A yet undefined increase on water rates for residential and commercial customers could come as early as mid-July, if lawmakers are unable to move a bill authorizing financing mechanisms for the cash-strapped Puerto Rico Aqueduct and Sewer Authority, agency officials said Wednesday.
This week, PRASA’s board authorized the utility’s budget for Fiscal 2017, which although balanced at $1.07 billion, includes a line item of $280 million in “other revenue” that PRASA must shore up either through external financing or rate increases, PRASA Executive Director Alberto Lázaro said.
An amount for the “emergency rate increase” has not yet been established, he added.
“The emergency rate increase has been used only once in PRASA’s history. What the law requires is that 30 days after it is implemented, we have to hold an informative public hearing. That increase is only valid for six months. If we need to have it in place for longer, then that would require formal public hearings,” Lázaro said.
The agency was expecting to have the PRASA Revitalization Act approved last week, which among other things, would authorize it to seek external financing to pay off its debt with contractors and bondholders. However, an apparent stand-off between lawmakers at the House and Senate over also granting PRASA a securitization mechanism to conduct a bond exchange with creditors has held the bill back.
“We’re surprised and disappointed about what happened at the Senate last week. We thought that after six months of working with the House and Senate, we had a bill that wasn’t ideal, but that we could work with,” he said.
“There are seven days left to the fiscal year, and the PRASA board is firm on its position that on June 30 it will evaluate what, if anything, has come out of the legislature to decide what we’re going to do regarding a rate increase,” he said, noting that it would likely go into effect in a week or two into the 2017 fiscal year that starts on July 1.
Lázaro referred to a decision by Senate President Eduardo Bhatia to pull House Bill 2786 and its accompanying report from going to a vote, after it had received the go-ahead from both chambers in conference committee meetings. That bill proposed the exchange of some $5 billion in junior and senior debt for new, better-quality bonds, as well as the go-ahead to raise up to $750 million in new financing.
However, the Senate objected to the bond swap, saying it would make it possible for PRASA to get further into debt, and deleted it from House Bill 2786. A conference committee was called to reconcile the amendments, including writing the bond exchange back in and increasing the cap for new money to $900 million.
Bhatia held the House bill from going to a vote, saying PRASA needs to nail down a restructuring proposal before asking for the securitization vehicle — similar to what the Puerto Rico Electric Power Authority did to get its bond-issuing mechanism.
“Where is the offer here? Where is it in writing? There has been no negotiation here like there was in PREPA, there’s no restructuring officer who has sat down with creditors to negotiate,” Bhatia said. “They want to put the carriage before the horse here, to have the terms before sitting down with creditors. They aren’t ready.”
Bhatia also questioned the claim Lázaro made Wednesday that a bond swap as it had been approved in the House bill would represent a saving for PRASA of $632 million and a reduction in debt service of $48 million starting the first year.
“Says who? Where’s the offer confirming PRASA will get new bonds at 4 percent interest. That’s wishful thinking at a time when nobody in Puerto Rico, in government, has credit and at a time when an oversight board is being crafted in Congress that can change the terms of any contracts whenever it wants,” said Bhatia, who introduced Senate Bill 1702 late Monday to address the PRASA situation.
At the House, both Speaker Jaime Perelló and Bill 2786 author Rep. Rafael “Tatito” Hernández said they would not consider the new bill. Lawmakers have until Saturday to approve the final measures of the last session of the year.
“Filing a new bill is irresponsible. We had an agreement that was headed for the governor’s signature and suddenly, the Senate acted like it did,” Perelló said. “That has jeopardized the approval of a measure that is completely necessary for PRASA. The proposal the Senate has sent to the House doesn’t solve PRASA’s problems.”
“This is a very difficult situation that attempts against the trust in the work that both chambers have done,” Perelló said. “I don’t see any possibilities in the Senate bill.”
Meanwhile, PRASA has been implementing cost-savings measures, including one introduced last week to migrate residential and business customers to paperless billing. Lázaro said the agency stands to save about .50 cents for every paper bill it does not have to print and mail. If the agency’s entire 1.2 million-client base were to switch to paperless, the agency would save $6 million annually.
“In a week, we’ve already seen 12,600 customers make the switch. It would be ideal if we were to get at least half of our customer base to go paperless,” he said, noting that customers have to go to the agency’s website to enroll in paperless billing.