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Prasa to impose next rate increase in July

By on March 26, 2018

SAN JUAN — The Puerto Rico Aqueduct and Sewer Authority (Prasa) will impose a second rate hike in July and moderate annual increases until 2022. However, if the public corporation fails to renegotiate its debt or borrow from markets, affordable rates for its customers would be out of the picture.

The information is contained in the draft submission of the fiscal plan for Prasa delivered last Friday. This rate hike goes hand in hand with the expected outcome in the energy sector and the austerity measures included in the commonwealth’s fiscal plan, that include the anticipated reduction in pensions.

The six-year fiscal plan for Prasa dictates that, after the rate hike in last January, there could be hikes in July of each year from 2018 to 2022, of 2.5 percent for residential customers; 2.8 percent for the commercial sector; 3.5 percent for industrial customers; and 4.5 percent for the government. However, the 30-year long-term projections state that Prasa could continue to increase its rates by 3 percent annually after 2023.

The fiscal plan justifies these hikes by using as base reports from three different companies: Arcadis, FTI Consulting y Raftelis Financial Consultants.

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The proposed charges do not include a $15 service reconnection fee that went into effect last January for customers whose service was suspended.

In its fiscal plan, the public corporation states that this rate structure will provide coverage for operational costs and debt obligations, if restructured, but not capital improvements. Prasa seeks to reduce the quantity of water not charged. After an analysis, and taking into consideration migration and uncollectable accounts, Prasa could face revenue losses of $711 million in the next six years.

All this, despite reductions in operating expenses that include a payroll cut of 4,900 employees by the end of 2018, savings in retirement expenses and wage freezing until 2022.

Meanwhile, the public corporation is in negotiations to restructure its $4.7 billion debt and has leniency agreements on its payments. These accords –for loans of $580 million from the Clean Water State Revolving Fund (SRF) and $390 million from the Rural Development Program (RDP)– will expire in April and June, respectively.

As part of its debt management, Prasa states in its fiscal plan that it will not pay the debt service of $162.7 million related to the Superaqueduct, since it is not a general obligation of Prasa. The document states that “Prasa has been unable to make such payments in recent years”.

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Despite its fiscal situation, Prasa intends to invest $3.4 billion in resiliency projects. This includes $150 million in off-grid energy projects and $320 million for improvement of water treatment capabilities. The financing of these projects will be done in part with debt restructuring agreements and by using money granted by these creditors.

Prasa will not be privatized like the Puerto Rico Electric Power Authority (Prepa) because this mechanism has been fruitless in the past. However, the public corporation intends to privatize customer service and the operation of hydroelectric plants.

Regarding the latter, Prasa expects to assume the operation and improvements of the hydroelectric plans together with the private sector to cover 40 percent of its energy expenses, one of its highest expenditures.

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