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  • Writer's pictureThe San Juan Daily Star

Retailers: PREPA debt plan could force up to 20% of island businesses to close

United Retailers Association President Lourdes M. Aponte Rodríguez

Environmental groups to challenge utility’s DAP in court on the grounds that it violates Puerto Rico’s energy public policy

By The Star Staff

While environmental groups said Monday that the Puerto Rico Electric Power Authority’s (PREPA) debt adjustment plan will hinder the transition to renewable energy sources, the United Retailers Association (CUD by its Spanish acronym) said it will also cause business closings.

CUD President Lourdes M. Aponte Rodríguez said at a news conference that the debt deal will lead to a debacle for small and medium-size businesses (SMEs) because they will not be able to afford rate hikes.

A study by Gustavo Vélez, an economist, indicates that some 20,000 to 40,000 jobs could disappear in the next two years because of the continuous increases in energy costs, which could cause the closure of 15% to 20% of businesses on the island.

“We are sending Judge Laura Taylor Swain a copy of this study [Monday] …” the CUD leader said. “We cannot allow an additional increase of 28% on the electricity bill. Merchants can no longer bear the increases in operating costs and the aid to this class, which drives the economy of Puerto Rico, is scarce. Our SMEs represent 95% of the establishments on the island, and 43.6% of the jobs created in Puerto Rico.”

According to data from Vélez, micro-businesses estimate that their electricity costs would represent 13% to 17% of general expenses if electricity costs increase, while small businesses estimate that they would be 13.1% to 17.1% of their costs. Midsize companies estimate that the numbers are 15.3% to 19.9%.

Another piece of information that emerges from the study by Inteligencia Económica Inc. is that the cost-reduction measures implemented by SMEs include reducing material purchases (36.6%), reducing the workforce (37.4%), cutting operating hours (42.1%) and delaying investment plans (60.9%).

The study also confirms that supportive policies, financial incentives and accessible resources are critical to facilitating and accelerating energy adoption.

While the CUD laid out the impact of the debt plan on their sector, eight environmental and community organizations said they will also object to the PREPA debt adjustment plan (DAP) in U.S. District Court because it would hinder the transition to distributed renewable energy.

The organizations also said the debt plan violates Puerto Rico’s energy public policy because it interferes with PREPA’s obligation to end power generation through the burning of fossil fuels and because the costly “inheritance charge” or “sun tax” penalizes residential (rooftop) solar within the net metering schedule.

The entities have previously presented their arguments to the federal Title III bankruptcy court in a report produced by renewable energy systems expert Agustín Irizarry Rivera. The engineer concluded that the inheritance or legacy charge that the Financial Oversight and Management Board intends to impose through the debt deal would create an energy burden on islanders that could only be escaped by leaving Puerto Rico or by partially or totally disconnecting from the electrical grid.

The energy expert also concluded that the proposed legacy charge would penalize consumers who have embraced renewable power generation through net metering by making rooftop solar more expensive.

Laura B. Arroyo, from Earthjustice, pointed out that “the expensive burden imposed by the Plan on the people, businesses and institutions of Puerto Rico violates the Public Energy Policy of Puerto Rico and the legislative mandates in this regard by penalizing residential solar energy and hindering the energy transition in Puerto Rico.”

“We reject the Puerto Rico Electric Power Authority debt adjustment plan presented by the Puerto Rico Fiscal Control Board (sic),” said Federico Cintrón Cintrón of El Puente de Williamsburg Inc.-Enlace Latino de Acción Climática. “The Puerto Rico Energy Public Policy Act calls for Puerto Rico to draw 40% of its generation from renewable energy sources by 2025, 60% by 2040, and 100% by 2050.”

Although it is subject to change, the PREPA DAP proposes to restructure PREPA’s debt principally through issuance of $5.68 billion of new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns $700 million in fuel line loans and projects roughly $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.

Under the proposed plan, PREPA will pay for the new bonds over 35 years through revenues from a legacy charge to PREPA’s customers.

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