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Controversial Prepa Subsidy Surfaces in Rate Hike Hearings

By on November 29, 2016

SAN JUAN – A hidden power subsidy that is costing Puerto Rico Electric Power Authority (Prepa) customers more than $4 million and allowing certain Prepa customers to get water at a lower price than the rest of the population was brought to light during the first day of hearings on a new electric rate hike.

Since 1908, Prepa has been providing flood control and irrigation for farmers and a group of industrial and business customers at three “irrigation districts.”

Gregory Rivera, Prepa’s planning and research division superintendent, told the Puerto Rico Energy Commission (PREC) that the irrigation subsidy goes back to Prepa’s origins and continues until today even though the utility’s main business is to provide electricity.

“The seller of the water is Prepa,” Rivera said.

The sale of the water is contained in separate accounting books. The irrigation subsidy is the yearly excess of expenses over revenues associated with activities in the irrigation district but it is a discount that is paid for customers.

“Why don’t you charge more for water?” asked lawyer Scott Hempling, the commission’s examiner.

Prepa officials explained that the irrigation subsidy is for farmers, whose rates are set by law. However, there are other customers such as the Puerto Rico Aqueduct and Sewer Authority (Prasa), which happens to be a customer with money limitations, but negotiations are underway.

Hempling noted that large industrial customers, which will be testifying Friday before the commission, are unhappy about paying for someone else’s costs. He noted that, in fact, some customers are getting water at a lower cost than the rest of the population.

“Some customers get undercharged for water. Others have to pay for it,” he said.

Dan Stathos, one of Prepa’s hired experts, said the “irrigation subsidy” was included as part of the subsidies to special clients, but that it isn’t part of the utility’s revenue requirement provision.

The incident over the subsidy was one of the many items the commission examined as it tried to clarify the accuracy of Prepa’s numbers to ascertain property revenue requirements. The hearing revealed numerous discrepancies in the numbers.

For instance, Prepa is using 2014 as its test year for revenue requirements because it doesn’t have audited statements for 2015. Officials said the problem was that the audits were delayed by the debt-restructuring process and in classifying the utility as an ongoing concern. Prepa financial officials also double counted $37 million in subsidies, a situation that would have made ratepayers pay twice for subsidies under a line item called subsidies and again through the increased revenues to fill gaps caused by discounts. Officials classify the problem as an oversight.

The numbers also show that Prepa’s labor force is slated to increase in 2017 as opposed to 2016, despite the fact the utility has fewer workers.

The commission needs to approve a permanent rate hike by Jan. 11 or else it will lose jurisdiction on the matter, which would allow the utility to establish its own rates. It will be holding hearings for at least two more weeks.

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