PREPA rates need to be cut or Puerto Rico faces economic woes, economist says
2 min read
The Puerto Rico Electric Power Authority cannot afford to pay anything toward its debt, an economist told the bankruptcy judge.
Electricity rates need to be lowered for Puerto Rico’s economy to show long-term growth, University of Puerto Rico Professor José Israel Alameda Lozada said in a report submitted Monday.
Rates above 16 cents per kilowatt-hour, would lead to contraction, he calculated.
The Puerto Rico Oversight Board cited economist Andrew Wolf, who said rates above 21.4 cents per kWh would cause economic growth below “sustainability.”
Currently, Puerto Rico’s electric rates are 22.58 cents per kWh for residential, 25.12 cents per kWh for commercial, and 22.80 cents per kWh for industrial users.
The board’s proposed plan of adjustment would lift rates by as much as 3.4 cents per kWh, Alameda Lozada said in addition to a proposed 2.4-cents per kWh charge for PREPA pensions.
Alameda Lozada said the 3.4 cents increase — known as a “legacy charge” — would cause a “downward economic spiral,” and failures of the PREPA and commonwealth plan of adjustments. He did not say the same about the payments supporting the pensions.
The Retirement System of the Employees of the Electric Energy Authority, which represents retirees in the PREPA bankruptcy, hired Alameda Lozada to provide the report.
The board said it “will respond in detail in court.”
“The report is full of factual errors and erroneous assumptions,” said Puerto Rico Clearinghouse Principal Cate Long, who pointed out “the proposed legacy charge … exempts all households under a certain income threshold.”
The Puerto Rico Oversight, Management, and Economic Stability Act “is explicit that debt has priority over paying pensions,” Long said, noting that if there’s no money to repay the debt, pensions should get cut.
The report follows four reports bondholders and bond insurers filed Saturday in the bankruptcy arguing PREPA could afford more than the $5.7 billion in debt net present value the board currently says it can afford.
PREPA is in bankruptcy and a plan of adjustment hearing is scheduled for late July. It has about $10.1 billion of debt liabilities, excluding interest since the filing of the bankruptcy in 2017.
