’s decision not to approve the PREPA RSA negotiated between the Government and bondholders was not unanimous but rather 4-3, but this was leaked weeks after the fact. Also, the Board has negotiated deals with creditors in secrecy, leaving the taxpayers who fund its operation in the dark. Many, including myself, have criticized this continued secrecy, even though PROMESA section 101(f)(4) makes executive sessions the exception rather than the rule.

Now the Board’s business will be more transparent. Although Mr. Peterson is only one member, nothing in PROMESA prohibits a member of the Board from speaking out about what he believes should be discussed. Other members have resorted to Twitter to espouse their ideas on what should be done in the Title III and their views on the Government’s actions. “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman” wrote Louis Brandeis in Other People’s Money And How the Bankers Use It (1914), a collection of his best essays. That is as true today as it was over 100 hundred years ago. Even if the Board was imposed on Puerto Rico, its inhabitants have a right to know how it conducts its business.

Also, this transparency will have to spill over into the Puerto Rico Government. Contrary to what the ample case law says, the island’s government is extremely opaque, something that the Board constantly criticizes. More transparency will help control corruption and waste, a major source of concern both for the President and for the island’s residents.

Finally, there are already voices criticizing Peterson for having advised GO bondholders. Need I remind them that many Puertorricans held and hold GO bonds? Need I remind them that GO bondholders settled their claims with the Board? Additionally, Andrew Scurria of the Wall Street Journal reported in his Twitter account that he spoke with Peterson and he said he did not work anymore for bondholders in the Puerto Rico case. If that is true, he would have no conflict of interest, especially since this is a known fact. Lest we forget, José Ramón González and Carlos García, both issued debt for Puerto Rico and were members of the Board. 

My only hope is that this appointment will help the Board become a better entity and finish Puerto Rico’s Title III cases in a satisfactory fashion.

LA TRANSFORMACION DE LA AEE SEGUN CHARLIE DELGADO

            Ayer el candidato del PPD a la gobernación, Carlos Delgado Altieri presentó unas propuestas de desarrollo económico.  Su punto principal es una micro red eléctrica para la región de la montaña, El Vocero lo cita diciendo

“Para poder generar desarrollo económico, comenzaremos por resolver la problemática de las interrupciones continuas de los servicios esenciales en toda la montaña del país. Sin servicio de agua y luz confiable, no podemos desarrollar empresas y atraer industrias; eso es básico y lo vamos a atender. Es por ello que para mi gobierno el consorcio energético de la montaña será piedra angular para el despunte económico”, aseveró.

El proyecto une “las voluntades, capacidades y liderato de los municipios de Villalba, Barranquitas, Orocovis, Morovis y Ciales. Con él en funciones brindaremos resiliencia energética a casi 150 mil ciudadanos que tras el paso del huracán María estuvieron casi ocho meses sin energía eléctrica”.

“Con una inversión de cerca de un billón de dólares, transformaremos la montaña y la convertiremos en productor de su propia energía, de manera que se brinde estabilidad económica a sus municipios. Maximizando la generación de la central Toro Negro y construyendo un sistema de placas solares con almacenamiento de energía en baterías de última tecnología, se garantiza el uso correcto de los fondos CDBG-DR en beneficio del área rural y se pone a la montaña primero”, afirmó.

¿Que nos dice Delgado aquí? Varias cosas. Primero, Delgado esta rechazando el contrato de LUMA, lo cual querrá decir que los sobre $26 millones que ha facturado, lo que facturará hasta enero de 2021 (si se cancela en ese mes) y los $20 millones de penalidad por cancelación, se van a perder. Segundo, parece que va a crear micro redes, lo cual es parte de lo que el Departamento de Energía sugirió en 2018.

La pregunta es si esto es factible y la respuesta es complicada. El movimiento hacia la energía renovable es vital PERO en este momento la AEE solo puede absorber menos de 600 megavatios de energía renovable por razones técnicas. Así que esto hay que resolverlo a mediano y largo plazo pero a corto plazo entonces ¿como se generaría la energía necesaria? Además, hay que considerar que para acceder los fondos federales asignados hay que presentarle a FEMA un plan, el cual aún no existe y que LUMA lógicamente era quien lo iba a hacer. Ahora sería la AEE y eso va a tardar posiblemente años. Además, si la AEE va a seguir en manos públicas, esta requiere una inyección de empleados que va a aumentar sus gastos, así que un aumento de tarifa es inevitable, amén de que Delgado no explicó como va a evitar el aumento de sobre 2 centavos con el RSA, que llegaría al poco más de 4 centavos para pagar a los bonistas. Recordemos que el RSA de la AEE establece como condición para el recorte de 33% a los bonos. Aún si aumentamos eso a 66% de recorte, cosa que dudo, estamos hablando de más de un centavo llegando a más de 2 centavos. Tampoco es factible pensar que no se va a pagar deuda ya que los bonistas tienen la opción solicitarle a Swain que levante el stay para ir a pedir un síndico (receiver) según establece la ley de la AEE y el acuerdo de bonistas. El síndico aumentaría la tarifa para el pago de deuda y administraría la AEE hasta que se normalice ese pago.

