|The high price of power
Our economy runs on electricity. Will we have it
when and where we need it
at a price we can afford?
Puerto Ricos energy and electric power systems are sufficient to fulfill the islands demands, but inadequate plant maintenance and the high costs of energy could reduce the islands qualities as a place to do business.
"The [present] level of reliability and generation capacity of electric power currently generated in Puerto Rico is enough to fulfill the islands energy needs," said Cecil Macgregor, chairman of the Energy Committee at the Puerto Rico Chamber of Commerce (PRCC), and president of electrical subcontractor company Macgregor Electric S.E.
The Puerto Rico Electric Power Authoritys (Prepa) generating facilities include 12 power plants and substations around the island that can generate 4,415 megawatts (Mw)
Energy generation capacity has increased dramatically over the years driven in part by the demands of a growing economy. Prepa has found it necessary to build additional energy generation plantsfrom hydroelectric systems to gas turbines to electric facilitiesto catch up with the increasing demand and thus guarantee adequate power supply.
In recent years, the Puerto Rican government has encouraged private sector independent power producers to build cogeneration plants on the island to produce electricity to meet the islands increasing energy demand. Energy produced by private plants is sold to Prepa, which then distributes it to consumers through the network.
Cogenerators are power-generating plants that simultaneously produce electrical energy as well as another form of energy, such as steam or heat.
Operating at full capacity since 2000, the liquefied natural gas-fueled EcoElectrica cogenerator plant in Peñuelas supplies 507 Mw, or 20% of the islands electricity. When the AES coal-fired plantprivately owned by Applied Energy Systems of Virginiabegins operations in summer 2002, it will provide another 454 Mw of power, or 15% of the islands electricity. Together with Prepas 4,415 Mw, the grand total will be 5,376 Mw.
From this summer on, nearly 35% of the islands energy will be produced using natural gas or coal, according to Prepas Executive Director Hector Rosario; that includes the addition of the $815-million AES unit.
This is a great improvement over a scant 18 months ago when up to 97.7% of the islands energy was produced with crude oil. Based in Guayama, AES will provide electricity under a 25-year power purchase agreement with Prepa.
The addition of EcoElectrica and AES are part of Prepas plan to expand energy generation capacity as energy demand increases. (See chart.)
Reliability of the system
The reliability of Puerto Ricos electric system, however, is an issue that has been under fire for years. Poor plant maintenancewhich has been reported to be sometimes either put off or not efficiently organizedis one of the reasons for the lack of reliability, according to economists and other energy industry sources interviewed by CARIBBEAN BUSINESS.
Puerto Ricos electric system consists of three main areas: generation, transmission, and distribution. The transmission transports bulk power over long distances, while distribution refers to the delivery of electricity to the retail customers home or business through low voltage distribution lines.
Availability of the electric system is measured in terms of how much of the total systems generation capacity is available to operate at a given time, based on a 12 consecutive months period. This is known as a rolling average.
From October 2000 to October 2001, Prepa reported 81% availability, compared to 79% reported during the previous 12 months. The difference responds to down time that Prepa uses to service certain plants and infrastructure.
The projection for the next 12 month period ending October 2002 is a service availability increase of 1% to 2%. In the last five years, energy demand increased an average of 3.8% per year. "For the next five years we expect a 3.2% increase per year," said Rosario.
However, despite what sources may say, Rosario insists that Prepa energy plants are indeed receiving constant maintenance, a process he himself supervises.
Besides the importance of adequate plant maintenance, upgrading old plants, and the transmission & distribution system is another issue that demands attention, according to economist Augusto Amato. "Prepa has to be willing to make more investments to replace the old equipment. That is crucial to guarantee reliability and availability of the system," he said.
And Prepa is, in fact, refurbishing some of its own plants to make them more efficient. In fiscal year 2000-2001 Prepa invested $100 million to repair 14 power generation units (see chart). Investment for the same purposes during fiscal year 1999-2000 totaled $119.538 million, according to Prepa figures.
Repairs and maintenance efforts have caused a reduction in the number of forced service interruptions (when energy generation units shut down without warning), according to Rosario. This, he said, reflects an improvement in Prepas quality of service as well as the reliability of the electric system itself.
Nevertheless, the most recent figures available from Prepa reveal that the number of forced service interruptions increased from August through October 2001, reporting 2,694 interruptions in August; 2,824 in September, and 3,484 in October.
