PREPA saves $312M via operational ‘transformation’

Written by  //  December 16, 2015  //  Government  //  No comments

PREPA's management has implemented cost-cutting and revenue-generating strategies in the past 15 months. (Credit: © Mauricio Pascual)

PREPA’s management has implemented cost-cutting and revenue-generating strategies in the past 15 months. (Credit: © Mauricio Pascual)

In the 15 months it has been working with stateside firm AlixPartners, the Puerto Rico Electric Power Authority has accrued $162 million in annual benefits, plus another $150 million in one-time benefits through a comprehensive operational overhaul, Chief Restructuring Officer Lisa Donahue told board members Tuesday.

The savings come from four segments of the operation, she said. In the area of fuel purchasing, the agency optimized inventory levels, improved cost base and secured better credit terms that resulted in annual savings of $58 million and one-time savings of $86 million.

Among other things AlixPartners rolled out forecasting and inventory controls to eliminate “unnecessary build-up of fuel inventory” and secure better prices for fuel and natural gas, Donahue explained.

In the power generation segment, the restructuring firm worked with PREPA employees to implement “rigorous plans to optimize dispatch” and evaluated causes of outages, to come up with strategies to reduce frequency, Donahue said during the agency’s monthly board meeting. The improvements resulted in $77 million in annual savings, she said.

In the area of customer service, the agency has taken an aggressive stance against energy theft and improved its collection process. So far, the measure has resulted in annual savings of $6 million and a one-time benefit of $46 million, she said.

“Ineffective collections practices and acceptance of non-payment have allowed government past-dues to exceed $250 million,” she said. “There were no consequences or active collections effort on severely past due accounts.”

When AlixPartners began working to overhaul PREPA some 15 months ago, it conducted a general assessment of the agency’s procedures to identify problems, she said.

In terms of indirect procurement, PREPA’s management restructured inventory management and implemented a fleet reduction and renewal program — eliminating 1,000 vehicles and equipment from the former 3,500 in the inventory — among other steps, to achieve an annual saving of $22 million and a one-time cost reduction of $18 million, Donahue explained.

As part of the review, AlixPartners and PREPA’s management identified an disjointed real estate strategy in place to manage a large portfolio of more than 1,000 properties. The public corporation hired a third-party real estate firm to develop a plan to dispose of excess properties — all of which are vacant, Donahue said — valued at between $15 million and $18 million.

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