November 17, 2014 / 4:05 PM / 5 years ago

UPDATE 4-Puerto Rico's PREPA urged to get tough on $1.8 bln owed

(Adds quote from PREPA chief restructuring officer)

NEW YORK, Nov 17 (Reuters) - The Puerto Rico Electric Power Authority (PREPA), a troubled public utility, should take action on up to $1.8 billion it is owed, mainly by customers, including cutting off services to public corporations not paying their bills, according to a new report released on Monday.

The report, prepared by FTI Consulting, comes as part of an agreement with creditors that hold over $9 billion of the utility’s debt and underscores the lax billing and collections practices that have helped bring the utility to the edge of bankruptcy.

It is unclear how much of its outstanding debts PREPA could ultimately collect. Puerto Rico’s cash strapped government entities owe $758 million with some public corporation failing to make even current payments on their electricity bills and simply refusing to accept payment plans.

“A few of these public corporations have been offered payment plans to make partial payments on their current bills, but have refused to make even those payments,” said the report by the Annapolis, Maryland-based business consultancy. “It is critical that PREPA, at a minimum, receives current payments for public corporation usage while it works out solutions on the past due amounts.”

General clients owe $932 million with around 40 percent owed by residential customers. The report said PREPA should outsource collections of inactive accounts and overhaul its customer collection practices.

The report highlighted $400 million in “aged inactive accounts with no collection activity or strategy”. It estimated that the recovery from that amount could be only $18 million to $31 million if PREPA engages a collections agency.

“Some of these recommendations are probably easier said then done and certainly I find it hard to believe that this would be the first time the PREPA board or even the commonwealth has heard of these issues and these potential solutions,” said Dennis Pidherny, a PREPA analyst at Fitch Ratings.

PREPA also makes payments to municipalities in lieu of paying taxes which is offset by local power consumption in a way that incentivizes municipalities to maximize power consumption. The report recommends PREPA audits municipalities in order to reduce the payments. Municipalities owe PREPA $420 million.

“Clearly we need to collect our cash faster, we need to bill more efficiently and we need to negotiate with public corporations to get paid in a timely manner,” said Lisa Donahue, PREPA’s chief restructuring officer, after the release of the report. (Reporting by Edward Krudy Additional reporting by Megan Davies and Lisa Lambert Editing by W Simon and Andrew Hay)

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