Figures show a decrease compared to the same period the previous year [3,325 in August; 2,855 in September] but an increase in October from 3,026 forced interruptions reported in 2000 to 3,484 last year.
Need for additional power plants
The need for an additional power generation plant for the western part of the island is an issue that has been under consideration in recent years.
In Macgregors opinion, Prepa should seriously consider, and make plans to build, a coal or natural gas plant in the west. He said that in an emergency such as a hurricane, the west is the area most affected because there are no power generation plants based there.
Establishing an additional regular energy plant costs between $400 million and $500 million, said Prepas executive director. The processplanning, construction, and launchusually takes from four to five years to complete.
Although Prepa is indeed evaluating the possibility [of the construction] of an additional plant in the west, Rosario has said "according to Prepas capacity expansion plan, we dont need additional generation capacity until 2009."
Hurricane-proof power grids
Prepa has begun working on the creation of a hurricane-proof electric system for the metro area.
Five days after Hurricane Georges left the island in darkness on Sept. 19, 1998, Prepa officials reported only 31% of the electric system was operational. That included 24 hospitals, the Luis Muñoz Marin International Airport, Lake Carraizo reservoir, the Sergio Cuevas water system, and some 200,000 households out of Puerto Ricos nearly 1.3 million households.
The power outage also caused the interruption of water services for that 69% without power, since most of the service provided by the Puerto Rico Water Company requires electrically powered pumps to move water through its pipes.
As a measure to prevent such situations happening again, Prepa plans to spend some $120 million to make the metropolitan San Juan feeder grid system hurricane proof by running major electricity lines through 30 miles of underground cables.
"There were no funds for this project, but Prepa managed to get $75 million from the Federal Emergency Management Agency (FEMA)," said Rosario, adding that Prepa will put up the rest of the money. Funds will be disbursed through FEMAs Hazard Mitigation Grant Program.
The burying of a 115 kilovolt (kv) linewhich interconnects the metro area promises to make the electricity system more efficient and guarantee that after a hurricane, the metropolitan distribution system will not suffer major damage. The project, which will take up to four years to complete, is set to begin this quarter, Rosario said.
This will guarantee that Prepas Monacillos control center in San Juan will remain operational; and the Golden Mile in Hato Rey, Rio Piedras Centro Medico, the National Guard and FEMA headquarters, as well as other necessary agencies will have service.
Equally good news is that the method that will be used to bury the conduit will not entail tearing up 30 miles of streets.
The methodknown as horizontal directional drillinginvolves digging a hole 75 feet deep and then making a tunnel under the cities of San Juan, Guaynabo, and Bayamon to install a 24- to 30-inch diameter conduit through which the power lines will run. Wisconsin-based Michaels Directional Construction Corp. will carry out the work.
Rosario explained that the work will not affect any existing water, sewer, or gas lines now buried. "We have also established agreements with more than 25 mayors to run electricity distribution lines underground to the heart of their respective municipalities. Those projects will be funded by Prepa," he noted.
Higher energy costs
Another factor that is affecting the islands industrial development is the high cost of energy. "Here industrial clients pay almost three times as much as they do in most States," said Macgregor.
Industrial clients in Puerto Rico paid 10.9 cents per kilowatt hour (c/kwh) compared to industrial clients on the U.S. mainland who pay an average of no more than 5.35 c/kwh, according to the U.S. Energy Information Administration (EIA). Residential clients locally paid 9.5 c/kwh in 2000, and 11.8 c/kwh in 2001; compared to residents in the U.S. who paid an average of no more than 8.93 c/kwh.
"Energy costs are higher in Puerto Rico because the island is still too dependant on crude oil. Stateside energy prices are lower because there they have more diversification; more energy sources. Diversification is the key to bringing savings to consumers and also the industrial sector," added Amato.
According to a study by the Department of Geology and Geophysics of the University of Wisconsin, one barrel of crude oilwhich costs an average of $19.70can produce1,700 kwh of heat; enough to provide three to four hours of electricity to a 67-room building. It is also enough to run a 1,500 watt hair dryer for approximately one hour every day for a year.
The same volume of oil equals the energy in 0.26 ton (520 pounds) of coal. One ton of coal costs around $27 can produce 7,680 kwh of electricity.
Natural gas prices range from $2 to $3 per btu (British thermal unit, which is the amount of heat necessary to raise one pound of water by one degree Farenheit). With one btu of natural gas, the EcoElectrica cogenerator can produce nearly 8,000 kwh, according to plant General Manager Ernesto Cordova.
