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PREPA’S CHIEF RESTRUCTURING OFFICER TESTIFIES BEFORE THE ENERGY AFFAIRS AND WATER RESOURCES COMMISSION OF THE PUERTO RICO SENATE
martes, 14 de abril 2015


San Juan, PR – The Puerto Rico Electric Power Authority (PREPA) announced today that Lisa Donahue, Chief Restructuring Officer testified at a hearing of the Energy Affairs and Water Resources Commission of the Puerto Rico Senate. Mrs. Donahue opened her appearance before the Senate by outlining the state of affairs at PREPA when she arrived, the work completed, ongoing initiatives and the next steps in the transformation of PREPA. 

 

The testimony began with an explanation of PREPA’s history including the liquidity crisis at PREPA in the summer of 2014 that was the result of recurring negative cash flows, an ongoing recession, outdated generation facilities, substantial debt maturities and an inability to access the capital markets. As noted by Donahue, these factors caused a severe liquidity crisis that threatened PREPA’s ability to operate, including its ability to purchase fuel to run its power plants and provide electricity to Puerto Rico.

 

PREPA’s Governing Board selected and appointed Donahue as Chief Restructuring Officer in September 2014.  She reports directly to the Board and works alongside PREPA’s management, and serves at the discretion of the Board. Although, her mandate includes negotiations with creditors—which is certainly the role that has garnered the most public attention – most of her efforts have involved tackling fundamental operational problems that have hindered PREPA for decades.

 

Donahue’s mandate includes providing overall leadership to PREPA’s restructuring process, which includes developing a business plan, implementing revenue improvement and cost reduction plans, overseeing and implementing cash and liquidity management activities, improving PREPA’s ability to analyze, track and collect accounts receivable, improving PREPA’s capital expenditure plan, and developing plans to improve PREPA’s generation, transmission, distribution and other operations. 

 

Donahue outlined several key challenges for PREPA: “For many years, PREPA has been run by successive Boards of Directors and senior management teams that have been subject to the changing direction and policies of different administrations.  Management and other strategic decisions, including staffing and capital investment, too often have been based on political considerations rather than best practices or sound business judgment.  PREPA is far behind the industry in virtually every respect.”

 

Since the appointment of Donahue and her team, “PREPA has made significant strides to improve its operations, but more work needs to be done,” according to Donahue.

Donahue also highlighted the key operational improvements and savings initiatives that her team has focused on to turnaround PREPA’s operations. PREPA is dedicated to increasing efficiency, improving customer service, centralizing controls and decision-making, utilizing industry best practices, and laying the groundwork for a modernized and self-sustaining future.

 

AlixPartners has worked with PREPA to formulate and implement a variety of initiatives across PREPA’s organization, including most importantly in fuel purchasing and utilization, customer service and billing, indirect procurement, and safety.  Improvements and initiatives in these areas will provide PREPA with estimated one-time cash savings of between $200 million and $300 million, and estimated recurring annual savings of between $200 million and $400 million.  To date, PREPA has already obtained $130 million in both one-time cash and recurring savings from these improvements. 

 

·         Fuel - Fuel is PREPA’s largest expense.  Approximately 80% of PREPA’s total expenses are related to fuel and purchased power.  Prior to Donahue’s arrival, PREPA had no coordination or integration among the various dispatch, generation, procurement and accounts payable teams.  PREPA has now implemented an integrated process across the various departments at PREPA, including daily and weekly meetings, inventory tracking, controls on purchases, and other standard industry practices. These measures have already generated a $36 million one-time benefit and are projected to generate an additional $95 million to $200 million in annual value going forward.

 

·         Customer Service, Billing and Collections - Steps have also been taken to improve PREPA’s customer service, billing and collections processes, which are vital to PREPA’s financial performance as well as to the experience of its customers. PREPA’s customer service and billing improvement efforts involve the prevention of theft and other non-technical losses, call center enhancements, and customer care and billing reforms.  Work has also been done to significantly upgrade call center operations, including technology improvements and workforce training initiatives.  Going forward, PREPA will work to improve customer service and billing, including reducing the backlog of estimated billings, completing an investigation of efficiency losses, and increasing the capacity of field resources to perform investigatory work.

 

·         Procurement - PREPA is beginning to undertake a series of improvements to procurement, shop and vehicle fleet management, and inventory management practices, which will bring down operating costs and increase efficiencies.

 

·         Safety - Safety is a very serious issue for PREPA.  In the last twelve months alone, there have been three fatalities and countless accidents.  This is unacceptable.  In September 2014, PREPA began an RFP process and ultimately chose DuPont to conduct a safety assessment across the entire system.  AlixPartners and DuPont then conducted a series of meetings – first separate meetings with management and union leadership, and then joint meetings to discuss the results and a collaborative path forward.  DuPont is now working with the teams to instill a safety culture and place the emphasis back on the safe way to conduct the business.  PREPA is undertaking these safety initiatives to save lives and make PREPA a safe workplace. PREPA believes this is owed to its employees and their families.

 

·         Regulatory - PREPA is focused on regulatory compliance.  It has engaged with the Energy Commission to provide requested information and assist the Commission in its rate review process.  PREPA has also taken a series of steps towards an executable compliance plan for federal environmental regulatory standards, including the Mercury and Air Toxics Standards, commonly referred to as the “MATS.” As part of that process, PREPA has met with EPA officials on multiple occasions to discuss its overall compliance strategy.  PREPA is in regular communication with the EPA and intends to continue to work with EPA and the Puerto Rico Environmental Quality Board closely.

 

PREPA’s new and comprehensive business plan will serve as the foundation for its future planning, operations and performance.  A number of the key technical inputs necessary to drive the next steps in PREPA’s transformation are near completion.  Once PREPA obtains final inputs from an integrated resource plan, prepared by Siemens, and a rate study, prepared by Navigant, PREPA will incorporate those inputs into its business plan.  PREPA anticipates the business plan will be complete during the summer of 2015.  In the meantime, and following completion of its business plan, PREPA will continue engaging with its creditors, employees, unions, legislators, regulators, consumers and other stakeholders. PREPA is confident that its restructuring efforts will ultimately allow PREPA to be a self-sustaining utility.

 

 

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