Puerto Rico’s Electricity Crisis Deepens as Bondholders Push for Higher Rates Amid PREPA’s Bankruptcy
The ongoing battle over Puerto Rico’s electricity rates has reached a critical juncture, with bondholders demanding that the Puerto Rico Energy Bureau (NEPR) factor in the full extent of the Electric Power authority’s (PREPA) debt when setting new rates. This move could see electricity prices soar to unprecedented levels, further straining the island’s already fragile energy system.
According to sources cited by El Nuevo Día, the inclusion of PREPA’s bond debt in rate calculations could increase subscribers’ bills by up to eight cents per kilowatt-hour (kWh). When combined with quarterly fuel cost adjustments, this could push the price of electricity in Puerto Rico to between 35 and 36 cents per kWh, a staggering figure that would place an even heavier burden on households and businesses already struggling with high energy costs.
The Bondholders’ Stance
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The bondholders, represented by entities such as National Public Finance Guarantee Corporation, goldentree Asset Management, and Assured Guaranty, argue that PREPA’s debt is “certain” and must be addressed. They contend that the Fiscal Oversight Board (JSF) has been reluctant to reach an economic agreement that would resolve PREPA’s bankruptcy, leaving creditors without payment for eight years.
In a recent filing, the bondholders emphasized that the NEPR must consider the total amount of PREPA’s public debt when determining the utility’s income requirements. “The credit of these bondholders cannot be evaded,” their lawyers stated, adding that the debt represents a claim against PREPA’s past, present, and future net income.
PREPA’s Financial Struggles
PREPA’s financial woes are not new. Since 2018, the utility has delayed adjusting its base rate, citing natural disasters and legal constraints tied to its bankruptcy process under Title III of the federal Promesa law. however, critics argue that these delays have onyl exacerbated the crisis, leaving PREPA without the funds needed to maintain and upgrade its aging infrastructure.
The Fiscal Oversight Board,on the other hand,has pushed back against the bondholders’ demands,warning that higher rates could drive more subscribers to abandon the grid in favor of private energy solutions. “Setting high rates to pay bondholders will not be feasible,” the Board argued,noting that many subscribers would be unable to afford the increased costs.
A Looming Rate Hike
The NEPR is required by law to review PREPA’s base electricity rate every three years, or more frequently if necesary. With bondholders now actively intervening in the rate review process, the pressure is mounting for a resolution that balances the utility’s financial obligations with the affordability of electricity for consumers.
As the debate continues, one thing is clear: Puerto Rico’s energy crisis is far from over. The island’s residents, already grappling with frequent power outages and high costs, now face the prospect of even steeper electricity bills.
Key Points at a glance
| Issue | Details |
|——————————-|—————————————————————————–|
| Proposed Rate Increase | Up to 8 cents per kWh, possibly raising rates to 35-36 cents per kWh. |
| Bondholders’ Demands | Full inclusion of PREPA’s bond debt in rate calculations. |
| PREPA’s Financial challenges | Delayed rate adjustments since 2018, citing disasters and bankruptcy. |
| Fiscal Oversight Board’s Concerns | High rates may drive subscribers to private energy solutions.|
What’s next?
The outcome of this dispute will have far-reaching implications for Puerto Rico’s energy future. Will the NEPR side with bondholders, risking higher rates and potential grid defections? or will it prioritize affordability, leaving PREPA’s debt unresolved?
As the island’s energy regulator weighs its options, one thing is certain: the decisions made today will shape Puerto Rico’s electricity landscape for years to come.
For more insights into Puerto Rico’s energy challenges, explore our coverage of the Puerto Rico Electric Power Authority and its ongoing struggles.
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This article is based on information from El Nuevo Día and other linked sources.The ongoing bankruptcy process of the Puerto Rico Electric Power Authority (PREPA) has taken a contentious turn as bondholders and regulators clash over the establishment of a new electricity rate. The dispute centers on the inclusion of PREPA’s $8.5 billion debt in the calculation of operational costs, a matter that has notable implications for both the utility and its customers.
The objecting bondholders, who own 60% of PREPA’s current bonds, have expressed “deep concern” over the approach taken by the NEPR (Puerto Rico Energy bureau) in determining the new rate. In a response signed by their legal representatives, they emphasized that the debt remains valid until a resolution is reached under Title III, as established by the First Circuit. “Until that moment, this (the debt of about $8.5 billion) is a valid debt,” the bondholders stated.
The NEPR is tasked with calculating PREPA’s income requirements, which involves identifying the costs of operating the system.Bondholders argue that the payment of public debt must be included in these costs. However,the NEPR consultants have explored several scenarios that bondholders deem questionable. these include estimating bondholder payments at zero,basing calculations on a voided $2.5 billion offer made by the Board last year, or including an amount less then the $8.5 billion recognized by the First Circuit. Additionally, the consultants have considered alternative budgets and potential cuts to keep rates lower.
