By The Star Staff
Following a meeting with the Financial Oversight and Management Board, Gov. Jenniffer González Colón announced Wednesday she will seek a budget reprogramming of about $25 million to pay Puerto Rico Electric Power Authority (PREPA) retirees and later seek a permanent source of payment.
“We will give ourselves two to three weeks to find a permanent solution,” she said, adding that she discussed different alternatives with the oversight board but did not elaborate on them.
Nonetheless, she insisted a temporary rate hike to pay pensions was not in the works. Robert Mujica, the oversight board’s executive director, said he agreed with the governor but did not offer alternatives.
The oversight board had rejected the government’s solution to the crisis at PREPA’s Employees Retirement System (PREPA ERS), which consisted of a nearly $74 million increase in the budget, and instead supported a rate increase to pay pensions.
The oversight board in February said in its fiscal plan that PREPA cannot implement rate increases sufficient to cover all expenses and debt service without imposing a significant financial burden on customers. The proposed rate hikes would exceed acceptable affordability levels, according to the plan. Critics say PREPA’s bondholders will not sit idly by and allow an increase to pay pensions when the creditors’ debt, at almost $10 billion, has a priority in payment over pensions.
González Colón said the impact of a rate hike to pay pensions must be evaluated in terms of PREPA’s bankruptcy.
Earlier this week, the Office of Management and Budget asked the oversight board for an increase in the General Fund budget for the current fiscal year 2025 in the amount of $73.7 million to finance pension payments for PREPA ERS from April to June of this year. On Monday, the government filed a resolution in the Legislature providing for the increase.
The oversight board, however, rejected the idea and supported PREPA’s idea of a temporary rate increase to pay for the funds.
“In its March 24 letter, PREPA outlines a step in the right direction,” the board said in a letter dated March 25. “PREPA says it stands ready to file a motion in the current rate review process commenced by PREB [the Puerto Rico Energy Bureau] to incorporate a provisional rates adjustment.”
Given the urgency of the matter, the oversight board conditionally approved the use of $50 million in commonwealth funds to fund PREPA’s April 2025 and May 2025 pension payments, contingent on PREPA filing a petition for a temporary rate adjustment.
The petition will cover the period of June 1 to June 30, 2025.
PREPA can file a temporary rate adjustment petition even though LUMA Energy, the private operator of PREPA’s transmission and distribution system, is representing PREPA before PREB since pension funding is a PREPA rather than a LUMA obligation, the oversight board said.
“This approval is also contingent on PREPA providing LUMA with all the pension costs information, data and documents required as part of PREB’s ongoing rate review process. …” the board said. “The temporary rate adjustment must be filed no later than March 28, 2025, and the pension cost information must be submitted to LUMA no later than April 15, 2025.”
“The benefits of PREPA’s retired employees are an important obligation that PREPA has neglected for too long,” the oversight board noted. “PREPA did not make the contributions necessary to keep the retirement system solvent long before PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] was enacted. PREPA now owes its retirement system more than $4 billion in current and future obligations. The need for a permanent solution to PREPA’s pension funding shortfall is unavoidable and urgent.”
In December 2023, the oversight board approved a loan agreement among the commonwealth, PREPA and the board in the amount of $300 million to provide funding for PREPA pension obligations from December 2023 to December 2024. Later, the board learned that by December 2024 the available funds to make pension payments would have been depleted.
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