"Producing 8,000 kwh with one btu of natural gas is excellent, although there are other more sophisticated plants in the world that can produce up to 14,000 kwh," said Cordova.
In January, Prepas Executive Director Rosario announced a 13% reduction in bills for electricity service thanks to a decrease in the fuel cost adjustment.
The reduction is in comparison with the past month of December. However, Rosario said compared to this same period one year ago, the adjustment was a 23% reduction.
"I think Prepa is doing its best to get the best deals when it comes to buying crude oil," Amato said.
According to Prepa figures, in January 2001 the adjustment charge was $28.06, it had reduced to $24.99 by December, and $21.70 last month.
"Consumers are the ones who end up paying all the costs, from consumption to purchase of energy. When AES begins operations, it will sell energy to Prepa. But consumers will ultimately fund Prepas energy purchase process too," said Macgregor.
"Offering a service that isnt the best in terms of reliability and high energy costs, Prepas only option is to diversify its energy sources. Puerto Rico is still too dependant on crude oil; I believe we should explore other energy sources
more deeply including coal, natural gas, and nuclear energy," said economist Augusto Amato.
EcoElectrica, which is capable of supplying about 20% of the islands electricity, is a key factor in Prepas fuel diversity efforts. Besides cost reduction, there are other benefits in diversifying energy sources such as cleaner air. According to the U.S. Energy Information Administration (EIA), EcoElectrica is one of the cleanest power plants in the world, exceeding both U.S. and World Bank environmental standards.
The plant, the worlds first independent, private liquefied natural gas (LNG) terminal/combined cycle gas turbine power project, was built by Enron Corp. It came on-line in March 2000 using condensate, and received its first shipment of LNG in August 2000. In January 1999, Edison Mission Energy acquired a 50% stake for $245 million. Enron owns the other 50%.
In July 2001, Atlanta-based Mirant Corp. signed an agreement to buy EcoElectrica for $1.2 billion. But Mirant later backed out of the deal. Meanwhile, Enrononce the top electricity and natural gas trader and marketer in the U.S.filed for Chapter 11 bankruptcy protection in December.
It has been reported that Shell Chemical USAwhich acquired Sunocos Yabucoa Puerto Rico plant last Mayis also pondering the acquisition of EcoElectrica. However, Shell General Manager in Puerto Rico Juan Vasquez denied the rumors. "We are not negotiating," Vasquez told CARIBBEAN BUSINESS.
Along with EcoElectrica, AES will help reduce Prepas dependency on oil to 67%, 17% on natural gas, 15% on coal, and 1% on hydro for generating energy. AES will generate steam from coal, as well as ash, which can be used as a construction aggregate.
EcoElectrica reduced the islands dependency on oil 17%, while the AES operation will help reduce oil dependency 15%.
Conscious of the importance of enough energy supply for the future, local organizations including the Insular Union of Industrial Workers and Electrical Constructions (Uitice by its Spanish acronym) have also recommended that the government intensify its efforts toward diversifying energy sources.
"Besides the fuel mix that Prepa will have next fiscal year, we have started the hedging program, which was created to allow Prepa to buy petroleum at set rates, even in times when prices skyrocket," said Rosario.
That means if oil prices go down, Prepa will be able to get it cheaper. But if prices exceed the price established as part of the hedging program, Prepa will not pay more than the set rate.
The hedging program, Rosario added, gives investors more confidence concerning the behavior of the local market when making important business and investment decisions.
Prepa also invested nearly $220 million to repower some of its defunct power stations in San Juan. Two small generators with a combined output of 88 Mw, which had been retired were rehabilitated to a rated capacity of 464 Mw.
"We evaluated the construction of an $8 million technical offices building in the northern area of the island, and a control center in Monacillos at an investment of $10 million, and decided to change priorities," Rosario added.
Those $18 millions will now be assigned to the construction of a GIS (gas insulated substation) for the Palo Seco plant. A GIS is an indoor station facility with two 230-115 kv transformers.
There are currently two GIS on the island; one on Chardon Ave. in Hato Rey, and another in Aguas Buenas. Each unit cost more than $20 million to build. The Aguas Buenas facility, for instance, was built at an investment of $24 million.
