Puerto Rico Faces Possible Court Battle Over Agency Control

Puerto Rico Governor Ricardo Rossello is vowing to fight a federal oversight board’s effort to take away his control of the island’s government-owned electrical utility, setting up a potential court battle between the commonwealth and the panel over the bankrupt company.

The governor is planning to appeal the federal board’s decision Wednesday to appoint Noel Zamot as chief transformation officer of the Puerto Rico Electric Power Authority, known as Prepa, which is struggling to restore service after much of the power grid was devastated by Hurricane Maria last month. Nearly 75 percent of residents are still without electricity.

Photographer: Andrew Harrer/Bloomberg

The panel’s move wrests authority away from the governor and the utility’s board of directors just as it’s about to receive a massive influx of federal aid. The U.S. panel has the authority to appoint an overseer under a law enacted last year to address Puerto Rico’s debt crisis, said John Mudd, an attorney in San Juan who specializes in bankruptcy and constitutional law. The board this year placed Prepa into bankruptcy under a procedure known as a Title III.

“They have the right to go to court and do all this,” Mudd said about the board’s appointment of Zamot. “In Title III, they’re the boss.”

Rossello and the federal board have clashed before. The panel earlier this year filed suit against the governor to force him to implement furloughs. The board withdrew its case after the hurricane devastated the island on Sept. 20. Public Affairs Secretary Ramon Rosario said the administration would defend its right to oversee the island’s public agencies.

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“We’ll take it to the relevant bodies to defend the authority of the elected government to manage its agencies and corporations,” Rosario told reporters Thursday in San Juan.

Prices on some Prepa bonds increased following the board’s plan to change the utility’s management, something creditors have also pushed for, arguing it would improve its operations and allow them to recover more of what they’re owed. Trades of $1 million or more of debt maturing in 2032 changed hands Thursday at an average of 31.5 cents on the dollar, up from 29 cents on Oct. 23, according to data compiled by Bloomberg.