Darkness Visible: A Financial Analysis of the Puerto Rico Electric Power Authority

Executive Summary

This is CNE’s third look, since 2005, at the electricity sector in Puerto Rico. Some of the highlights in this report include the following:

Financial losses continue. For fiscal years 2009, 2008, and 2007, PREPA incurred losses before contributed capital of $163 million, $323.7 million, and $96.9 million, respectively.

Insolvency is a risk in the short term. As of June 30, 2009 and December 31, 2009, PREPA had unconsolidated net assets (on a stand-alone basis, excluding subsidiaries) of negative $9.8 million and negative $109.9 million, respectively. This means that as of each of those dates PREPA’s core operating company was technically insolvent, on a balance sheet basis, because its total liabilities exceeded its total assets.

PREPA is implementing a financial stabilization plan to address these issues. The plan consists of several actions intended to reduce costs, increase liquidity, and cut back its dependency on fuel oil. The principal elements of the cost reduction plan include (1) reducing the number of employees through attrition and the elimination of temporary and vacant positions; (2) reducing expenses associated with its retirees’ health care benefits; and (3) reducing overtime and miscellaneous expenses.