UNS Energy (NYSE: UNS), the parent of Tucson Electric Power (TEP), said in an Oct. 7 SEC filing that TEP will buy an additional small stake in one unit of the coal-fired Springerville power plant.
TEP leases Unit 1 of the Springerville plant and an undivided one-half interest in certain Springerville Common Facilities (collectively Springerville Unit 1), under seven separate lease agreements (Springerville Unit 1 Leases) that are accounted for as capital leases. The leases expire in January 2015 and include fair market value renewal and purchase options. In 2006, TEP purchased a 14.1% undivided ownership interest in Springerville Unit 1, representing approximately 55 MW of continuous operating capability.
In 2011, TEP and the owner participants of Springerville Unit 1 completed a formal appraisal procedure to determine the fair market value price of Springerville Unit 1 in accordance with the Springerville Unit 1 Leases. The purchase price was determined to be $478 per kW of capacity, based on a continuous capacity rating of 387 MW.
In August, TEP elected to purchase leased interests comprising 24.8% of Springerville Unit 1, representing 96 MW of continuous operating capability, for an aggregate purchase price of $46m, the appraised value, upon the expiration of the lease term in January 2015.
On Oct. 3, TEP elected to purchase an additional 10.6% leased interest in Springerville Unit 1 for $20m, also the appraised value, with the purchase scheduled to occur in December. The 10.6% ownership interest represents 41 MW of continuous operating capability.
Upon the close of these lease option purchases, TEP will own 49.5% of Springerville Unit 1, or 192 MW of continuous operating capability.
TEP does not expect that its final undivided ownership interest in Springerville Unit 1 will exceed 49.5%, or 192 MW of continuous operating capability, UNS Energy noted. TEP is obligated to operate Springerville Unit 1 for the remaining third-party owners following the expiration of the leases.
TEP will continue to operate Unit 1 and the other three units at SGS. Unit 2 is owned by a wholly-owned subsidiary of TEP, and Units 3 and 4 are owned by Tri-State Generation and Transmission and the Salt River Project, respectively.
Units 1 and 2 each have a capacity of around 380 MW, for a total of 760 MW. Unit 3, which began operation in 2005, added 400 MW. And Unit 4, completed in 2009, added another 400 MW, bringing the facility’s total capacity to about 1,560 MW.