            Finalmente, la idea de Delgado no toma en cuenta que la Junta podría ir al Tribunal Federal y solicitar que una determinación de cancelar el contrato de LUMA sea detenida como contrario al plan fiscal de la AEE y a PROMESA bajo sus secciones 204(b)(4) y 108(a)(2). Recordemos que la Junta celebró y estuvo de acuerdo con el contrato de LUMA y probablemente vería una movida como la sugerida por Delgado como un regreso al estatismo Puertorriqueño, en especial si la composición de la Junta cambia a una más conservadora.

            Creo importante que los votantes examinen todas las propuestas de los candidatos bajo dos crisoles; ¿son estas posibles y de serlo, lo aprobará la Junta? A manera de ejemplo menciono la idea de la Lcda. Lúgaro de no proveer fondos a la Junta, en clara violación de la sección 107 de PROMESA. De hacer esto el gobierno de la Lcda. Lúgaro, la Junta obtendría una orden bajo las secciones 204(b)(4) y 108(a)(2) y de desobedecer el Gobierno, no hay que ingresar a nadie en la cárcel. Con la Junta solicitar el control de las cuentas de Hacienda y ordenar a que ningún banco honre cheque alguno que no sea emitido por la Junta se resuelve el problema.

            Solo entendiendo estos límites podemos ver que propuestas son posibles y cuales son sueños de pajaritos preñados.

WANDA STRIKES BACK

 

 

”All politics are local.” Thomas “Tip” O’Neill

 

For several weeks now, the Board has admonished the  Commonwealth stating that some of the laws it has approved violate  PROMESA in some way. It also informs the Commonwealth that these laws are not in effect. Although the Commonwealth knows that pursuant to PROMESA and Judge Swain’s decision of April 15, 2020 on Law 29, the Board must go to the Federal District Court in order to invalidate any law, on June 12, 2020, it filed not one but SIX complaints against the agency. In essence, the six complaints argue that the  Board’s actions are  “unreasonable from a public policy standpoint” but if not checked, “the  people of Puerto Rico will be disenfranchised because their local elected Government will be stripped of its policy making powers.” Although they are six complaints having to do with six different local laws, the legal argument is the same; the Commonwealth explained in compliance with PROMESA section 204 why these laws did not “substantially inconsistent with the fiscal plan.” Obviously, the Board did not agree.

 

What will happen now? After the proper briefing, the Court will likely dismiss these cases, probably sometime after August 9. In the law 29 case, decided on April 15, 2020, Judge Swain discussed the process for the certifications by the Commonwealth of laws that are not inconsistent with the Fiscal Plan. She decided that the Board’s decision was reviewable but that the standard of review is to be the deferential “arbitrary and capricious” standard used to review federal agencies’ interpretation of its own laws. PROMESA does not define what evidence is sufficient for the Board to be convinced that a particular law is not “substantially inconsistent with the Fiscal Plan” and she will give great deference to the Board’s interpretation. Since I was not privy to the evidence the Commonwealth presented to the Board, I cannot comment on it, but it seems likely Swain will side with the Board. Moreover, we must remember that in the Aurelius SCOTUS decision, Judge Breyer stated at page 17 “[i]n short, the Board possesses considerable power—in­cluding the authority to substitute its own judgment for the considered judgment of the Governor and other elected offi­cials.” Since that is precisely what the Board is  doing here, likelihood of success for the Commonwealth is not high. If so, why file not one but six complaints? I will explain.

I have the highest regard for Peter Friedman, the  Commonwealth’s attorney, who successfully opposed the appointment of Mr. Zamot as CEO of PREPA. He, as all attorneys, however, is bound by his client’s desires and as long as the proper warnings are issued, it is totally ethical to continue with a case that is not likely to succeed. The Governor’s motivations, however, are quite different. She has been a petty and supercilious politician all of her career in the Government. She, as all PR politicians, believe that the voter wants them to oppose the Board and since in the past she had been quoted as cooperating, this is, in her view, a necessary change. Also, the challenged laws are populistic in nature and she wants to be able to claim she tried her utmost to have them put into effect, but the evil Board” prevented her. Since Judge Swain is not likely to decide the issues before August 9, the day of the PNP primaries, she can claim the high ground against Pedro Pierluisi who, irrespective of what he says, is viewed as pro-Board and is (or was) related to one of its members. Also, if she were to win the PNP nomination, even if Judge Swain dismisses the complaints before the November election, she will appeal and still claim the high ground.

 

The sad part of this is that the Puertorrican taxpayer will pay the Commonwealth and the Board’s lawyers in these SIX CASES, money better put to use in other, more important endeavors. But that is the way the Puertorrican politicians operate.

That is why we are in Bankruptcy.

 

Let’s see what happens.