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Rossello To Fight Board over PREPA

The administration of Puerto Rico Governor Ricardo Rossello Nevares made clear this afternoon that it would not accept the decision of the territory’s federally-named Financial Oversight and Management Board to make its infrastructure permitting (“Revitalization”) coordinator, Noel Zamont, the “emergency manager” and “Chief Transformation Officer” of the Electric Power Authority (PREPA).

The Governor’s Secretary of Public Affairs and Policy, Ramon Rosario asserted that PREPA would remain under the direction of Executive Director Ricardo Ramos and would defy directives or guidelines from the Financial Board.

“We will be defending” local control of the government corporation “on all fronts … In both political forums and judicial forums,” he declared, adding that, “the position of the Governor will never be that final decisions will be made by an entity that was not elected by the people of Puerto Rico.”

Rossello last night contended that the Board had overstepped its authority with the designation, arguing that it could make recommendations for action by locally elected officials and their appointees under PROMESA but not give directives.

Rosario suggested that the Rossello Administration would go to court to block the Board takeover of PREPA. If so, it would be the second time that the Board and the Rossello Administration face each other over the issue of ultimate authority. Before Hurricanes Irma and Maria last month, the Board went to the U.S. District Court to force the Governor to implement its directive that the hours of Executive branch employees other than police and pensions be cut 10%. The Board dropped the action after the hurricanes.

The court action could come in response to a Board request in PREPA’s PROMESA Title III bankruptcy case to ratify Zamont’s designation.

Rossello’s representative to the Board, Christian Sobrino, also contended today that the Board had “no legal authority” to put PREPA under Zamont’s direction, accusing the Board of acting “like a thief in the night. He advised that, “No one” at PREPA “is obliged nor should feel the need to abide by Noel Zamot’s orders.”

He asserted that the Board’s intention was to administer Federal funds for Puerto Rico’s recovery from Hurricane Maria as “war booty” – an allusion to the United States gaining possession of Puerto Rico through the Spanish-American War.

In this assertion, Sobrino was partially, essentially correct: The timing of the Board’s move was motivated by a desire on its part — and the parts of members of the U.S. Congress — to ensure proper spending of Federal disaster relief assistance. Concern about this was heightened in recent days by revelations regarding two contracts under which a total of up to $500 million could be spent for repair of PREPA transmission and generation lines.

The contracts were quickly and surprisingly executed by Ramos without consultation with the Federal Emergency Management Agency (FEMA) or the Army Corps of Engineers, which is helping with the repairs and include what appear to be very high rates for services. One of the firms – which received a $300 million contract – has only two permanent employees. As of now, 75% of the cost of the contracts would be paid for by FEMA.

The action also came after PREPA and Rossello disagreed with the prescriptions of the Army Corps and the Puerto Rico College of Engineers to quickly repair units of a San Juan area power plant that had been shut down before the hurricanes over insurance company safety concerns to restore power to more people. PREPA is, instead, buying replacements for the units that may take a half a year to install.

The Board, however, had already been developing a plan to improve and privatize the territory’s power system that would provide a basis for Zamont’s new role regarding PREPA. McKinsey & Co. has a $740,000 per month contract to do the work, which is expected to produce a report next month.

In announcing Zamont’s appointment, Board Executive Director Natalie Jaresko alluded to this in saying, “Noel’s appointment is an essential step towards achieving the goal of reliable electricity at a competitive price.”

Zamont has spoken with U.S. Department of Energy officials and public and private power companies in the States about transforming PREPA into a new entity with private financing for more efficient electricity generation.

The Board’s action also came as it brought an urgent motion before PROMESA Title III bankruptcy cases Judge Laura Taylor Swain to establish that creditors would not be able to make claims on federal disaster relief funds granted to the Government of Puerto Rico, PREPA, and the Highways and Transportation Authority.

Also arguing in favor of the motion in the first involvement of the Federal government in the cases was U.S. Department of Justice attorney Matthew Troy, who defended the constitutionality of municipal bankruptcy under Federal Bankruptcy Code Chapter 9 in the Detroit, Michigan bankruptcy case.

Third Disaster Aid Bill being Developed

The U.S. Senate just gave final congressional approval to the second disaster funding law in as many months late Tuesday but Trump Administration officials and congressional leaders were already working on a third bill to be considered next month.

One difference between the first two bills and the third is that the first two were “emergency” measures, meaning that the costs are not accounted for in the Federal budget — even though the spending increases the Federal deficit, and Mick Mulvaney, Director of the President’s Office of Management and Budget (OMB), wants the third bill to count and be offset with spending cuts.

The bill that passed Tuesday would cost $36.5 billion, bringing the total cost of the two that have passed so far to more than $52 billion. Mulvaney expects the third bill to also cost in the “tens of billions” of dollars.

OMB had asked agencies to identify needs by the close of business yesterday. Congressional leaders were also considering other matters as well.

One of these is whether the Puerto Rico Financial Board should be given an additional role and/or authority in disaster assistance.

Governor Rossello has a list of Federal programs for which he is urging further funding so that the programs can grant more money to the territory. He is also still speaking of Federal loans or loan guarantees beyond the $4.6 billion plus that Puerto Rico is expected to receive to keep the territorial government operating under the bill passed by the Senate Tuesday. There have been Federal-territorial conversations about additional loans being used to improve electric power generation in connection with the privatization of some or all of PREPA.

Only 24% of PREPA customers have had power restored since Hurricane Maria hit more than a month ago — a figure that reportedly overstates the percentage of the population with electricity service. The outages are primarily due to destruction of or damage to the electricity transmission and distribution network and not to generation facilities but there is a consensus between sympathetic Federal officials and territorial officials that new generation plants are needed for the islands’ economy, and the location of the plants will affect the transmission system.

A common idea between congressional Democrats and Rossello is additional funding for the territory’s Medicaid program beyond the $1 billion that the Republican Majority of the House of Representatives Energy and Commerce Committee added to the bill to continue the Children’s Health Insurance Program (CHIP) for five years. Some Democrats have been thinking of trying to increase the Puerto Rico Medicaid funding in that bill, and late yesterday Rossello asked congressional leaders to do so to the tune of $1.2 billion a year over five years. But Democrats may try to add Puerto Rico Medicaid funding to the next disaster bill.

Rossello also remains hopeful that President Trump will waive the 25% contribution that Federal disaster law requires local governments to make to obtain 75% funding of infrastructure repairs unless the President waives or reduces the requirement. If Trump does not, that is another measure that congressional Democrats could try to force.

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