The California Public Utilities Commission on March 22 approved Southern California Edison’s (SCE) request to sell its interest in the coal-fired Four Corners power plant in New Mexico as part of an overall plan to eventually shut three of the units at the plant.
This divestiture of SCE’s ownership share of the plant is consistent with the CPUC’s requirement that it do so by 2016. SCE owns a 48% share in Four Corners Units 4 and 5, with the plant overall operated by Arizona Public Service (APS), which will be the buyer of SCE’s share. SCE is a unit of Edison International (NYSE:EIX).
CPUC President Michael Peevey said: “With today’s decision, we close a chapter in California for our regulated utilities and their ownership interest in coal-fired generation facilities. Senate Bill 1368 mandated greenhouse gas emissions performance standards and SCE is furthering those objectives by divesting its ownership share in Four Corners. SCE ratepayers will be the beneficiaries of the gains on the sale of this asset and all Californians will benefit as the state takes one more step closer to reduced greenhouse gases and a cleaner environment.”
Four Corners is a five-unit plant located in the northwestern corner of New Mexico. APS operates the plant and owns 100% of Units 1-3 and 15% of Units 4 and 5. APS has a total entitlement from Four Corners of 791 MW. The Four Corners plant site is leased from the Navajo Nation and is also subject to an easement from the federal government. APS purchases all of Four Corners’ coal requirements from a supplier with a long-term lease of coal reserves with the Navajo Nation. The Four Corners coal contract, with a unit of BHP Billiton, runs through 2016.
In November 2010, APS and SCE entered into an asset purchase agreement providing for the purchase by APS of SCE’s 48% interest in each of Units 4 and 5. If consummated, APS would acquire 739 MW from SCE. Completion of the purchase by APS, which is expected to occur in the second half of 2012, is conditioned upon the receipt of regulatory approvals from the Arizona Corporation Commission, the California Public Utilities Commission and the FERC, the execution of a new coal supply contract, expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other typical closing conditions, said APS parent Pinnacle West Capital (NYSE:PNW) in its Feb. 24 annual Form 10-K report.
APS, on behalf of the Four Corners participants, has negotiated amendments to the facility lease with the Navajo Nation which would extend the term of the Four Corners leasehold interest from 2016 to 2041. Execution by the Navajo Nation of the lease amendments is a condition to closing of the purchase by APS of SCE’s interests in Four Corners. The execution of these amendments by the Navajo Nation requires the approval of the Navajo Nation Council, which became effective in March 2011. The effectiveness of the amendments also requires the approval of the U.S. Department of the Interior, as does a related federal rights-of-way grant, which the Four Corners participants will pursue. A federal environmental review is underway as part of the Interior review process.
APS has announced that, if APS’s purchase of SCE’s interests in Units 4 and 5 at Four Corners is consummated, it will close for clean-air reasons Units 1-3 at the plant. These events would change the plant’s overall generating capacity from 2,100 MW to 1,540 MW and APS’s entitlement from the plant from 791 MW to 970 MW.