Condo owners file petition detailing negative effects of proposed PREPA debt plan
By The Star Staff
The Condominium Owners Association (COA) told the judge overseeing the Puerto Rico Electric Power Authority’s (PREPA) bankruptcy late last week that the utility’s proposed debt adjustment plan will have a detrimental effect on the thousands of families living in high-rise structures or walk-ups.
“As a practical matter, condominium titleholders simply cannot resort to the most common alternatives to minimize the impact of energy rate increases. Even if individual titleholders change their individual consumption of energy, the cost of energy services for the common areas is beyond the individual’s control,” the COA said in a court filing seeking to participate in the proceedings to advocate for its members. “Moreover, it is nearly impossible, both economically and often legally, to install and maintain a solar panel system, inverters, and batteries that could power a condominium in the same way the electric grid does.”
The COA educates condominium titleholders regarding their rights, conducts research and creates databases regarding the horizontal property regime (condominium law) in Puerto Rico, and advocates for the rights of individual condominium titleholders in Puerto Rico. The petition was submitted on behalf of the association by its lawyer, Judith Berkan.
In a condominium, a structure where multiple individuals and families own their individual units, title holders must share the cost of maintaining common areas that are co-owned by all private property, or apartment, owners through the payment of monthly maintenance charges.
“It is important to note that in a condominium, any increase in services, such as electricity or the purchase of renewable energy sources, if applicable, directly affects all its owners,” notes the petition filed Friday. “No owner can contribute more or less than what is defined in the master deed.”
“In this type of multifamily housing, it is almost impossible to control the use of communal electricity as one would in a single-family house,” the petition says. “In a condominium, an owner cannot decide to turn off the patio or pool lights. He or she cannot manually open gates. Nor can the titleholder simply climb stairs to the 14th floor with groceries in hand. An aging population also highlights the fact that a number of owners have mobility issues and necessarily rely on elevators for access to their housing units.”
The impact of electrical rate increases is particularly notable in the context of a condominium, the document notes.
“Rate increases in energy service in Puerto Rico will create a domino effect where the increased costs of other service providers’ contracts will be passed on to condominium titleholders or renters as operating costs,” the petition says. “Moreover, whereas a sole owner or resident in a house, or of a rental in buildings other than condominiums, can exercise certain control over electricity usage and even invest in alternative renewable energy sources, this is rarely an option for condominium owners.”
All condominiums in Puerto Rico are legally obligated to prepare an annual budget for presentation in the required annual assembly of titleholders. Among the expenses to be paid by each titleholder, as reflected in the monthly maintenance fee, is the payment for communal electricity service, which is separate from what each owner pays for electricity consumption in his/her private apartment.
“In other words, a condominium owner pays for two electricity bills: one for their private apartment or property, where the owner has control over electricity usage, and another for the service and maintenance of the common areas, which is shared among all other owners, and over which the titleholders have no individual control,” the petition notes.
Among the most expensive budget items for condominiums is the payment for common electrical service. It is impossible for a condominium to function without electricity, which directly affects the quality of life of all its owners. Common areas include hallways, elevators, storage facilities, many rooftops, lobbies, recreational areas, and parking spaces.
There are three types of condominiums: high-rise vertical, walk-up horizontal, and mixed condominiums, which can be a combination of high-rises and walkups. And there are two categories of essential services: those necessary for living and those related to security.
“The centrality of electrical services, as essential to life in condominiums, is not subject to serious question,” the groups said. “Importantly, electric service to condominium common areas is intimately related to water service, which is the essence of life. High-rise condominiums often rely on electric pumps to deliver water to the higher floors. Without these pumps, it is impossible for water to reach all of the building’s apartments. Condominium titleholders faced with a lack of both electrical and water service risk life-threatening conditions. Many condominiums also require and depend on air conditioning.”
Besides depending on elevators, which also depend on electricity, and security services like fire suppression systems and fire alarms, condominiums are required to have electric vehicle charging stations in parking lots if requested by titleholders.
“It is important to note that alternative energy source systems are often not a viable option,” the petition notes. “Unlike many single-family housing units, or low-rise rental buildings here, condominiums in Puerto Rico rarely can resort to alternative renewable energy sources. Several factors impact upon this situation, including the limited space and land available to install services capable of supplying the necessary energy to maintain essential services, as well as the high costs that titleholders would have to bear for the purchase and maintenance of the equipment required to keep all services running at full capacity in a condominium.”
The economic strain placed on condominium titleholders through the projected rate increases will be extremely difficult for some titleholders and impossible for others, the petitioners said.
The PREPA debt plan in essence proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion of new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus approximately $218 million in prepetition accrued interest on such bonds. The utility also owns $700 million in fuel line loans and projects some $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.
Under the proposed plan, PREPA will pay for the new bonds over a 35-year period through revenues from a “legacy charge” to PREPA’s customers.
The legacy charge for certain customers not currently benefiting from subsidized electricity rates would be, on average, about $19 a month that will be added to the utility bill. The PREPA legacy charge, which will be used to pay bondholders, would exclude qualifying low-income residential customers from a connection fee and kilowatt-hour (kWh) charge for up to 500 kWh per month. For non-subsidized residential customers, the proposed PREPA legacy charge would be: a flat $13 per month connection fee, and 75 cents per kWh for up to 500 kWh per month of electricity provided by PREPA, and 3 cents per kWh for electricity above 500 kWh per month.
For commercial, industrial, and government customers, the PREPA legacy proposed charge would entail a connection fee of $16.25 for small business customers, $20 per month for smaller industrial companies, and $1,800 per month for large businesses proportional to their current rate.