Finding no market power or related concerns, the Federal Energy Regulatory Commission on Nov. 27 approved the Arizona Public Service purchase of the portion of the coal-fired Four Corners power plant from Southern California Edison.
On May 31, Arizona Public Service (APS) filed an application requesting commission authorization under the Federal Power Act (FPA) and Part 33 of the commission’s regulations for APS to acquire Southern California Edison’s (SoCal Edison) ownership interests in Units 4 and 5 of the plant, and also associated transmission interconnection facilities and rights.
APS, a wholly-owned subsidiary of Pinnacle West Capital (NYSE: PNW), is a public utility incorporated in Arizona. Four Corners is a coal-fired facility located on the Navajo Nation in Fruitland, N.M., and is a joint participant project owned by SoCal Edison, APS, Public Service Co. of New Mexico (PNM), Salt River Project Agriculture Improvement Power District (Salt River), El Paso Energy (El Paso), and Tucson Electric Power (Tucson) as tenants in common.
Four Corners consists of five generating units. Four Corners Units 1, 2, and 3 are each wholly-owned by APS and have a combined capacity of 560 MW. Four Corners Units 4 and 5 are jointly owned by SoCal Edison, APS, PNM, Salt River, El Paso, and Tucson and have a combined capacity of 1,540 MW. APS operates the Four Corners plant on behalf of all participants.
In November 2010, APS and SoCal Edison entered into a purchase and sale agreement, pursuant to which SoCal Edison will sell and transfer to APS 100% of its interests in Four Corners Units 4 and 5 and the associated interests in the 500 kV and 345 kV switchyards. In exchange, APS will pay SoCal Edison $294m at closing, subject to certain adjustments.
Separately, APS plans to retire Four Corners Units 1, 2, and 3 in an effort to meet air quality regulations promulgated by the U.S. Environmental Protection Agency. APS is not seeking commission authorization to retire these units. It included information related to the retirement of these units to provide the commission with an accurate picture of APS’s post-transaction generation portfolio and associated market footprint.
SoCal Edison, a unit of Edison International (NYSE: EIX), needs to get rid of its share of the plant to meet new California greenhouse gas emissions standards.
APS told FERC that, while it intends to retire Four Corners Units 1 and 2 immediately following the acquisition of SoCal Edison’s shares of Four Corners Units 4 and 5, it is unable to fully retire Four Corners Unit 3 until auxiliary steam boilers are installed to support Four Corners Units 4 and 5. APS said that, until auxiliary steam boilers are installed to support Four Corners Units 4 and 5, Four Corners Unit 3 must remain operational in order to permit APS to start up Four Corners Units 4 and 5 following an outage.
Therefore, APS examined in its market power assessment the effect of the Proposed Transaction during two periods:
- the period during which it will have acquired SoCal Edison’s share of Four Corners Units 4 and 5 (a total of 739 MW) and retired Four Corners Units 1 and 2 (a total of 340 MW) but has yet to retire Four Corners Unit 3 (220 MW) (Interim Period); and
- the period during which it will have acquired SoCal Edison’s share of Four Corners Units 4 and 5 and retired Four Corners Units 1, 2, and 3 (Post Retirement Period).
APS stated that, after the retirements of Units 1, 2 and 3, it will own approximately 179 MW of additional generation associated with the Four Corners plant (739 MW minus 560 MW). However, for the Interim Period, which APS anticipates will be less than two months, APS will own an additional 399 MW of generation (739 MW minus 340 MW).