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The Power To Grow
Prepa Executive Director Hector Rosario to increase Puerto Ricos electrical generation capacity, decrease costs, and reduce the islands dependency on oil
BY LUCIENNE GIGANTE
May 17, 2001
Lighting the way: To negotiate for low-cost Venezuelan oil, stabilize fuel adjustment charges, and hurricane-proof main power lines are among Prepas main objectives
To tackle the challenges of a new era, the Puerto Rico Electric Power Authority (Prepa) plans to request bids to build a third co-generation plant, seek more economical oil purchasing deals with other countries, and lower consumers electricity bills.
New Executive Director Hector Rosario believes the public corporation has handled the energy challenges of the last decade and built up enough energy generation capacity to fulfill Puerto Ricos energy demand until 2006.
Still, Prepa must continue to increase the islands energy generation capacity to meet future demand, decrease electricity costsespecially for industryto become more competitive, further reduce the islands dependency on oil, and improve the systems efficiency.
"We are in the business of selling electricity. We need to provide this service with quality," said Rosario. "To do that, we need an efficient energy production system and an equally good transmission & distribution system."
Prepa has a $2 billion budget for capital improvements for the next five years. These include the construction of 38 sub-stationswhere voltage is lower for residential consumptionupgrading transmission & distribution systems, and burying transmission lines underground.
Rosarios pet project is to issue a bid for a third cogeneration plant to fulfill the islands energy demand after 2006. "Prepas energy capacity is covered until 2006, but we need to think about later projections," he said.
New cogeneration plant for the west
"Without a doubt, the next cogeneration plant will be located in the western part of the island since there is no power plant to serve the area," said Rosario, adding that Prepa is working on the Request for Proposal (RFP), which will be issued before the end of fiscal 2002.
Rosario said the third cogeneration plant can be either a privately funded projectsimilar to the natural gas-fired Eco-Electrica in Peñuelas and the coal-powered Applied Energy Systems (AES) in Guayamaor a Prepa project, depending on which bid is more cost-effective.
"Cogeneration contracts are more advantageous to Prepa as it will not have to find money to build a plant," according to the Energy Information Authority of the U.S. Department of Energy. Rosario said he can go either way. "We will compete with private industry for the project as we did in past bids," he said. "If private industry can do it in a more cost-effective way, they will. If not, we will."
The new plant will probably be fueled by natural gas or coal to further reduce Puerto Ricos dependence on oil, which currently stands at 81%. "The type of fuel selected will need to comply with Prepas diversification & environmental criteria," he said.
According to Rosario, the new facility will have to generate at least 400 megawatts (mw) to fulfill Puerto Ricos demand which is estimated to increase 3% to 4% or about 100 mw annually.
Electricity demands associated with Puerto Ricos economic growth have not exceeded generation capacity because in the past eight years Prepa contracted with two independent power producersEco-Electrica and AESto increase Puerto Ricos generating capacity while reducing dependence on oil.
Prepas goal is to increase energy capacity from 4,421 mw of electricity to 5,712 mw by 2003.
The $670 million privately funded natural gas fired cogenerator Eco-Electrica started operation last July and provides 507 mw, which is 17% of Puerto Ricos demand. Located in Punta Guayanilla in Peñuelas, Eco-Electricadescribed by the U.S. Energy Information Administration as one of the cleanest power plants in the worldprovides Puerto Rico with the only natural gas infrastructure including a 42 million gallon natural-gas storage facility.
Coal-powered cogeneration plant AES is scheduled to provide about 464 mw, or 15% of the islands capacity starting next summer. Located in Guayama, the $815 million projectPuerto Ricos largest finance deal ever will further add to Prepas fuel diversification policy as it provides an alternative to oil or natural gas.
After AES comes online, Prepas fuel menu will be 67% crude oil, 17% natural gas, 15% coal, and 1% hydro (water-based electricity production).
The remaining 320 mw of energyafter Eco-Electrica and AESwas to come out of Prepas Repowering San Juan Project, a $200 million natural gas plant. According to Rosario, the Repowering San Juan Project, which had already started construction, has been at a standstill for the past eight months. While Rosario declined to provide details, it appears that the projects developer abandoned the project and the case is now in court.
"If the San Juan project is halted indefinitely, we will just have to fast-track the cogeneration project," he said.
The plant was to go hand in hand with a proposed network of gas pipes to transport natural gas islandwide and take advantage of Eco-Electricas storage facility. "We are still analyzing this specific project, but we definitely want to take advantage of natural gas facilities," he said, adding that this month he will travel to Argentina to meet with natural gas producers.
Lowering electricity bill: Strike a deal?
In the first week of June, Rosario and Economic Development and Commerce Secretary Ramon Cantero Frau will visit Venezuela. The aim is to start negotiations to purchase oil from that countrys national oil company Petroleos de Venezuela S.A. (PDVSA), which is one of the worlds five largest petroleum companies.
