Examiner: PREPA’s revenue requirement should include its debt amount

Scott Hempling, the hearing examiner in the ongoing Puerto Rico Energy Bureau hearings to establish new power rates (LinkedIn)

By THE STAR STAFF

A point of contention in the ongoing Puerto Rico Energy Bureau (PREB) hearings to establish new power rates is whether the rates should reflect any amount to pay PREPA’s debt.

The problem is that the Puerto Rico Electric Power Authority (PREPA) remains in bankruptcy and a decision as to how much the public corporation will pay in debt, whether $9 billion or less, has yet to be decided. PREPA bondholders are insisting that they want their debt to be paid.

Scott Hempling, the hearing examiner, noted that the PREB has already stated, via the filing requirements, that it will consider whether to include in the revenue requirement an estimated proxy for legacy debt.

He said nothing in the federal Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, preempts the PREB from carrying out its obligation to make rates just and reasonable.

“Including in rates an estimate of what will emerge from the Title III process has no effect on that process,” Hempling said. “Of course, any estimated debt amount included in the rates would be subject to reconciliation with what becomes the actual debt amount.”

He said customers should help pay PREPA’s debt. The legacy debt funded assets that benefit today’s customers.

“Just-and reasonable rates always reflect the costs of assets that benefit the customers paying those rates,” he said, a point he reiterated during a hearing this week. “Not to even consider whether customers in FY26 should pay something toward this debt is arbitrary and capricious.”

While PREPA is correct that it is not known what the final number will be, any number could be right or wrong except zero, Hempling added.

“PREPA wants the Energy Bureau to adopt for debt the one number that everyone knows is wrong. Where’s the logic for that?,” the examiner said. “Yes, the commonwealth government might provide the funds. And for the next three years there might be no hurricanes and no storm costs. Still, we must consider the possibilities and set rates accordingly.”

According to PREPA, the Financial Oversight and Management Board (FOMB) said PREPA will not be able to impose any additional rate increases for debt service above the rates necessary to pay for the fuel and purchased power costs and maintenance costs.

Hempling said the oversight board doesn’t set rates; the PREB does.

“The FOMB doesn’t decide what nondebt costs go into rates; the Energy Bureau does,” he said. “Rate dollars are fungible. There are an infinite number of ways to build a practicable revenue requirement -- one that customers will actually pay -- from debt dollars, operational dollars, fuel dollars, and capital expenditure dollars. The FOMB does not build that revenue requirement; the Energy Bureau does.”

PREPA can use its post-hearing brief to argue against including a legacy debt estimate in rates, Hempling noted.

“But I am not removing the question from this case,” he said. “What I ask from the witnesses are useful thoughts about credible numbers to use, and methods for reconciling estimated debt amounts with later-determined actual debt amounts. PREPA worries that parties in the Title III process could seek to rely on a determination by the Energy Bureau on these matters -- even if based on incomplete or speculative information, or rendered without proper legal authority -- as persuasive evidence against PREPA in the Title III proceedings.”

He said no party and no Title III judge will misinterpret a PREB decision that labels a debt line item as an estimate to be replaced by the debt amount emerging from the bankruptcy case.