High energy costs threaten Puerto Rico’s businesses as debt restructuring looms

Energy cost impacts Puerto Rican businesses five times more than US businesses.

In Puerto Rico the cost of electricity is double the average rate in the US. In fact, electric bills are higher on the island than in all 50 states, except Hawaii.

This data was once confirmed by the economist and university professor José Caraballo Cueto, who conducted a study on the impact that the Adjustment Plan of the Electric Power Authority (PDA-AEE by its Spanish initials) would have on businesses in Puerto Rico, if approved.

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Federal Judge Laura Taylor Swain is evaluating the PDA, which would restructure the $2.5 billion debt that AEE has with bondholders. If approved, it would result in an additional charge on electricity bills for all customers for the next 35 years to pay AEE’s debt.

​​In addition to that charge, the PDA proposes another charge for the payment of the public corporation’s pensions, which, together with the previous charge, would increase the electricity bill between 14% and 20% monthly.

Cueto’s study, “Impact of energy costs on Puerto Rico’s business,” determined that at least 180 businesses will be at risk of going bankrupt if the PDA is approved.

Cueto explained that the energy cost impacts Puerto Rican businesses five times more than US businesses because the highest rate is applied to former. This has a knock-on impact, since businesses generate 24% of the island’s jobs.

The owners of Supermercados Selectos, a chain established in Puerto Rico 45 years ago, commissioned Cueto to study the impact on the island’s commerce.

The study’s findings show that just the extra charge on the bill to pay PREPA’s (Puerto Rico Electric Power Authority) debt would represent between an additional $1,707 and $2,254 per month for four Selectos that were part of the study carried out by the economist.

“That figure is higher than what it costs to hire a minimum wage employee,” said Caraballo Cueto when presenting the study last week.

If the additional charge for pensions is approved, it would be equivalent to between an additional $4,000 and $6,300 monthly for just one supermarket. Selectos has 39 supermarkets across the island.

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The economist recommended the Oversight Financial Board (La Junta), in charge of the island’s finances and the PDA, eliminate the additional cost they want to add to electric bills for the next 35 years.

Last week Selectos filed in the federal Bankruptcy Court an amendment to its initial motion of objection to the approval of the PDA filed on June 8, so that Judge Swain will receive Caraballo Cueto’s study as part of the evidence.