Business Leaders Say Governor’s Energy Relief Will Not Prevent Feared Pymes Power Cliff, Demand That Costs Be Cut Directly

The relief measures Gov. Jenniffer González Colón announced last week fall short of preventing what Caribbean Business is calling the Pymes Power Cliff, the wave of small-business closures that retailers fear if energy costs do not come down.

Alan Taveras, president of the Centro Unido de Detallistas (CUD), said the association welcomes the measures, but insists that they do not address the operating expenses that threaten business survival.

Instead, pymes are calling for measures that reduce their costs directly. The CUD, together with the Puerto Rico Chamber of Commerce, ASORE and other business groups, has proposed about 20 measures, led by a gradual elimination of la crudita, the petroleum excise tax; wider access to economic incentives; more diverse energy generation; and stronger public infrastructure.

As electricity and fuel costs continue to strain Puerto Rico’s small and mid-sized businesses (SMEs, or Pymes in Spanish), CUD warns that as many as 12,000 enterprises could close, putting approximately 70,000 jobs at risk.

“It’s something positive for our customers, but the supermarket, restaurant or merchant will still be paying the same electricity bill that makes them consider whether it would be better to close the business,” Taveras said in an exclusive interview with Caribbean Business.

Last Friday, Oct. 23, González Colón announced a proposed temporary sales-tax exemption for prepared foods and a $3 million energy assistance allocation intended to benefit approximately 1,000 SMEs. According to Taveras, the latter, which would average $3,000 per business, could help cover a limited expense but would not fundamentally change the economics of running a business that faces thousands of dollars in monthly electricity costs.

While Taveras acknowledged the administration’s willingness to address the concerns of Puerto Rico’s business community, he maintained that temporary assistance will have limited impact unless it is accompanied by measures that directly reduce operating costs. For thousands of small businesses already struggling to maintain profitability, he argued, the issue is no longer simply how to grow, but how to remain open.

A cost squeeze, not only a demand problem

In 2023, the CUD began tracking the effect of electricity costs on its members’ operations and profit margins, when rates were already approximately 30 cents per kilowatt-hour or higher. It did so with the help of economist Chantal Benet, Doris Morales and economist Gustavo Vélez, alongside surveys of association members.

Rates have since climbed to a record 33.86 cents per kilowatt-hour for residential customers in October, an 18.5% increase from the previous quarter, while small and medium-sized businesses face rates above 36 cents, further straining their operating margins.

Some business owners have reported electricity bills ranging from $3,000 to $6,000, Taveras said. In his view, the cost should not exceed 15 to 20 cents per kilowatt-hour.

According to Taveras, one of the biggest hurdles facing local SMEs is that customers have much less purchasing power. With utility, transportation and product acquisition costs all rising, businesses cannot keep passing those increases on to consumers without losing them, so they are left with one choice: absorb the costs.

“My members are telling me that their businesses are no longer generating enough income for them to make a living,” Taveras said.

Taveras argues that rising operating expenses are reducing profitability even when nominal sales revenue remains stable or rises, which he attributes solely to inflation.

The pressure may not have peaked. LUMA Energy reported a $54.4 million fuel-cost deficit for September to the Energy Bureau, which could lead to another rate adjustment pending the regulator’s decision. Bankruptcy figures point the same way: Boletín de Puerto Rico reported 551 bankruptcies in September, 5.8% more than a year earlier, a pace that would put 2026 at about 6,263 filings, the highest in seven years.

Where the petroleum tax fits

Beyond the energy crisis, Taveras identified three additional constraints: fuel purchased to run backup generators during outages, transportation and distribution expenses, and the petroleum-related tax known locally as la crudita.

La crudita, Puerto Rico’s excise tax on petroleum and certain petroleum products, affects businesses indirectly through fuel and transportation costs. It shows how energy costs reach businesses across the supply chain, even those with relatively modest direct electricity consumption.

Taveras argues that the government should consider temporarily suspending or reducing the applicable petroleum tax as part of an emergency relief package.

That is where the governor’s package and the pymes’ agenda differ most. On Oct. 1, La Fortaleza’s secretary of public affairs, Jean Peña Payano, said la crudita would stay for now because eliminating it would hurt the budget and no replacement revenue has been identified, according to published reports.

Those reports also cite a Fiscal Board estimate that fully eliminating the tax would cost about $1.675 billion over five fiscal years, or roughly $335 million a year, by CB’s calculation.

