APS nearing finish line on Four Corners transaction

Pinnacle West Capital (NYSE: PNW) subsidiary Arizona Public Service (APS) is nearing the finish line in its effort to purchase Southern California Edison’s (SCE) share of the Four Corners coal plant, which is located on Navajo land near Farmington, N.M.

An APS spokesperson said Sept. 11 that both APS and SCE, an Edison International (NYSE: EIX) subsidiary, have gotten virtually all the government approvals they need for the deal that will increase the APS ownership share to 63%.

The plant owners must now negotiate a long-term coal supply deal with a neighboring BHP Billiton coal mine to replace the current one that is scheduled to expire in July 2016. Once that’s done the deal can close and the remaining power plant owners can proceed to retire the 1960s-era Units 1-3 and subsequently install an estimated $500m of emissions controls at Units 4-5, the spokesperson said.

The APS share of the new environmental controls would come to roughly $315m, the spokesperson said. It would also bring Four Corners into compliance with one of the regional haze regulatory options outlined by the U.S. EPA, the official said.

Retiring the three old units will decrease the capacity of the plant from roughly 2,100 MW to roughly 1,540 MW, of which APS would own 970 MW, according to the deal that APS and SCE announced back in November 2010.

Talks on the BHP coal contract are ongoing, although the spokesperson declined to offer any details. APS anticipates getting not only the new coal contract, but the entire SCE transaction done by the end of 2012.

SCE is being forced to divest its share of the coal-fired plant by 2016 in order to comply with a California state law regarding greenhouse gases.

APS currently owns 100% of the three units that are slated for retirement but only 15% of Units 4 and 5, which are 48% owned by SCE. Other owners include PNM (NYSE: PNM) 13%; the Salt River Project 10%; UNS Energy (formerly UniSource) (NYSE: UNS) 7%; and El Paso Electric 7%. The figures are according to a PNM website.

The Four Corners owners hope to avoid the fate of the 1,580-MW Mohave coal plant, which SCE operated in southern Nevada on land belonging to the Navajo and Hopi tribes. SCE and its fellow plant owners, including SRP, ceased operation of Mohave at the end of 2005. The plant was shut after 34 years of service after the owners were unable to pull together coal and water agreements that might have cleared the way for Mohave to be retrofitted with expensive new air controls, according to an SCE website.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.