APS puts Four Corners buy on hold over deregulation uncertainty

Arizona Public Service (APS) parent Pinnacle West Capital (NYSE: PNW) said in a June 17 SEC filing that a decision from Arizona regulators had put on hold its long-planned buy of 48% of each of Units 4 and 5 at the coal-fired Four Corners power plant.

APS and Southern California Edison (SCE) have an agreement where APS would purchase SCE’s 48% interest in each of Units 4 and 5 of the Four Corners. SCE needs to get rid of this coal stake to satisfy California greenhouse gas standards. The principal remaining condition to closing of this transaction is the negotiation and execution of a new coal supply contract for Four Corners on terms reasonably acceptable to APS.

These negotiations, and the related transaction whereby ownership of the supplying coal mine, now owned by a unit of Australia’s BHP Billiton, would be transferred to the Navajo Nation, are proceeding. Because all of the conditions to closing were not satisfied by Dec. 31, 2012, either APS or SCE currently may elect to terminate the agreement at any time, unless the party seeking to terminate is then in breach of the agreement, the said the SEC filing.

On May 9, the Arizona Corporation Commission (ACC) voted to re-examine the facilitation of a deregulated retail electric market in Arizona. The commission has opened a docket for this matter and set a procedural schedule that call for parties to file comments in July and August. The commission stated that after it has had an opportunity to review the written comments, it plans to convene an open meeting to discuss the issues and information filed in the docket.

“In light of this development, APS currently expects that it will not be in a position to close the Four Corners purchase transaction with SCE until the ACC’s intentions with regard to pursuing deregulation in Arizona become clearer,” said the SEC filing. “While the process set by the ACC to consider this issue proceeds, APS intends to take action to maintain all necessary regulatory and other approvals required on its behalf to complete the transaction.” APS had issued no further statements on the matter as of June 24.

The U.S. Environmental Protection Agency in its final regional haze rule for Four Corners set a date of July 1, 2013, for the Four Corners’ owners to elect one of two emissions-control alternatives. Either alternative would involve substantial investment by the owners in additional post-combustion pollution controls, and accordingly contemplates the continued operation of Four Corners for a substantial period of time. In light of the docket opened by the ACC concerning deregulation, APS is in discussions with the EPA for a potential extension of the July 1 deadline.

SCE is a unit of Edison International (NYSE: EIX). Four Corners is located on the Navajo Nation in Fruitland, N.M., about 25 miles west of Farmington. It is a joint participant project owned, in varying shares by SCE, APS, Public Service Co. of New Mexico (PNM), Salt River Project Agriculture Improvement and Power District (SRP), El Paso Electric (EPE) and Tucson Electric (TEP) as tenants in common.

The plant consists of five generating units. The first three units, each of which is wholly-owned by APS, went online in 1963-1964 and have a combined capacity of 560 MW. Units 4 and 5, each of which is co-owned by APS, SCE, PNM, SRP, EPE and TEP, commenced commercial operation in 1969-1970 and have a combined capacity of 1,540 MW. APS operates Four Corners on behalf of all the participants.

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 Units 1, 2 and 3 at the plant. APS owns 100% of Units 1-3. These events will 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.

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.