Puerto Rico Water Resources Authority (may 1970)

MAY 1970

A SPECIAL REPORT ON

tâ– COMMONWEALTH OF PUERTO RICO

GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO SAN JUAN, PUERTO RICO

PUERTO RICO WATER RESOURCES AUTHORITY

1950 - Our Growth - 1969

Data for the twelve months ended Times

June 30. 1950

December 31, 1969

Increased

Sales of electricity (Kwh) Revenues from sales Customers (number) Average sales per customer (Kwh) Average revenue per customer

411,727,000 $ 11,170,000 177,000 2,419 $ 65.64

6,115,465,000 $ 126,265,000 678,000 9,185 $ 189.64

14.9 11.3 3.8 3.8 2.9

Generation requirements (Kwh)

519,014,000

7,163,138,000

13.8

96,230

1,146,400

11.9

140,560

1,261,840

9.0

$ 11,317,000 $ 5,390,000

$ 130,867,000 $ 71,078,000

11.6 13.2 10.1

Annual peak demand (Kw)

Generating capacity installed (nameplate Kw). .

Revenues (total) Current expenses

Balance of revenues available for debt service . . $ Contribution in lieu of taxes

Other contractual obligations Contractual obligations (total)

$

5,927,000

$

1,178,000

$

3,681,000

59,789,000 13,836,000

11.7

44,922,000

12.2

$ 4,859,000

$

58,758,000

12.1

$ 55,572,000 25,371,000

$ 594,199,000 133,691,000

10.7 5.3

Electric plant (at cost)

$ 80,943,000

$ 727,890,000

9.0

Long term debt and outstanding notes

$ 60,545,000

$ 518,815,000

8.6

Equity of the people of Puerto Rico

$ 24,905,000

$ 173,146,000

7.0

Electrical plant in service (at cost) Construction work in progress

ON THE COVER

Hato Rey Financial Center

r-

Commonwealth of Puerto Rico PUERTO RICO WATER RESOURCES AUTHORITY

i

Governing Board

Officers RENAN COLON

Chairman: RAFAEL V. URRUTIA

Chief Engineer Vice-chairman: RAFAEL NEVARES

JAVIER CUEVAS BENITEZ Members: DR. ANTONIO SANTIAGO

General Manager — Services and Supply

JORGE CAMUNAS

RAFAEL REYES GARCIA

General Manager — Irrigation Services JOSE VILA RUIZ General Counsel

Principal Officers ANTONIO BUSCAGLIA

FELIX CORDOVA DIAZ

Head, Production and Transmission Division

Executive Director

HUMBERTO CORDERO Head. Distribution and Sales Division

JULIO NEGRONI

Vice Executive Director

WILLIAM CANDELARIO

Head, Electrical Planning and Research Division

DR. MODESTO IRIARTE

Assistant Executive Director — Electrical Planning,

JOSE A. MATOS

Construction and Research

Head, Power Design and Construction Division

JOSE ISMAEL DIAZ Assistant Executive Director ■

JOSE B. CANDELAS

Finance

Controller

CARLOS VELAZQUEZ TORO Assistant Executive Director — Power Operations

LOUIS ROIG Treasurer

RAFAEL VAZQUEZ COLQN JULIO C. MUNIZ Head. Purchasing Division

Assistant Executive Director — Industrial Relations and Personnel

JU.VN RAMOS VELILLA Head, Personnel Division CARLOS E. LUBE

Consulting Staff

Head. Industrial Relations Division

HARQLD TQRO

HECTOR M. MORALES

Special Assistant to the Executive Director

Head, Transportation and Services DAVID BRAVO. JR. Public Relations Officer Trustee

First National City Bank, New York, N. Y. Consulting Engineers Jackson and Moreland Division of United Fngineers and Constructors Inc. Auditors

'I

Arthur Andersen & Co. Bond Counsel

Mitchell. Petty & Shetterly

Felix Cordova Diaz

Puerto Rico

Executive Director

Water Resources Authority The supply of electric energy in Puerto Rico's fast

growing economy is the responsibility of the Puerto Rico Water Resources Authority, an autonomous public service corporation and instrumentality of the

program for the Island was begun as part of "Opera tion Bootstrap." By 1956, for the first time in Puerto Rico's history, net income from manufacturing sur

passed that from agriculture. Today over 1,800 new

Government of the Commonwealth of Puerto Rico.

factories, promoted under the economic development

The origin of the Authority goes back to the opera tion of two government agencies which began the development of hydroelectric power in Puerto Rico

program, are in operation. Such rapid growth and profound change in the basic character of the econ omy has created a continuous and rapid rise in the

—the Puerto Rico Irrigation Service, which built its first generating plant in 1915, and the Utilization of

demand for energy.

the Utilization of Water Resources and ensure a

Throughout the twenty-eight years elapsed since the Authority came into being its growth has been steady and most impressive. The comparative figures shown on the inside of the cover page speak for

growth in the supply of electricity which would be

themselves.

adequate for the future needs of Puerto Rico's eco

From its inception the Authority has had to con stantly add new capacity to keep up with, and antici pate, the mounting demand for electric power. New

Water Resources of Puerto Rico, created in 1927. In

1941, the Authority was established by law to replace

nomic development. Subsequently, during the World War II fuel shortage, the two large private electric utilities on the Island were taken over by the United States Government as an emergency measure and their operation entrusted to the Authority. In 1944, these systems were purchased by the Authority and,

generating capacity has been added almost every

year. Since 1944 total name plate rating of the Au thority's generating plant has risen from 64,440 Kw to the present capacity of 1,261,840 Kw. Annual

at a later date, the electric facilities of various irri

capital construction expenditures in recent years

gation services were integrated into the Authority's

have reached as high as $87.5 million.

system.

