PREPA Performed Twice as Badly as Expected in First 10 Months of Fiscal Year

The Puerto Rico Electric Power Authority, the utility that's been in debt restructuring talks for two years, performed twice as badly as budgeted in the first 10 months of fiscal 2016.

According to preliminary financial results posted to its web site, from July 2015 through April 2016 the authority's net position declined by $321 million rather than by the budgeted $164 million. PREPA has more than $8 billion of bond debt.

In the period, both expenses and revenues were sharply lower than expected. Total revenue was $1.146 billion less than projected and total spending was $1.003 billion less. Through the first 10 months PREPA had total revenues of $2.703 billion and total expenses of $3.032 billion.

Because PREPA's charges include a fuel adjustment line that is proportional to the prices it pays for fuel and because oil prices fell dramatically compared to the previous year, the authority pulled in $945 million (or 45%) less than budgeted for fuel adjustments.

The authority bought and sold less power from outside generators than budgeted. Revenues associated with this were down by about $634 million and expenditures were down by $566 million, both compared to projections. In both cases these amounted to 21% declines from budgeted numbers. The decline was due to a lower-than-expected availability of the power from co-generators.

The Puerto Rico Energy Commission has approved a provisional 1.3 cents per kilowatt-hour increase in PREPA rates. Taken together with the 3.1 cents per kilowatt-hour increase as "transition charge" the commission approved on June 21, PREPA customers will soon be paying 4.4 cents more per kilowatt-hour.

PREPA's 1.3 cents increase is expected to start in August. The larger increase will wait for PREPA to exchange its existing bonds for PREPA Restructuring Corporation "Restructuring Bonds." Forbearing bondholders and those non-forbearing bondholders who chose to participate will accept the new bonds.

These rate increases may help PREPA's financial situation.

Neither PREPA nor a representative of the PREPA forbearing bondholders responded to a request for comment for this story.

Meanwhile, PREPA's restructuring process continues. On Tuesday PREPA posted a notice to the Electronic Municipal Marketplace Access web site announcing that bondholders and consumers opposed to the restructuring agreements and actions had until Aug. 19 to challenge them in the San Juan Judicial Region branch of the Court of First Instance.

In the posting, PREPA's bond trustee, U.S. Bank National Association, said about the deadline, "The trustee has not determined what actions, if any, it might take, but notes that it has not been directed by any bondholders to date to oppose any aspect of the restructuring transaction and bondholders should not expect the trustee to do so on their behalf in the absence of a compelling direction delivered in accordance with the trust agreement."

"The extended Restructuring Support Agreement and the restructuring transaction contemplated by it are supported by the Ad Hoc Group [of forbearing PREPA bondholders] who hold a substantial amount of outstanding bonds, and by the monolines who have insured substantial amount of the bonds," U.S. Bank National stated.

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