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  • Writer's pictureThe San Juan Daily Star

Economists warn about negative effects of PREPA debt plan

Economist Ramón Cao

By The Star Staff

Tom Sanzillo, José Alameda and Ramón Cao, analysts who presented reports on the economic impact of the Puerto Rico Electric Power Authority (PREPA) debt adjustment plan, warned on Monday of possible negative repercussions from the plan.

“The proposed Adjustment Plan is not viable and does not provide the capital and operational resources necessary for reliable electric service in Puerto Rico,” Sanzillo said in a written statement.

“This plan will keep the island dependent on expensive fossil fuel imports, without considering other options that could stabilize costs and decrease our dependence on these fuels,” the economists said in the statement.

The PREPA debt plan proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion in new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns PREPA $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 would pay for the new bonds over a 35-year period through revenues from a legacy charge to PREPA’s customers. but the board has said an affordable and sustainable legacy charge will generate only $5.68 billion in additional net revenues.

The plan imposes a legacy charge of, on average, about $19 a month added to the utility bill for certain customers not currently benefiting from subsidized electricity rates. The PREPA legacy charge, which will be used to pay bondholders, would exclude qualifying low-income residential customers from a connection fee and a 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 PREPA’s commercial, industrial and government customers, the proposed legacy charge would entail: a monthly connection fee of either $16.25 for small business customers, $20 for smaller industrial companies, and $1,800 for large businesses proportional to their current rate. They would pay between 97 cents and 3 cents per kWh per month for electricity provided by PREPA.

Sanzillo, along with fellow economists Alameda and Cao, filed reports to the federal bankruptcy court warning about the economic impact of the proposed adjustment plan.

Cao cautioned that further increases in electricity rates would have a significant negative impact on Puerto Rico’s economy.

“Rate increases would negatively impact the economy, which would also result in a reduction of more than 75,000 jobs by 2030,” he said.

Alameda stressed that the imposition of the so-called legacy charge creates an additional burden for residents and the industrial and commercial sectors.

“When you consider the impact of the Legacy Charge, the Fiscal Plan proposed by the central government becomes unsustainable,” he said.

The three analysts insist on the need to explore alternatives that can lead to a balanced and sustainable solution to PREPA’s debt.

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