Prepa also plans to refurbish and update the system so that consumers can perform more transactions with Prepa by phone from 7 am to 11 pm. This will help reduce the traffic in the offices while helping clients save time.
"Our phone line is available for clients from 11 pm to 7 am, in case they need to report any inconvenience encountered with the service. We are also adding new equipment to process payments," said Rosario, who has worked for Prepa since 1971. He added that plans also include the addition of 15 new employees.
The pruning of trees is another initiative that has helped electrical service reliability, according to Rosario. During heavy rains registered in December, the number of Prepa clients with no service accounted for less than 1% of Prepas total clientele, he said.
"Our plans for expansion are still on, focusing on our goal of building fewer structures and more electric infrastructure," said Rosario.
||Caguas waste-to-energy plant still in limbo
In 2000, one of the first non-incineration waste-to-energy (WTE) power plants in the U.S. was proposed for construction in Caguas by Virginia-based Interstate General Companys Puerto Rico subsidiary, Caribe Waste Technologies (CWT).
The project consisted of a private-sector alliance of companies that would finance, construct, own, and operate the facility. The association would include Swiss-based technology provider Thermoselect, with Philadelphia-based Interstate Waste Technologies as project developers. Fluor Daniel Inc., and France-based Montenay Power Corp. would be the plant operators.
The Government of Puerto Rico approved enabling legislation for the facility in August 2000, and construction was scheduled to begin once U.S. Environmental Protection Agency approval and other permits are granted.
Nevertheless, Caguas Mayor William Miranda Marin told CARIBBEAN BUSINESS that the municipality is still evaluating the technology that would be required for the WTE facility.
"Besides the technology factor, my concern is based on the financial aspects of the project, which would cost more than $400 million," said Miranda Marin. In the meantime, Caguas is awaiting approval of the necessary permits from both the Department of Natural and Environmental Resources (DNER) and the Solid Waste Management Authority (SWMA), according to the mayor.
The WTE trash-converting plant would use a gasification process to convert approximately 1.1 million tons of waste per year into basic elements and generate electricity in the process.
Miranda Marin said the plant would have the capacity to process hundreds of tons of trash daily. To meet the demand, 13 municipalities would be assigned to transfer their trash to the plant. The list includes Caguas, Cidra, Aguas Buenas, Gurabo, Juncos, San Lorenzo, and Trujillo Alto.
However, according to the Puerto Rico Electric Power Authority (Prepa) Executive Director Hector Rosario, to date there havent been any negotiations between the municipality of Caguas and Prepa regarding the plant.
"Any institution with similar plans to build a power generation plant has to meet with Prepa officials and sign a power purchase agreement. That has not happened yet," said Rosario.
Regarding the operations environmental impact, Rosario said the Quality Control Board and the Department of Natural and Environmental Resources would manage any issues related to the matter.
Energy sources are varied, but not varied enough
Growing demand for energy will require more power generation. The major fuel source today is oil. Natural gas and coal are more recent entrants to the islands power generating picture.
Oil has been the dominant fuel in Puerto Ricos energy mix. Oil accounted for 97.7% of total primary energy consumption in 1999. Today, that figure is down to 82%, but its still considered too high. Puerto Rico lacks domestic hydrocarbon reserves and relies on imports for nearly all of its energy requirements, except for a small hydropower generating potential.
Per capita energy consumption is lower than in the U.S. mainland (91 million Btu in Puerto Rico versus 347 million Btu for the U.S. as a whole in 1999).
Puerto Rico consumed about 164,000 barrels per day (bbl/d) of petroleum products in 2000, all from imports, and mostly for transportation and electrical power generation. It also exported about 11,000 bbl/d of petroleum products to the U.S. mainland in the beginning of 2001.
As of Jan. 1, 2000, the islands oil refining capacity stood at 49,000 bbl/d, all from Caribbean Petroleum Corp. refinery in Bayamon, which reopened in February 1999.
Sunoco permanently closed its 35,000-bbl/d Yabucoa, Puerto Rico refinery in May 2001. The island also has petroleum storage at the Proterm facility, with a capacity of nearly nine million barrels.
Puerto Rico began to import liquefied natural gas (LNG) from the Atlantic liquefaction facility in Trinidad in August 2000 for the new EcoElectrica cogenerator plant at Punta Guayanilla, Peñuelas.
