Transition Charge

On April 7, 2016, the Puerto Rico Electric Power Authority Revitalization Corporation (PREPARC), a special purpose public corporation and governmental instrumentality of the Commonwealth of Puerto Rico created on February 16, 2016, under Article 32 of the Revitalization Act, filed a Verified Petition for a Restructuring Order to  the Puerto Rico Energy Commission (PREC), in compliance with the provisions of Article 6.25A of Act 57 of May 22, 2014, as adopted by Article 20 of the Law for the Revitalization of the Puerto Rico Electric Power Authority (PREPA), Act 4 of February 16, 2016. In its Petition, PREPARC seeks permission to place a “Transition Charge” on the electric bills of all PREPA’s customers.

What is a Transition Charge?

A Transition Charge, or securitization, is a mechanism designed to  reduce costs for PREPA’s customers.  Bondholders holding approximately $7.170 billion of existing PREPA debt, with an estimated weighted average interest rate of 5.86 percent, have agreed to reduce that debt.  Known as the “Participating Bondholders”,  they are uninsured bondholders who have committed, or will commit, to reduce the value of their loans to 85 percent of the original amount, while accepting an average interest rate of approximately 5.22 percent. (compared to 5.86% of existing bonds). They will also defer receiving principal payments for five years. In simple terms, a portion of PREPA’s pre-existing debt will be exchanged for, and therefore replaced by, “Reestructured Debt”. The securitization does not recover costs exceeding those that PREPA must recover from its customers, nor does it cause PREPA to incur any additional debt.

The transition charge provides a mechanism repayment insurance which reduces uncertainty and enhances market confidence in the financial condition of PREPA. This action will reduce PREPA’s capital costs and, in turn will reduce, by approximately $ 867 million, costs that otherwise the customers would have to bear.

On June 21st , 2016 PREC approved the Calculation Methodology and Adjustment Mechanism proposed by PREPARC and the transition charge that resulted was 3.10 ¢/kWh. The transition charge will appear as a new line on the bill of each customer once restructuring bonds are issued  Initially, this transition charge will apply to the gross kWh consumption of all PREPA customers (residential, non-residential, governmental), with two exceptions: For Fixed Block Public Housing Customers (as provided by Act 22-2016), the transition charge will apply only to kWh consumption exceeding their applicable consumption-based block of electricity usage; and  for “Grandfathered” net metering customers, the transition charge will apply only to their “net” consumption. These adjustments protect low-income customers, as well as those existing net-metering customers who made investments in generation based on an expectation that certain PREPA charges would apply to their net consumption only.

Type Number Subject Dockets
Orders CEPR-AP-2016-0001 Petición de Cargo de Transición
Available Documents:s: (139)
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Press releases and notices related to the Transition Charge