Prepa Power Purchase and Operating Agreement - PDF

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					Puerto Rico Electric
 Power Authority
 Company Overview and Project
        Development


    Eng. Miguel A. Cordero
        Executive Director

        February 26, 2010
        Disclaimer

Today’s presentation includes certain statements that are not historical in nature
but reflect forecasts and “forward-looking statements,” for example, statements
regarding anticipated future financial and operating performance and results,
including estimates for growth. Actual results may differ materially from those
expressed or implied by such forward-looking statements. These statements are
based on the Puerto Rico Electric Power Authority’s current beliefs regarding
future events, and are based upon a number of estimates and assumptions that
are subject to significant uncertainties, many of which are outside the control of
the Puerto Rico Electric Power Authority, Government Development Bank for
Puerto Rico, the Government of Puerto Rico and its agencies and
instrumentalities.

This presentation is not an Official Statement and does not constitute an offer to
sell or to purchase bonds, nor a solicitation of an offer to sell or to purchase
bonds in the Commonwealth of Puerto Rico, the United States, or in any
jurisdiction where such offer, solicitation or sale may be unlawful. This
presentation has been prepared solely for informational purposes, and should
not be construed as a recommendation to buy or sell any security or to
participate in any particular trading.
    Agenda



1     Overview

2     Financial Performance

3     Reconstruction Initiatives

4     Diversification Strategy
        PREPA
•   The Puerto Rico Electric Power Authority, or PREPA, is a modern public
    utility offering a full range of services: we…
     – Produce
     – Transmit
     – Distribute, and
     – Sell electricity
•   PREPA is a public corporation of the
    Government of Puerto Rico, and is
    empowered to:
     – Make contracts
     – Acquire properties
     – Borrow money, and
     – Issue bonds
•   Is also responsible for the establishment of an appropriate rate
    structure for its services
   History

• PREPA is the first public corporation established in
  Puerto Rico
• Created by Law 83, on May 2, 1941
• Over 60 years providing electric energy to the island
• PREPA has totally electrified the island of Puerto Rico
Characteristics of Our
Electric System
• PREPA’s system is isolated
• Not possible to purchase energy from
  neighboring utilities
• Must maintain greater generating capacity
  to guard against contingencies, and to
  ensure service reliability
Characteristics of Our
Electric System
•   Generating Capacity is 5,264 MW, of which,
     507 MW Natural Gas Fired –EcoEléctrica
     454 MW Coal Fired – AES
•   Long term purchase agreement with
    Cogenerators
•   Output is fully integrated into the system
Puerto Rico Shines
   To provide electric services to
  our clients in the most efficient,
   economical and reliable way,
        without harming the
            environment



Mission
   To be competitive with
    electric utilities at a
      world-class level



Vision
    Agenda



1     Overview

2     Financial Performance

3     Reconstruction Initiatives

4     Diversification Strategy
            Who is PREPA?                                                2
                                                                                  Public Power Issuers by # of Customers




                                            Million Customers
                                                                   1.5
                                                                     1
                                                                   0.5

PREPA is one of the largest public power                             0




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Total Revenues: $4.0 billion                                                                 Public Power Issuers by Sales
                                                                         50
Total Assets: $8.8 billion




                                                  Million mWh
                                                                         40
                                                                         30
                                                                         20
Electric System:                                                         10
                                                                          0
Generating Capacity:         5,839 MW




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                             3,404 MW




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Peak Demand (in 8/09):




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                                                                                         Public Power Issuers by Revenues
Transmission and Distribution:
                                                                             5




                                                       Billion Dollars
Transmission Lines:          2,419 miles                                     4
                                                                             3
Distribution Lines:          31,156 miles                                    2
                                                                             1
38 kV substations:           283                                             0

115 kV substations:          51




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                                                          Source: American Public Power Association. 2009-10
                                                          Annual Directory & Statistical Report
                                  Stable Revenue and Customer Base
                                  PREPA is a monopoly selling an essential service.

