PREPA’s FY 2023 audit shows mounting deficit, rising liabilities

By THE STAR STAFF

The Puerto Rico Electric Power Authority (PREPA) ended fiscal year (FY) 2023 with higher liabilities, a deeper deficit and a renewed warning from auditors that the public utility continues to face “substantial doubt” about its ability to continue operating.

The audited financial statements, released Thursday to the markets for the year ended June 30, 2023, depict a utility still struggling with long‑standing financial instability as it remains under Title III bankruptcy protection.

Accounting firm KPMG issued a qualified opinion, citing the inability to obtain sufficient evidence to support two major accounting estimates: some $137.8 million in labor‑related claims and about $257 million in materials and supplies. The auditors wrote that “certain employees’ files that were necessary to support management’s assumptions … were either incomplete or unavailable,” and that they could not verify inventory balances due to PREPA’s ongoing operational transition.

The audit also reiterated PREPA’s precarious financial position, noting that the utility has an accumulated deficit of some $10.1 billion, has defaulted on multiple debt obligations and lacks sufficient funds to meet its liabilities as they come due.

“The Authority does not currently have sufficient funds available to fully repay its various obligations,” the auditors stated.

Despite the challenges, PREPA’s total assets and deferred outflows increased to $11.4 billion, up 6.3% from 2022. Cash and cash equivalents rose sharply -- up 91%, or $247.8 million -- driven by higher sales revenues, improved collections and a surge in federal reimbursements. Restricted cash also increased by $383.1 million, largely due to a $447.4 million loan from the commonwealth government to fund reserve accounts required under PREPA’s generation‑operation contract.

Liabilities, however, continued to grow. Total liabilities and deferred inflows reached $21.5 billion, an increase of $683.9 million from the prior year. Interest payable rose by $422.2 million, including a $336.3 million increase 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 net deficit widened to $9.7 billion, up $204.2 million from 2022. Although still negative, the pace of deterioration slowed significantly compared to the prior year’s $903.3 million increase. The improvement was driven in part by a sharp reduction in long‑term obligations: PREPA’s net pension liability fell by $1.04 billion, and its other post‑employment benefits liability decreased by $88.8 million, reflecting the departure of more than 1,300 employees who transitioned to private operators.

Operating revenues increased to $4.14 billion, up $138.2 million from 2022. Fuel and purchased power costs decreased slightly to $2.87 billion, reflecting lower global crude oil prices late in the fiscal year. Maintenance and operating expenses fell sharply from $1.38 billion to $870.2 million, largely due to reduced pension costs. Emergency‑related expenses rose to $282.4 million, and impairment losses increased to $104.1 million, driven by damage from Hurricane Fiona.

The audit also highlighted ongoing risks tied to PREPA’s operational transition. Inventory controls weakened during the handoff to private operators, contributing to the qualified opinion. Auditors noted that they were “unable to obtain sufficient appropriate audit evidence” regarding materials and supplies, and that documentation gaps prevented verification of labor‑related claims.