A time-limited suspension, such as the six-month moratorium some business groups are seeking, would cost about half a year’s average, or roughly $168 million by CB’s calculation, assuming the loss is spread evenly. That is the same order of magnitude as ASORE’s estimate for the IVU exemption, and the administration has not said whether it would support a suspension.

The pymes’ counterproposal

On Oct. 19, the CUD, together with the Chamber of Commerce, ASORE, the Puerto Rico Manufacturers Association, the College of Certified Public Accountants and other organizations, released a proposal titled “Soluciones Energéticas para las PyMEs” with approximately 20 measures across several policy areas, including public policy and regulation, financing and incentives, energy generation and resilience, and infrastructure and energy efficiency.

The four main proposals are to gradually eliminate la crudita; expand access to economic incentives, such as the Economic Incentives Fund (FIE) and other Act 60 incentives; diversify energy generation, including natural gas projects; and strengthen public infrastructure.

Taveras specifically suggested exploring whether an existing program that subsidizes part of the cost of qualifying manufacturing equipment could be extended to businesses outside the manufacturing sector.

Set side by side, the two agendas target different parts of the problem. The governor’s measures aim at demand (a tax exemption that lowers what diners pay, limited to prepared food) and at one-time or financing-based help (the $3 million fund and C-PACE). The pymes’ proposals aim at the cost side: the tax embedded in fuel and transportation, incentives that offset capital costs and, over time, the generation mix that determines the rate.

Metro, a CB sister newspaper, reported that the Chamber of Commerce backs the governor’s measure as a way to ease operating burdens, and that ASORE, which requested the exemption, urged the board to act quickly. The CUD’s position is that the measure is welcome but, for most merchants outside food service, does not change the bill that arrives each month.

Visibility into energy projects

During the interview, Taveras also called for greater transparency from LUMA on ongoing infrastructure repair and modernization projects. He noted that he and his team had previously met with the Puerto Rico Aqueduct and Sewer Authority (AAA), which gave an overview of its infrastructure improvement plans.

According to Taveras, LUMA has yet to offer a similar level of transparency despite requests from the organization.

“Businesses need clearer information about which projects are underway, when they are expected to be completed and how they could affect electricity rates. That visibility would allow the private sector to monitor progress and hold those entities accountable,” he added.

The gap this exposes is the one that defines the Pymes Power Cliff. The governor’s measures can soften a hard holiday season for restaurants and send some help to a thousand businesses, but they leave untouched the price per kilowatt-hour, the fuel tax and the lack of visibility into the projects that could change either.

Whether the Fiscal Board and the Legislature take up the pymes’ cost-side proposals, and not only the demand-side ones, will help decide if 12,000 closures remain a warning or become a forecast.

What the governor proposed

The governor said she would submit to the Financial Oversight and Management Board a request to exempt prepared food sold at restaurants and food establishments from the sales and use tax (IVU) during November and December. If the board approves, the exemption would take effect through an administrative determination by the Treasury secretary, according to Metro.

The board has said it received the proposal and that all measures must be fiscally responsible, according to published reports.

The CUD president maintained that temporary assistance will have limited impact unless it is accompanied by measures that directly reduce operating costs.

The administration has not published an estimate of the revenue it would forgo. The Restaurants Association (ASORE), which has sought the exemption since February, estimated in May that a three- to six-month version would cost $250 million to $300 million, according to published reports. A two-month exemption would likely cost less, but the figure shows the scale of what the government is weighing for consumer-side relief.

The business aid is far smaller. Metro reported that the Department of Economic Development and Commerce (DDEC) identified $3 million for an energy support initiative expected to benefit 1,000 SMEs, with no eligibility rules or application process disclosed so far.

Against the CUD’s estimate of 12,000 businesses at risk, that would reach about 8% of them, by CB’s calculation, and at roughly $3,000 each it would equal about one month of the $3,000 to $6,000 electricity bills that some owners report.

The rest of the package targets other needs. Administration bills filed in the Legislature (House Bill 1377 and Senate Bill 1405) would create a commercial Property Assessed Clean Energy (C-PACE) program to finance solar systems, batteries and electric vehicle chargers for businesses with no upfront payment and no state funds, according to Metro.

DDEC also will credit its tenants in Guaynabo, Ponce and Mayagüez for the September and October electricity increases, and has set aside $18 million for a program that replaces household appliances, which has served 359 homes.

Those measures could lower some businesses’ costs over time or help households now, but none changes the rate SMEs pay per kilowatt-hour.