Tucson Electric to buy gas-fired capacity, reduce coal in its power mix

Tucson Electric Power (TEP) said Sept. 5 that it is diversifying its power portfolio, which includes receiving a smaller percentage of the output from the coal-fired Springerville Generating Station (SGS) Unit 1, the potential buy of natural gas-fired resources in Arizona and continued expansion of renewables.

“We’re reshaping our generation portfolio by pursuing the opportunity to purchase a cleaner, favorably priced resource that will allow us to take greater advantage of low natural gas prices,” said Paul Bonavia, Chairman and CEO of TEP and its parent company, UNS Energy (NYSE: UNS).

As part of the company’s resource diversification strategy, TEP issued a request for proposals for non-coal-fired capacity. After evaluating several bids, TEP entered into exclusive negotiations with Entegra Power Group LLC to purchase a 550-MW gas-fired combined-cycle unit at the Gila River Generating Station in Gila Bend, Ariz.

This gas-fired resource and continued expansion of renewable resources will help the company continue to improve its emissions profile. In 2012, more than 5% of TEP’s total retail sales were generated by renewable resources.

TEP currently receives all of the output from SGS Unit 1, a coal-fired facility with a continuous capacity rating of 387 MW, through a 14% ownership and leases for the remainder. Under the leases, TEP can purchase additional interests at a pre-determined appraisal price but was required to notify other owners of its election to purchase before Sept. 1. TEP has agreed to purchase an additional 25% share of the unit and associated facilities when the leases expire on Jan. 1, 2015.

Once the transaction is completed, TEP will own 151 MW of the unit’s output. TEP may negotiate to purchase additional interests in Unit 1, but does not expect its final ownership to exceed 50%. TEP will continue to operate Unit 1 and the other three units at SGS: Unit 2 which is owned by a wholly-owned subsidiary of TEP, and Units 3 and 4, which are owned by Tri-State Generation and Transmission and the Salt River Project, respectively.

These decisions are part of TEP’s long-term resource strategy, which also includes the potential retirement of coal-fired resources at the San Juan plant near Farmington N.M. TEP owns a 50% interest in both San Juan Units 1 and 2, or 170 MW of each unit. In February, the state of New Mexico, the U.S. Environmental Protection Agency, and Public Service Co. of New Mexico (the operator of San Juan) signed a non-binding agreement that would require, among other things, the closure of Units 2 and 3 by the end of 2017 and the installation of NOx control technology on Units 1 and 4 by early 2016. The agreement requires approval by federal and state agencies.

“While coal-fired resources will remain an integral part of our generating fleet, we will continue to carefully plan and evaluate options that enable us to create the most reliable and cost-effective resource portfolio possible for our customers. Acquiring a modern gas-fired resource provides us with additional flexibility to reliably integrate an increasing proportion of renewables into our supply portfolio,” said David Hutchens, President and Chief Operating Officer.

The Entegra website shows that the Gila River station, which began full commercial operation in 2003, is comprised of four individual combined-cycle facilities located on 1,100 acres near Phoenix, Arizona. The station can produce about 2,200 MW. The Gila River plant is interconnected to the Arizona power transmission network through two 500-kV ties and one 230-kV tie. These interconnections provide access to energy markets throughout the southwest and allow the plant to sell power to serve the needs of the Arizona, New Mexico, southern Nevada and southern California markets.

The website added: “Entegra Power Group owns and operates highly efficient, natural gas-fueled power plants and markets electric power from these plants to wholesale customers in the southeastern and southwestern United States. The energy assets owned by Entegra include six combined cycle power plants capable of producing approximately 3,300 MW of power, as well as a 42-mile interstate pipeline. Two of the combined cycle plants are located at the Gila River Power Station in Gila Bend, Arizona and the other four are located at the Union Power Station in El Dorado, Arkansas. The 42-mile interstate pipeline (Trans-Union Interstate Pipeline) flows natural gas from Louisiana to Entegra’s Union Power Station in Arkansas.”

 

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.