Puerto Rico Electric Power Authority
Total Page:16
File Type:pdf, Size:1020Kb
No. CEPR-AP-2015-0001 FORTIETH ANNUAL REPORT ON THE ELECTRIC PROPERTY of the PUERTO RICO ELECTRIC POWER AUTHORITY SAN JUAN, PUERTO RICO UNDER TERMS OF TRUST AGREEMENT Dated as of January 1, 1974, as amended, to U.S. BANK TRUST NATIONAL ASSOCIATION TRUSTEE JUNE 2013 I 000001 No. CEPR-AP-2015-0001 I 000002 No. CEPR-AP-2015-0001 URS Corporation One Canal Park Cambridge, MA 02141 Tel: 617.621.0740 Fax: 617.621.9739 I 000003 No. CEPR-AP-2015-0001 I 000004 No. CEPR-AP-2015-0001 FORTIETH ANNUAL REPORT ON THE ELECTRIC PROPERTY of the PUERTO RICO ELECTRIC POWER AUTHORITY SAN JUAN, PUERTO RICO UNDER TERMS OF TRUST AGREEMENT Dated as of January 1, 1974, as amended, to U.S. BANK TRUST NATIONAL ASSOCIATION TRUSTEE JUNE 2013 I 000005 No. CEPR-AP-2015-0001 I 000006 No. CEPR-AP-2015-0001 EXECUTIVE SUMMARY This report is the 40th Annual Report by the Consulting Engineers in compliance with the 1974 Trust Agreement. The report is based on the Consulting Engineer’s inspections, interviews and review of relevant data pertaining to the operation of the Puerto Rico Electric Power Authority electric System during the fiscal year 2013, ending June 30, 2013. The Authority’s reported total energy sales in fiscal year 2013 were 0.6% more than the previous year, but still 7.0% less than in fiscal year 2008. During the past fiscal year energy sales increased in the residential and com- mercial sectors and declined in industrial. The decline in the industrial sector was its seventh consecutive year and reflected the continuing impact of the recession in Puerto Rico. The Authority’s Current Forecast for fis- cal years 2014 through 2018 predicts a 1.3% growth in total energy sales for fiscal year 2014, with an average annual growth rate of 1.2% in fiscal years 2014 through 2018. The DOE Energy Information Agency forecasts the energy sales growth rate for mainland utilities during the same period will be 1.1%. Consistent with the interim-period forecast, the predicted slow growth of peak demand indicates the historic peak set in fiscal year 2006 will not be reached during the forecast period. In fiscal year 2013 the Authority’s electric sales revenues fell by 4.2% over the previous year as a result of the total cost of fuel declining 10.3% and purchased power increasing by 10.5% from the previous year. In fiscal year 2013 the Authority’s net generation declined by 5.4%, while its average cost of fuel per equivalent barrel dropped 6.1%, aided by the lower cost of the natural gas burned at its Costa Sur plant. The total cost of fuel is forecasted to decline 17.6% in fiscal year 2014 from 2013, with purchased power costs increasing 6.6%. Total electric sales revenues, including theft recoveries, are projected to decline by 7.4% from fiscal year 2013 to 2014. Net revenues, as defined by the 1974 Agreement, in fiscal year 2013 increased by 13.8% over the previous year as total current expenses fell by 6.6%, while total revenues were down 4.0%. The Authority forecasts its total revenues will decline by 6.8% in fiscal year 2014 from the results of fiscal year 2013; total revenues through fiscal year 2018 are projected to remain little changed from the fiscal year 2014 level. During the five-year fore- cast period through fiscal year 2018, the Authority projects its current expenses will also remain relatively sta- ble as lower costs of fuel are offset by increased costs of purchased power. The resulting net revenues are forecasted to increase by 9.5% in fiscal year 2014 over 2013. In fiscal years 2015 through 2018 the net rev- enues are projected to increase 3.6%, drop 0.1%, and then increase 2.2% and 1.0%, respectively. With the forecasted net revenues and the projected annual debt service through fiscal year 2018 in the Authority’s budget used for this report, the projected debt service ratio based on the 1974 Agreement debt will range from 1.34 to 1.42 in the five fiscal years ending 2018. The budgeted financings may incur higher inter- est rates than forecasted and the ability to capitalize interest may be constrained as well. Both of these would increase the Authority’s projected principal and interest requirements in the intermediate term, thereby low- ering the forecasted debt service coverage ratio. The largest operational issue facing the Authority is complying with the EPA hazardous air pollutant regula- tions by 2015. The Authority’s plan to dramatically switch from fuel oil to natural gas was endorsed by the island’s major stakeholders in a Commonwealth government convened public/private sector committee dur- ing fiscal year 2012. The committee identified alternative plans, but did not recommend a specific method for implementing the large increase in natural gas supply for the island. In the face of strong local opposition, projected cost