The capital construction program for 1970-71 is

When the Authority began operations in 1941, the Island's economy was primarily agricultural and heavily dependent on a single crop—sugar. In the

estimated at $113 million. It includes work on

latter half of that same decade, an industrialization

1970. It also includes work on the fifth and sixth

Unit No. 4 of 200,000 Kw at the Palo Seco Steam

Plant which is scheduled for completion in Augu.st,

units of the South Coast Plant which will have a

capacity of 410,000 Kw each. Other important projects included in the program are Units No. 1 and 2 of 450,000 Kw each at a new steam plant to be constructed in Aguirre in the southeast and sev eral jet and gas turbine peaking units throughout the system.

This program also includes general transmission and distribution facilities, rural electrification proj ects, the acquisition of land and the construction of buildings, and other miscellaneous improvements.

The Authority has grown to become the second largest municipally owned, integrated electric utility in the United States as is indicated by the following tabulation: Puerto Rico

City of Seattle

Department of Water Resources Department of Water and Power Authority Lighting As of As of As of

Electric Revenues Number of

The total installed generating capacity of the Author ity at the end of December 1969 had a name plate rating of 1,261,840 Kw and maximum dependable capacity of 1,352,320 Kw. The physical plant pres ently consists of twenty-four generating stations, of which fifteen are hydroelectric, four are thermalelectric, one is diesel and four are jet peaking units.

Thermal-electric facilities now supply about 97 per cent of the electric energy generated. The Author ity's four main generating stations have a total in stalled name plate rating of 1,086,000 Kw. Thermal-electric Stations

The Palo Seco Steam Plant, near San Juan, was City of Los Atifielcs

Net Plant

Present Electric System

Dec. 31, 1969

Dec. 31, 1969

Dec. 31,1969

$1,262,251,126 200,439,769

$605,251,968 126,264,594

$314,969,888

Customers ....

San Juan Steam Plant

1,090,704

52,626,909

placed in service in 1960 and has two 82,500 Kw steam-electric units and one 10,000 Kw jet peaking unit powered by a kerosene-burning aviation type jet motor. This unit is used for peaking and for emer gencies, being designed for automatic synchroniza-

PUERTO RICO WATER RESOURCES AUTHORITY

ELECTRICAL

SYSTEM

â–Ą A A

f

tion to the line from a cold start in only two minutes.

In February, 1970, a 200,000 Kw unit was placed in service, another 200,000 Kw unit now under con

struction is scheduled to be placed in service in August, 1970. A 20,000 Kw jet power pack unit will be placed in operation in June, 1970.

The South Coast Steam Plant, near Ponce, has two 44,000 Kw, two 82,500 Kw steam-electric units

and a 10,000 Kw jet peaking unit. One of the out standing features of this plant is that it can burn either low cost refinery pitch or Bunker C fuel oil.

This plant currently receives its fuel by direct pipe line from the nearby refinery at the Commonwealth

Oil Refining Co. To meet the increasing demand for industrial power in Southern Puerto Rico two

410,000 Kw units are being added to this plant and are expected to be in service by August, 1971, and April, 1972, respectively.

The San Juan Steam Plan has an installed capacity of 598,000 Kw in four 20,000 Kw, two 44,000 Kw,

four 100,000 Kw steam-electric units and two jet peaking units with a combined capacity of 30,000 Kw.

The Mayaguez Plant is equipped with two gas turbine generators whose rated capacity is 20,000 Kw each. The main purpose of these turbines is to handle peak loads. A 10,000 Kw jet peaking unit was also installed increasing the capacity of this plant to a name plate rating of 50,000 Kw. There is now in the design stage another steam plant to be located in Aguirre in the southeastern region of Puerto Rico. Initially, this plant will have two 450,000 Kw units which are scheduled to be placed in service in January 1973 and January 1974, respectively.

The Authority has in operation, in addition to

those jet power pack units located at plant sites, four jet power pack units throughout the system.

Five additional 40,000 Kw gas turbine generators will be installed throughout the system as follows,

during the rainy season for utilization during the dry season, and the remaining four operate on run-ofthe-river flows. Ten of the hydroelectric plants are non-attended and fully automatic.

two in 1971, two in 1972 and one in 1973.

There is a small 1,000 Kw diesel plant for emer gency purposes on the island of Vieques.

Hydroelectric Stations

Transmission and Distribution Systems The Authority's transmission system consists of 1,635 circuit miles of 115 Kv and 38 Kv lines, controlled and sectionalized at 134 substations and

There are 15 hydroelectric plants with a total in stalled capacity of 104,840 Kw. Eleven of these plants have reservoirs which permit regulation of

sectionalizer stations, with a total name plate trans former capacity of 2,226,425/3,189,875 Kva located at suitable points throughout the system to insure

plant output by collecting and storing water inflows

stability of service and provide an adequate island-

Jardines de Cuayaina A new public housing development in Rio Piedras

wide network. The transmission system also includes a submarine cable 9.5 miles long which was placed in service during May 1963 to connect the electric

system of the island of Vieques to the Authority's system.

Distribution facilities include 224 substations

owned by the Authority with a capacity of 1,141,640/ 1,608,011 Kva which, supphed from the transmis

sion network, convert the electric power for distribu tion at 2,400/4,160 Y, 4,800/8,320 Y and 7,620/ 13,200 Y volts through distribution feeders which traverse all the Island. In addition, there are 207

privately owned distribution and interchange sub stations with a total capacity of 519,096/575,391 Kva to serve industrial customers, making a total installed capacity of 1,660,736/2,183,402 Kva.

Rural Electrification

Through successive amendments to an original loan contract for $6,376,000, entered into in 1952 be

tween the Authority and the Rural Electrification Administration of the United States, the Authority has borrowed to date $77,040,000 on bonds bearing interest at the rate of 2% under a loan contract now

totaling $79,040,000. These funds have been loaned

by REA for the construction of generation, trans mission and distribution facilities to serve rural cus tomers.

