Energy Rate Hike, Electricity Rate (up)

The Puerto Rico Energy Bureau (PREB) of the Public Service Regulatory Board rejected the original proposal of the Electric Power Authority (PREPA) for an adjustment of 2.14 cents per kilowatt hour (kWh), and approved a minor adjustment.

The cost for an average residential consumption of 800 kWh in the quarter that begins in April will be approximately $157.49 from $145.29 in the previous quarter; that is, $12.20 more per month.

This came after exhausting $316.5 million of federal funds and $141 million of available insurance policies.

As reported, the approved adjustment for the April-June quarter will be 1.53 cents kWh, 0.61 kWh lower than PREPA's original proposal. The adjustment responds to variations in fuel costs (FCA) and energy purchase (PPCA).

For the same period last year, the cost was 21.69 cents/kWh; that is, the same residential customer paid a total of $173.55, or $16.06 more than what they will pay this quarter.

On the other hand, the PREB also reconciled in the Resolution and Order of March 31, 2021, the months of June, July and August 2020 that had not been reconciled due to the inconsistencies indicated in the Resolution and Order of Sept. 29, 2020.

To avoid an increase to the consumer, the PREB deferred about $94 million based on expected payments for the claims to the Federal Emergency Management Agency (FEMA) and the Authority's insurers.

"Affects Everything"

The economist José Alameda argued that the increase in electricity "affects everything." He said that "it has an effect on residents, businesses, industry, manufacturing. It is an increase at a time when the economy has been severely disrupted by the pandemic crisis, so nothing good can be expected from this."

Alameda opined that more rate hikes will come as a result of the concession of the electrical system to LUMA Energy through a public-private partnership (P3) and the restructuring of the $9 billion debt that PREPA maintains with its creditors.

"LUMA cannot increase the cost in the next three years, but after that it is not known what will happen. Added to that is the restructuring that has a transitional rate that will increase annually," the economist said.

PREPA reached a second restructuring agreement (RSA) with its creditors more than a year ago with which they seek to reduce the amount owed to $3 billion, and whose repayment would be paid with a fixed transition charge and subject to a maximum default that does not vary with fluctuation in energy sales. Reportedly, the charge could exceed 4 cents over 40 years.

Alameda estimated that under the agreement, the government will lose about $30 million in revenue and that in the long run, the losses will be close to $1 billion. He estimated that residential customers will pay $986 more a year, in addition to the increases that have been approved so far.

Manufacturing Sector Reacts

The spokesman for the Alliance for the Economic Development of Puerto Rico and former president of the P.R. Manufacturers Association, Rodrigo Masses, also voiced his disagreement with any type of increase in the cost of electricity.

"Any element that aggravates the condition of the manufacture should be of great concern to us. Electric power is one of our weaknesses for economic development. There is still an inability to create a renewable energy project. An increase will have damaging consequences for pharmaceutical companies, but also for communities and other productive sectors such as services. This affects the economic development and quality of life of the island," Masses said.

He was echoed by Elizabeth Plaza, president of the pharmaceutical industry advisory firm Strategic Consultants International.

“This goes against the promotion, the growth of the manufacturing industry and the competition with other jurisdictions. We are going in the opposite direction. Increasing the cost of electricity is nonsense. It is not aligned with what we want to achieve with Puerto Rico. It will impact the economic development of the Country in the long term. We are the sector that produces the most well-paid jobs and we cannot play with that... with the electrical energy that affects manufacturing. It is totally unacceptable," she underscored.

Impact on Businesses

Representatives of Puerto Rico's commercial sector emphasized that the increase in the cost of electricity, when they are just beginning to rise from the pandemic and face other increases —in transport rates—, threatens the environment for doing business on the island.

Iván Báez, president of the Retail Trade Association (Acdet by its Spanish acronym), does not rule out that this new increase will generate a rise in prices. "We have to evaluate the impact, but undoubtedly, in the end it will be consumers who end up paying for this increase in electricity, which adds to the rise in the cost of electricity that they will also pay in their homes," he said.

The president of the United Retailers Center (CUD, Spanish acronym), Jesús E. Vázquez Rivera, understands that the government cannot continue to "punish" business owners and consumers on the island. “They talk about a $12 increase to residential accounts, but to businesses that amount of money translates into thousands of dollars. It is to continue paying for the inefficiencies of the Electric Power Authority. It's always the same excuse, but they don't do anything to be efficient," he reacted.

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