escalations and regulatory uncertainty, during fiscal year 2012 the Authority stopped work on the proposed 92 mile pipeline from the south coast to three plant sites in the north. The Authority’s current approach to expand the supply of natural gas on the island has been an offshore gasification facility for LNG deliveries near its Aguirre power complex on the southeast coast. The proposed Aguirre Offshore Gas Port (AOGP) will be a floating facility to receive and gasify LNG shipments. The Authority plans that the AOGP will be installed by a vendor under a long term agreement and the Authority has continued with the coordi- URS Corporation One Canal Park Cambridge, MA 02141 Tel: 617.621.0740 Fax: 617.621.9739 I 000007 page 1 of 3 No. CEPR-AP-2015-0001 nated air permit effort with that vendor for both the AOGP scope and the Aguirre plants. The proposed per- mitting schedule would enable gas to be available for the Aguirre plant by the MATS compliance date of April 2015, with no margin for unanticipated delays. During fiscal year 2013 the Authority continued its due diligence on the contractual structure of the gas sup- ply infrastructure and was evaluating alternative supply arrangements for natural gas to the north of the island. The Authority is evaluating the structure of the LNG commodity supply agreements, which would be separate from the infrastructure development. The Authority plans to select the bases for establishing the development of the natural gas infrastructure and fuel supply during fiscal year 2014. These will lead to qual- ifying bidders and soliciting proposals by the end of that fiscal year. Based on projected fuel costs, the Authority’s initiative to expand gas firing at its generating plants to meet environmental regulations will also lower the Authority’s cost of fuel, thereby benefitting the economy of Puerto Rico. During fiscal year 2013 the Authority operated Costa Sur Units 5 & 6, each a 410 MW unit, with natural gas providing most of the fuel for those units. The power generated from natural gas in these units accounted for 10.8% of the total power for the System; adding the power from the EcoEléctrica cogeneration plant put the total gas fired generation at almost 28% during fiscal year 2013. The Costa Sur units were the first steam units to be converted for dual fuel firing (burn oil and/or gas) because they are located adjacent to EcoEléctrica’s LNG facility, which supplied the fuel under a short term contract that is scheduled to be rene- gotiated in fiscal year 2014. The Capital Improvement Program (CIP) through fiscal year 2018 includes budgets to complete the dual fuel conversion work at the steam-electric units in accordance with plans for compliance with the EPA emission criteria, as well as the San Juan combined cycle units. By the end of fiscal year 2013 the Authority had per- formed much of the conversion work at various units during scheduled outages, and had completed the full scope for the two large units at Costa Sur. The next priorities are its two largest steam units at the Aguirre plant. Four steam units in the San Juan metropolitan area will be converted after the schedule for gas deliv- eries has been established. With sufficient fuel being available the Authority plans to add gas firing capability to the Authority’s two most efficient units, San Juan Units 5 & 6, which are combined cycle units presently burning high cost distillate fuel. Expenditures on capital improvement program projects during fiscal year 2013 were $327.7 million, which was 9.2% over budget; it was, however, 6.7% less than during the preceding fiscal year. The Authority has developed a lean capital expenditure plan for the five fiscal years through 2018, with plans to hold capital expenditures to an annual average of $310 million in that span. These budgets do not include construction of the natural gas supply infrastructure discussed above; the Authority plans to establish the funding struc- ture for this work utilizing third party participants. Fiscal year 2013 was the first during which renewable energy sources contributed meaningful amounts of the energy transmitted and distributed within the System; the Authority purchased energy principally from four renewable energy projects—an additional small wind turbine provided power occasionally. Together these proj- ects produced 0.7% of the total System power. At the end of fiscal year 2013 the Authority had signed a total of more than 60 Agreements to Purchase Power from proposed renewable energy projects with a total capacity of approximately 1,660 MW. In the past fiscal year the Authority began renegotiating its agreements with many renewable energy project developers to lower their energy costs to the Authority and incorporate the minimum technical requirements that were revised in 2012 after many agreements had been signed.