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  • The San Juan Daily Star

PREPA board member: PAD subverts regulator’s powers regarding rates

Tomás Torres Placa

By The Star Staff

The Financial Oversight and Management Board, through the debt adjustment plan for the Puerto Rico Electric Power Authority (PREPA), would hinder the powers of the Puerto Rico Energy Bureau (PREB) to determine rates, a member of the electrical utility’s board said Monday in a radio interview.

The PREB is the entity in charge of regulating the energy sector. One of its duties is to control and determine energy rates for consumers.

Tomás Torres Placa, the consumer representative on the PREPA governing board, said PREPA’s debt adjustment plan (PAD by its Spanish acronym) submitted to the court last Friday contains language that deters the PREB’s powers. The latest PAD filed to restructure the $10 billion PREPA debt would create a legacy charge added to customers’ bills to pay bondholders for 35 years, would eliminate the workers’ pension system and would pay more to bondholders who settle their claims.

He said there is a section that undermines the regulatory powers of the PREB because it would limit the entity’s jurisdiction “so that they do not create an effect against that fiscal plan.…”

“The financial oversight board is going against the powers of the Energy Bureau,” Torres Placa said.

To help pay for the debt, the PAD establishes a temporary, hybrid transition charge, called the “Legacy Charge,” which would be added to PREPA’s rates to allow for sufficient net revenues to provide a source of repayment for the new bonds issued by PREPA under the PAD.

The legacy charge may involve both a volumetric component based on customer class and a customer’s electricity use, and/or a flat monthly connection charge for being connected to PREPA’s electricity grid, based on customer class. The flat fee component is designed to provide a relatively more consistent and predictable cash flow while charging customers for access to PREPA’s electricity grid and not based on usage in any given month.

“Revenues from the volumetric component are projected to decrease with time as demand for electricity decreases on the island,” the PAD states. “The quantification of the Legacy Charge added to a given customer’s bill will be determined considering factors such as a customer’s rate class. For example, the most vulnerable customers or subsidized residential customers are not intended to be assessed any connection charge and would only be assessed a volumetric charge if their consumption exceeds approximately 500 kWh [kilowatt-hours] per month.”

Other customer accounts would be subject to a connection charge, a volumetric charge for consumption up to approximately 500 kWh, and an equivalent or higher volumetric charge for consumption over approximately 500 kWh. Based on electricity demand projections pursuant to PREPA’s 2022 certified fiscal plan, the legacy charge is expected to generate some $5.4 billion of revenue over the next 35 years.

However, Torres Placa said the intention is contradictory to law, since section 11.29 A-6 of Title III of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, establishes that any PAD must comply, among other requirements, with the approval of changes in rates by the local regulatory entity, which in this case is the PREB. The foregoing is stipulated by Law 57 of 2014, the Energy Transformation and Relief Law.

Meanwhile, the oversight board submitted an incomplete PAD because it leaves information on rates up in the air, the governing board member noted.

Torres Placa said that in Exhibit 1 of the PAD, there is a space to establish the fixed charges in the rates, and the variable charges reflected in cents per kilowatt-hour.

However, on Feb. 28, 2023, those charges are supposed to be stipulated, since it is the deadline for the disclosure hearing.

Also, LUMA Energy is in a countdown period to “show cause” or justify before the PREB an additional $27 million in spending in the budget without authorization from the entity.

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