Puerto Rico Legislature Rules Out Governor-Proposed Electric Bill Hike
SAN JUAN – The majority New Progressive Party (NPP) leadership of the Puerto Rico Legislative Assembly ruled out Wednesday approving legislation that would increase electricity rates on the island—a key provision in the Puerto Rico Electric Power Authority (Prepa) restructuring support agreement (RSA) with the public utility’s bondholders.
The RSA requires lawmakers to approve legislation containing the rate hike as well as the creation of a “special purpose vehicle” (SPV)—similar to the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym)—that would issue new securitization bonds replacing existing bond issuances. The debt service on these bonds would be covered with additional revenue from a proposed surcharge, or “transition charge,” on customer electricity consumption during the 47-year period of the agreement.
This charge could increase electricity costs by as much as 20 percent over the next five years. It would apply to all consumers regardless of whether they generate their own electricity, unless they disconnect completely and permanently from the Prepa grid.
“We are not going to endorse any agreement, proposal or negotiation whose consequence will be increasing anything for any Puerto Rican,” Senate President Thomas Rivera Schatz told reporters Wednesday evening after coming out of a legislative conference meeting in which Gov. Wanda Vázquez Garced and Prepa Executive Director José Ortiz tried to persuade lawmakers to approve legislation they presented to increase Prepa rates by 4 percent to pay bondholders in the deal.
Rivera Schatz charged that the Financial Oversight & Management Board (FOMB), the federally appointed entity representing the commonwealth in debt-restructuring negotiations with bondholders, “intends to negotiate the [Prepa] debt with an increase in the electricity rate, and the answer is no.”
“The Legislative Assembly has said that we will not endorse any tax on the people, or increase in the electricity bill, as has been our policy from the start. The New Progressive Party government platform, which was presented to the people for scrutiny in the elections of 2016, says this,” said House Speaker Carlos Johnny Méndez Núñez, who appeared alongside Rivera Schatz after the meeting.
NPP lawmakers face a tough election year, as the NPP-dominated government has been marred by corruption charges, the resignation last year of Gov. Ricardo Rosselló, and continuing protests against Gov. Vázquez for perceived mishandling of the response to this month’s destructive earthquakes in the southwestern part of the island.
U.S. District Judge Laura Taylor Swain, who is overseeing the commonwealth’s debt restructuring process under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), ruled earlier this month in a favor of an unopposed motion presented by the FOMB and the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) to cancel a Jan. 14 hearing to review oral arguments for and against the RSA and reschedule it for “March 31, 2020 to April 1, 2020” at 9:30 a.m.
The hearing postponement—the fifth so far—was requested by the FOMB and the Vázquez administration to allow enough time to convince lawmakers to approve RSA-enabling legislation, and to allow Prepa and the commonwealth’s Public-Private Partnerships Authority to conclude the process of selecting the private company that will run the utility’s transmission and distribution system in a public-private partnership deal, according to court filings.
Speaker Méndez said that while the Legislative Assembly usually does not have to approve electric bill hikes, he noted that the FOMB is resorting to Judge Swain to obtain a legislative endorsement of the rate hike as part of the negotiation with Prepa bondholders.
“Right now, there is a negotiation between the board [FOMB] as a representative of the Puerto Rico government and creditors. But ultimately, the determination of whether the cost of electricity increases is an administrative decision,” the speaker said. “What the board intends is for the Legislative Assembly to endorse this agreement…. There is no agreement by the Legislative Assembly. Ultimately, if Judge Taylor Swain endorses the agreement reached by the government of Puerto Rico, we already have told the governor that our decision is to approve no increase, if a bill including the increase is submitted to us, we will not approve it.”
NPP Sen. Luis Daniel Muñiz from Mayagüez said both Ortiz and the governor seek to restructure Prepa “at the cost of a rate hike,” adding that “anything that has to do with taxes, I will vote against it.” The lawmaker was reportedly visibly upset after the meeting.
Rivera Schatz said the legislative conference discussed Prepa plans for improvements and reconstruction, the utility’s debt restructuring plan, and the “certain fact” of “projects to be inaugurated in February.”
“The restructuring agreement is a proposal that is being negotiated between creditors and Prepa. Obviously, in that agreement, there is a petition by them for [a rate] increase, but that is their proposal, which no House lawmaker, and no Senate lawmaker, agrees with,” the Senate leader said.
Lawmakers did not mention the other RSA provisions that the Legislative Assembly must pass—amending 17 commonwealth laws to exempt the SPV, wholly or partially, from rules enforcing government accountability and regulating public procedures and economic transactions.
The RSA, completed in May with the Ad Hoc Group of Prepa Bondholders and municipal insurer Assured Guaranty Corp., calls for a 32 percent cut in Prepa’s $9.12 billion in long-term outstanding debt. With the inclusion of bond insurers Syncora Guarantee Inc. and National Public Finance Guarantee Corp. in September, the agreement exceeded the minimum 67 percent threshold needed for approval.
While the FOMB and Prepa back the RSA as a vehicle for the utility’s quick exit from bankruptcy, customers and renewable energy advocates argue that the deal would favor bondholders at the expense of laws aimed at modernizing the island’s power grid and protecting customers from overbilling. They also charge that the required rate increases—which economists say could reach an estimated 50 percent when considering potential surcharges for other contingencies such as inadequate post-hurricane grid reconstruction aid and a gaping pension plan deficit—could deal a death blow to the island’s economy.
Puerto Rican sociologist Héctor Cordero Guzmán, a professor at City University of New York, concluded in a study that the RSA-proposed rate hikes would disproportionately affect low-income households on the island.
Although low-income customers consume less power than more affluent households, a family with an annual income of up to $6,499 and whose electricity bill is about $65 a month, would pay about $82.60 a month if the RSA-proposed rate hikes are taken into account, according to Cordero Guzmán.
The RSA includes a proposed settlement charge of 1 cent per kilowatt-hour (kWh) during the first year, and a basic transition charge of 3.46 cents per kWh between the second and fourth years of the agreement, and 3.7 cents per kWh during the fifth year. An additional subsidy charge could be up to 25 percent of the transition charge.
These charges on Prepa customers would be in addition to those proposed in the utility fiscal plan approved by the FOMB on June 27. They seek to cover the utility’s pension plan, post-hurricane reconstruction projects that may not be covered by Federal Emergency Management Agency funds, and any missed projections for fuel costs, energy purchases and renewable energy contracts.
Moreover, the RSA requires changing the law that established the Puerto Rico Energy Bureau (PREB) to limit its function with respect to the proposed RSA surcharge to merely ensuring that the per-kilowatt-hour fee is calculated properly to pay bondholders. PREB, which was created to look out for customer interests by revising and approving proposed rate hikes and fees, has ordered Prepa to return millions of dollars to overbilled customers.