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Entities say Prepa’s Securitization is not Distributed Fairly among Clients

By on May 19, 2016

SAN JUAN—Four entities, including the consumer protection office created in 2014 to oversee energy policies, warned on Thursday that the transition charge that the Puerto Rico Electric Power Authority (Prepa) will impose on clients to pay for the utility’s securitization is not distributed fairly among all consumers and would revert back efforts to increase the use of renewable energy.

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Prepa central offices in San Juan

The P.R. State Office of Public Energy Policy (STOPEP) objected recently before the Energy Commission the imposition of transition charges on net-metering and distributed resources of energy (DER). Puerto Rico enacted net-metering regulations a few years ago, allowing utility customers to use power generated by solar, wind and other renewables to offset their electricity usage.

DER refers to smaller power sources that can be aggregated to provide power necessary to meet regular demand. DER, such as storage and advanced renewable technologies, can help facilitate the transition to a smarter grid, according to officials.

STOPEP said the charge goes against a 2016 energy reform law that created the Prepa Revitalization Corporation, which states that clients that have net-metering contracts will have a 20-year grace period in which they will not have pay any charges imposed by the Energy Commission. The entity said that Puerto Rico chose to protect this industry.

The Windmar Group—which is comprised by PVP Properties, the Cotto Laurel Solar Farm Inc., and the Windmar PV Energy and the Windmar Renewble Energy—said the charge does not meet the criteria established in an agreement with Prepa creditors for distributing financing costs among customer classes. The group also said the charge goes against federal policies that help promote the use of renewables.

In a statement, Windmar said the utility’s petition, filed by the Prepa Revitalization Corporation last month, distributes the financing costs among residential and non-residential customers.

The residential class group consists of 1.3 million customers that represent 38% of all energy sales. The non-residential class group is composed of 120,000 customers that represent 62% of all energy sales.

“The proposed fixed charge penalizes low energy consumers and rewards high energy consumers. Further, it will provide no incentive to self-supply, demand response schemes ore reduce consumption,” Windmar said.

The group noted that currently, the island obtains 98.5% of its energy from fossil fuels and only 1.5% from renewables.

The Prepa’s Revitalization Corp. is proposing exchanging Prepa bonds with at least seven types of bonds of varied amounts and purposes that will be financed through a proposed transition charge. In turn, said charge would be adjusted at least twice a year to ensure there are sufficient revenues for the timely payment of the bonds.

According to Prepa, the upfront financing costs of the restructuring were estimated at $124.3 million, an amount Prepa said was reasonable given the size of the restructuring. If the transition charge is approved by the commission as early as June of this year, residential and industrial clients could see an estimated 21% increase in their electricity bills, while commercial clients could see an estimated 17% increase.

Beginning June, the transition charge for residential clients will be $11.98 a month. The charge will be adjusted every three months, and during the next two years, it will fluctuate from a high of $18.21 per month to a low of $11.06 a month.

Nonresidential customers, commercial and industrial,  will see their rates increase by an initial 3.055 cents per kilowatt-hour (kWh). The charge will be adjusted every three months, and during the next two years, will fluctuate, reaching 4.2 cents per kWh in 2018, according to Prepa’s “Verified Petition for Restructuring Order,” a 600-page document.

The Competitiveness and Sustainability Institute (or Instituto de Competitividad y Sostenibilidad in Spanish), through lawyers Fernando Agrait and Theodore Khun, urged the commission to seek a demand forecast study before approving the proposed securitization of bonds. The entity said the charge could have an impact on the use of renewables because customers will pay the charge regardless of their energy use.

The Consumer Protection Independent Office (OIPC by its Spanish acronym) blasted the utility for failing to provide consumers a summarized version of the proposed restructuring order to citizens. Prepa’s petition filed before the Commission was over 600 pages long but provided a one-page summary.

The OIPC, created through energy reform, criticized that the proposed securitization will only help restructure 70% of Prepa’s debt and blasted the upfront costs of the financing, which are estimated at $124 million that is slated to benefit lawyers and other private companies.

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