By law, the Commonwealth Government contrib utes to the Authority the annual amounts required to guarantee that the Authority recovers the complete cost of service to customers served under the REA

GROWTH OF THE ANNUAL LOAD OF THE SYSTEM SINCE 1946

(Thousands

(June 30)

of Dollars)

(Million Kwh)

Revenue

Average

Kilowatt

per

Customers

Maximum Peak Load

Load

Hours per

(End of Period)

(Kw)

(Kw)

Customer

Kilowatt Hour

Revenue per Customer

Sales Fiscal Year

5,764

258.6

124,959

63,000

39,000

2,069

.0223

$ 46.13

1950-51

13,006

488.2

185,090

109,000

69,000

2,638

.0266

70.27

1945-46

$

1955-56

25,216

930.8

314,853

210,000

129,000

2,956

.0271

80.08

1956-57

28,693

1,078.4

338,685

249,000

153,000

3,184

.0266

84.72

1957-58

33,973

1,298.8

363,032

272,000

181,000

3,578

.0262

93.58

1958-59

35,781

1,421.6

385,592

314,000

198,000

3,687

.0252

92.79

1959-60

40,441

1,667.4

408,671

355,000

231,000

4,080

.0243

98.96

1960-61

45,304

1,892.4

435,019

398,000

261,000

4,350

.0239

107.34

1961-62

50,846

2,145.4

459,995

439,000

294,000

4,664

.0237

113.44

1962-63

57,520

2,465.6

487,991

498,000

335,000

5,053

.0233

121.20 130.85

1963-64

65,865

2,858.4

517,682

560,000

388,000

5,522

.0230

1964-65

72,952

3,186.3

552,111

637,000

436,000

5,771

.0229

132.13

1965-66

83,734

3,771.7

581,369

737,000

506,000

6,488

.0222

144.03

1966-67

93,233

4,291.8

608,462

825,000

575,000

7,053

.0217

153.23

1967-68

104,271

4,894.8

635,155

939,000

657,000

7,706

.0213

164.17

1968-69

118,883

5,707.0

664,770

1,078,000

760,000

8,585

.0208

178.83

1969-70

132,720

6,527.4

697,000

872,000

9,365

.0203

190.42

1,246,000

SALES OF ELECTRICITY-KWH

NUMBER OF CUSTOMERS Thousands

Millions of KWH

7,000 6.500 â–

Commercial Residential

300

l"! I I I I I I II I I I I I I Fiscal '61

•69

'ZO*

Years

program, in the case that revenues do not provide an adequate contribution to fixed costs.

long-term obligations are to a large extent already in operation by the time such obligations are issued.

Bonds outstanding, including the REA issues, totaled $479,982,000 as of December, 1969.

Financing System Growth

Under its enabling legislation, the Authority has the power to borrow money and issue revenue bonds for its corporate purposes and to secure the payment of these bonds under a Trust Indenture. It also has full

authority to set and collect adequate rates and other charges for the use of its facilities, and has complete control and supervision over its properties and activi

In addition, a substantial amount of the Capital

Improvement Program has been financed directly from revenues of the Authority. In the period

from May 1, 1947 to December 31, 1969, a total of $738,076,000 was invested in capital improvements.

Of this amount $531,204,000 has been provided

from the net proceeds of bond issues and bank bor rowings, and $206,872,000 had come mainly from

ties. Properties may be acquired by the Authority by

net revenues of and contributions to the Authority.

any lawful means, including the power of eminent

On December 31, 1969, total net assets amounted to $741,849,000, operating and appropriated reserves were $37,954,000, contributed capital and unappro

domain.

For many years the Authority has followed a pol icy of initially financing the construction of facilities

priated net revenues were $137,630,000 and out

under its Capital Improvement Program with short

standing debt was $518,815,000.

term bank loans. From time to time, issues of reve

Total revenues for the twelve months ended

nue bonds are sold for the repayment of such loans

December 31, 1969, were $130,867,000. Current

and for the continuance of construction. In this way the facilities producing income for the support of

expenses were $71,078,000, leaving a balance of $59,789,000 available for debt service requirements

Rio Piedras Medical Center

and other contractual obligations. The maximum debt service for any future year on outstanding issues was $27,420,000, indicating a coverage of 2.20 times on present debt. Accruals for contributions to the Commonwealth and municipal governments in lieu of taxes amounted to $13,836,000 during the same period.

The rapid expansion in facilities and improvement of service over the past decade has been carried out without raising the Authority's rates. Constant in creases in demand have consistently resulted in a yearly growth in revenues and in substantial reserves adequate to meet the Authority's operating expense

the purpose of liquidating current bank borrowings and continuing the Capital Improvement Program.

Preliminary calculations indicate that the Author ity's maximum annual debt service, upon the comple tion of the financing, will approximate $32,942,000 and will be covered about 1.85 times by net earnings for the twelve months ended February 28, 1970.

Looking Ahead

Continuous studies of power needs, constantly re viewed and revised by the Authority and its consult ing engineers, now indicate that peak demand of the

and contractual obligations.

system will increase from 1,246,000 Kw in 1969-70 to 1,478,000 Kw in 1970-71, 1,701,000 Kw in 1971-

New Bond Issue

72 and 1,937,000 Kw in 1972-73. It is expected

In May 1970, the Authority proposes to sell $70,000,000 par value Electric Revenue Bonds for

that about 28,000 new customers will be added yearly. To meet this demand, the Authority's gener-

ating capacity will be raised to a name plate rating of 3,171,840 Kw by 1973.

During the period from December 1, 1969 through June 30, 1973, it is anticipated that the Authority will invest $506,434,000 in further capital improve ments. Of this amount, the sale of bonds will pro vide some $395,951,000. About $107,378,000 or

21% will be derived principally from revenues of the Authority. The remainder of $3,105,000 will be available from previous bond issues.

