Puerto Rican Electric Power Authority to cut consulting spend by 35 percent

20 August 2018 Consultancy.lat 4 min. read

The Puerto Rican Electric Power Authority (PREPA or Autoridad de Energía Eléctrica in Spanish) have cut their consulting spend by up to 35 percent. The savings will amount to an approximate $26 million and will be shaved off the top of multiple existing contracts in a bid to invert the transformation of the public corporation. 

The Puerto Rican government owned PREPA has made a plan to reduce its consulting cost by removing overlaps in its total spend. The move comes just weeks after the new executive director José Ortiz took the reins of the struggling public corporation in July this year. Ortiz is an engineer and has been a public servant under multiple governments and so was tasked with reforming PREPA. 

However, he has been put in charge of PREPA at a time when the island is beyond financial hardship. After officially declaring themselves broke by invoking the PROMESA’s Title III bankruptcy process in May last year with a regional debt of roughly $70 billion, Puerto Rico was hit by a hurricane of epic proportions. The storm threw the island into a world of devastation that in turn meant the economic situation would get worse before it began to get better.

Today the Commonwealth’s economy is slightly recovering but Hurricane Maria’s effect on the public electric utility service pushed it over the brink. What was already considered an inefficient and costly organization according to CNBC, “which had failed to invest in maintenance and resiliency and is saddled with unsustainable debt”, completely failed when the storm struck. 

Aided by federal disaster relief funds, Puerto Rico currently has some room to breathe, and strategize. However, the accusations of mismanagement continued to fly around with PREPA officials accepting bribes to restore power to exotic clubs before the general public, and, according to a local source, it has been alleged that some officials even powered their own homes before “critical locations such as San Juan’s Rio Piedras Medical Center and the Luis Munoz Marin International Airport.”

Puerto Rican Electric Power Authority to cut consulting spend by 35 percent

As part of Ortiz’s mandate to restructure, cut expenditure and no doubt cancel out corruption, he and Governor Ricardo Rosselló Nevares announced this week that the agency would cut $26 million in contracts, including those to Filsinger Energy Partners, Ankura Consulting Group and two law firms. Instead, the public corporation would consolidate those tasks and take on some of their functions internally. 

In an interview with Puerto Rican newspaper ‘El Nuevo Día’, Rosselló Nevares and Ortiz indicated that the savings achieved will be ‘invested’ in the transformation of PREPA. The largest cuts were from the restructuring advisory firm which will now take on a more strategic role, according to Ortiz. The saving alone from this one contract adds up to $12.9 million, which was shaved off an original bill of $24 million. 

Ortiz focused on this contract because it was not fiscally responsible according to the PREPA plan and that the contract contradicted the direction of the public entity. “I had a role in pushing projects, but that is going to have people from the Authority now, as it had to be from the beginning. Filsinger has a lot of value for the Authority, but as a strategist… giving guidelines and terms of the steps that must be taken,” said Ortiz.

The contract for Ankura Consulting, which was hired in June last year to offer financial advice in relation to debt restructuring under PROMESA Title III, was reduced by $3.8 million, from $11.4 million to $7.6 million.

“We focused on where there was an overlap of functions to leave a single person in charge, and we began to distribute the load. There was an overlap of many law firms and financial advisers, who were doing, in many cases, similar things. We eliminated that,” said Ortiz. “There were also functions that, at this stage, can be done by employees of the Authority with the salaries that are earned today. We started a transition to our team.” 

“The request was that we could find tangible efficiencies that could result in savings... that the people could measure them, and lead us into the broader process of transformation for the future," Rosselló Nevares said. According to Ortiz and Rosselló Nevares, the savings will go towards coving PREPA’s day-to-day expenses and will see the entity’s reform advanced.