"[When Venezuela government officials visited Puerto Rico,] they said they would give the island preferential treatment. Well see what happens," Rosario said, adding that it would be the first meeting to try to reach a purchasing contract, which would be the first Prepas first with another country.
Venezuela has the largest oil reserves outside the Middle East and supplies some 1.4 million barrels a day to the U.S. Since 1980, Venezuela and Mexico have partnered in an agreement to supply oil at special prices to the small nations of Central America and the Caribbean.
PDVSA will soon have other interests in Puerto Rico as gasoline station retailer Citgo plans to enter the island by offering independent gasoline station owners a strategy of branded distributorships. Headquartered in Tulsa, Okla., Citgo is a wholly owned subsidiary of PDVSA. Meanwhile, nearby exporter Hovensa oil refinery in St. Croix is a joint venture between Hess Oil Virgin Islands and PDVSA.
Fuel adjustment costs
The basic electricity rate has not increased since 1989, but the dramatic increase in oil pricesnow averaging $26 per barrelare passed on to consumers in fuel adjustment costs, based on a three months oil-purchase average. Dramatic increases in oil prices in the past year have increased fuel adjustment costs up to 110% in Puerto Rico, averaging 60% of the basic cost of energy to consumers.
The impact of fuel adjustment costs is significant for industry as the island competes with other countries where energy is cheaper. For instance, one
cent difference in kilowatt hour (kwh) cost can equal $160 million a year to a manufacturer.
Lowering the cost of electricity is one of Prepas most important goals, since it makes the island more attractive as an investment opportunity for companies. In the U.S., individual consumers subsidize industrial consumption. Its the other way around in Puerto Rico, as industry pays more per kwh than residents.
To combat oil price volatility, Rosario said Prepa is in the final stages of selecting a company that will provide a hedging insurance. The insurance establishes a fixed price per barrel of oil for consumers no matter how much the price per barrel increases in the market.
"This insurance will stabilize fuel adjustment costs. In one year, we should have about 50% of fuel adjustment costs stabilized," he said, adding that this will halve the fuel adjustment costs on the bill.
Eco-Electrica has a similar contract with its natural gas provider (Cabot LNG of Everett, Mass.) to insure against price increases in the open market. According to an article in "Business Week," natural gas prices quadrupled last year, and after settling back in March, experts predict further increases for this summer and winter. U.S. mainland natural gas consumption has climbed 36% since 1986, although natural gas supply is half gone, according to CNN. The article said natural gas prices are expected to jump by an additional 20% this summer.
"The increase in natural gas prices is not significant for EcoElectrica because the terms of our contract and its guarantees protect us," said CFO Jaime Sanabria. The contract has made it a cheaper alternative to petroleum in Puerto Rico.
Although many experts have paid lip service to the importance of burying Prepas transmission lines, as of now only 5% of Prepas system is underground. Rosario said he plans to make this initiative a priority.
At an investment of $36 million, Prepa started the first phase of a project to bury the heavy duty 115-kilovolt (kv) transmission line in San Juan. The Federal Emergency Management Administration (FEMA) is already committed to providing Prepa with $9 million. The 115-kv underground line will go from the Palo Seco plant to the Puerto Nuevo power plant, and will run through Hato Rey, Monacillos, and Bayamon.
"This project will guarantee that the day after a hurricane, we can provide electricity to critical areas including Hato Reys Golden Mile, La Fortaleza, the Rio Piedras Medical Center, the National Guard, and Civil Defense," Rosario said.
Prepa also plans to bury electric cables in the municipalities centers. Rosario already has talked with municipal officials and presented his plans to the mayors of Dorado, Toa Alta, Vega Baja, and Ceiba.
"I want the municipalities to work with us, because they are our eyes and ears," he said. "I am going to visit all the mayors and propose that their municipalities promote the project. We will provide them with the electrical materials, design, and connections," he said. Prepa estimates that the cost of electrical materials alone is $21,000 per 100 meters.
"They should get the Puerto Rico Telephone Co. (PRT) involved as well," Rosario said, adding that he has had preliminary conversations with PRT officials. "They agreed that this project should go forward. In fact, it benefits PRT more than us because their system is more vulnerable." PRT uses Prepas towers and infrastructure for its telephone lines. Prepa has initially assigned $8 million for the project.
Rosarios expansion plans also call for the immediate construction of 38 substations--where voltage is lower--which transmit adequate amounts of energy to residential clients. Although these substations were already in Prepas plan, Rosario intends to complete the project in about three years, instead of five.
"We need to fast-track this process," he said. "There are very critical areas with substations past their useful lives, in need of immediate attention."
Major substations to be built in the next two years include Yauco (March 2002), Caguas (May 2002), San Sebastian (October 2002), San German (December 2002), Fajardo (February 2003), San Juan at Covadonga (March 2003), Dorado (March 2003), and Bayamon (May 2003).
Rosario has his eyes on the prize. "For me its most important to make Prepa more competitive. The only way we can to that is by stabilizing the price of electricity. Thats where our efforts will go."
This Caribbean Business article appears courtesy of Casiano Communications.