It will be noted that the capital improvement pro gram shows a substantial increase over the next four years. The reason for this is that the Authority has

found it necessary to increase the size of the gener ating units scheduled for 1971 and 1972 to 410 MW to serve large metallurgical processors, thus exceed ing the normal growth of the system. The Economic

Development Administration has been promoting the establishment of these plants. Since these plants are expected to be the core of industrial complexes which will foster general economic development, the Au thority under special agreements with the Common wealth Government is willing to provide power at prices based on the incremental cost of power of the larger units. In order to make the construction of the larger units economically feasible for the Authority, the Legislature of Puerto Rico approved Law #82 of 1967 which guarantees to reimburse the Authority for any part of the annual charges on whatever portion of the extra capacity that remains unsold during the period 1971 to 1974 up to a limit of $3,250,000 during each of these four years. Such amounts would be deducted from the contribution in

lieu of taxes payable to the Commonwealth Govern ment.

TOTAL REVENUES, BAUNCE AFTER CURRENT EXPENSES,

REVENUES FROM SALES OF ELECTRICITY

AND DEBT SERVICE REQUIREMENTS Millions of Dollars

Millions of Dollars

140

140

130 -

120 Total Revenues

110 -

□ Balance After Current Expenses 100 -

Residential

I Debt Service Requirements

Total

60 -

50 -

20 —

:i I Fiscal Years

'61

•62

'63

•64

■68

69

Fiscal

'61

62

63

64

65

Years ■f->lim.ilt>d Source

P R

Int Imlmi; Fuol Oii Adiu-.ln'onl R A

•66

'67

69

•70*

Puerto Rico Water Resources Authority

Condensed Balance Sheet As of December 31, 1969

ASSETS

NET UTILITY PLANT:

Gross utility plant

Less accumulated provision for depreciation

$727,889,594 122,637,626

Net utility plant

$605,251,968

OTHER PHYSICAL PROPERTY

477,503

BOND REDEMPTION, RESERVE AND CONSTRUCTION FUNDS

33,819,589

CURRENT ASSETS:

Funds and working advances

$ 23,613,464

Accounts receivable—Less Reserve for uncollectible accounts . .

32,684,688

Materials and supplies Prepayments, special deposits, etc

25,837,816 1,988,852

84,124,820

DEFERRED DEBITS:

Debt discount and expense in process of amortization

$ 14,800,726

Other

3,374,009 TOTAL ASSETS

18,174,735

$741,848,615

LIABILtllES

CONTRIBUTED CAPITAL

$ 46,679,915

UNAPPROPRIATED NET REVENUES

90,949,899

LONG-TERM DEBT:

Electric revenue bonds

$479,982,000

Notes payable

36,400,000

Lease-purchase obligation, less portion included in current liabilities

2,432,980

518,814,980

CURRENT LIABILITIES:

Accounts payable Customers' deposits and accrued interest

$ 17,085,879 6,172,878

Accrued interest on Electric Revenue Bonds

9,344,634

Accrued contributions in lieu of taxes

7,245,789

Other

7,600,354

47,449,534

RESERVES: Self-insurance

Injuries and damages Revenue stabilization

Appropriated sinking fund Plant improvements TOTAL LIABILITIES

10

$

9,018,380 2,438,086 785,949 25,657,209 54,663

37,954,287

$741,848,615

Puerto Rico Water Resources Authority

Condensed Statements of Revenues and Expenses (For Revenue Fund Purposes per Trust Indenture)

June 30 1966

Twelve Months Ending June 30 June 30 1967 1968

December 31 1969

June 30 1969

REVENUES:

Sales of electric energy Other operating revenues Total operating revenues

$83,734,015 $93,232,606 $104,270,618 $118,883,451 $126,264,594 1,890,939 2,085,113 2,111,965 2,206,614 2,275,658 $85,624,954 $95,317,719 $106,382,583 $121,090,065 $128,540,252

Other income Total revenues

1,369,968 1,420,789 1,781,295 2,007,086 2,326,945 $86,994,922 $96,738,508 $108,163,878 $123,097,151 $130,867,197

CURRENT EXPENSES:

$12,035,637 $13,671,019 $ 15,434,275 $ 15,570,387 $ 17,461,282

Other operating expenses Maintenance

Other current expenses

Total current expenses

22,518,518

25,011,077

28,348,610

33,913,682

10,717,943

11,840,030

14,263,000

15,974,592

1,045,519

1,010,175

937,572

985,983

''

$46,317,617 $51,532,301 $ 58,983,457 "$ 66,444,644 $ 71,077,667

Balance of revenues after current

expenses (per Trust Indenture). .

^

^

o c/c /:co cm

d> n i/r/ronn

c

$40,677,305 $45,206,207 $ 49,180,421 $ 56,6 ,

c co trq

' '

SINKING FUND PAYMENTS:

Interest account (exclusive

of interest

charged to construction and reimburse

ment from the Commonwealth Govern-

ment of Puerto Rico)

Bond redemption account (exclusive of reimbursement from the Commonwealth

of Puerto Rico) Reserve account

^

13 759 041

$ 9,061,921 $ 9,555,562 $ 11,166,209 $ 12,655,428 $ 13,7:)i^,U4i

5,992,000 207,304

5,710,000 207,304

„

6,685,000 787,908

-qo

7 719 OOO

^,342,799 ^'^75,105

1,4^,^50

Total sinking fund payments . . . . $15,261,225 $15,472,866 $ 18,639,117 $21,173,332 $^2,888,691

Balance. . . .

