OVERSIGHT BOARD FILES AMENDED PROPOSED PREPA PLAN OF ADJUSTMENT
Ensures Plan of Adjustment Remains Confirmable by The Court; Almost Half of Puerto Rico’s Households Would be Exempt From PREPA Legacy Charge up to Certain Level of Energy Consumption; Charge Subject to Approval by Energy Regulator
San Juan, PR – February 9, 2023 – The Financial Oversight and Management Board for Puerto Rico filed an amended proposed Plan of Adjustment to restructure the debt of the Puerto Rico Electric Power Authority (PREPA), including a schedule to repay the reduced debt.
The Plan proposes to cut PREPA’s more than $10 billion of debt and other claims by almost half, to approximately $5.68 billion. The Plan would allow PREPA to end its bankruptcy and provide the financial stability necessary to invest in a modern, resilient, and reliable energy system essential for the Puerto Rico economy to grow. The substantially reduced debt would be paid by a hybrid charge consisting of a flat connection fee and a volumetric charge based on the amount of PREPA customers’ electricity usage that would be added to the electricity bills.
“This Plan would lower the potential burden on Puerto Rico residents and businesses more than any agreement the Oversight Board or the Government had reached with creditors in the past,” said the Oversight Board’s Chairman David Skeel.
“Every board member is keenly aware that this PREPA legacy charge is painful for Puerto Rico, its residents, and its business,” Skeel said. “Customers are not to blame for PREPA’s bankruptcy. That is why the Oversight Board continues to be mindful of the effect even greatly reduced debt payments would have on Puerto Rico’s residents and households when negotiating a Plan that we believe the U.S. District Court should confirm. PREPA has not been required to pay its debt while it is in bankruptcy, but there is no legal way to erase PREPA’s liabilities completely. PREPA needs to move on from this bankruptcy and return its focus to servicing Puerto Rico’s power needs.”
The estimated PREPA legacy charge for customers not currently benefiting from subsidized electricity rates would be, on average, about $19 a month. The PREPA legacy charge would exclude qualifying low-income residential customers from the connection fee and kWh charge for up to 500 kWh per month.
“Almost half of PREPA’s roughly 1.4 million residential customers would not pay any PREPA legacy charge if they consumed less than 500 kilowatt-hours of electricity per month,” Skeel said. “Customers who reduce energy consumption would be less affected.”
For non-subsidized residential customers, the proposed PREPA legacy charge would be:
- A flat $13 per month connection fee.
- 0.75 cents per kilowatt-hour (kWh) for up to 500 kWh per month of electricity provided by PREPA, and 3 cents per kWh for electricity above 500 kWh per month.
For commercial, industrial, and government customers, the PREPA legacy proposed charge would be:
- A connection fee of between $16.25 for small business customers, $20 per month for smaller industrial companies, and $1,800 per month for large businesses proportional to their current rate.
- Between 0.97 cents and 3 cents per kWh per month for electricity provided by PREPA.
The proposed PREPA legacy charge is subject to approval by the Puerto Rico Energy Bureau (PREB), the independent energy regulator. PREB may not implement the PREPA legacy charge the way it is described in the Plan. PREPA’s rates, however, must comply with its obligations on the reduced debt.
The Oversight Board took many factors and data into consideration to determine the PREPA legacy charge, and carefully analyzed how much Puerto Rican households pay for their energy needs as a share of their income. The Oversight Board also considered the significant risks PREPA faces from volatile fuel costs, which make up the largest share of customers’ bills, the increased needs for future investments in PREPA’s grid and power generation, and the potential effect of customers switching to alternative sources of energy in the future.