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IEEFA joins open letter on PREPA Plan of Adjustment

June 08, 2023

The letter represents diverse sectors of Puerto Rican society in calling for the plan to be withdrawn or amended

June 8, 2023 (IEEFA) — This week 47 organizations and 15 individuals representing unions, labor organizations, as well as legal, energy and finance experts, submitted an open letter to the Financial Oversight and Management Board (FOMB) for Puerto Rico stating their agreement that Puerto Rico cannot afford the electricity rates proposed by the current debt restructuring plan. The open letter calls on FOMB to withdraw the plan or amend it to meaningfully reduce the unsustainable debt burden.

Six years after Hurricane Maria made landfall, Puerto Rico’s electrical system remains highly unreliable; prone to frequent outages and voltage fluctuations. Outages can last for hours, days, or even weeks. The system depends on expensive fossil fuel imports for 95% of its generation, despite the existing consensus and the approved public policy that recognize the need to rapidly transition to renewable energy to reduce costs.

Five years ago, the FOMB set a target of achieving rates below 20 cents per kilowatt-hour by 2023 to enable Puerto Rico’s future economic vitality; average rates over the last year have been above 28 cents, more than double the U.S. average. Customers in Puerto Rico are migrating to rooftop solar at rates much faster than the Board has predicted in order to escape a failing grid. Even without additional rate increases, the electrical system is not economically viable.

The Puerto Rico Electric Power Authority (PREPA) remains in bankruptcy, with more than $9 billion in legacy debt obligations. The plan proposes to extract more than $13 billion to pay PREPA’s legacy creditors, by imposing double-digit rate increases for the next 35 years or more. Combined with ongoing high fuel costs and defection from the grid, these charges will likely keep rates above 30 cents/kWh for decades, accelerating the rate at which customers leave the grid and the island.

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,” said Tom Sanzillo, IEEFA director of financial analysis and a signee of the letter. “The signatories to this letter include groups that have often been publicly at odds in the past, but have united in this public declaration to say that the proposed debt deal is not viable for Puerto Rico.

Imposing an unpayable debt burden will negatively impact the economy and lead to a future electrical system bankruptcy. The current high cost of electricity, combined with unstable power service, impacts all segments of Puerto Rican society. 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. It should be withdrawn or drastically amended.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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