Puerto Rico Electric Power Authority (“PREPA”) Situational Overview November 20, 2014

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Disclaimer The information contained in this presentation (the “Information”) has been provided and prepared by the Puerto Rico Power Authority (“PREPA” or the “Company”) and is in draft form subject to further discussions and revisions. No representation or warranty, express or implied, is made by the Company or its advisors as to the accuracy or completeness of the Information. The Company and its advisors shall have no responsibility or liability for the accuracy or completeness of the Information or the consequences of any party’s reliance upon the Information. The Information does not constitute an offer or solicitation to sell or purchase securities. Neither the Company nor its advisors shall have any liability, whether direct or indirect, in contract, tort or otherwise, to any person in connection with the Information.

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Discussion Topics

‣ Introduction

‣ Background Information and Current Financial Situation

‣ Overview of MATS Compliance

‣Open Discussion

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Introduction • PREPA participants include:

• Sonia Miranda Vega – PREPA Director of Planning and Environmental Protection • Rafael Marrero Carrasquillo - PREPA Environmental Protection • Kyle Danish – Van Ness Feldman LLP • Britt Fleming – Van Ness Feldman LLP • Melissa Brown – AlixPartners • Sean A. O'Neal - Cleary Gottlieb Steen & Hamilton LLP

• We requested this meeting with the EPA to continue discussions regarding MATS compliance as well as discuss Puerto Rico and PREPA’s current financial situation

• While we do not have all the answers to MATS compliance today, we are actively evaluating options as well as monitoring emissions to determine the fastest and most prudent approach to compliance within PREPA’s existing constraints

• Given this, PREPA intends to seek a 1st year extension for four units and, as we will explain, we will likely need additional extensions for four to six units. We are seeking EPA’s support for these extensions.

• We hope to continue to have regular meetings with the EPA to foster transparency as well as gain your input as we develop a comprehensive compliance plan

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Discussion Topics

‣ Introduction

‣ Background Information and Current Financial Situation

‣ Overview of MATS Compliance

‣Open Discussion

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Puerto Rico Background

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• Puerto Rico’s economy has been in recession since 2006, primarily driven by long-term structural changes and issues, including:

• Expiration of several tax benefits

• Closure of numerous industrial sites

• High costs of doing business

• Aging infrastructure

• Non-competitive energy costs

• Difficult regulatory environment, including labor regulations

• Negative demographic trends – negative GNP, shrinking population, declining tourism

• Persistent low labor participation rates and high unemployment

• Puerto Rico has significant legacy liabilities both at the Commonwealth level and at its many public corporations including PREPA

• While the current Administration has started to address these issues, no comprehensive plan or meaningful change has occurred yet

• As a result, investors (creditors, insurers, etc.) perceive increasing risk with respect to the sustainability of Puerto Rico’s and its’ public corporations fiscal position

• Many of Puerto Rico’s issues are interdependent, events and outcomes at the Commonwealth or any of the public corporations will likely have impacts across Puerto Rico and to some extent the U.S.

• If PREPA fails to resolve its debt issues, it will likely have a carry on effect to other Puerto Rico entities’ financial condition

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Puerto Rico Background continued

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• The below graphs illustrate the trends that have negatively impacted Puerto Rico and PREPA

Population Decline: From 2007-2012 declined by over 3%

Decline in Tourism: tourism has declined since 2008, and comprises only 2% of the economy

GNP decline: GNP decline almost every year since 2006, following the expiration of several tax benefits

Unemployment: unemployment rate exceeded US’s by an average of ~6%

14.7%

7.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Puerto Rico United States

5,213

4,415 4,379

4,214 4,197

$678

$719

$733 $746

$761

$620

$640

$660

$680

$700

$720

$740

$760

$780

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

2008 2009 2010 2011 2012

Visitors (000) Average Visitor Expenditure

-1.2%

-2.9%

-3.8% -3.6%

-1.6%

0.1%

1.7%

2.5%

-3.4%

0.5%

2.5%2.1%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2007 2008 2009 2010 2011 2012

Puerto Rico United States

-0.6% -0.6% -0.6% -0.5% -0.4%

-1.1%

0.9% 1.0% 0.9% 0.8% 0.7% 0.7%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2007 2008 2009 2010 2011 2012

Puerto Rico United States

Sources: US Census Bureau, World Bank, US Bureau of Labor Statistics, World Travel and Tourism Council.

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PREPA Background

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• PREPA is the sole provider of electrical services in Puerto Rico with no electric import capability

• PREPA relies exclusively on imported fuel for electric generation as Puerto Rico has no indigenous fuel sources

• PREPA owns infrastructure to import No. 6 oil and diesel

• PREPA has access to a limited supply of natural gas at their Costa Sur facility from the EcoEléctrica and Gas Natural Fenosa (“GNF”) LNG facility which began operations in 2000

• PREPA’s baseload generation uses Bunker C (No. 6 oil) and was constructed from 1959 – 1972, while its mid-merit and peaking generation uses diesel (No. 2 oil) and was constructed from 1975-2008.

• At the time that PREPA constructed baseload generation facilities, oil was easily imported, cheap and complied with existing environmental regulations

• To expand fuel imports PREPA requires local and federal approvals as well as funding

• In 2008, PREPA constructed a pipeline to transfer natural gas from EcoEléctrica to its Aguirre facility. However, a new Administration entered office and required the pipeline project to be cancelled even though it was almost fully constructed

• In 2010, PREPA started the permitting process to construct a pipeline from the Ecoeléctrica to the northern power plants (Cambalache, Palo Seco and San Juan). However, the same Administration required the pipeline project be canceled in 2012

• Currently PREPA is pursuing applicable permits and DOE funding for a new LNG import facility at Aguirre

• Permitting is currently delayed due inquiries for additional information from various federal agencies

• DOE funding approval is uncertain with no clear timeline for a final decision

• Non-DOE backed funding is unlikely given PREPA’s financial situation

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PREPA Constraints

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Constraint Description

Financial Limited cash availability Uncertainties with respect to ongoing restructuring process Rate structure not reflective of cost structure

Environmental/ Regulatory

Compliance requirements (MATS, CO2, etc.) Uncertainty of impact on PREPA of a series of new laws recently enacted in Puerto

Rico Energy commission not fully formed and not operational yet

New laws contain contradictory provisions and are of uncertain interpretation

Technical Limited options to change/improve old, inefficient technology Grid reliability and closed loop system impact decisions on any technical change

Fuel Only No. 6 oil and diesel readily available on island to PREPA (other than LNG at Costa Sur)

New fuel supply options require permits, government approvals, local support, money and time (permitting & construction)

Physical Some plant sites have limited available space for additional development New fuel supply options require additional land, land access and/or water access as

well as local/federal support/permits

Time Changes take considerable time and several factors are not in PREPA’s control Government requirements (P3, RFP, approvals, reviews, etc.) Permits

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Discussion Topics

‣ Introduction

‣ Background Information and Current Financial Situation

‣ Overview of MATS Compliance

‣Open Discussion

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