Dive Brief:
- The Puerto Rico Electric Power Authority (PREPA), the U.S. territory’s public utility and only electricity provider, has received approval from its governing board for a rate increase of $0.04/kWh to help underwrite of its $9 billion debt restructuring deal.
- If approved by the Puerto Rico Energy Commission (PREC), ratepayers will see a $0.013/kWh higher volumetric charge for electricity beginning in August and a $0.0299/kWh increase during Q1 2017. Without recent debt restructuring moves, the rate increase would have been $0.11/kWh, according the utility.
- In the restructuring, bondholders and bond-insurance companies absorbed $0.052/kWh by agreeing to accept 85% of what they were owed. Streamlining reforms also saved ratepayers from a $0.024/kWh increase in securitization charges, the utility said.
Dive Insight:
The PREPA Revitalization Act that maps out the restructuring was signed into law by Gov. Alejandro Garcia Padilla in February. It allowed implementation of a restructuring support agreement (RSA).
The RSA allows PREPA to exchange debt owed to an Ad Hoc Group, representing the majority of PREPA’s bondholders, for new securitization notes valued at 85% of their existing claims.
The restructuring deal is expected to reduce the utility's obligations by $600 million and postpone another $700 million-plus of its debt for five years. It also includes new standards for operations and an investment plan.
Under the Restructuring Act, funds made available through the restructuring could be used to move PREPA to more natural gas and renewables generation and away from the dependence on expensive fuel oil-generated electricity that has contributed to its financial difficulties.
The Act also imposed changes to utility governance and affirmed the regulatory authority of the Puerto Rico Energy Commission (PREC).
The Act also allowed for the imposition of a securitization charge, which will help PREPA cover its cash flow gap and keep the utility operating while the PREC assesses the rate restructuring," according to PREPA governing board chair Harry Rodriguez.
In 2015, PREPA generated 51% of the territory's electricity came from petroleum, 31% from natural gas, 16% from coal, and 2% from renewable energy, according to the EIA.
Though prices dropped recently due to lower oil prices, Puerto Rico residents still pay more for electricity than those of any U.S. state except Hawaii, with residential rates of $0.1674/kWh in February of this year.
