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  • Writer's pictureThe San Juan Daily Star

Fiscal board denies gov’t request for $200 million from Emergency

Financial Oversight and Management Board Chairman David Skeel

By The Star Staff

The Financial Oversight and Management Board on Thursday denied the government’s request filed on March 10 for the board’s authorization for the use of no less than $200 million from the Commonwealth’s Emergency Reserve Fund for the Puerto Rico Electric Power Authority (PREPA) to stabilize and mitigate increases in electricity rates because, the board said, granting the request would have negative consequences.

“A one-time cash injection to PREPA to cover increases in fuel costs would only provide a temporary and artificial reduction in the cost of electricity and would not protect customers against the volatility in fuel and energy prices that characterizes the current environment,” the chairman of the oversight board, David Skeel, said in a letter. “In light of projections suggesting that the price of oil will continue to increase over the foreseeable future, the proposed cash injection, while minimizing price increases today, will end up exposing customers to much higher increases in the future (to make up for the lack of increases today) or require the Commonwealth to further use its limited resources to continue injecting cash into PREPA.”

The oversight board said it is aware of the increased volatility in fuel prices and other commodities as global markets reflect uncertainty surrounding, among other factors, the Russian invasion of Ukraine, COVID-19 recovery, and continuing supply chain constraints.

“While we share your concern about the potential effects of this volatility, especially for the most vulnerable Puerto Ricans, the nature of your request (the Commonwealth providing funds for an expenditure that should ordinarily be funded through PREPA’s own revenues), as well as the proposed source of funding (the Commonwealth Emergency Reserve), could have serious and unintended negative consequences for the overall well being of Puerto Rico’s citizens and its economy,” Skeel said.

Moreover, applying the cash injection against PREPA’s fuel cost would temporarily subsidize electricity costs to all customers, instead of providing longer-term relief to vulnerable customers most affected by the increases, the letter said. Because the proposed measure would not shield PREPA from volatile oil prices, nor would it provide vulnerable customers with longer-term relief, “the Oversight Board cannot responsibly agree to the request,” the letter said.

“As noted, the Oversight Board shares your concern about the financial burden rapidly rising energy, fuel, and other costs puts on Puerto Rico’s most vulnerable households,” Skeel said. “To the extent that the government seeks to mitigate these higher costs, we encourage you to explore using federal funds currently available to Puerto Rico to support the households most adversely impacted by the current situation.”

The American Rescue Plan and other COVID-related disaster programs offer several potential alternatives to provide relief to vulnerable customers, he noted.

“The government could, for instance, prioritize the disbursement of the $35 million Puerto Rico received for home energy assistance through the Low Income Home Energy Assistance Program (LIHEAP),” Skeel said. “Alternatively, the government could use a portion of the island’s $565 million in funding allocated from the Emergency Rental Assistance Relief Program (ERAP) to help with past-due utility bills or to provide ongoing assistance with energy costs to help distressed renters avoid shut-offs and keep current on utility expenses. Both of these programs, and the funds associated with them, are readily available for use to help vulnerable households, and we encourage the Government to deploy such funds expeditiously.”

The government could also allocate a portion of the $1.7 billion remaining in the State and Local Fiscal Recovery Fund to start a targeted energy credit program designed to support households with the greatest need, the oversight board chairman suggested.

“These programs could be designed to serve as a supplement to the LIHEAP and the ERAP programs described above, and thus provide eligible households with additional assistance,” the letter said.

“The Oversight Board would discourage the central government from simply making a cash transfer to PREPA using federal funds, similar to the action taken by the government in October 2021, whereby a $76 million subsidy of American Rescue Plan funds was given to PREPA to offset higher fuel costs. These types of direct transfers and subsidies are typically ineffective and costly, and provide a one-time solution, leaving customers still at risk of additional future increases,” Skeel’s letter said.

“Your request also raises additional concerns, particularly as they relate to the independence of public corporations and the uses and purposes of the Commonwealth Emergency Reserve,” Skeel said.

The oversight board chairman also said that depleting the Emergency Reserve would leave Puerto Rico dangerously vulnerable in the event of a future natural disaster.

“The long-term solution to PREPA’s challenges is to complete the transformation of Puerto Rico’s energy sector to deliver the safe, reliable, and affordable service that Puerto Rico’s residents and businesses deserve,” Skeel said. “Given Puerto Rico’s high exposure to oil prices, expediting permitting processes so that new renewable energy resources can be developed quickly and on a timely basis must be a priority. The Government of Puerto Rico must act to ensure the over 800 megawatts (MW) of renewable energy projects recently approved by PREB [the Puerto Rico Energy Bureau], and the over 3,000 MWs expected to be procured over the next few years, can be developed and integrated as quickly as technically possible.”

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