Puerto Rico Electric Power Authority

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Puerto Rico Electric Power Authority

Avenue Ponce De Leon 17½
Puerto Rico
Telephone: (787) 289-3434
Fax: (787) 289-4665
Web site: http://www.prepa.com

Government-Owned Company
Incorporated: 1941 as Puerto Rico Water Resources Authority
Employees: 10,200
Sales: $1.99 billion (2000)
NAIC: 221121 Electric Bulk Power Transmission and Control

Puerto Rico Electric Power Authority (Prepa) is a government-owned utility responsible for the distribution of electricity to 1.3 million residential and business customers of Puerto Rico. Although it generates most of its own power, Prepa has in recent years turned to independent power producers to provide additional sources of electricity in order to keep pace with the island’s increasing demand. Prepa is directed by a nine-member government board, seven of which are appointed by the Governor of Puerto Rico, subject to Senate approval. The remaining two board members represent the clients and are chosen through an election supervised by the Consumer Affairs Department. The government board is responsible for appointing an executive director to oversee the operations of the utility, which for administrative purposes divides Puerto Rico into seven regions, serviced by more than 10,000 employees.

Private Companies Supplying Electricity in Early 20th-Century Puerto Rico

Electricity was initially generated in Puerto Rico for private lighting systems, the first of which was installed as early as 1893. Over the next two decades other private companies cropped up in the island’s larger urban areas. The first public power plant, a hydroelectric facility, was established in 1915, the same year that the Electric Light Anonymous Society established Puerto Rico’s first public street lighting system, located in the capital city of San Juan. To prepare for visiting royalty, eight lamp posts with some 600 incandescent lamps were installed. Other small street lighting systems soon followed. It was not until 1908 that the government of Puerto Rico became involved in the production of power through a small agency, the South Coast Irrigation Service, which required electricity for a regional irrigation system. The agency built a hydroelectric plant, making use of the waters in the Carite Lake that also flowed into the system’s irrigation channels. A second Carite hydroelectric plant was opened in 1922.

As Puerto Rico created other artificial lakes and generating plants, a new government agency under the auspices of the Department of the Interior was created in 1926 to manage the emerging electric power system: Water Resources Use. Three years later the agency placed into service its first hydroelectric plant, followed in 1937 by a second facility. It was also in 1937 that the government purchased the privately owned Ponce Electric Company, setting the stage for the acquisition of all of the island’s private power companies, which were incorporated into the public system. A network of power lines began to crisscross Puerto Rico as a distribution system evolved. Taking advantage of funding made available from the Puerto Rico Reconstruction Administration, part of the United States’ New Deal legislation of 1935 to reduce unemployment and stimulate economic growth, Water Resources opened two new hydroelectric plants in 1941. The agency was superceded in May 1941 by the creation of Puerto Rico’s first public corporation and Prepa’s original incarnation, The Puerto Rico Water Resources Authority (PRWRA). The Authority was incorporated in order to gain the ability to float bonds and raise the financing necessary to meet the island’s rising need for power and an expanded distribution infrastructure. The concept of an “Authority” had been made popular in recent years with the rise of The Port Authority of New York, which had been able to successfully fund the building of the George Washington Bridge and other major projects. PRWRA’s reliance on hydroelectric power plants accounted for the “Water Resources” in its name.

PRWRA continued the process of consolidating power plants, in 1945 purchasing the island’s two main electric systems, Puerto Rico Railway Light and Power Company and the Mayagüez Light Power and Ice Company. To this point in the history of Puerto Rico, electricity was essentially confined to urban areas, with just 12 percent of the rural population having access. PRWRA began a major push to rectify this situation in 1946, financed by its own means as well as government money. Further funding would come from the Rural Electrification Administration of the United States starting in 1952.

In the second half of the century, hydroelectricity was replaced by petroleum burning turbines in Puerto Rico. PRWRA experimented briefly with nuclear power in the early 1960s but settled on oil. A new oil-burning power plant in the early 1970s would be the last of any kind to be built on the island for a generation. As a result, PRWRA found itself highly dependent on petroleum and its derivatives, which generated 98 percent of all electricity on the island. Because just 2 percent of the utility’s power was produced by water, the government in 1979 changed the name of PRWRA to the Puerto Rico Electric Power Authority. Two years later, Prepa acquired the electric system owned by the municipality of Cayey, an act which finally consolidated all of the island’s electric system under the control of a single utility.

Prepa’s position as a monopoly was strengthened by the 1978 passage of the federal Power Utilities Regulatory Act that only permitted independent energy producers to sell to an area’s monopoly utility. Over the next dozen years, Prepa did not increase its production capacity, despite a mounting demand for power on the island, and by the 1990s had a poor reputation. Not only did its customers have to pay high rates, they had to endure frequent blackouts, which lasted on average nearly ten hours. Customers on the mainland, by contrast, experienced about four hours of outages in an entire year. Prepa customers were further frustrated when they attempted to telephone the utility, usually forced to wait 90 minutes before talking to a representative. Much of Prepa’s problems could be attributed to geography. Operating on an island, unlike the mainland, it was unable to tap into a neighboring supply of energy during an emergency. It desperately needed a reserve capacity, but because Prepa had not built a new power plant in 20 years it was not able to keep up with the current need for electricity, let alone provide a buffer for peak periods of usage or to account for plants going offline due to maintenance or breakdowns. Furthermore, the system was aging and much of its transmission lines were above ground and exposed. It was also evident that Prepa would be simply unable to meet the island’s energy needs by the end of the century. It considered investing in a battery energy storage system to provide reserve power, but there was little doubt that what was needed was new power plants. Because a new facility required several years lead time before it could be operational, Prepa had to take immediate steps in order to avert an eventual shortfall. If businesses could not count on a consistent supply of electricity, they would not choose to conduct business in Puerto Rico, which would have a devastating effect on the island’s economy. Moreover, Prepa desperately needed to upgrade its oil-burning power plants and find cleaner fuels. The Environmental Protection Agency (EPA) levied a heavy fine against the utility in 1993. As late as 2001, Prepa plants occupied the top four spots on EPA’s list of polluters, based on the release of toxic chemicals into the local environment.