$25,416,080 $29,733,341 $ 30,541,304 $ 35,479,175 $ 36,900,839

TRANSFERS TO:

General reserve fund—provision for self-

insurance Renewal and replacement fund Reserve for improvements Total transfers

Balance available for contributions in

lieu of taxes, etc

PROVISIONS FOR CONTRIBUTIONS

IN LIEU OF TAXES

Balance

^

i nno nsii

1 041 506

$ 730,902 $ 824,926 $ 909,838 $ 1-002,087 $ I'O^'^on 14,617,510 12,393,200 13,671,744 -'-cn'oo/; ^'147188 5,160,000 3,516,925 5-250,886 $-147.188 $15,348,412 $18,378,126 $ 18,098,507 $ 21,417,109 $ 22,033,55 ,

^

<1: 14 867 289

$10,067,668 $11,355,215 $ 12,442,797 $ 14,062,066 $ 14,8t)/,Z8i' 9,172,130

10,213,261

,,n7'; 787

11,423,274

13,025,787

13 836 338

$ 895,538 $ 1,141,954 $ 1,019,523 $ 1,036,279 $ 1,030,951

PROVISION FOR:

Transfer to sinking fund reserve account . $ 447,769 $ 570,977 $ Balance transferred to unappropriated

net revenues

$ 447,769 $ 570,977 S

509,762 $

518,140 $

$ -

c

sisno 8

SI5 47S

509,761 S

M8,139 i

11

CoiTiiTiUTiicGtion SQtcllitc stcitioti ot Coycy

The above four-year program compares with capital expenditures actually made during the past twenty-two years, distributed as follows: steam pro

duction plant $279,800,000, hydraulic production

plant $36,432,000, gas turbine production plant $20,251,000, transmission plant $89,975,000, dis tribution plant $213,455,000 and other facilities $98,163,000, for a total of $738,076,000.

Security for the Bonds

Bonds issued by the Authority under the Trust Indenture are payable from the Puerto Rico Water Resources Authority Sinking Fund. The Authority has covenanted to deposit in this fund a sufficient amount of its revenues, after expenses for main tenance and operation of its electric properties, to pay the principal of and the interest on all bonds issued as they become due, as well as to create reserves for such purposes.

The Authority has also covenanted that it will at all times fix and collect reasonable rates and charges sufficient for the payment of maintenance and oper

ating expenses and bond principal and interest, and

In order for the Authority to issue additional bonds under the Trust Indenture, the average annual bal ance of revenues from its electric properties for the preceding twenty-four months, after deducting the

cost of maintaining, repairing and operating these properties during the same period, must be not less than 150 percent of maximum debt service payable in any succeeding fiscal year on all bonds, including the proposed issue. By supplemental indenture, to become effective only when all presently outstanding bonds issued prior to 1965 have been retired, this

percentage will be reduced to 140.

The bonds and the income therefrom are, under provisions of Acts of Congress now in force, exempt from Federal and State taxation. These bonds are

also legal investments for savings banks and trust funds in the state of New York and for savings banks

in California and are eligible for deposit by banks in Puerto Rico to secure public funds, and by insurance

companies to qualify them to do business in Puerto Rico. The bonds are rated "A" by Moody s Investors Service and by Standard and Poor s.

In the credit history of Puerto Rico, its municipali

to create certain reserves. Rates must also provide for the making of deposits required by the Trust

ties, authorities, agencies and other P°

Indenture to the credit of the General Reserve Fund

payments in lieu of taxes to the Commonwealth and

linquency in the payment of principal o or interest on any obligation, nor has there been any forced or "managed" refunding of maturing bonds to avoid

the municipalities it serves.

default.

and the Renewal and Replacement Fund, and for

divisions, there is no known record o e au or e

THE COMMONWEALTH OF PUERTO RICO General

Puerto Rico is the fourth largest of the islands in the Caribbean area. It is about 100 miles long and 35 miles wide, having an area of 3,423 square miles and a population of approximately 2,739,000. The topography is characterized by a fertile coastal plain rising to interior mountains which run mostly from east to west. San Juan, capital of Puerto Rico lies some 1,690 miles southeast of New York, 3'/4 hours

by jet plane, and 1,000 miles southeast of Miami,

214 hours by jet plane.

Under its compact with the United States, the Commonwealth of Puerto Rico exercises virtually the same control over its internal affairs, and with

the same general procedures, as do the fifty federated States over theirs. It differs from the States primarily in its relationship to the Federal Government. In brief, residents of Puerto Rico do not vote in the

national elections and are represented in Congress only by a Resident Commissioner who has a voice

but no vote in the House of Representatives. On the other hand, Federal taxes do not apply in Puerto Rico except by mutual consent, such as social secu rity taxes. No Federal income tax is collected from Puerto Rican residents on income earned in Puerto

Rico and Federal excise taxes collected on exported

was superseded in 1917 by the Organic Act or Jones Act, which granted United States citizenship to Puerto Ricans, as well as unrestricted suffrage for

local purposes. It also provided that members of both Senate and House were to be elected by the

people, but the Executive and Judicial branches re mained under control of Washington through ap pointment by the President.

No further change occurred until 1946 when the President for the first time appointed a Puerto Rican as Governor. In 1947 the Jones Act was amended

to permit Puerto Ricans to elect their own Governor, who in turn was empowered to appoint his cabinet and members of the Supreme Court.

The next advance toward complete local govern ment occurred in 1950 when, in accordance with the

wishes of the people of Puerto Rico, the 81st Con gress enacted Public Law 600, approved July 3, 1950. This law, which is "in the nature of a com pact," became effective upon its acceptance by the electorate of Puerto Rico. It provides that those sec

tions of the Organic Act which define the political, economic and fiscal relationship between Puerto Rico and the United States shall remain in full force and shall be thereafter known as the Puerto Rican Federal

Relations Act. It also authorized the people of Puerto Rico to draft and approve their own con stitution. The Constitution was drafted by a freely

Puerto Rican products, such as rum and tobacco, are

elected constitutional convention, overwhelmingly ap

returned to the Commonwealth Treasury. This rela tionship with the Federal Government is defined

Congress and the President. It became effective upon

through the medium of the compact entered into by Congress and the People of Puerto Rico, and is

proved in a special referendum, and approved by proclamation of the Governor of Puerto Rico on July 25, 1952.

further described hereinafter.

