On June 20, 2018, a law 'To Transform the Electrical System of Puerto Rico' was enacted. Thereby, Law 120, 'to authorize the legal framework required for the sale, disposition, and/or transfer of assets, operations, functions, and services of the Puerto Rico Electric Power Authority ('PREPA'),' and to pursue other related purposes, came into being.

Among these other related purposes, the law decreed that any contract for the transfer of either the title or operation of any PREPA asset must comply with the island's public energy policy and the regulatory framework for the electrical system, both to be defined by future legislation.

In specific terms, Law 120, Section 10 provides the following:

The public energy policy and regulatory framework shall be passed by the Legislative Assembly within a period not to exceed one hundred eighty (180) days following the enactment of this Law. Within that period, no Contract of Alliance or Sales Contract related to any PREPA Transaction shall be consummated. After said period, should a new public energy policy and regulatory framework not have been passed, the Certificate of Energy Compliance shall be issued in accordance with the current state of law. The above shall not be understood as a limitation on the power of the Legislative Assembly to formulate public energy policy and a regulatory framework after expiration of the period of one hundred eight (180) days.

This 180-day period ends on December 17, 2018. The Senate of Puerto Rico, in an attempt to meet this deadline, worked diligently for months on a draft of Senate Bill 1121 (SB 1121), and that bill was passed recently on the Senate floor.

The leadership of the House of Representatives, however, decided not to consider this bill during the legislative session that ended a few days ago, opting instead to take it up at some point during the next session, which begins in January of 2019.

This matter is of extreme importance, because if the period of 180 days is allowed to expire, PREPA and the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF, for its initials in Spanish) will be able to execute contracts for the sale or concession of PREPA assets without those contracts' compliance, necessarily, with the public energy policy or regulatory framework established in SB 1121.

On Friday, November 9, the AAFAF issued a press release offering vague promises that it would not enter into that sort of contract, but the language used in the press release is ambiguous and limited, as one can see from the following:

We have told Senator Larry Seilhamer and Representative Víctor Pares Otero that although we will continue the processes aimed at privatizing the Electric Energy Authority, as authorized by Law 120-2018, we will not formalize contracts that might be contrary to the public policy established by the chief executive [governor] or the cardinal principles of the bill being formulated in the Legislature.

In our opinion, letting the 180-day period elapse without action by the House of Representatives would be a bad beginning for the PREPA privatization process, since the government of Puerto Rico would once again show that it is incapable of complying with its own terms and conditions for carrying out important transactions.

In addition, it would create the impression that it is seeking to improperly benefit some specific company or firm--since the requirements established in SB 1121 would not have to be met--which would, in turn, call into question the seriousness and integrity of the entire privatization process. And finally, the lack of transparency could discourage interested investors and perhaps even the federal government, which has not yet drafted the guidelines for the use of the $2 billion appropriated for improving Puerto Rico's and the U.S. Virgin Islands' electrical systems.

In the light of all this, we respectfully suggest that SB 1121 be taken up in the House of Representatives before the 180-day period expires on Monday, December 17, 2018.

*The author is Public Policy Director at the Center for a New Economy. Taken from the CNE Blog.