The Board’s $2.5 billion offer, intended to resolve PREPA’s bankruptcy, was rejected after a court ruling favored the bondholders. This has further complicated the negotiations, as bondholders insist on full recognition of the debt. “PREPA simply must charge subscribers what is necessary to cover their expenses. If certain customers cannot pay the resulting rates (from the rate review), then that issue must be resolved by reallocating costs to other customers via rate design and/or through government subsidies,” stated National, Assured, Syncora, GoldenTree, and other bondholders.
The table below summarizes the key points of contention:
| Issue | Bondholders’ Position | NEPR’s Position |
|——————————-|——————————————————————————————|————————————————————————————|
| Debt Inclusion | $8.5 billion debt must be included in operational costs. | Exploring scenarios that exclude or reduce debt payments. |
| Rate Calculation | Rates should cover all expenses, including debt. | considering alternative budgets and cuts to lower rates. |
| Previous Offer | Rejected the Board’s $2.5 billion offer as insufficient. | Based calculations on the voided offer.|
| Customer Impact | higher rates may be necessary; subsidies or cost reallocation can address affordability. | Prioritizing lower rates, potentially at the expense of bondholder payments. |
The outcome of this dispute will have far-reaching consequences for PREPA’s financial stability and the affordability of electricity for Puerto Rican residents. As the process unfolds, the tension between bondholders and regulators underscores the complexity of balancing fiscal responsibility with public welfare.
Editor’s Questions:
Editor: Can you explain the core issue between PREPA’s bondholders and the NEPR regarding the new electricity rate?
Guest: The core issue revolves around whether PREPA’s $8.5 billion debt should be included in the calculation of operational costs when determining the new electricity rate.Bondholders argue that this debt is valid and must be accounted for, as it represents a legal obligation under Title III of the bankruptcy process. On the other hand, the NEPR is exploring scenarios that either exclude or considerably reduce the debt payments, aiming to keep electricity rates lower for consumers. This disagreement has created a contentious standoff, with bondholders insisting on full debt recognition and the NEPR prioritizing affordability.
Editor: What are the potential consequences if the NEPR excludes or reduces the debt in its rate calculations?
Guest: If the NEPR excludes or reduces the debt in its rate calculations, it could lead to important financial instability for PREPA. Bondholders have already expressed deep concern, and such a move might result in prolonged legal battles, further delaying the resolution of PREPA’s bankruptcy.Additionally, excluding the debt could undermine investor confidence, making it harder for PREPA to secure future financing. On the consumer side, while lower rates might provide short-term relief, the long-term sustainability of the utility could be compromised, perhaps leading to service disruptions or higher costs down the line.
Editor: How does the rejected $2.5 billion offer from the Fiscal Oversight Board play into this dispute?
Guest: The rejected $2.5 billion offer is a critical point of contention. Bondholders view this offer as insufficient and have outrightly rejected it, especially after a court ruling favored their position. The NEPR, though, has based some of its rate calculations on this voided offer, which bondholders argue is not a valid basis for determining rates.This rejection has further complicated negotiations, as bondholders are now more insistent on full debt recognition, while the NEPR continues to explore ways to keep rates affordable for consumers.
Editor: What are the bondholders suggesting as a solution to address the affordability of electricity for consumers?
Guest: Bondholders are suggesting that if certain customers cannot afford the resulting rates, the issue should be addressed through cost reallocation or government subsidies. They argue that PREPA must charge subscribers what is necessary to cover all expenses, including debt payments. By reallocating costs or providing subsidies, they believe it’s possible to balance the need for financial stability with the need for affordable electricity.This approach, though, would require significant coordination and potentially additional government intervention.
Editor: What are the broader implications of this dispute for Puerto Rico’s energy future?
Guest: The broader implications are profound. The outcome of this dispute will shape Puerto Rico’s energy landscape for years to come. If the NEPR sides with bondholders, it could lead to higher electricity rates, potentially driving consumers toward private energy solutions and causing grid defections. on the other hand, if the NEPR prioritizes affordability and excludes the debt, it could leave PREPA’s financial issues unresolved, risking long-term instability. Either way,the decisions made now will have a lasting impact on the island’s energy infrastructure,financial health,and the quality of life for its residents.
Conclusion:
The ongoing dispute between PREPA’s bondholders and the NEPR highlights the complex balancing act between financial obligation and public welfare. With $8.5 billion in debt at stake, the resolution of this issue will have far-reaching consequences for Puerto Rico’s energy future. Whether the NEPR includes the debt in its rate calculations or opts for lower rates, the decisions made today will shape the island’s electricity landscape for years to come. as the process unfolds, the tension between bondholders and regulators underscores the need for a sustainable and equitable solution that addresses both fiscal stability and consumer affordability.
