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Puerto Rico power rates could impact viability of water utility’s fiscal plan

By on August 2, 2018

SAN JUAN – Even after implementing the cost-cutting measures included in its fiscal plan, the debt of the Puerto Rico Aqueduct and Sewer Authority (Prasa) will still be unsustainable, as it will only have $946 million over a five-year period available for debt service.

The public water company will still have a gap of about $150 million and must bridge it with a consensual restructuring to handle its $4 billion debt. However, its fiscal plan also acknowledges the possibility that creditors may not want to negotiate.

The information is contained in the new revised fiscal plan for Prasa, which was certified and unveiled by the island’s Financial Oversight and Management Board late Wednesday. The plan supersedes previous ones. The board also unveiled a new fiscal plan for the Puerto Rico Electric Power Authority (Prepa).

The board is requiring the governor to submit by Aug. 6 a budget for Prasa that is compliant with the new fiscal plan.

Unlike Prepa, which is expected to be privatized, the Prasa’s fiscal plan acknowledges that its privatization efforts have failed, leaving only the possibility of public-private partnerships to provide customer service and operate the hydroelectric power plants.

Prasa’s fiscal plan covers a six-year period, starting in fiscal year 2018, instead of the 10 years covered in its previous plan.

The utility was running at a deficit before hurricanes Irma and Maria and remains in need of significant liquidity and capital. Prasa’s infrastructure is decentralized, complex and fragile and remains susceptible to natural disasters, the plan says, adding it has a history of environmental violations that harm the public, cost money and require additional investments.

The new plan calls for Prasa to improve its liquidity by increasing its revenue, including hiking water rates by 2% every year and improving billing collections, as well as decreasing spending, including maintenance expenses.

The implementation of the measures, the plan says, could be impacted by different factors such as a hike in electricity rates. Up until 2014, Prasa’s electric power costs had historically increased, mainly because of price, while consumption decreased. However, because of a preferential electric energy rate, which ended in 2016, Prasa’s electric power costs had decreased.

According to the plan, Prasa will reduce power costs by purchasing alternate sources of energy. However, the utility is preparing for a rise in power expenses that could be as high as $38 million by 2023, despite energy-saving initiatives rising more than the projected $25 million next year.

A $2 billion Capital Investment Program (CIP) will be carried out over the next five years, with one-third allocated to damage repair and a significant amount set aside for resiliency. The program also includes compliance and damage repair projects designed to improve drinking water and wastewater discharge quality as well as to prevent leakage from Prasa’s distribution and collection networks.

To achieve long-term financial sustainability, the plan provides that Prasa reduce commercial and physical non-revenue water losses; invest up to $3.7 billion in hazard mitigation, safety, water availability, redundancy and management of critical assets; simplify and consolidate its infrastructure; increase automation of water treatment plant operations; and adopt distributed solar generation and hydroelectric power generation. The latter is important because the utility relied on 1,600 power generators to provide water after two major hurricanes struck the island in September.

See Prasa’s revised fiscal plan here.

Oversight board certifies revised new fiscal plans for Puerto Rico power, water companies

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