Government History

Puerto Rico came under United States sovereignty by the Treaty of Paris on December 10, 1898. The Congress of the United States provided for a civil government for the Island in 1900. It provided

for a Governor, a Cabinet, a Senate and a Supreme Court Judiciary, all appointed by the President of the United States; only a House of Delegates was elected by the People of Puerto Rico.

Over succeeding years strong feeling developed for a more autonomous form of government and in

favor of United States citizenship. The original Act

Mayagiiez gas plant and port area

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Palo Seco steam plant

The Commonwealth Government

The Constitution recognizes and assures a separa

tion of powers among the executive, legislative, and

Governmental responsibilities assumed by the Commonwealth are greater than those normally as sumed by a State Government. Municipalities which

judicial branches as in the Federal Constitution, and

combine both rural and urban areas are the only

as in those of the States. Both the Governor and the

local political subdivisions and are comparable to

bicameral legislature are subject to regular election every four years. The Legislature operates under standard parliamentary and legislative rules. Writs of error and appeals from judgments of the District

counties in scope. The only units of government with the right to levy ad valorem taxes are the

Court of the United States for Puerto Rico may be taken to the United States Court of Appeals for the

Commonwealth Government and the municipalities.

There is, therefore, no other overlapping taxation or bonded indebtedness payable from taxes. The

same manner and under the same terms and condi

Commonwealth Government assumes responsibility for a number of important functions normally per formed by local governments in the Continental United States. Among these are police and fire pro tection, education, all major street construction, and public health and welfare programs. In addition, the

tions as writs of error and appeals may be taken from

Commonwealth Government supervises municipal

other Federal and State courts.

fiscal affairs to a very substantial extent.

First Circuit and to the Supreme Court of the United States and writs of error and appeals from judgments

of the Supreme Court of Puerto Rico may be taken to the Supreme Court of the United States, in the

Administration of Government

The operation of the executive branch of the gov

ernment is similar to that in state governments in general, with separate departments responsible for major activities, each headed by a secretary who as a group form the Governor's cabinet and who are

appointed by the Governor subject to Senate ap proval. In addition, Puerto Rico has made substantial

use of public corporations or agencies which are largely autonomous in their operations in providing specific services. Each is headed by an executive

director or president who reports to a board of directors which in turn is appointed by the Governor.

Among the public corporations are the Water Re sources Authority which provides essentially all elec tric power on the island, the Aqueduct and Sewer Authority which provides all water and sewage ser vices, the Ports Authority responsible for seaport

and airport facilities and the Highway Authority which is charged with building all major road and

highway constructions, all of whose borrowings are secured by revenues produced by the entities, or by gasoline taxes in the case of the Highway Authority.

The Government Development Bank and the Indus trial Development Company likewise are autonomous

agencies which, after receiving substantial capital contributions from the Treasury originally, have

subsequently augmented their funds by borrowing on

Among the departments is the Department of State, whose Secretary becomes acting Governor or succeeds to the governorship in the absence or death of the elected Governor. Other departments include those of Treasury, Justice, Education, Public Works, Public Health, Commerce, Labor, Agriculture and

Buildings Authority, which provide housing facilmes for persons of low and medium incomes and office

Social Services. All activities of the departments are

space for government departments and agencies,

financed out of the General Fund of the Com

monwealth Treasury, in accordance with an annual budget prepared under the direction of the Governor

and approved by the Legislature. The staff agencies of the Office of the Governor comprise the Bureau

their own credit.

Among other public corporations are the Urban Renewal and Housing Corporation and the P"bHc

respectively. Bonds of each are guaranteed by the Commonwealth government but they are self-sup

porting in the first instances through receipts of mortgage payments or rentals in the case of low and

midJe income housing, and from lease payments

of the Budget, the Planning Board and the Office of

from government departments or agencies in the

Personnel.

latter case.

New modern medical center at Mayagiiez

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Political Background

In 1938 a political party emerged in Puerto Rico which was to emphasize economic development to improve the welfare of the people. From 1940 until the elections in November, 1968, as the Popular Democratic Party, it was in control of the govern ment of Puerto Rico, and was instrumental in estab

lishing the present Commonwealth politieal relation

Governor Luis A. Ferre, a prominent and highly successful industrialist, as well as a leading philan thropist, was the candidate in 1968 of the New Progressive Party which he organized in 1967 after leaving the Statehood Republican Party. He cam paigned on the basis of a need for change and for more effective government through new leadership.

Political status did not receive emphasis as an imme

ship.

diate issue. He reeeived 45.0% of the vote in the

Since 1948 there have been two major political thrusts in political life in Puerto Rico towards close

reeent election, compared with 41.8% of the vote received by the eandidate of the Popular Democratic Party. In the Legislature, the New Progressive Party also gained eontrol of the House of Representatives, although the Popular Democratic Party retained con trol of the Senate, thus definitely establishing a two party system of Government.

association with the United States and a minor and

almost negligible one in favor of independence. The trends are illustrated in the following data on election results by parties in recent years.

Commonwealth

Popular Democratic Party

Peoples Party

64.8%

62.5%

62.4%

59.4%

41.8%

—

—

—

—

10.0%

12.9%

25.0%

34.3%

34.6%

0.2%

19.0%

12.5%

—

—

Statehood

Statehood Republican Party

New Progressive Party . . .

Socialist Party

Independence Party Christian Action Party

As a general comment, it is obvious that desire for close and permanent ties with the United States has become an inherent ingredient.