 More than 1.4 million customers                                                             Large and Growing Customer Base

 Balanced mix of residential, commercial,                                                                    1.5




                                                                                          million customers
  governmental and industrial customers                                                                       1.4

 No customer concentration risk                                                                              1.3


 Industrial customers, the only customer class that                                                          1.2

  realistically could self generate or purchase from an                                                       1.1
  independent power producer, only account for 15% of                                                               2002   2003    2004    2005   2006     2007     2008    2009

  revenues                                                                                                                 Residential    Commercial   Industrial   Other


       Revenues From Broad Based Economy                                                             No Customer Concentration Risk
                     5,000                                                                                          Client Name               Location      % of Total Sales
                     4,500                                                                          PR Cement                                   Ponce                0.57
                     4,000                                                                          Amgen Manufacturing                        Juncos                0.55
  million dollars




                     3,500                                                                          Ayerst Wyeth                              Guayama                0.52
                     3,000                                                                          Lilly del Caribe                           Carolina              0.48
                     2,500                                                                          Wyeth Ayerst Lederle                       Carolina              0.30
                     2,000                                                                          San Juan Cement                            Dorado                0.29
                     1,500                                                                          Pfizer                                      Manati               0.28
                     1,000                                                                          McNeil Consumers Prod                    Las Piedras             0.26
                       500                                                                          Pfizer                                    Vega Baja              0.26
                         0                                                                          Merck Sharp Dohme                        Barceloneta             0.24
                                                                                                    Bristol Myers Squibb                        Manati               0.22
                              2002    2003   2004   2005    2006    2007   2008   2009

                    Residential      Commercial     Industrial     Government     Other
                   Strong Reserve Margins as Confirmed by
                   Palo Seco Outage
Reserve margins are adequate in the short to medium term.
•        Fleet of 31 major generating units in 20 facilities located throughout the island
•        Palo Seco outage (602 MW) demonstrated island has adequate reserve margin
          – All units operating as of December 2009 (3 out of 4 units were in service by July 2009)
          – Substantially all repair costs and incremental replacement power covered by insurance

 Even with Outage, Stable Availability & Forced Outage
                                                                                     Strong Reserve Margins
 Rates
          Avg Equivalent Avail. Equiv. Force Outage   Reserve Margin                             Palo Seco
                                                                            6,000
Fiscal       (with AES and       (without AES and     (with AES and                              Outage
Year           Ecoelec.)                Ecoelec.)          Ecoelec.)        5,000
2000             78%                  9%                  56%               4,000   Reserve Margin ~ 50%


                                                                       MW
2001             80%                  8%                  53%               3,000
2002             80%                  7%                  49%
                                                                            2,000
2003             81%                  9%                  59%
                                                                            1,000
2004             82%                  9%                  53%
                                                                                0
2005             85%                  6%                  49%




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                                                                                   00

                                                                                   01

                                                                                   02

                                                                                   03

                                                                                   04

                                                                                   05

                                                                                   06

                                                                                   07

                                                                                   08

                                                                                   09
2006             87%                  4%                  46%




                                                                                  YT
                                                                                 20

                                                                                 20

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                                                                                 20

                                                                                 20

                                                                                 20

                                                                                 20

                                                                                 20

                                                                                 20

                                                                                 20
                                                                               10
20071         84% (89%)            10% (3%)            32% (49%)




                                                                             20
20081         80% (88%)            15% (3%)            34% (51%)                     Peak Load    Reserve Margin
20091         76% (82%)            16% (8%)            57% (75%)

1 - Figures in parenthesis include Palo Seco availability.
                                  M-kwh




         1,500
                 1,550
                         1,600
                                 1,650
                                          1,700
                                                  1,750
                                                          1,800
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
                                                                                             MKWH Sales




Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
                                                                  12 Month Rolling Average




Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
 Sales

Sales are Up Each Month in (FY 2010)
 5.0%
 4.5%
 4.0%
 3.5%
 3.0%
 2.5%
 2.0%
 1.5%
 1.0%
 0.5%
 0.0%
        July   Aug        Sept         Oct        Nov        Dec   Jan



                     Increase in Sales, FY 2009 to FY 2010
 Operating Expenses
Operating Expense are Down in FY        2010 ($000’s)
                                     7/2008-    7/2009-     % Change
                                     1/2009     1/2010

Other production                       38,658      35,514        -8%
Transmission and distribution         103,685      91,803       -11%


Maintenance                           140,035     116,607       -17%
Customer accounting and collection     69,278      63,633        -8%


Administrative & general              138,754     119,289       -14%
Total O&M, excl. fuel & purch.        490,410     426,846       -13%
 power
                                       Historical and Projected Operating
                                       Results and Coverage
                                                          Historical                                               Projected
      Years Ended June 30                                 2006           2007        2008           20091          2010           2011           2012           2013           2014
      Electricity Sales (mwh)                              20,620         20,672      19,602         18,516         17,929         17,739         17,667         17,700         17,827
      Average Rate (cents/kwh)                               17.99          17.76       22.19          21.53          19.90          21.85          23.94          24.86          25.40