Prepa’s Government Board was well aware that changes needed to be made at Prepa, but an additional incentive was provided by the passage of the Energy Policy Act in 1992, which permitted independent companies to build power plants and sell energy directly to residential and business customers. The best way to fend off potential competition was to improve Prepa, and the first priority was to find newer and cleaner sources of energy. Because Prepa needed at least 1,000 additional megawatts by the year 2000, and it could only supply 40 percent of that total by upgrading facilities and building new plants, the utility had to find private suppliers. A cogeneration committee was formed with representation from eight government agencies to help Prepa select among a number of proposals. The concept of cogeneration called for excess heat resulting from the production of electricity to be used to produce steam, which could also be distributed and sold. In the end, two private power producers were selected: EcoElectrica, a natural gas fired system, and Applied Energy Systems (AES), a coal-power plant.

Shortly after the passage of the Energy Policy Act, Prepa named a new executive director, Miguel A. Cordero, who was well familiar with the utility’s operations. In the early 1970s, he started out with Prepa as a line supervisor, overseeing maintenance crews. In his new capacity, Cordero was quick to fast-track plans for building new plants, as well as introduced new computer technology to help existing plants become more fuel efficient. The maintenance program was also improved, with more regular checkups also improving efficiency. Moreover, Cordero cut staff while increasing productivity and took efforts to enhance customer relations as well as environmental compliance.

Hurricane Georges and Its Aftermath: 1998

Until new sources of electricity came online, however, Cordero could not address the primary need of Prepa. The devastation wrought by Hurricane Georges in 1998 revealed other shortcomings that required attention. With winds that reached 130 miles per hour, the hurricane was the worst to strike Puerto Rico in 70 years. Because so much of Prepa’s transmission lines were above ground, most of the island was plunged into darkness. Five days after the winds subsided, less than a third of Prepa’s system was operational, and it was estimated that 85 percent of the population was without power. Even two weeks after Georges struck, almost a third of the electric system remained out of commission. It was not until 73 days had passed that Prepa finally returned to fully operational status. Making the best of a catastrophe, Cordero used the opportunity to upgrade more than 10,000 downed poles and several telecommunications towers, ensuring that in the future they would be able to withstand 120 mile-per-hour winds. The utility also developed an improved, detailed emergency plan for restoring power to the island in future disasters.

Company Perspectives:

Our Mission: To provide electric energy services to clients in the most efficient, cost-effective and reliable manner, without affecting the environment.

As Prepa waited for its private energy providers to come online, it looked to take advantage of its system in order to generate other revenue streams. A natural gas pipeline built by Prepa for the EcoElectrica project, connecting the new gas-fired power plant to a major new storage facility, had the potential of being extended to other parts of the island. The pipeline could also be rented to private industry or even sold. Moreover, it could be used to convert older oil-burning power plants to natural gas. Another attempt at diversification was the purchase of the Commonwealth Oil Refining Corp. (Corco) in Guayanilla and the Union Carbide refinery in Peneulas. Should there be a spike in oil prices, Prepa would now be able to turn to crude stored at Corco until prices returned to more reasonable levels. Prepa also took steps to become involved in the communications business by constructing a fiber optic system using its distribution system as the basic infrastructure. Prepa would then act as a wholesaler, renting unused capacity to commercial interests. The utility even planned to make its fleet of helicopters available for rental. The thrust of all these initiatives was to lower Prepa’s expenses in order to reduce Puerto Rico’s high energy costs.

The EcoElectrica natural gas-burning plant started operations in the summer of 2000, providing more than 500 megawatts of power, or 17 percent of Puerto Rico’s demand. The AES coal-powered plant was delayed in becoming operational, its opening pushed back to the summer of 2002. Once online it was expected to contribute 15 percent of Prepa’s capacity. As a result of these private suppliers, the system would go from being 98 percent dependent on crude oil to just 67 percent, a significant step towards fuel diversification as well as creating a much cleaner system. Prepa’s plans were hindered, however, by problems with the utility’s $200 million natural gas plant initiative, the Repowering San Juan Project, which was supposed to take advantage of the EcoElectrica natural gas storage facility and provide an additional 320 megawatts of power. After construction began, the developer abandoned the project, which led to litigation, and work came to a halt.

In 2001, Prepa, under the leadership of a new executive director, Hector Rosario, appeared well situated to meet the island’s energy demands until 2007. Looking beyond that date, as well as continuing the effort to lower Prepa’s reliance on oil and improve system efficiency, Rosario prepared to ask for bids on a third cogeneration plant to be built in the western part of Puerto Rico, which was not yet served by a local power plant. Escalating oil and natural gas prices, however, forced him to postpone the completion of an expansion plan that called for $34 million for the upgrading of Prepa headquarters, the remodeling of other buildings, and the construction of a plaza. With Prepa barely staying ahead of Puerto Rico’s energy demands and still too dependent on the price swings of crude oil, Rosario was committed to first devoting the utility’s money to improving its transmission and distribution system. A reliable and ample supply of electricity was not only important for Prepa’s financial well-being, the future economy of Puerto Rico also depended upon it.