UPDATE 1-Puerto Rico utility needs deal to avert blackouts -executive
(Recasts with comments from committee) By Megan Davies NEW YORK, Jan 12 (Reuters) - Puerto Rico could face widespread blackouts if its power utility, PREPA, runs out of cash, the company's chief restructuring officer told a congressional panel on Tuesday, arguing that the utility needs access to federal bankruptcy law to help close a deal to restructure its debt. The island suffers from high energy costs, old, inefficient power plants and a dependency on oil, all of which contribute to the island's fiscal problems. It is trying to restructure its $70 billion debt and has defaulted on some payments. PREPA's Lisa Donahue told the House Committee on Natural Resources subcommittee on energy and mineral resources that without a restructuring the utility will run out of money in the first half of this year - which leave suppliers unwilling to supply fuel. "That would mean we would be in a situation where there would be blackouts and major conservation," Donahue said. "It would be in my opinion a disaster if PREPA would runs out of cash ... it would be blackouts across the island." PREPA, which provides electricity to Puerto Rico's roughly 3.5 million residents, charges consumers far more than what customers on the U.S. mainland pay on average. The utility has also been under pressure to convert from burning oil to generally cheaper and cleaner natural gas. PREPA in December reached a long-awaited deal with creditors to restructure its more than $8 billion debt. However, creditors holding around 30 percent of the debt are not party to the deal and additional bondholders holding more than $2 billion of bonds must voluntarily agree for it to succeed. A source familiar with the situation said that the deal currently has support from creditors holding around 70 percent of bonds and needs to obtain 90 percent support. Donahue said in written testimony that use of federal bankruptcy laws would ensure 100 percent participation. However, Stephen Spencer, financial advisor to PREPA's bondholder group, said that access to Chapter 9 bankruptcy is not necessary and risks resulting in "endless litigation and political sniping." "On the contrary, we doubt whether we ever would have been able to get this far and reach the consensual restructuring agreement we have," had Chapter 9 been in place, said Spencer. Extending Chapter 9 to Puerto Rico - which currently does not have the ability to put its public agencies into bankruptcy - has been long debated. A proposal is before the House Judiciary Committee. Democrats have been generally supportive but a number of Republicans have shown skepticism. "Nothing said in this hearing ... should be interpreted as encouraging Puerto Rico to delay addressing their own fiscal situations," said Idaho Representative Raul Labrador, a Republican, who said he would not support federal legislative action to help the island if "those responsible for the debt do not act in good faith to come up with their own solutions." (Additional reporting by a contributor in San Juan and Nick Brown; editing by G Crosse nd Steve Orlofsky)
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