       Revenues                                       $    3,732     $     3,687 $     4,369    $     4,007    $    3,605     $    3,945     $    4,299     $    4,470     $     4,597
       Expenses
          Fuel                                             1,666          1,717       2,303          1,920          1,530          1,804          2,102          2,230           2,362
          Purchased Power                                    603            625         661            672            712            716            735            756             728
          Fuel Extra Expense                                   -           (114)        (96)             -              -              -              -              -               -
          Other Current Expenses                             765            787         820            786            700            686            684            682             681
      Total Expenses                                       3,034          3,015       3,688          3,378          2,942          3,206          3,521          3,668           3,771

      Net Revenues                                    $      698 $          672 $       681 $          629 $          663 $          739 $          778 $          802 $              826
      Total Power Rev. Debt Service2                  $      449 $          455 $       420 $          435 $          471 $          459 $          493 $          538 $              575
      Power Rev. Bond Coverage2                              1.55           1.48        1.62           1.45           1.41           1.61           1.58           1.49               1.44

                    Revenues, Debt Service and Coverage
                                       5,000                                                                                                                                   1.70
                                       4,500
                                                                                                                                                                               1.60
                                       4,000




                                                                                                                                                                                        Debt Coverage
                     Million Dollars




                                       3,500                                                                                                                                   1.50
                                       3,000                                                                                                                                   1.40
                                       2,500
                                       2,000                                                                                                                                   1.30
                                       1,500                                                                                                                                   1.20
                                       1,000
                                                                                                                                                                               1.10
                                         500
                                         -                                                                                                                                     1.00
                                               2006        2007           2008        2009*          2010           2011           2012           2013           2014
1 – Audited
2 – After 2010 transactions                                          Revenues       Expenses        Power Revenue Bond Coverage
    Agenda



1     Overview

2     Financial Performance

3     Reconstruction Initiatives

4     Diversification Strategy
       Objectives and Strategies

Energy Objectives for           Strategies to Achieve the
Puerto Rico                     Objectives

                            • Reduce operating expenses
                            • Increase efficiency
• Reduce energy cost        • Minimize energy theft
                            • Develop a proper fuel mix
• Protect the environment     diversification
                            • Add renewable energy
                            • Maximize use of advanced
                              technology
PREPA Reorganization
• Directorates reduced from 12 to 6
• Secondary supervision positions greatly reduced
• Redundant administrative positions eliminated
• Management units merged
• Personnel reduced or re-trained for other tasks

                          Executive
                           Director

     2008 Organization   Vice-Director
                                         12 DIRECTORATES




                          Executive
   2009 Organization       Director
                                           6 DIRECTORATES
                         Stabilization Plan is Reducing Fixed O&M
                                                                                              Cost Reductions Implemented
    Operating Costs (Excluding Fuel & Purchased Power)
                                                                                             (million dollars)              Annual Savings
                                                                            $139 million     416 Positions                            $26
                  800
                                                                                             Reduced overtime and misc                 23
                                                                            net reduction1   Changes to retiree health plans           46
million dollars




                  700
                                                                                             Total                                    $95
                  600

                  500

                  400                                                                        FY 2010 Cost Reductions Planned

                  300                                                                        (million dollars)              Annual Savings
                                                                                             Attrition (250)                           15
                    99

                          01

                                03

                                        05

                                                 07

                                                           09

                                                                 11

                                                                       13

                                                                                             Total                                     15
                  19

                         20

                               20

                                     20

                                              20

                                                        20

                                                                20

                                                                      20




Impact of the Stabilization Plan Year to Date
                                                                                             Future Cost Reductions Planned

 14% reduction in non-fuel and purchased power O&M thus far                                 (million dollars)              Annual Savings
  in FY 2010 compared with similar period in FY 2009                                         Attrition (750 over three years)          46
                                                                                             Total                                     46
 Reductions in each O&M category (see Page 34)

1 – Difference between FY 2008 actual and FY 2013 projected.
             Reducing Theft
             The PREPA revenue protection program is designed to increase
             revenues and discourage clandestine connections.
                                                         Historical System Performance Efficiency
•    Address theft via
    – Increased unannounced door-to-door monitoring                           91                                                  25




                                                                                                                                       Avg Rates (cents/kwh)
                                                                              90
    – Automated meter reading                                                                                                     20




                                                         (sales/generation)
                                                                              89
    – Geographic information system




                                                            Efficiency %
                                                                              88
                                                                                                                                  15
                                                                              87
    – Special meter seals                                                     86                                                  10
    – Social awareness campaign                                               85
                                                                              84                                                  5
    – Administrative Judge to settle disputes                                 83
                                                                              82                                                  0
•    “Smart grid” being implemented




