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P.R. business groups challenge power rate hike

The June 2016 order by the Puerto Rico Energy Commission provided for a new surcharge to service the $9-billion PREPA debt restructuring. (Credit: © Mauricio Pascual)

The June 2016 order by the Puerto Rico Energy Commission provided for a new surcharge to service the $9-billion PREPA debt restructuring. (Credit: © Mauricio Pascual)

A group of nine leading Puerto Rico industry and business associations on Tuesday filed a legal challenge against a Puerto Rico Energy Commission move to impose the first in a series of what they called “unlimited, blank check” rate increases under the Puerto Rico Electric Power Authority debt-restructuring agreement.

The plaintiffs — Institute for Competitiveness and Sustainable Economy of Puerto Rico, the Puerto Rico Manufacturers Association, the United Retailers Association, the Puerto Rico Products Association, the Chamber of Marketing, Industry and Food Distribution (known as MIDA for its initials in Spanish), Puerto Rico Hospitals Association, the Puerto Rico Hotel & Tourism Association, the Puerto Rico Builders Association, and the Association of Contractors and Consultants of Renewable Energy — seek to block the rate hike that “hinders the already weakened Puerto Rico economy and could unravel the PREPA debt deal.”

If allowed to proceed, the initial 22 percent rate increase would be one of the largest in recent U.S. history to be imposed on a state-wide or territory-wide basis. The June 2016 order by the Puerto Rico Energy Commission provided for a new surcharge to service the $9-billion PREPA debt restructuring.

According to the filing, the groups claim PREPA requested that the complete financial cost of the restructuring is passed to the Puerto Rico energy consumers plus an additional increase on the base rate.

PREPA is seeking to raise electricity prices by 22 percent in the first year of the plan or 4.2 cents/KWh, increasing the rates from 16.5 cents/kWh to 20.1 cents/kWh in 2017. The order also imposes the surcharges to energy generated by the consumer, “behind-the meter” generation, as renewable energy or other distributed generation means as co-generation.

“As approved, these charges are an unnecessary and direct hit to Puerto Rico’s already struggling economy,” said Tomás Torres, coordinator for ICES-PR. “It also goes against national and international market trends toward expansion of renewable energy and distributed generation.”

“If electricity rates are allowed to continue to increase, and options for establishing own generation are blocked with excessive surcharges, production costs would considerably rise and Puerto Rico will lose competitiveness in the manufacturing and other important sectors of our economy, with fewer options for economic development,” he said.

Meanwhile, PRMA President Rodrigo Masses said, “None of us are against the restructuring of PREPA or a well-structured process that results in the long term benefit to all parties. Wall Street investors need to understand that short-term measures may result in an excessive financial burden resulting in the unraveling of the proposed restructuring process; and the financial banning of renewable and distributed energy, will not provide a medium- or long-term solution.”

The Institute for Competitiveness and Sustainable Economy of Puerto Rico (ICSE-PR) is governed and founded by industrial leaders Waleska Rivera, Carlos Rivera-Vélez and Josen Rossi.

Following the filing, the PREPA Bondholder Group responded to the lawsuit, saying through its financial advisor Stephen Spencer, that the “lawsuit is misguided and based on various flawed assumptions.”

“Essentially, the plan objectors are proposing that PREPA dissolve its debt restructuring plan, which would raise costs for consumers, cause further delay in reforming PREPA and would fail to move Puerto Rico any closer to greater use of renewable energy,” he said.

The PREPA Revitalization Act was thoroughly publicly examined and deemed to be in the best interests of Puerto Rico’s citizens, ultimately being passed by both the Commonwealth’s House and Senate, and then signed into law by the governor, Spencer said.

“Under this statute the authority will have a new local professional board that will set policies and priorities to help guide PREPA’s recovery,” he added.

“Importantly, the PREPA bondholders support the revitalization and diversification of PREPA’s power supply base, including the use of renewable energy, which is why we’ve offered billions of dollars in debt service relief through interest and principal reductions — including a 15 percent haircut — to support needed reinvestment in the system,” he said.

This allows PREPA to choose how it deploys these savings to best serve all of its stakeholders and whatever mix of generation assets PREPA ultimately elects, the fact remains that the PREPA deal provides a dramatic financial benefit to both the company and its customers, the bondholders’ spokesman added.

“We have every confidence that this deal will get done in the near-term — because ultimately it represents the best compromise that will lead to a more prosperous economic future for the Commonwealth, its residents and its business community as a whole,” Spencer finalized.

Author Details
Author Details
Business reporter with 29 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.

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