The transition to private operators produced improvements but expose vulnerabilities
The transition of Puerto Rico’s electric system to private operators—LUMA Energy for transmission and distribution beginning June 1, 2021, and Genera PR for legacy generation starting July 1, 2023—has become one of the defining forces behind the Puerto Rico Electric Power Authority’s financial condition.
PREPA’s newly released 2023 financial statements published to the markets show that the operational handoff has reshaped the utility’s workforce, liabilities, internal controls and cash position, producing improvements in some areas while exposing new vulnerabilities and contributing to a qualified audit opinion.
The most dramatic financial effect of the transition came from the departure of PREPA employees to LUMA and Genera PR. Roughly 1,360 workers resigned from PREPA and joined the private operators, withdrawing contributions from the utility’s retirement system. This single shift produced a $1.04 billion reduction in PREPA’s net pension liability—one of the largest liability drops in the utility’s history—and lowered operating expenses enough to slow the growth of PREPA’s deficit. Other post‑employment benefits liability fell by $88.8 million for the same reason. These changes helped PREPA limit its net deficit increase to $204.2 million in fiscal 2023, compared to a $903.3 million deterioration the prior year.
But the transition also exposed weaknesses in PREPA’s internal controls and documentation. KPMG reported it could not obtain sufficient evidence to verify $257 million in materials and supplies after the handoff of operational responsibilities, a gap tied directly to the shift in inventory management. The auditors also found that employee files needed to support $137.8 million in labor‑related claims were incomplete or missing, again linked to the transition. These deficiencies formed the basis of the qualified opinion—an unusual and serious finding for a public utility of PREPA’s size.
Genera PR’s arrival added new financial obligations. PREPA was required to establish restricted reserve accounts under the generation‑operation contract, and the Commonwealth provided a $447.4 million loan to fund them. This infusion increased restricted cash by 47 percent but also expanded PREPA’s liabilities to the primary government. Meanwhile, LUMA’s management of transmission and distribution led to a substantial increase in materials and supplies, as the operator nearly doubled inventory levels to mitigate supply‑chain risks. The MD&A notes that this buildup was necessary to stabilize the grid but contributed to the documentation gaps flagged by auditors.
The transition also influenced PREPA’s collections and receivables. Improved billing processes under LUMA, combined with the Commonwealth’s exit from bankruptcy, helped government agencies pay more reliably. PREPA’s net receivables increased by $227.1 million, reflecting better collections and higher federal grant activity tied to reconstruction projects managed by the private operators. Federal and state reimbursements surged to $553.9 million—nearly triple the prior year—providing a temporary boost to PREPA’s cash position.
Despite these improvements, PREPA’s overall financial condition remains precarious. The utility ended fiscal 2023 with an accumulated deficit of approximately $10.1 billion and continued to default on its debt obligations. Total liabilities and deferred inflows rose to $21.5 billion, up $683.9 million from 2022. Interest payable increased by $422.2 million, including a $336.3 million rise in bond interest, even though PREPA has not paid bondholders since entering Title III in 2017. Monoline insurers covered $70.2 million in interest on insured bonds, but those amounts remain recorded as PREPA’s obligations.
PREPA’s total assets and deferred outflows reached $11.4 billion, a 6.3 percent increase driven by higher cash balances, federal reimbursements and increased receivables. Cash and cash equivalents rose by $247.8 million, while restricted cash climbed by $383.1 million due to the Genera PR reserve‑funding loan. Operating revenues increased to $4.14 billion, up $138.2 million from 2022. Fuel and purchased power costs decreased slightly to $2.87 billion as global crude oil prices eased late in the fiscal year. Maintenance and operating expenses fell sharply from $1.38 billion to $870.2 million, largely due to the pension‑liability reduction. Emergency‑related expenses rose to $282.4 million, and impairment losses increased to $104.1 million, driven by damage from Hurricane Fiona.
KPMG reiterated that PREPA faces “substantial doubt” about its ability to continue as a going concern. The utility remains in Title III bankruptcy, and the financial statements do not include any adjustments that may result from the eventual resolution of the restructuring. The audit underscores that PREPA does not have sufficient funds to meet its obligations as they come due and continues to rely heavily on federal support and temporary operational measures.
