NEW PREPA FISCAL PLAN DETAILS INVESTMENTS NEEDED TO IMPROVE PUERTO RICO’S ENERGY SYSTEM
Reflects Real Cost of Operating Puerto Rico’s Deteriorating Energy System; PREPA and System Operators’ Projections for Energy Demand and Cost of Running the System; Cost Far Exceed Previous Projections as System Continues to Deteriorate
San Juan, PR – February 11, 2025 – The Financial Oversight and Management Board for Puerto Rico today released the new certified Fiscal Plan for the Puerto Rico Electric Power Authority (PREPA) that reflects the investments needed to adequately restore and operate a deteriorating energy system, so PREPA can provide more reliable electricity today and in the future.
Considering recent power outages, and requests from the Puerto Rico Energy Bureau and the Oversight Board to understand what is required to meet the real needs of the system to deliver reliable power, the new Fiscal Plan reflects the projections by PREPA, Luma Energy LLC, and Genera PR beyond the rate structure and revenue requirements under the now eight-year-old rate order from 2017 and including investments above the currently allocated federal funds. LUMA expects these investments will allow Puerto Rico to reduce the frequency of outages over the next 10 years by 75–85%.
“Puerto Rico’s energy system is clearly deteriorating faster than PREPA and the operators of the grid and power plants can make repairs, and the new Fiscal Plan the members of the Oversight Board certified reflect that reality,” said the Oversight Board’s Executive Director Robert F. Mujica, Jr. “The system is failing families and businesses, and the Fiscal Plan defines the path that will lead to more reliable electricity.”
The new projections unconstrained by the rate order reflect the outlook for Puerto Rico’s economy, a declining population, energy demand, and other assumptions. By 2040, the operators project expenses of running Puerto Rico’s energy system to be more than 60% higher than in the Fiscal Plan certified in 2023, which had limited expenses to revenue generated under the 2017 rate order.
In addition, LUMA Energy estimates the system needs federal funding through fiscal year 2034 to fully rebuild, maintain, and operate a clean, reliable, and resilient grid, with unmet future needs ranging from $18 billion to $24 billion.
The ongoing rate review process commenced by the Energy Bureau, designed to account for Puerto Rico’s energy system’s evolving demands and ratemaking principles, will ultimately determine how much will be required to be funded by ratepayers.
“We must prioritize the needed investments in the energy grid above all else, while holding all parties accountable,” Mujica said. “Coordinated deployment of federal funds is crucial to adequately repairing and maintaining the system, but it won’t be enough. The cost of sustaining a system that can properly serve the people and businesses of Puerto Rico far exceeds previous projections as the system continues to weaken and fail. Our goal is to strengthen the electric system, complete the energy transformation, and lift PREPA out of bankruptcy with a Plan of Adjustment that is fair and reflects the reality PREPA faces today so it can serve Puerto Rico tomorrow.”
Decades of neglect, deferred maintenance, missed system upgrades, lack of long-term planning, and government interference in management left Puerto Rico with an outdated system vulnerable to shock and unable to keep in step with the time. Puerto Rico’s shrinking population and economic decline exacerbated the problems. Major outages on June 12, 2024, left around 350,000 without power, and on December 31, 2024, more than 1 million.
PREPA, meanwhile, has not performed an evaluation of the long-term system needs in over 30 years. It has been operating under a structural financial deficit since 2004, which has worsened over time. Expense projections did not fully reflect the requirements to bring the system to a state of repair comparable to even lowest performing utilities in the United States. Recent improvements in operating structure, increased effort to upkeep and improve the system, and the addition of new sources of energy generation were insufficient to restore the system, much less provide sustained reliability.
In the new Fiscal Plan, necessary maintenance expenses are projected to more than triple in real terms from fiscal year 2025 to fiscal year 2026, increasing by an additional 43% by fiscal 2029. This growth is driven by operators’ updated expense estimates that more accurately reflect the needs of the deteriorating system. Expenses from fuel and purchased power are projected to increase by 11% compared to the 2023 Fiscal Plan.
Given the significant increase in costs and PREPA’s inability to provide reliable electricity service without addressing the deferred system needs, the Oversight Board concludes PREPA will not be able to impose any additional rate increases for debt service above the rates necessary to pay for the costs of operating the energy system. The Oversight Board is nevertheless committed to restructuring PREPA’s debt and when allowed to propose an amended Plan of Adjustment will specify the source of funds necessary to confirm and implement the Plan.