                                                                              83

                                                                                    86

                                                                                          89

                                                                                               92

                                                                                                    95

                                                                                                          98

                                                                                                                01

                                                                                                                     04

                                                                                                                          07
    – With smart meters, will be able to show areas




                                                                       19

                                                                                   19

                                                                                        19

                                                                                             19

                                                                                                  19

                                                                                                         19

                                                                                                              20

                                                                                                                   20

                                                                                                                        20
      where theft is prevalent                                                          Net Efficiency        Average Rates

    – Will allow remote turn on and shut off
    – First smart meter replacements to start in early
      2010

 Initiative expected to generate $50 million                                                                   Article from the Daily Sun
  improvement in operating margin                                                                               February 17, 2010
  – $16 million improvement budgeted in this year
  – $17.6 million billed in CY 2009
   Operating Expenses
95,000,000

90,000,000

85,000,000

80,000,000

75,000,000
                                                                                2008
70,000,000

65,000,000
                                                                                2009
60,000,000

55,000,000

50,000,000
             JAN   FEB   MAR   APR   MAY   JUN    JUL   AUG   SEP   OCT   NOV   DIC

             *Excludes fuel and purchased power
                   Increased Energy Production
                   with Reduced Costs
              2500.0

                                                                                                                             2009*
              2000.0
                                                                                                                                2008
MWH X 1,000




              1500.0
                                                                                          *7% Increase
              1000.0


               500.0


                 0.0
                           JAN      FEB     MAR      APR      MAY       JUN      JUL     AUG       SEP     OCT      NOV       DIC
                   2009   1791.9   1629.0   1760.2   1814.3   1898.0   1961.7   2075.0   2098.0   2021.0   2082.8   1906.9   1950.0
                   2008   1856.8   1758.4   1864.3   1889.7   2028.8   1973.6   1994.8   2108.0   1956.7   2016.7   1849.5   1818.3
    Agenda


1    Overview

2    Financial Performance

3    Reconstruction Initiatives

4    Diversification Strategy
                  Fuel Diversification
                  Generation                                          In order to stabilize electric prices, we have developed a fuel diversification plan that
                                                                      includes the reduction in fuel oil dependency. The use of oil will be cut in half from
                                                                      2000 to 2015.

2000                                        2009                                        20151                                       Long-Term
   Renewables, Hydro                        Natural
   and Others                                Gas                                   Natural
   1%                                        15%                                    Gas                                       Natural                          Oil
                                                                                    24%                                        Gas                            26%
                                                                                                                               30%

                                    Coal
                                    15%                                                                              Oil
                                                                                                                    48%

                                                                                 Coal
                              Renewables,                                        16%
                              Hydro                                  Oil
                                                                                                                                                              Renewables,
                              and Others                            69%
                                                                                                                                                              Hydro
            Oil               1%                                                    Renewables,                                         Coal                  and Others
           99%                                                                      Hydro                                               29%                   15%
                                                                                    and Others
                                                                                    12%

                                            Drop in Oil Consumption
                                            100%
                                             80%
                                             60%
                                             40%
                                             20%
                                              0%
                                                        2000                           2009         2015   Long Term
                                                                                 Oil as a Percentage of Fuel
                                                                                 Needs
  1 - Conversions will allow PREPA to burn either LNG or fuel-oil depending on the commodity price.
                     PREPA’s Generating System

 Steam Plants (#6 Fired)                                                                                                                                     Coal




     Aguirre Units 1&2                  Costa Sur Units 3,4,5,6                Palo Seco Units 1,2,3,4                     San Juan 7,8,9,10                    Guayama (A.E.S)
 Rated:                    900 MW      Rated:                      990 MW      Rated:                     602 MW       Rated:                   400 MW      Contracted:      454 MW
 Available:                900 MW      Available:                  990 MW      Available:                 386 MW       Available:               300 MW      Available:       454 MW
 Heat Rate:               10.3, 10.2   Heat Rate:     11.6, 11.5, 10.7, 10.9   Heat Rate:       10.9, 11.0, --, 10.4   Heat Rate: 11.2, 11.6, 11.5, 11.6    Heat Rate:            9.8
 In Service:                   1975    In Service:           ’62,’63,’72,’73   In Service:              ’60,’61,’70    In Service:            ’65,’68,’69   In Service:         2002



Combined Cycle Units (#2 Fired)                                                 Combustion Turbines (#2 Fired)                                                Comb.Cycle (NG)




