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P.R. Energy Commission warned of rate hike’s dire impact on economy

By on December 3, 2016

Representatives from different business sectors are pleading with the Puerto Rico Energy Commission to refrain from increasing power rates or in the alternative set up provisional rates, warning that the economy cannot withstand the impact of a hike.

The Commission must make “reasonable” decisions by Jan. 11 about a hike in Prepa’s energy rate structure by taking into account Prepa’s revenue requirements, budget and operations, a task that has been made all the most difficult by the lack of adequate numbers by the utility. Prepa has put its revenues requirements at around $3 billion a year but other experts believe it should be less. The rate hike process before the Commission one of the requirements imposed by a debt restructuring agreement between the utility and its creditors.

Puerto Rico Electric Power Authority headquarters in Santurce / Inter News Service

Puerto Rico Electric Power Authority headquarters in Santurce / Inter News Service

Scott Hempling, an examiner for the Commission, asked that Prepa officials testifying next Monday on the reasonableness of the cost and revenue inputs to also provide information as to how much record keeping reporting, budgeting reporting and budgeting monitoring can be improved so that the commission and customers can hold Prepa accountable with respect to capital expenditures and operational expenditures. Hempling mentioned that some experts have been unable to assess the reasonableness of hundreds of millions of dollars in expenditures at Prepa because of lack of information.

Meanwhile, intervenors at a  rate hearing Friday, noted that power rates were already high and increasing them, would only hurt the economy.

Economist Ramon Cao provided a picture of the declining state of the economy, which he said would be worsen by higher utility rates. The business sector has cited high power rates as one of the impediments to growth.

Hempling, however, noted that power rates have gone down over the past two years because of a decline in fuel prices but that still the economy failed to expand.  But Cao insisted Prepa needs to reduce costs or find creative ways to increase revenues.

He noted that electricity sales are lower than in 2014 and will continue to decline. Prepa, he said, must consider that increasing rates could have an impact on demand for electricity.

“No analysis has been done on the implication of that rate increase for Prepa, for the public and for public policy,” noted Cao.

 

The business sector has cited high power rates

as one of the impediments to growth

 

In response to a question by Hempling, the economist said that if the Commission has to grant a rate increase, it could explore raising the portion of the rate structure that does not respond to demand but which is fixed by virtue of being a customer.

Cao also criticized the use of a revenue allocation model, in which different sectors provide a percentage of the revenues Prepa needs, because the different sectors of the economy will be affected differently.

Cathy Kunkle, who spoke on behalf of the Puerto Rico Institute for Competitiveness and Sustainable Economy, said the Commission can put provisional rates in place that reflect the need for Prepa to invest more in infrastructure while also undertaking the longer process of getting a better grip on operational expenses and debt.

Kunkle agreed that the Commission should not recommend a rate level based solely on what the public can afford because it could put Prepa at risk.

The Puerto Rico Electric Power Authority (PREPA) logo is displayed in San Juan, Puerto Rico, on Friday, April 29, 2016. The indebted Caribbean island, home to 3.5 million U.S. citizens, has juggled dwindling resources from one hand to another for months now, to keep creditors at bay. The crisis is set to tip into a new phase this weekend when $422 million of payments are due and, as things stand, unlikely to be made in full -- threatening the biggest default yet. Photographer: Erika Rodriguez/Bloomberg via Getty Images

The Puerto Rico Electric Power Authority (PREPA) logo is displayed in San Juan, Puerto Rico, on Friday, April 29, 2016. (Erika Rodriguez/Bloomberg via Getty Images)

Emilio Colón, vice president of the Homebuilders Association, said an increase in the rate could result in a hike in affordable home prices of about $1,743, which is the cost of building the house. He said he can not pass on that cost to consumers because the Legislature has fixed the prices for affordable housing, which range from $100,000 to $125,000.

He said that in Puerto Rico there is a need for at least 20,000 affordable housing units. “I don’t think the economic conditions are there for Prepa customers to assume a rate increase. We have fewer people paying for the same costs,” he said.

Enrique García, president of Cemex and Manuel Reginaldo Valente, a manager at the Company, said that Cemex stopped exporting cement manufactured locally after the provisional rate hike of 1.299 cents per kilowatt hour went into effect.  He said energy costs constitute 50% of its operational costs.

García said he has tried to seek a special rate from Prepa but that utility officials referred him to the Commission.

In the past, the manufacturing sector has approached Prepa with offers to help the utility in exchange for a reduction in rates. One of those instances was in 2014, when manufacturers proposed to prepay for consumption.

On the other hand, Hospital Association President Jaime Pla said  the rate hike would increase the operational costs at the island’s hospitals which are expected to endure more financial difficulties when certain federal funds for health care services are no longer available.

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