Ponce Intercontinental Hotel on the south coast

Three faetors pertaining to eleetions in Puerto Rico are worthy of mention. There is strong public interest in government affairs and a high degree of voter partieipation in elections. In the 1968 eleetions, 79.3% of those registered actually voted.

Second, in order to reduce pressure from special interests, Puerto Rican law limits political contribu tions from any one person or corporation to $300 in any one election year and $100 annually in other

New Veterans Administration Hospital at Rio Piedras

years. Yet, recognizing the need for funds to bring issues to the attention of, and to inform the voters, each recognized political party receives from the

Commonwealth Treasury a contribution of funds to carry out its political campaign. This contribution is

according to a formula based primarily on the party's percentage of votes cast in the most recent

In response to the petition, the Congress ap proved a bill in 1964 providing for the establishment of a United States-Puerto Rico commission to study

all the factors involved. The membership of this commission consisted of three persons appointed by the President of the United States, two each selected

by the Senate and the House of Representatives, and

election.

six appointed by the Governor of Puerto Rico. The

And third, Puerto Rican law provides that if a minority party receives a substantial vote, but fails to elect candidates to the Legislature, then, under

Commission concluded that the people of Puerto Rico should be consulted with regard to the status

certain circumstances that body is increased in size by formula to assure minority representation. The Municipal Law (Act No. 142, approved July 21, 1960) also assures minority representation in the Municipal Assemblies since at least three members of each of these bodies have to be elected from the

minority parties.

1967 Plebiscite

In 1962 the Legislature of Puerto Rico petitioned the Congress of the United States requesting a plebiscite by the voters of Puerto Rico through which an expression of preference could be demonstrated for either a continuation of the existing common wealth relationship with the United States, or the

they preferred and, in December, 1966, the Puerto Rican Legislature passed an act providing for the holding of the plebiscite.

This plebiscite, held July 23, 1967, strongly re affirmed the overwhelming desire of the Puerto Rican

people to maintain permanent and close ties with the United States. Of the over 700,000 ballots cast (66.3

percent of all registered votes) 99.4 percent v/ere for either Commonwealth or Statehood and only 0.6 percent for Independence.

Political stability, one of the prime requisites of a sound, attractive investment climate, is outstandingly demonstrated in Puerto Rico.Only a declining minor

ity party favors independence. Both major parties hold maintenance of permanent ties with the United States as a basic principle, and differ only as to the

attainment of Federated Statehood in the United States, or the establishment of Puerto Rico as an

form which that future political relationship should

independent country.

take.

Expansion and Diversification of the Economy of Puerto Rico

Economic growth in Puerto Rico since 1950 has been very rapid. Gross product of the Common wealth has increased more than 5 times over its 1950

level and has more than doubled during the past nine

years ($4,093 million in 1969 vs $1,681 million in 1960). In the year ended June 30, 1969 gross product totalled an estimated $4,093 million, repre senting an increase of 10.6% over the prior year.

Net income of the economy has increased from a level of $614 million in 1950 to $3,403 million in

1969. Income, measured in current prices, has shown

an average increase during the last five years of about 10.3% compounded annually and in the year ended June 30, 1969 it increased by 10.5% over the

previous year. Per capita net income is now $1,234 compared to $279 in 1950.

The Commonwealth Government's program of industriahzation has aided the economy to shift from

one principally agricnltural to one much better diver sified between industry and agriculture. Concurrently

with the expansion in net agricultural income from $149 million in 1949-50 to about $175 million in

1968-69, manufacturing income increased from $89 million to $908 million in 1968-69, substantially sur

passing agriculture as a source of income.

the manufacture of sugar products accounted for 35% of manufacturing income. By 1966-67 about 4.5% of manufacturing income resulted from this industry. Manufacturing income is now generally

derived from the production of new types of manu factured products, principally for shipment to the United States. Such shipments amounted to only $33 million in 1949-50. By 1968-69 they had reached a total of about $1,092 million.

These new products cover a wide range such as apparel, petroleum derivatives and electronic prod ucts. Large, heavily capitalized manufacturing oper ations have shown a significant increase in recent

years (specially during the last two fiscal years) as compared to labor intensive operations which were promoted during the early part of the industrializa tion program. Some of the more important of the larger operations promoted during last year alone include the Union Carbide Corporation, which is in the process of making expansion totaling approxi mately $225,000,000; PPG Industries with a poten tial investment of $65,000,000; Fibers International

with a planned expansion of $41,000,000 for the production of nylon fibers, which will serve as raw material in the attraction of new textile and apparel industries; Air Products & Chemicals, $9,000,000; AIRCO Ponce, Inc., $18,000,000; and other large operations, such as; Bristol Alpha Corporation,

Puerto Rican manufacturing has been increasingly

Squibb Beech-Nut, Inc., Southern Screw Company,

diversified during the last two decades. In 1939-40

Shulte & Diekoff (a German concern), Hercor

The west coast of Puerto Rico is

experiencing industrial growth.

Shown here is the free trading zone near Mayaguez Harbor.

The largest radio radar in the world at A redbo

Chemical Corporation, Pennyrich International and many others that form part of the 493 projects pro moted during last fiscal year.

The petrochemical industry is steadily becoming

with respect to import quotas for the crude oil and other feedstocks needed by this industry on the

island. Should tariffs replace such quotas as proposed

by the Cabinet Task Force on oil import control,

the most important industrial sector. Its increasing

no material adverse effect is expected, at least so

importance to the economy of the Commonwealth is signaled by its recent developments and its rapid

zuela crude.

growth. From an investment of $96,328,000 in

I960 with two refineries (Commonwealth Oil Refin ing Co. Inc., and Caribbean Gulf Refinery) the

industry has rapidly developed in recent years with growing diversification of primary and secon dary products that includes gasoline, naphtha and a wide spectrum of aromatic products and olefins.

