Dive Brief:
- The Financial Oversight and Management Board for Puerto Rico, or FOMB, should withdraw or amend a proposed utility debt restructuring plan because it would maintain unaffordable electricity rates on the island, dozens of community advocates, economists, conservationists and energy experts said in an open letter published Thursday.
- The plan would address the Puerto Rico Electric Power Authority’s more than $9 billion in debt obligations but would “likely keep rates above 30 cents/kWh for decades,” pushing more customers to abandon the grid and leave Puerto Rico, the groups said. The utility is also known as PREPA.
- The plan must be approved by the U.S. District Court for the District of Puerto Rico. The FOMB, created by Congress in 2016 to assist in restructuring the territory’s debt, said in a statement that its proposed plan would cut debt by almost 50% “and would provide the financial stability necessary to invest in a modern, resilient, and reliable energy system.”
Dive Insight:
It has been almost six years since Hurricane Maria destroyed Puerto Rico’s grid, leaving residents without power for months. Efforts to transform the island’s aging grid to a more reliable and sustainable system have been stymied by billions in debt and a declining population to pay for grid upgrades, say experts.
“Customers that do not leave Puerto Rico are migrating to rooftop solar at rates much faster than the Board has predicted in order to escape a failing grid,” the groups wrote. “Even without additional rate increases, the electrical system is not economically viable.”
Puerto Rico lawmakers want to bring electric rates below 20 cents/kWh, but observers say they are moving in the wrong direction.
Electricity rates averaged more than 28 cents/kWh over the last year, more than twice the U.S. average, while median household income “is less than half that of the poorest U.S. state,” according to the groups. “Imposing an unpayable debt burden will negatively impact the economy and lead to a future electrical system bankruptcy,” they wrote.
“The proposed debt plan will only weaken an already failing system, in addition to provoking more business closures, layoffs, and outmigration, further imperiling the island’s economic recovery,” they said.
Groups that signed the letter include dozens of community organizations, the local Sierra Club chapter, Environmental Defense Fund and the Institute for Energy Economics and Financial Analysis, or IEEFA.
“This letter represents something that the FOMB has not been able to achieve in six years: a consensus among diverse sectors of Puerto Rican society,” Tom Sanzillo, IEEFA director of financial analysis, said in a statement.
In response, the FOMB said its plan would cut PREPA’s debt almost in half while also allowing for necessary grid investment.
“Puerto Rico’s economy cannot grow with unreliable power provided by a bankrupt utility,” FOMB said. “A financially healthy PREPA will benefit everyone, every resident and every business. This Plan would achieve those goals.
“Every board member is keenly aware that this PREPA legacy charge is painful for Puerto Rico, its residents, and its business,” FOMB added.
LUMA Energy began operating Puerto Rico’s electric grid in 2021, managing the PREPA system through a public-private partnership. The company has requested more than $8 billion from the Federal Emergency Management Agency to support hundreds of modernization initiatives.
While the island’s generation is largely fueled by imported fossil fuels, Puerto Rico lawmakers have set a 100% renewables target with interim goals of 40% by 2025, a phaseout of coal-fired generation by 2028 and 60% renewables by 2040.
