PREPA’s Agreement is Terrible for Puerto Rico

May 23, 2019 | 10:10 am
Jose Jimenez Tirado / Getty Images file
Paula Garcia
Senior Bilingual Energy Analyst and Energy Justice Lead

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A new agreement on Puerto Rico Electric Power Authority’s (PREPA) debt represents a major setback for the future of the island.

It’s not new that PREPA is in bankruptcy and that the priority of Gov. Roselló is its privatization. It’s also not new that Puerto Ricans have been worried about the possible disastrous consequences that the privatization can generate. These include the excessive increase in electricity rates and the exacerbation of public health and environmental problems due to the improper handling of ashes, air pollution and emissions causing the climate crisis.

These concerns are being confirmed with the recent announcement of the agreement reached between the Fiscal Control Board, the majority of PREPA’s bondholders, a PREPA bond insurer and Rosselló’s government.

To explore the implications of this agreement I talked with Dr. Agustín Irizarry, a professor of Electric Engineering at the University of Puerto Rico in Mayagüez.

What is this agreement about?

Through this agreement, a “debt charge” will be required to cover the deficit inherited from PREPA. This charge must be paid by all PREPA users starting this summer until 2067.

Additionally, the debt charge will apply to those who currently have or will install their own generation system in the future.

Why is the PREPA agreement concerning?

For several reasons:

  • Puerto Ricans will pay more than double the value of PREPA’s debt. The agreement establishes that Puerto Ricans must pay the debt charge for 47 years to cover a deficit of close to $9 billion. The current rate of 22 cents per kilowatt hour (kWh) will rise 2.8 cents/kWh in 2020 (before the election); it will rise 4.55 cents/kWh starting on 2043 and it will remain that way for more than 20 years. This means that for a debt of about $9 billion, Puerto Ricans will pay more than $23 billion without including between $100 million and $200 million to cover administrative expenses.
  • Autonomous generation users will also have to pay the debt charge. This is a moment in which people are searching for alternatives to avoid going through what so many had to endure, living months and months without energy after Hurricane Maria. That’s why after Maria everybody wants a solar system on their roof with a battery to store the energy. Hurricane Maria demonstrated the tremendous vulnerability of our centralized electric system. Therefore, autonomous generation systems should be promoted. On the contrary, the agreement establishes that the debt charge will also apply to those who own or install their own generation systems. Those who start generating their own energy with solar panels beginning on September 30, 2020 should pay the charge immediately after installing the system. And those who have installed their own generation systems before this date and are connected to the network, should start paying the debt charge for the energy they produce as of 2040.

Electric power in Puerto Rico is almost non-existent following Hurricane María.

What are the choices?

The agreement guarantees the payment of the debt but does not offer any alternative for:

  • increasing the reliability of the electrical network,
  • reducing air pollution by improving the health of Puerto Ricans, and
  • reducing the emissions that produce the climate crisis.

Since 1989, electricity rates have not risen, contributing in part to the lack of investment in the electricity infrastructure. This has had a negative impact in the quality of the service.

What must happen is that the agreement should not be signed because it only benefits bondholders. Instead, a planned rate increase should serve to settle the debt before 15 years, improve the reliability of the electric grid and help Puerto Ricans in their transition to a decentralized system. This decentralized system should provide an optimal service and respond to the challenges of our time. This will be a key step to increasing the resilience of the system in preparation for natural disasters such as María.

How to prevent PREPA’s agreement from moving forward?

The agreement must first pass through the legislature, the energy commission and the bankruptcy court before being approved. We must alert the public so that they know what is being proposed and act to prevent the approval of this agreement. Only by doing this will we be able to protect our energy future.

About the author

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Paula García is a senior bilingual energy analyst and energy justice lead in the Climate and Energy Program at the Union of Concerned Scientists. She evaluates energy resource and climate solutions in the electricity sector and works to further public understanding of clean energy technologies, policies and markets. Paula is committed to advance energy justice and sustainable development through her work.