The announcement last week that Puerto Rico will receive almost $13 billion in new disaster aid from the Federal Emergency Management Agency, primarily to rebuild the island’s power grid, is credit positive, Moody’s Investors Service said.
“The announcement is credit positive for both Puerto Rico Electric Power Authority (PREPA: Ca, Neg) and the Commonwealth of Puerto Rico (Ca negative),” the Moody’s report stated.
“The FEMA funds will help bring the electric transmission and distribution (T&D) systems up to code and improve system reliability and service quality without burdening the Commonwealth and PREPA with incremental debt, and ultimately its customer base, with rate increases for these projects,” it added.
The majority of the announced FEMA allocation — or $9.6 billion — will be allocated to PREPA to repair and replace T&D lines, substations, generation systems and general grid improvements as part of its strategic transformation.
“This amount represents more than half the estimated cost to modernize the island’s grid over the next 10 years, according to its October 2019 GridMod plan. PREPA anticipates beginning major works on the T&D systems as early as calendar year 2021,” Moody’s stated.
The remaining $2.1 billion in grants will be earmarked for the Puerto Rico Education Department for school construction projects.
“Distribution of disaster aid to date, however, is slow. Only one-third, or $16.7 billion, of previously allocated funds have been distributed to the Commonwealth. The slow pace of distribution, primarily for U.S. Department of Housing and Urban Development (HUD) grants, reflects a complicated project approval process but also increased oversight of funds following allegations of Puerto Rico’s mismanagement of aid last year,” Moody’s stated.
To date, HUD has only distributed a fraction of disaster relief funds to Puerto Rico, about 0.3% of funds previously approved by Congress.
Of the funds received by the Commonwealth, the bulk flowing from FEMA include monies for public assistance projects, including rebuilding roads, bridges, police stations and hospitals damaged during the hurricanes.
Individuals have also received nearly $2.6 billion in FEMA assistance to date, including funding housing assistance for residents that have lost their homes as a result of the disaster, but also for certain home repair, medical, childcare and clean-up expenses, Moody’s noted.