CNE Says PREPA Deal Will Cost Puerto Ricans

The Center for a New Economy has published their analysis of the recent deal made by PREPA (Puerto Rico’s power authority), the PROMESA board, and several other organizations.

The CNE thinks the deal is too generous to creditors and too harsh for the residents of Puerto Rico. They also suggest as others have that the deals being made right now will make it harder for Puerto Rico to reach the stated goals for renewable energy.

These are the organizations involved in the deal:

  • The Puerto Rico Electric Power Authority (PREPA)
  • The Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF)
  • The Financial Oversight and Management Board for Puerto Rico (FOMB)
  • The Ad Hoc Group of PREPA Bondholders
  • Assured Guaranty Corp.
  • Assured Guaranty Municipal Corp.

The new deal gives creditors new bonds that will be 22.5% lower in value than their original bonds. This is the same reduction agreed to in 2018, and CNE points out that the 2018 deal was rejected because it was too high.

Where will the money come from?

Puerto Rico has not had the funds to pay back PREPA’s creditors. Since those debts were taken on, the Island’s economy has been further harmed by the worst hurricane on record. So where will Puerto Rico get the money to pay the creditors?

PREPA customers will pay a new surcharge on their electricity. From 2021 to 2044, they will pay an extra two to three cents per kilowatt hour to finance the bonds. CNE points out that this is actually more than was agreed on in 2018.

This “transition charge” will be paid by everyone who uses any goods or services from PREPA, including those who must also use generators or solar power to augment or back up their electricity.

There will also be a “subsidy charge” which will charge current customers for billed but unpaid kilowatt hours from the previous year. PREPA has a history of failure to collect billings, but CNE points out that this “subsidy charge” doesn’t benefit the consumers who pay it. There may also be a “settlement charge.”

In short, residents of Puerto Rico will pay the settlement with the creditors.

The new deal is not, CNE says, an improvement over the 2018 deal. It is probably not worth the additional costs associated with coming up with the new agreement.

Rising costs

Electricity is already more expensive in Puerto Rico than in the states — often twice as costly per kilowatt hour. The CNE calculates that the additional costs will increase electricity bills by more than 12%. This is a significant rise, especially given the high rate of poverty in Puerto Rico.

Some of the leaders involved in the discussion have suggested that PREPA will be able to reduce operating costs enough to balance the added costs of paying creditors. CNE doubts this. The payments promised to the creditors may make it impossible for PREPA to undertake the improvements needed to reduce operating costs.

CNE recommends that the entities involved in the negotiation try again

One Comment

Noel Serrano Ventura

Que los bonistas adquieran las plantas y las conviertan a Gas y hagan tanque igual que Eco Eléctrica usando ruta del búnker u petróleo en su propio terreno.

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