 Aguirre CC Units 1&2                     San Juan Units 5,6                           Cambalache                                Mayagüez                    Peñuelas (EcoElectrica)
Rated:                    592 MW       Rated:                      464 MW      Rated:                     247 MW       Rated:                   110 MW       Contracted:      507 MW
Available:                458 MW       Available:                  440 MW      Available:                 236 MW       Available:               110 MW       Available:       507 MW
Heat Rate:               10.3, 10.2    Heat Rate:                   8.5, 7.9   Heat Rate:    11.6, 11.7, 11.6, 11.7    Heat Rate:              10.2, 10.1    Heat Rate:            7.5
In Service:                   1977     In Service:                     2008    In Service:                    1997     In Service:                  2008     In Service:         2000

 In addition, PREPA has 70 MW of available capacity from 21 hydroelectric units and 9 MW from 7 Diesel Generators
Notes: Red Indicates purchased power. Heat rate in thousand Btu/kWh.
             Generation Plans
             PREPA plan is to reduce fuel cost volatility, increase fuel
             diversity and improve generation facility efficiency.
Near Term (0 to 12 months)           Mid-Term (1 to 3 years)                     Long Term (more than 3 years)

•    Enter into fixed price #2 and    Install infrastructure and begin          Operation begins at Costa Sur
     #6 fuel supply contracts          operation to permit natural gas use at     combined cycle and Aguirre coal fired
                                       major #2-fired facilities                  units
•    Enter into contracts for
     renewable capacity                 – San Juan and Costa Sur combined
•    Begin development of Costa           cycle and Cambalache and
     Sur combined cycle and               Mayaguez gas turbine facilities
     Aguirre coal fired units         Begin construction of Costa Sur
                                       combined cycle and Aguirre coal fired
                                       units
          Major Planned Transmission
          Improvements Through 2014
                                                                                    Isla Grande TC     San Juan GIS
                                       Vega Baja – Vega       Palo Seco GIS
                                                                                       $24 million      $62.5 million
                                       Alta UG Circuit         $65.7 million
                                                                                     In Operation      Construction
                                         $10.5 million        In Operation
                                         In Operation
                                                                                                               Martin Peña TC
                                                                                                                $27.4 million
                                                                                                                In Operation

                                                  Hato Tejas TC                                                         Canóvanas TC
                                                   $6.9 million                                                          $5.3 million
                                                   Construction                                                          Construction

                       Costa Sur –                                 San Juan UG
                       Cambalache                                      Circuit
                       $74.0 million                               $195.8 million
                        Evaluation                                  In operation

Mayagüez UG
   Circuit                                                                                                           Juncos TC
$17.7 million                                                                                                        $9.3 million
In Operation                                                                                                        In Operation

                                                          Costa Sur – Aguas                           Las Cruces TC
                    Ponce TC                                   Buenas                                  $6.3 million
                (230/115 kV) $6.0                           $99.0 million                              Construction
                     million                                Construction
                   Evaluation

                                                                                            GIS – Gas Insulated Substation
                                                                                            TC - Transmission Centers and
                                                                                            Switchyards
                                                                                            UG Circuit – Underground Circuit
        Reduce Fossil Fuels Dependency
•   We signed five renewable energy source contracts
     Waste to Energy
       Caguas 50MW
       Arecibo 55MW
     Wind Projects
       Guayanilla 40MW
       Arecibo 50MW
       Naguabo 40MW
•   Other Projects under consideration
       Windmill Projects in various locations 50MW
       Solar - Guayama 50MW
       Biodiesel Project
       20 Additional Proposals in evaluation
•   Energy Wheeling in development – Renewable
    energy private companies accessing PREPA’s
    transmission system
        Disclaimer
Today’s presentation includes certain statements that are not historical in nature
but reflect forecasts and “forward-looking statements,” for example, statements
regarding anticipated future financial and operating performance and results,
including estimates for growth. Actual results may differ materially from those
expressed or implied by such forward-looking statements. These statements are
based on the Puerto Rico Electric Power Authority’s current beliefs regarding
future events, and are based upon a number of estimates and assumptions that
are subject to significant uncertainties, many of which are outside the control of
the Puerto Rico Electric Power Authority, Government Development Bank for
Puerto Rico, the Government of Puerto Rico and its agencies and
instrumentalities.

This presentation is not an Official Statement and does not constitute an offer to
sell or to purchase bonds, nor a solicitation of an offer to sell or to purchase
bonds in the Commonwealth of Puerto Rico, the United States, or in any
jurisdiction where such offer, solicitation or sale may be unlawful. This
presentation has been prepared solely for informational purposes, and should
not be construed as a recommendation to buy or sell any security or to
participate in any particular trading.

				
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Description: Prepa Power Purchase and Operating Agreement document sample