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Prepa must increase rates to meet debt payment

By on March 26, 2018

SAN JUAN — The Puerto Rico Electric Power Authority (Prepa) would have to increase energy rates to more than 30 cents per kilowatt-hour (kWh) to meet its debt obligations, and cover operational costs and pensions, which would make the restructuring of Prepa’s debt a requirement to bring down energy prices.

Although the draft fiscal plan Prepa delivered last week is unclear about a rate hike to 30 cents a kWh, it warns projections show there is no money available to pay the debt to its bondholders, unless rates are increased or another income source is found.

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

The draft is incompatible with remarks made by Gov. Ricardo Rosselló that would bring the price of electricity to 20 cents a kWh or less because this scenario could only become real if the debt is not met.

The debt’s sustainability analysis, which presents various levels of rate hikes, shows a rate hike of 5 cents per kWh to meet debt obligations would generate about $1 billion. An energy rate of 30 cents per kWh would generate about $5 billion.

The report states Prepa’s rate structure is divided into basic and provisional charges, as well as fuel and power cost adjustments. The Puerto Rico Energy Commission (PREC) recently approved a rate structure that eliminates the 11 percent surcharge to pay the contribution, instead of taxes and subsidies, which will now go directly to consumers.

Solving the Prepa puzzle: will robust regulation secure lower rates?

The fiscal plan calls for a formula rate mechanism—rejected by PREC—to adjust rates as needed. Like the previous fiscal plan, the new document condemns PREC for trying to “micro-manage” Prepa and oversee areas outside its purview.

In fact, local law states that Prepa needs PREC’s authorization to approve a rate hike. PREC requested an injunction against the Financial Oversight & Management Board to reinforce its jurisdiction over Prepa.

Prepa must invest at least $17 billion to strengthen its infrastructure, but only has about $13 billion available in federal funds.

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