Fitch: San Antonio readies for coal shutdown with gas plant buy

Fitch Ratings, in evaluating the creditworthiness of the city of San Antonio’s CPS Energy in Texas, said in an Oct. 10 statement that the municipal utility is repositioning its power generation portfolio, in the process reducing its dependence on coal.

“CPS is in the process of changing its generation portfolio to include more renewable generation and to replace older coal-fired resources with lower emission gas-fired generation and energy efficiency programs,” Fitch noted.

CPS provided exclusive electric service to 728,307 primarily residential electric customers and to 328,300 primarily residential gas customers in fiscal 2012. CPS is the sole supplier of electricity in its service area and is not subject to retail competition unless city council determines that CPS will opt into retail electric competition. Wholesale revenues from sales to other utilities can be more variable than retail sales, Fitch added. Wholesale activity is expected to increase further in fiscals 2013 through 2017 with the April acquisition of the gas-fired Rio Nogales power plant.

CPS owns and operates roughly 6,580 MW of generating capacity. The J.K. Spruce II unit, a 780-MW coal-fired unit, was brought on line in May 2010 and 190 MW of natural-gas peaking units came on line in December 2010. “The new resources are replacing older, less efficient units, which are being retired,” Fitch reported. “In addition, CPS continues to acquire a significant amount of renewable energy through various long-term purchase power agreements. Of the 913 MW of purchased power renewable resources, approximately 94% is wind resources.”

In April, CPS purchased a 10-year-old, gas-fired combined cycle plant, Rio Nogales, from Tenaska. The plant has a maximum capacity of 750 MW and is located in Seguin, Texas, which is adjacent to CPS’ service area. “The plant’s geography is advantageous, and CPS will not need to build any transmission to interconnect the facility,” Fitch noted. “The purchase was funded with debt. CPS will own and operate the plant along with its fleet of 21 non-nuclear generating units.”

The Rio Nogales plant capacity will replace the coal-fired Deely plant, once the Deely plant closes in 2018. In June 2011, CPS announced it would deactivate Deely by 2018, which is 15 years ahead of schedule, instead of spending the estimated $565m to install SO2 scrubbers to bring it into compliance with new U.S. Environmental Protection Agency rules. The newly-acquired Rio Nogales plant essentially replaces the anticipated cost of environmental improvements at Deely, Fitch said.

The CPS website said that coal comprises almost 47% of its daily generation mix, followed by nuclear at 32%. Renewable energy, including wind, solar and landfill-generated methane gas, account for 9%, while natural gas and purchased power are the remaining 12%.

The website shows that the two Deely units to be deactivated have a combined capacity of 871 MW. Said the website about environmental commitment: “In addition to equipping our new coal plant with the latest in emissions-control systems, CPS Energy has upgraded existing coal units at a cost of $245 million. The Spruce 1 & 2 units are some of the nation’s best environmentally controlled coal-fired power plants. The Deely coal-fired units are scheduled to be mothballed by the end of 2018.”

U.S. Energy Information Administration data shows the Deely plant getting coal earlier this year from mines in the Wyoming Powder River Basin. Those mines are the Coal Creek and Black Thunder operations of Arch Coal (NYSE: ACI), the North Antelope Rochelle mine of Peabody Energy (NYSE: BTU) and the Antelope and Cordero mines of Cloud Peak Energy (NYSE: CLD).

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.