Increasing Puerto Rico’s Electricity Rate Will Negatively Affect its Economic Recovery in the Short-Term

One of Puerto Rico’s main economic challenges is the high cost of electricity. As I noted in an early post, the island’s residents pay one of the highest electricity rates in the United States. For the past three years, the Financial Oversight and Management Board (FOMB), established by the U.S. Congress to oversee Puerto Rico’s finances and to restructure its debt, have instructed the Puerto Rico Electric Power Authority (PREPA) to set the the price to 21 cents per kilowatt/hour (kWh) by 2023. Ricardo Rossello, Puerto Rico’s pro-statehood governor who wants to privatize PREPA, promised last year that PREPA would to reduce the rate to 20 cents kWh. The Puerto Rico Manufacturers Association in an effort to increase its members’ competitiveness have lobbied the island’s government to reduce the electricity rate to 15 cents kWh.

Can PREPA deliver lower electricity rates? In the short-term, it will be unable to meet Rossello’s 20 cents kWh target. If a new deal to restructure a part of PREPA’s $9 billion is approved by Judge Laura Taylor Swain and Puerto Rico’s legislature, PREPA will pay off the new bonds by levying its customers a new surcharge. Starting this summer, the electricity rate will increase by 1 cent to 23 cents per kWh. In July 2020, the surcharge increases to 2.8 cents per kWh and over the years it will keep increasing up to 4.6 cents per kWh until the bonds are paid off.

Although many Puerto Ricans have voiced their opposition to this deal, Governor Rossello expects that the projected hikes will be balanced by his government’s reform of PREPA, which includes the privatization of its assets and the conversion of some of its power plants from oil to natural gas. While Puerto Ricans may see lower electricity rates in the future, it is clear that the price for electricity will increase in the short-term.

These rate hikes will be an extra burden on Puerto Rican families and businesses. While Puerto Rico’s residents do not pay the highest electricity rate in the United States, the island’s median household income is really low. Meaning that Puerto Ricans tend to devote higher percentage of their income to pay for electricity.

The next graph compares Puerto Rico’s median household income for 2017 with the median household income for the U.S. It is worth noting that these are the latest figures, calculated by the U.S. Census.

To put it perspective, the median American family spent 2.4% of their household income on electricity. At 29.5 cents per kWh, Hawaii’s price for residential electricity in 2017 was the highest in the United States. But, the state’s median household income was $74,493. Thus, Hawaiians were spending around 2.4% of their income on electricity.

For example, the residential electricity rate in Hawaii for 2017 was 29.5 cents per kWh. But the state’s median household income was $74,493. Thus, Hawaiians were spending 2.4% of their income on electricity.

Using this formula, we notice that Puerto Rico’s median family spends 4.2% of their income on electricity.

Year	Median Household Income	Percentage of Median Household Income Devoted to Electricity
2014	$19,686.00	3.75%
2015	$19,350.00	5.0%
2016	$19,606.00	4.5%
2017	$19,775.00	4.2%

While the amount of income devoted to electricity is lower than in 2015, the new rates hikes will reverse recent gains. The next graph already includes the proposed increase for 2019. Thus, Puerto Ricans will once again experience a steep rise on electricity costs.

While forecasting the future impact these rate hikes will have on the Puerto Rican economy is difficult, the sad reality is that at least in the short-term the rising cost of electricity will burden the island’s economy, squeezing family incomes, forcing some businesses to close, or hampering the Puerto Rican government’s efforts to attract new investments.

About the author: Carlos L. Yordán is an associate professor of political science and international relations and the director of the Semester on the United Nations at Drew University in Madison, NJ. He is currently researching US-Puerto Rico relations in the aftermath of Hurricane Maria. Follow him in Twitter: @cyordan or @pr_datalab.

Comparing Average Electricity Prices in Puerto Rico and the United States, 2009-2018

I recently returned from Puerto Rico, where I was presenting a paper connected to my research in an academic conference on the island’s recovery following Hurricane Maria. I also took the opportunity to see the family.

Although things are improving since my last visit in August 2018, Puerto Rico still faces many economic problems, mostly connected with the debt crisis that preceded the 2017 hurricane season. A few days ago, the Financial Oversight and Management Board (FOMB), established by the U.S. Congress in 2016 to stabilize Puerto Rico’s finances, and Governor Ricardo Rosselló announced a new deal to restructure around $3 billion of the Puerto Rico Electric Power Authority’s (PREPA) $9 billion debt.

If this deal is approved by Judge Laura Taylor Swain and Puerto Rico’s legislature, PREPA will pay off the new bonds by levying its customers a new surcharge. Starting this summer, the electricity rate will increase by 1 cent per kilowatt hour (kWh) to 23 cents per kWh. In July 2020, the surcharge increases to 2.8 cents per kWh and over the year it will keep increasing up to 4.6 cents per kWh until the bonds are paid off.

While the deal helps PREPA reduce its debt obligations, freeing up cash to pay for other costs or to make future investments to the electrical system, the foreseen rate increases will hurt Puerto Rican consumers. Rising energy costs will also negatively affect the island’s businesses and potentially discourage future investments.

This deal got me thinking about the average price for electricity for PREPA’s residential, commercial and industrial consumers and how it compares with average rates for these consumers in the United States. The following graphs summarize these rates for the last ten years (2009-2018). All the figures have been adjusted for inflation using the Consumer Price Index for 2018 as the base rate.

What can we learn from these graphs? Here are three quick observations.