The project has a 1-million-barrel LNG storage tank (equivalent to approximately 3.6 billion cubic feet [Bcf] of natural gas) with two vaporizers. It receives nine shipments per year aboard Cabot LNG Shipping LLCs 33-million gallon carrier under a 20-year contract.
The EcoElectrica facility (and accompanying gas-fired power plant) are operated and managed by Enron, which owns 50% of the facilities. Edison Mission of California owns the other 50%.
In December, Enron filed for bankruptcy, and Atlanta-based Mirant Corp., which had agreed to acquire EcoElectrica for $1.2 billion, recently backed out of the deal.
Puerto Rico consumes 190,000 short tons of coal annually (based on 1999 data), all of which is imported. The construction of the AES, a 454-mw coal-fired plant underway in Guayama will increase the use of coal when it starts production in mid-2002.
According to Puerto Rico Electric Power Authority (Prepa) Executive Director Hector Rosario, coal and natural gas demand increased 2.2% last year.
Prepa generates 98% of Puerto Ricos electricity and is the sole distributor of electric power on the island, with about 4,415 megawatts (mw) of capacity. The company is among the 20 largest electric utilities in the U.S.
Prepas plans to satisfy the increasing demand include the diversification of fuel and the modernization of the power-generation infrastructure. The major element in these plans is the ever-increasing demand for electric power, with an average yearly growth of 3.1%.
Both Prepa and private power producers are investing in new capacity to meet growing demand. Fearing a power deficit in the next five years caused by expansion of the economy, Puerto Rico is depending on investments of $1.9 billion to provide adequate electricity. Demand is growing about 3.5% per year, which will necessitate more power.
Additional power is also being provided through the refurbishing of some of the companys power stations. With 1.6 million clients, Prepa decided not to build any more power stations, but to seek cogeneration agreements through supply contracts with independent power producers.
Source: U.S. Energy Information Administration
Prepa at a glance
Year founded: 1941
Executive Director: Hector Ruben Rosario
Number of employees: 9,527
Number of clients: 1.4 million (includes residential, commercial, and industrial clients)
Annual income: $2.3 billion
Total debt: $4.2 billion
Power generating facilities: 12
Capacity in megawatts: 4,415
Transmission miles: 2,268
Distribution miles: 28,154 (air); 1,410 (underground)
Source: Puerto Rico Electric Power Authority
Prepas power generation facilities
Prepa investments in plant maintenance and repair
||Budget & Investment
||Budget: $110.021 million
Investment: $73.698 million
||Budget: $90.086 million
Investment: $99.632 million
||Budget: $103.327 million
Investment: $74.701 million
||Budget: $110.659 million
Investment: $99.511 million
||Budget: $58.631 million
Investment: $96.709 million
||Budget: $53.941 million
Investment: $78.241 million
||Budget: $50.075 million
Investment: $90.425 million
||Budget: $90.201 million
Investment: $119.538 million
||Budget: $121.807 million
Investment: $99.936 million
Source: Puerto Rico Electric Power Authority
Enrons bankruptcy effect not here yet
After filing bankruptcy, Enron Corp.s 50% ownership of EcoElectrica seems not to affect the cogenerators regular operationat least not yetaccording to plant officials.
"Fortunately, Enrons bankruptcy does not affect EcoElectricas regular operations. This is an independent company of which Enron and Edison Mission Energy each holds 50% of the stocks. But our contract to sell energy to the Puerto Rico Electric Power Authority (Prepa) was made under the name of EcoElectrica," said Ernesto Cordova, general manager of EcoElectrica.
Cordova told CARIBBEAN BUSINESS that, although Enrononce the top electricity and natural gas trader and marketer in the U.Sstill holds its part in EcoElectrica, it is the Bankruptcy Court that has to make a decision regarding the fate of its investments and financial liaisons from now on.
Still, "no matter what decision they [Enron officials] make, EcoElectrica will not be affected," added Cordova.
Last year, Alanta-based Mirant Corp. signed an agreement to buy EcoElectrica for $1.2 billion, but Mirant backed out of the deal at the last minute. There were rumors within the industry that the Shell Company Puerto Rico was interested in acquiring the operation, but Shell officials denied this.
Because of Enrons Chapter 11 filing, all legal claims against Enrons subsidiary, San Juan Gas Co., for damages resulting from the explosion of the Humberto Vidal building (in Rio Piedras in November 1996) were automatically paralyzed until the Bankruptcy Court decides otherwise. The process could easily take many months, even a year or more, according to lawyers working on the case.