Rate case examiner seeks data on PREPA pensions

Scott Hempling, the hearing examiner overseeing the Puerto Rico Electric Power Authority’s rate case (amazon.com)

By THE STAR STAFF

Scott Hempling, the hearing examiner overseeing the Puerto Rico Electric Power Authority’s (PREPA) rate case, has requested detailed responses from the utility regarding its pension obligations and the proposed $307 million recovery from ratepayers.

The inquiry, directed to PREPA and its Employees’ Retirement System (SREAEE by its initials in Spanish), seeks to clarify the legal, financial and operational dimensions of the pension liability and its implications for electricity rates. Many ratepayers have said the government should find alternatives to pay the pensions. The pension payments are part of current rates.

Hempling asked PREPA to explain the origin and legal structure of SREAEE, including its statutory authority and relationship to PREPA. He also requested the current estimate of the unfunded pension liability and how it relates to the proposed $307 million recovery. The examiner is seeking clarity on whether this amount is derived from the total liability and what factors -- such as underpayments, rate levels, fund management, and macroeconomic conditions -- contributed to the shortfall.

The examiner raised legal questions about whether the pension liability constitutes a pre-petition claim under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) or a current operating expense. He asked whether including the liability in rates would bypass the court-supervised bankruptcy process and whether the automatic stay restricts the Puerto Rico Energy Bureau (PREB) from acting. He also inquired about potential refund mechanisms if pension benefits are later reduced by the Title III court.

Hempling requested information on whether PREPA is adding new beneficiaries or benefits to its defined benefit plan and whether such actions are permissible under PROMESA. He also asked about PREPA’s legal authority to modify benefits for retirees, vested former employees and current employees.

The examiner asked for a breakdown of the $307 million, including portions attributable to retirees, current employees, and administrative costs. He also questioned whether the $11.9 million in operations and maintenance costs for retirement administration is part of the $307 million. Additionally, he requested projections for fiscal years 2027 and 2028 and the impact of employee transfers to LUMA Energy and Genera PR on pension liabilities.

Hempling sought information on cost-reduction and efficiency measures being undertaken by the SREAEE and what oversight PREPA is exercising to ensure such reforms are implemented.

Finally, the examiner asked whether PREPA has explored funding sources beyond ratepayers and whether the SREAEE has considered integrating with Puerto Rico’s broader public pension systems. He also requested contingency plans in case the PREB denies or reduces the proposed pension funding rider.

The information must be turned in by Nov.14.