Puerto Rico Gov. Alejandro García Padilla has proposed several changes to oversight of the island's electrical system partly aimed at lowering electricity prices to strengthen the economy.
García Padilla filed two central bills with the legislature, one to amend the laws governing the Puerto Rico Electric Power Authority and the other to create a commission to oversee PREPA, the governor's office said Thursday.
"It is a credit positive that the Governor is tackling the island's high power costs, which are often blamed for the island's ongoing economic recession," said Municipal Market Advisors managing director Robert Donahue. PREPA has $8.5 billion of bonds outstanding, rated Baa3 by Moody's Investor's Service, BBB by Standard & Poor's, and BBB-minus by Fitch Ratings. In addition it has about $750 million in operational line of credit debt and other loans and subordinated debt.
The bill to reform PREPA is intended to promote reliable electric service, more transparency in the administration of the agency, and the addition of customer participation in the decision-making process to set electric prices, said José Maeso, director of the Puerto Rico Energy Affairs Administration. The proposal would require PREPA to review the authority's rates every two years with public participation, according to the governor's office.
The bill would encourage PREPA to branch out from electrical sales, including the sale of access to PREPA's fiber optic network. PREPA would also be encouraged to lay down undersea cables to Caribbean jurisdictions so as to possibly sell its electricity abroad.
The second bill would establish a Commission on Energy and Telecommunications to regulate PREPA. PREPA would still come up with proposed rates, but they would be subject to review by the commission. If there were disagreements, there would be negotiation, Maeso said. The commission would have ultimate authority over rates.
The commission would also have approval power over contracts that PREPA is considering signing, particularly those that specify what prices PREPA would pay forelectricity from outside sources, Maeso said.
Measo's Energy Affairs Administration would be replaced by an Office on Public Policy on Energy. The office would be in the commission and would develop the country's policy on energy. It would aim to create a more permanent policy on energy, Maeso said.
There would be a stronger focus on efficiency and conservation, particularly by the government.As part of the commission, the office would have more implementation powers than the EAA has right now, Maeso said.
The PREPA bill specifies that providing for the payment of the authority's debt would be considered in the setting of the electrical price, Maeso said.
A wide variety of stakeholders, including PREPA, have offered their thoughts about the governor's bills, Maeso said.
Finally the governor is proposing that electric-powered cars be exempt from the commonwealth's excise taxes.
Currently the commonwealth taxes cars brought to the island at $6,000 to $7,000 per car, Maeso said. Those who purchase hybrid or electric cars are eligible for refunds of this tax. The new bill would make electric cars exempt from the tax at the start.
This would increase consumption of electricity on the island, Maeso said. Electrical consumption has been declining since 2006.
"While this is welcome and long overdue, MMA understands that this reform package has a wide variety of complex features which will require review and will be subject to legislative approval." Donahue said, "Perhaps most relevant to PREPA bondholders is the possible establishment of a public utilities commission and what level of rate making authority will reside in that entity. While the rating agencies have flagged such an authority as a credit negative, MMA understands that the Governor's bill preserves PREPA rate making but it remains unclear to us whether PREPA's authority will rank versus that of the [commission]."
The commonwealth's leadership "will need to make tough decisions balancing the island's need to become competitive in terms of costs of doing business and take a step toward economic stabilization," Donahue said. "It must also protect bondholder covenants."
