PREPA Bankruptcy Prolongs for 8 Years Amidst FOMB Shake-Up, Hindering Puerto Rico's Grid Modernization

Puerto Rico's Electric Power Authority (PREPA) continues to be embroiled in an eight-year-long bankruptcy process, a situation that critics argue is significantly impeding the modernization of the island's crucial electrical grid and broader economic expansion. This protracted legal battle has recently seen new developments with the White House's decision to dismiss five members of the Puerto Rico Fiscal Oversight and Management Board (FOMB), the federal body overseeing the island's finances and debt restructuring. U.S. District Court Judge Laura Taylor Swain has since suspended key deadlines in PREPA's Title III bankruptcy, requesting an update on the board's new composition.

The PREPA bankruptcy, which commenced in July 2017, centers on approximately $8.5 billion in debt. Observers and participants in the process attribute its extended duration to a complex interplay of factors, including local politics, the FOMB's actions, bondholder stances, and the approach of the bankruptcy court. The June 2024 First Circuit ruling, which affirmed bondholders' lien on PREPA's present and future net revenues, further complicated the restructuring efforts.

The recent firings of FOMB members by the Trump administration were reportedly driven by concerns over their salaries and a perceived lack of progress in resolving the PREPA bankruptcy. A social media post from "The Rabbit Hole" highlighted the sentiment, stating, > "Keeping PREPA in bankruptcy is an impediment to the modernization of Puerto Rico’s electrical grid and power system, a fundamental requirement for economic growth and expansion." This perspective underscores the urgency felt by many stakeholders for a resolution.

Former FOMB member Justin Peterson has advocated for ending PREPA's bankruptcy swiftly through a consensual deal with creditors, alongside privatizing the utility and rebuilding its infrastructure with reliable energy sources. However, the path forward remains contentious, with the FOMB proposing a deal that offers significantly less to bondholders than they seek, leading to continued litigation. Experts suggest that if a negotiated settlement is not reached, the bankruptcy could extend for several more years through court appeals, further delaying vital infrastructure improvements. The outcome of this prolonged process is expected to have profound implications for Puerto Rico's electricity rates, economic stability, and its ability to attract investment.