Expansion in this sector is continuing with the in coming of Sun Oil Company which has announced its intention to invest up to $120,000,000 through 1971, the expansion of the operations of Union Car bide Caribe up to $225,000,000 in investment, the

long as the proposed preference is granted by Vene Food, pharmaceutical and textile and apparel in dustries have also been of significant importance in industrial development. Three rice mills and large flour and feed mills supply an important share of Puerto Rico requirements in their field. Four large tuna canneries are now in operation and with an

additional one under construction the island has be come one of the leading suppliers of canned fish in the United States market.

In the pharmaceutical and chemical industry sec tor Puerto Rico is rapidly becoming a manufacturing center. Bristol Alpha Corporation, Merck & Com

pany, Pharmaseal Laboratories, Squibb, Beech-Nut,

entrance of PPG Industries with three plants to pro duce caustic soda, ethylene glycols and vinyl chloride with an expected investment of $65,000,000 and further expansion by Commonwealth Oil Refining Co. Inc., and Phillips Puerto Rico Core. It is ex pected that the next few years will see an expansion in this sector that will bring the total investment up to $1,058 millions, thus making this sector the larg est part of the industrialization program of the island.

source of raw material in the form of nylon 66 fibers

To date no major difficulties have been encountered

and nylon carpet yarns.

Inc., Abbott Laboratories, Eli Lilly & Co., Parke, Davis & Co., and others manufacture pharmaceutical products in Puerto Rico principally for export to outside markets.

The textile and apparel industry has continued to

expand and is expected to continue to grow with the expansion of Fibers International, Inc., which is a

Many of the plants encouraged by the Economic

Development Administration are branches or sub sidiaries set up by such parent firms as General Electric Co., American Can Co., Consolidated Cigar,

Phelps Dodge, Sun Oil Company, Daystrom, Car borundum, Sprague Electric Co., Van Camp Sea Food, General Foods Corporation, Van Raalte, Hooker Chemical Corporation, PPG Industries Inc.,

B.V.D., Bristol-Myers Co., International Shoe, R.C.A. Corp., Westinghouse Electric Corp., Merck, Abbott Laboratories, Eli Lilly & Co., Squibb BeechNut, Inc., Libby McNeill & Libby, Del Monte Corp. and many others.

Underlying Puerto Rico's growing and changing economy there has been a steady expansion in in

Life expectancy has increased from 61 years to 70 years and the death rate has declined from 10.5 per thousand to 6.1 per thousand at present, which is now about the same as the U. S. average. The birth

rate has declined from 39.6 per thousand in 1950 to

24.8 per thousand in 1969. The people are better educated, with literacy increased from 75% to about 86% in 1967. Institutions of higher learning have also expanded rapidly. University and college enroll ment which was only 13,000 in 1950, now has 48,000 students.

It is significant that the Commonwealth Govern ment has in the last three years directed approxi

mately 47% of its expenditures to education and health.

vestment. Average gross fixed domestic investment

The Commonwealth Government will continue to

during the last five consecutive fiscal years, 1965-69,

provide a climate inducive to further economic de velopment and growth. Thus it is expected that in the years ahead a sustained rate of economic growth

ran at a rate of 26% of gross product. It has in creased from $112 million in 1950 to $1,090 million

in 1969. Inflowing long-term U. S. capital rose from $31 million in postwar 1947 to an estimated $630 million in 1969.

The Puerto Rican people have benefitted greatly from the economic expansion achieved since 1950.

t-h

Communwealth Oil Refining Co.(CORCO) at FenneUts, Puerto Rico

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can be maintained.

Present projections indicate

that gross product in terms of current prices should reach $7,460 million in 1975. This will mean a per sonal income per capita of approximately $1,855.

PUERTO RICO WATER RESOURCES AUTHORITY San Juan, Puerto Rico

The Community We Serve Approximate Times Increased or

(Decreased)

An Expanding Economy:

1940

1950

1969

Over 1950

Gross Product—$ Millions . . .

^

4,'^3

5^

Net Income—$ Millions . . . .

225

614

3,403

5.5

611

1,500

5,391

3.6

73

319

2,123

6.7

17

51

486

9.5

312

459

3,556

7.7

2

28

220

7.9

Personal Income Per Family—$

. . . .

Banks:

Debits—$ Millions

Private Savings Accounts—$ Millions.

Assessed Value of Taxable Property— $ Millions

Income Tax Collections—$ Millions . .

A More Balanced Economic Life:

Percentage Points

Per cent of Net Income from:

Change

Manufacturing Agriculture Commonwealth and Municipal Government.

26.7

12

14.5

31

24.3

5.2

8

11.4

14.4

12.2

(19.1) 3.0

Trade

12

16.6

17.9

1.3

Other

37

33.2

35.8

2.6

14.0

73.0

Per Cent of Exports from: Exports by New Factories *.

59.0

Sugar (Raw and Refined) .

62

51.1

4.6

(46.5)

Other

38

34.9

22.4

(12.5) Per Cent

A Healthier, Better Educated Population:

Change

1,869,000

2,206,414

2,777,000

Birth Rate—Per Thousand

39.0

39.6

24.8

Death Rate—Per Thousand

18.4

10.5

6.1

46

61

70.0

286,000

408,000

682,000

67.2

5,000

13,000

52,000

300.0

Population

Life Expectancy—Years Public Day School Enrollment University and College Enrollment . . . . * Promoted by the Economic Development Administration.

Does not include exports of other new factories.

Source: Puerto Rico Planning Board.

25.9

(37.4) (42.0) 14.8

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AO ASTRA PER ASPERA

1311 Ponce de Leon Avenue, San Juan, Puerto Rico 00908 / 45 Wall Street. New York, N. Y. 10005