The agreement between the Puerto Rico Electric Power Authority (PREPA) and a significant part of its creditors will bring an increase of up to 4.6 cents per kilowatt-hour, which if added to other planned adjustments would imply an increase of up to 30 percent in the cost of energy in Puerto Rico over several years.
Yesterday, union leaders and representatives of the energy and industrial sector expressed their concern about the agreement, since they consider it does not seem to bring a reduction in energy costs that the island needs to build a competitive economy.
"When you add four cents here and other cents there, the average on extras makes an increase of six cents over the next 10 years for every kilowatt hour," said Tomás Torres Placa, Tomás J. Torres, the Consumer Interest Representative to PREPA's governing board.
"This deal is as bad as Cofina's. Based on the numbers that have been published so far, you can estimate that, in 40 years, this will cost Puerto Rico $28 billion. We are going to pay three times the original $9 billion debt," said Angel Figueroa Jaramillo, president of the Electric and Irrigation Industry Workers Union (UTIER).
La Fortaleza announced Friday the agreement reached with a group of bondholders and municipal bond insurer Assured Guaranty. Under the agreement, investors will exchange their bonds at 67.5 cents on the dollar and a yield of about 5 percent. They will receive a second bond equivalent to another 10 cents on the dollar, which would be paid after the first set is completed and if PREPA's finances allow it.
This means that the cut agreed on PREPA´s debt will fluctuate, subject to the public utility's finances, between 22.5 and 32.5 percent.
Bond insurers National Public Finance Guarantee and Syncora Guarantee did not sign the agreement and neither did those financial entities that lent PREPA money to buy fuel.
PREPA Executive Director José Ortiz said Friday that the cut in the principal and in debt service provides space for the public corporation to continue modernizing its infrastructure,
This is partly because PREPA debt will be paid by consumers through the special charge that will be included in the bill. This charge will start at one cent per kilowatt-hour by July this year and will reach 4.6 cents by the 33rd year. PREPA debt restructuring has an expected 40-year lifespan of the bonds.
Torres Placa noted that this does not consider the increase for PREPA pensions payment and other adjustments included in the utility´s Integrated Resource Plan.
"Let assume that they achieve some savings and the increase in the rate, in the end, is only five cents. That means they will reach 25 cents per kilowatt-hour, and that goes well beyond than what's established in the fiscal plan. There, (in the fiscal plan), the rate estimated for economic growth should be less than 20 cents," Torres Placa said.
All this is happening in a corporation that is going through a privatization process, and that would end up in the hands of entities that will probably seek a profit from the energy operation on the island, Figueroa Jaramillo added.
The union leader said the agreement is also inconsistent with Puerto Rico's economic projections. He stressed that they are proposing increases to a depressed economy, with a migration exodus and with hundreds of families and businesses disconnecting from the power grid. In other words, PREPA would increase its rates at a time when projections suggest that the economy would have no difficulty covering PREPA's energy operations.
"This is a terrible deal for the island," he insisted.
Meanwhile, Rodrigo Masses, president of the Puerto Rico Manufacturers Association, raised concerns about the agreement, since so far the capacity that the system will have to renew its sources of electricity generation is not clearly known.
He pointed out that PREPA's debt, the public corporation's capacity to reform itself and the cost of the kilowatt-hour have a direct impact on business operations and the island's manufacturing competitiveness.
"We are concerned, we are evaluating the project on a point by point basis," Masses said.
On Monday, PREPA and the Fiscal Oversight Board are expected to file a motion before Judge Laura Taylor Swain, in charge of the territorial bankruptcy cases, requesting the approval of the agreement.