Gov’t will provide nearly $74 million for PREPA pensions to avoid rate hike

Speaker of the Puerto Rico House of Representatives Carlos “Johnny” Méndez Núñez (Facebook via Jenniffer González Colón)

By The Star Staff

Speaker of the Puerto Rico House of Representatives Carlos “Johnny” Méndez Núñez announced Tuesday that Gov. Jenniffer González Colón has allocated $73.7 million in the new budget specifically for the pension payments of Puerto Rico Electric Power Authority (PREPA) retirees.

“There will be no increase in electricity rates to fund the pensions of PREPA retirees, as the Governor has identified over $73 million to address the issue responsibly,” Méndez said in a written statement.

Rep. Víctor Parés Otero, chairman of the House Government Committee, pointed out that the amendment to the operating budget, labeled A-25, allocates funds for pension payments starting in July. He emphasized that there is no need for LUMA Energy or PREPA to submit proposals for a rate increase.

The funds will be sourced from PREPA’s Contingent Obligation Financing Program for the Retirement System and will be managed by the Treasury Department, in accordance with agreements made with the Financial Oversight and Management Board.

At a press conference later in the day, the governor confirmed that a temporary hike in energy rates would not be necessary to meet pension payments for PREPA retirees.

“We submitted House Joint Resolution 85, in the House version, to relinquish funds, and the pension funds are available until March 31,” González Colón said. “So what we’re talking about is increasing the number of months until June, and that relinquishment of funds would cover April, May and June, and for that, there’s no need to increase the electricity rate.”

The Puerto Rico Energy Bureau (PREB) had previously instructed PREPA to work with LUMA Energy on submitting a petition for a temporary rate adjustment to facilitate pension payments starting in April 2025.

In a motion issued on Monday, the PREB also instructed LUMA Energy to take all required steps to include a rider for the recovery of pension funds in the next billing cycle, if implemented.

In January, PREPA proposed two new strategies to tackle the pension funding crisis. The strategies would necessitate collaboration among PREPA, the PREB, the island government and private operators to achieve sustainable results. One proposal included analyzing the budgets of LUMA, electric power transmission and distribution system operator, and Genera PR, the operator of PREPA’s legacy power plants, to identify potential savings. PREPA suggested a 10% reduction in LUMA’s budget and a 2% reduction in Genera’s, reallocating those savings to PREPA to help cover its monthly pension obligations. However, the combined savings would amount to $75 million, enough to fund only three months of PREPA’s Employee Retirement System obligations, leaving a shortfall of $225 million for the year.

After this month, PREPA said, it would not have sufficient resources to meet its pension obligations.

The PREB emphasized that the ongoing rate review process, led by attorney Scott Hempling, would address the long-term pension funding issue. However, due to the procedural timeline of the rate case, it would not resolve the immediate shortfall that PREPA would face starting in April of this year. Therefore, unless an alternative funding mechanism was identified quickly, a temporary rate adjustment would be necessary to alleviate PREPA’s pension funding crisis, the PREB said.