October, 2015

PREPA’s TransformationA Path to Sustainability

2

Early 2015

Developed 10 year business

plan, integrated resource plan, and rate study

Agreed to economic terms of debt restructuring with ad-hoc group

and fuel line lenders

Stabilized PREPA through

forbearance framework with

creditors

Implemented comprehensive operational and organizational transformation

Developed comprehensive

safety improvement

program

Today

On a track to significantly

strengthen PREPA for the long-term

…But There Is Much To Be Accomplished

Significant Progress Has Been MadePREPA’s Transformation

Making the New PREPA a Reality

3

Implemented Comprehensive Operational, Organizational Plans

Foundation of Transformed PREPA

Key Elements of Ongoing Transformation

With Support From All Stakeholders, We Can Create a

Modern, Fair & Equitable PREPA

Forbearance Framework with Creditors

Debt Restructuring with Ad-Hoc Group, Fuel Line Lenders

10-Year Business Plan, Resource Plan, Rate Study

BalancedSolution

New RateStructure

OperationalImprovements

Investment inCritical Projects

New Governance

PREPA’s Transformation

Developed Safety Improvement Program

New Governance Will Enhance Oversight

4

Taking the Politics Out of PREPA to Ensure Meaningful Reforms Take and Remain in Place

PREPA’s Transformation

Refreshment of the Board Board to include a majority of independent, non political

members, identified by search firm Staggered terms beyond the four-election cycle, replacement

mechanics to ensure continued stability Specified Experience to be required

Professional Management Team

Merit compensation for employees

Operational Improvements Will Reduce Expenses

5

Operational improvements will result in $245-390M of recurring expense cuts, including…

Already Achieved $106M Recurring Savings; $80M in One-Time Savings

• Forecasting• Inventory Control• Sourcing and Supply Chain

Fuel Improvements

• Streamlined collections• Implementation of changes to CILT legislation• Improved customer service

Customer Management

Improvements

• Reviewing footprint and optimizing assets• Reducing inventory levels• Increasing fleet utilization and developing fleet renewal

program

Indirect Procurement

Improvements

PREPA’s Transformation

Investing in Employee Standards at Every Turn

6

Asking for Changes To Make PREPA a Modern Utility

• Implementing changes to work rules• Bringing benefits in line with norms across Puerto

Rico and industry peers

Productivity Enhancements

• Restructuring the organization and delineating clear lines of accountability

• Emphasizing merit based promotions• Developing succession plans

Employee Related

• Hired industry leading firm to assess current situation and develop program to improve

• Development of standard health and safety dashboard to track implementation of improvement program

Safety

PREPA’s Transformation

7

Investing $2.4 Billion In Critical ProjectsPREPA’s Transformation

Construction of Aguirre Offshore

Gas Port to improve fuel

diversity

Building new units

at Palo Seco

Improve systems reliability to

increase capacity to

service distributed generation

Increase maintenance

capex to $300M per

year

Upgrade fleet to

improve efficiency at Costa Sur and Aguirre

Will Not Raise Additional Debt to Support Improvement Projects; Will Bring PREPA’s Systems to Industry Standards

• Invest to meet MATS• Improve system reliability

PHASE ONE• Improve energy efficiency

• Upgrade existing fleet

PHASE TWO

PREPA’s Plan

8

Historical all-in rate $.24 $.28 $.26 $.26 $.21

Est. rate required $.29 $.36 $.30 $.33 $.28

Est. historical gap $.05 $.08 $.04 $.07 $.07

Per kWhFY11 FY12 FY13 FY14 FY15

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4Historic all-in rate charged Estimated historical rate gap Estimated rate required to cover all status quo costs

Aver

age

Annu

al R

ate

( $ /

kW

h)

Rate gap calculation driven by operating expenses (incurred but not accounted for) and by not keeping up with normal maintenance capex

PREPA’s Rates Artificial and UnsustainablePREPA’s Transformation

“Burden Sharing” Needed for Equitable, Fair Solution

Government &MunicipalitiesTimely payment of energy bills

Reduction of CILT

CreditorsSustainable Capital

Structure and Liquidity

EmployeesSavings, efficiencies

and flexibility

RatepayersTransparent rate

structure that covers reasonable

costs

Eliminate Rate

Deficit

9

PREPA’s Transformation

Preliminary and Confidential Draft Subject to Material Change - Prepared at the Request of Counsel

Legislative Reforms Necessary for Success

10

Improve collections process with payment plans, more authority

Enforce CILT cap, established by Act 57, for each municipality

Implement flexible, modern, transparent, simple line item rate structure

Provide Energy Commission process to approve/reject restructuring rates

Simplify rate review process

Implement employee changes to bring labor costs, productivity levels in line with transformation initiatives

Authorize PREPA to explore Public-Private Partnership options through RFP Process allowing for modernization of facilities

PREPA’s Transformation

Legislative Reforms Will Facilitate a Balanced Solution

Making the New PREPA a Reality

11

Implemented Comprehensive Operational, Organizational Plans

Foundation of Transformed PREPA

Key Elements of Ongoing Transformation

With Support From All Stakeholders, We Can Create a

Modern, Fair & Equitable PREPA

Forbearance Framework with Creditors

Debt Restructuring with Ad-Hoc Group, Fuel Line Lenders

10-Year Business Plan, Resource Plan, Rate Study

BalancedSolution

New RateStructure

OperationalImprovements

Investment inCritical Projects

New Governance

PREPA’s Transformation

Developed Safety Improvement Program

The Time For Change Is Now

12

Actions Required to ImplementPREPA’s Transformation

Pass legislation enabling PREPA’s transformation

Finalize deals with creditors

Implement operational changes at PREPA

Invest in critical infrastructure projects

Depoliticize PREPA