PREPA Cuts Electric Rates

The Puerto Rico Electric Power Authority, the public corporation that's restructuring about $8.5 billion of debt, cut its November electricity rates by 7.7% days after commonwealth officials indicated that bondholders should expect cuts on bond payments.

PREPA made the announcement of the rate cut on its web site Wednesday. The cost of a kilowatt hour will decrease to 25.92 cents from 28.08 cents. That compares with the average residential electrical rate in August 2014 in the United States of 13.01 cents per kilowatt hour.

PREPA executive director Juan Alicea Flores said the rate decrease was due to reduced fuel costs for the authority's power plants and improved system efficiency. Oil is PREPA's primary generation fuel. The price per barrel of Brent crude oil fell to $84 on Wednesday from $115.71 on June 19.

"We are making our best effort to ensure that customers get reliable service at the lowest possible cost, attending to the public's concerns about energy costs," Alicea Flores said in the statement.

"Yesterday, PREPA announced a reduction on the electric bill for the November billing cycle due to a decrease in the price of fuel purchased," PREPA spokesperson Yohari Molina Morales said in an email. "PREPA 's bills have two components: basic rates and fuel charges. This last component is a cost passed-through in the customers' bills and when affected by the market fluctuations, those fluctuations are passed on, as well. Oil barrel prices have dropped in the last weeks.

"As part of our transformation and restructuring process, we are working hard on a new business plan that will allow PREPA become more efficient and sustainable," she continued.

"The issue to watch is whether they can lock in the low rates for some kind of period and who will share in the cost savings," Joseph Rosenblum, AllianceBernstein's director of municipal credit research, said in an email.

PREPA, after tapping its reserve fund at the start of July to make a semi-annual debt payment, reached a forbearance agreement with lenders in August that gives it until March to come up with a restructuring plan. The power authority has hired Lisa Donahue of AlixPartners to lead the effort.

In a webcast on Oct. 30 Puerto Rico's government presented a slide saying the PREPA's restructuring "will require contribution from all stakeholders in order to create a new, modern and sustainable utility that will serve the people of Puerto Rico over the long-term." Natalia Guzman, advisor to the Government Development Bank of Puerto Rico president, presented this part of the webcast.

In late May Puerto Rico Gov. Alejandro García Padilla signed a bill to reform Puerto Rico's electricity sector. One of the goals of the reform was to lower Puerto Rico's electricity rates.

The law required PREPA to begin a review of its rates within 180 days and to complete the review within an additional six months.

After adjusting for inflation, Puerto Rico's gross national income declined 13% to 2011 from 2007, according to World Bank data. To 2013 from 2011, it expanded by 1%, after adjusting for inflation.

Economists and members of Puerto Rico's government have pointed to Puerto Rico's relatively high electrical rates as a burden on its economy.

For reprint and licensing requests for this article, click here.
Puerto Rico
MORE FROM BOND BUYER