Tuesday, August 11, 2020

Expert Tells Commission Not to Hike Prepa Rates Permanently

By on December 1, 2016

SAN JUAN — A consultant from the Puerto Rico Institute for Competitiveness and Sustainable Economy (ICSE-PR) asked the Puerto Rico Energy Commission to refrain from setting new permanent rates at the island’s electric utility.

Víctor Glass, a professor at Rutgers University and director of that school’s Center for Research in Regulated Industries, cited a lack of transparency, inadequate methodology and the “uncertainty” of the Puerto Rico Electric Power Authority’s (Prepa) restructuring support agreement.

“I recommend that you don’t set up a permanent set of rates for the next couple of years, [and instead] figure out a way to continue to have provisional rates so Prepa has enough funds to keep going. Just based on what I have seen and read, it is premature to set upon a given methodology [with] the calculations seen so far,” he noted.

He was referring to discrepancies in Prepa numbers, which had to be corrected by the commission, to determine revenue requirements and the amount of the projected rate hike. In particular, Glass noted the disorganization and lack of transparency in the Prepa filing.

prepa billThe utility imposed a provisional rate hike of 1.299 cents per kilowatt-hour and is evaluating new permanent rates. The commission must decide on the rates by Jan. 11 or the matter will be left out of its jurisdiction.

Via Glass’s testimony, ICSE-PR virtually asked the commission to restart the process from scratch, with Glass stressing the need to develop a systematic filing process to improve transparency. “You should not require somebody who is an interested party to be an expert in accounting or economics, forecasting or an expert in using Excel,” he said. “It should be a standardized filing design where interested parties have summary chapter of the rate changes and the rationale for said changes.”

Glass said the filing should be divided in chapters focusing on revenue requirements, with each one containing a summary and workpapers backing up its contents. He also showed frustration that the Prepa tables were incomplete, and noted that a table that was used as an exhibit didn’t have footnotes or supporting papers.

“Some of the reduction in costs look suspiciously uniform. They could be perfectly legitimate, but I don’t have a complete narrative in front of me. It makes it difficult to understand whether the filing is reasonable,” he said.

Glass noted that if the filing were better organized, the commission would have spotted quickly the double counting of $37 million in subsidies that came up earlier in the hearing, as well as cost forecast discrepancies among Prepa consultants.

He also criticized the methodology used to calculate the hike, which is “based upon a modified cash basis revenue requirement with the formula rate mechanism,” adding, “It is basically a pass through; there is no risk on the surface associated with Prepa employees making mistakes. There is no risk associated with bondholders. The risk seems to fall on ratepayers,” he said, noting the uncertainty of the restructuring support agreement’s (RSA) approval.

Prepa reportedly has said it is seeking an extension of the RSA with creditors, as it won’t be able to meet a deadline to carry out a bond exchange to restructure its $9 billion debt.

Glass also told the Energy Commission that financial pressures seem to have created tunnel vision that prevents all parties from looking at other options. “It seems that everything is focused on paying back bondholders, getting to the bond market and keeping Prepa afloat. …All of the process is [centered on that and not in] other creative ways to raise funds and organize the industry,” he said, adding that provisional tariffs would allow Prepa to find other more socially conscious alternatives.


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