• The average price for the United States is a bit deceiving as many Americans pay higher rates for their electricity. However, it is critical to notice the stability of these prices. In Puerto Rico, fluctuations in electricity prices is an indicator of PREPA’s inability to effectively manage the production, transmission and distribution of electricity.
• Puerto Rico’s price differentials are problematic. On average, commercial customers in the U.S. territory are paying a lot more for electricity than in the mainland. The same holds true for industrial firms. This reality may explain why many businesses have not expanded their operations or reduced the prices of their goods or services.
• Future increases in these rates will burden the island’s economy, squeezing family incomes, forcing some businesses to close, or hampering the Puerto Rican government’s efforts to attract new investments.

What do you think of these figures? Do you think that the new deal to restructure part of PREPA’s debt is a wise choice?

Author’s Note: A version of this post is also available in my personal webpage: cyordan.name.

 

Americans’ Opinions of FEMA’s Responses to Alabama and Puerto Rico

On March 3, 2019, a series of tornadoes hit towns across Alabama, Georgia, Florida and South Carolina. The worst one decimated a number of communities around Beauregard, Alabama, claiming 23 lives and injuring close to 100.  The next morning President Trump tweeted:

FEMA has been told directly by me to give the A Plus treatment to the Great State of Alabama and the wonderful people who have been so devastated by the Tornadoes. @GovernorKayIvey, one of the best in our Country, has been so informed. She is working closely with FEMA (and me!).

Needless to say, President Trump’s words angered many. Although the Federal Emergency Management Agency (FEMA) should be impartial when it reacts to a natural disaster, the tweet suggests that the President affects the amount of assistance FEMA provides. Has Trump be playing favorites, favoring red states over blue states? Have his negative views of Puerto Rico explain why the federal government has been slow at disbursing the funds appropriated to finance the island’s recovery?

This is likely to become an issue in next year’s presidential elections. For instance, both Elizabeth Warren and Julian Castro have recently visited Puerto Rico to highlight the Trump administration’s “‘disrespectful’ treatment”  of the island’s 3.3 million U.S. citizens. Do Americans share Warren’s or Castro’s views?

The most recent Economist/YouGov Poll (March 10-12, 2019) asked its panel the following question: “Do you think the federal government was more responsive to the tornadoes in Alabama or the hurricane that struck Puerto Rico and the U.S. Virgin Islands?”

Sadly, but not surprisingly, many Americans think that the federal government has favored Alabama over Puerto Rico and the U.S. Virgin Islands. Could this be problematic for the White House? A close look at the survey’s crosstabs show that 66% of Democrats believe the federal government favored Alabama over the other U.S. territories, while only 32% of independent and 28% of Republicans share this opinion.

The survey also asked respondents to evaluate the President Trump’s and the federal government’s response to Puerto Rico after Hurricane Maria. This is the fifth time this survey posed this question, allowing us to track Americans’ attitudes for the past 18 months.

The numbers have not fluctuated too much since YouGov asked this question in last year’s surveys. As noted above, partisanship determines how negatively respondents feel about Trump’s handling of the response. Thus, 80% of Democrats disapprove of his response, while 77% of Republicans approve of his performance. Independents, an important voting group, are more divided with 31% approving and 39% disapproving of President Trump’s actions.

Respondents were also asked to rate the federal government’s response to Hurricane Maria.

As noted above, there is not too much change in the last few months. Republicans are more likely to have positive views of the government’s response, while Democrats are more critical. Today, 43% of independents tend to be critical, though this represents a 4% drop from September 2018.

How salient is this issue? Will it affect the 2020 presidential elections? Right now, other issues will likely overshadow the Trump administration’s treatment of Puerto Rico after Hurricane Maria. But this issue will prove be problematic with President Trump in Florida, a state he needs to win if he hopes to win reelection.

About the Author: Carlos L. Yordán is an associate professor of political science and international relations and the director of the Semester on the United Nations at Drew University in Madison, NJ. He is currently researching US-Puerto Rico relations in the aftermath of Hurricane Maria. Follow him in Twitter: @cyordan or @pr_datalab.

 

Did the Trump Administration Favor Texas and Florida Over Puerto Rico? FEMA’s Data Says…

Please note that I am slowly transitioning this blog to my own personal website. 

In a letter to President Donald Trump, dated September 19, 2018, Ricardo Rossello, Puerto Rico’s pro-statehood governor, noted that:

“The ongoing and historic inequalities resulting from Puerto Rico’s territorial status have been exacerbated by a series of decisions by the federal government that have slowed our post-disaster recovery, compared to what has happened in other jurisdictions stateside.”

Earlier in September, New York Governor Andrew Cuomo argued that:

“President Trump never tried to help Puerto Rico. Florida got attention, Texas got attention, and Puerto Rico got the short end of the stick.”

To continue reading, please click HERE.

Fact-Checking Governor Ricardo Rosselló’s Claims on Statehood for Puerto Rico

This post was published in Pasquines on October 4, 2018.

At the end of September, Newsweek’s Robert Valencia interviewed Puerto Rico’s pro-statehood governor, Ricardo Rosselló. They met a few days after President Donald Trump told Geraldo Rivera that he did not support Puerto Rico’s statehood aspirations. The president also blamed the island’s recovery on Carmen Yulin Cruz, the Mayor of San Juan, and other “incompetent” leaders. Rosselló used the interview to make a case for why Puerto Rico should be admitted as the nation’s 51st state.

In making his case for statehood,  Rosselló made two problematic statements that require further scrutiny….

To keep reading, please click here.