Prepa accuses its regulator of excessive control
SAN JUAN – The Puerto Rico Electric Power Authority plans to formally solicit to restructure its debt through Title VI of Promesa by July 1, according to its fiscal plan, which also criticized its regulator, the Puerto Rico Energy Commission, for assuming extensive operating control of the utility and its budget even when approved by the Financial Oversight and Management Board or the government.
The utility complained about the PREC’s actions in the section of its fiscal plan where it discusses the new rate structure. The utility suggested that the PREC was exercising too much control over Prepa prolonging its ability to make changes and that it has challenged its decisions in court.
“PREC has allegedly assumed extensive operating control over PREPA, including areas where PREPA is implementing government policy or the approved government Fiscal Plan,” the document states. “There is no robust reconciliation process to address ongoing changes; rather, adjustments for changes require extraordinary action or PREC permission prolonging processes and timelines.”
“The PREC exercises jurisdiction over Prepa budgets even when approved by the FOMB and unduly impacts relevant timelines…. PREC has denied PREPA’s requests to reconsider its Order regarding some aspects of the annual rate update mechanism, including budgeting and rate adjustment timelines. PREPA has appealed such denial to the Puerto Rico Appeals Court and is in the process of developing a further regulatory strategy to address certain of these challenges,” the document adds.
The document certified by the oversight board Friday also discusses the restructuring support agreement (RSA) between Prepa and its creditors to restructure the $9 billion debt, whose terms were renegotiated recently.
The utility says it obtained $2.2 billion in debt-service savings from 2018 to 2022 as compared to contractual terms of debt. The new RSA provides for individual rate payer debt service charge savings of 36% for five years over the original RSA and allows Prepa to take steps to upgrade base maintenance, modernize the utility and attract capital.
“RSA is intended to accommodate a potential restructuring under Title III of PROMESA for the non-financial obligations and revisions to the RSA are currently being negotiated with the goal of being in a position to complete solicitation of Title VI process by July 1, 2017,” the document states.
Another highlight of the fiscal plan is it intends to limit Contribution or Payment in Lieu of Taxes (CILT). Currently, Prepa does not pay taxes to municipalities for its infrastructure in exchange for municipal tax exemption. However, the CILT was limited following the enactment of laws that placed caps on it.
The fiscal plan says Prepa intends to move of all the municipal public lighting to the power bills’s subsidies rider. It will also remove all municipal for-profit entities from receiving service credit from the CILT and establishing a total consumption, or kilowatt-hour, cap on the municipal CILT, which will be reduced by 15%, in three fiscal years or 5% each. The municipality will pay for any excess, plus the for-profit ventures. The CILT adjustment process itself, however, has not begun in full due to PREC regulations and implementation obstacles, in addition to issues presented by municipalities disputing the validity of the for-profit claim.
“Beyond this, PREPA has no authority to further reduce the CILT values. PREPA, under the new rate structure, will recover the cost of CILT via the CILT rider in customer bills. Any additional reductions or amendments would require legislation,” the document states.