UNS Energy looks to Gila River capacity to replace some coal gen

UNS Energy (NYSE:UNS), the parent of Tucson Electric Power (TEP), on Nov. 6 reported third quarter 2013 net income of $68m, compared with net income of $50.7m in the same period last year.

“Our year-over-year financial results, which reflect TEP’s new retail rate structure, were consistent with our expectations,” said Paul Bonavia, UNS Energy’s Chairman and Chief Executive Officer.

He added: “Our financial outlook for 2014 reflects a full year of TEP’s new retail rate structure and a reduction in TEP’s capital lease expense. We also anticipate flat retail sales during 2014, as well as a heavier than normal generating plant outage schedule which will place upward pressure on our operating expenses.

“Earnings in 2015 will be affected by many of the same factors as 2014. If we successfully execute our plans to diversify TEP’s generating fleet, we project UNS Energy’s 2015 diluted earnings per share to be above 2014 levels,” said Bonavia.

TEP previously disclosed its decision to purchase approximately 35.4% of the output of the coal-fired Springerville Generating Station Unit 1 (SGS Unit 1). TEP currently receives all of the output from the 387 MW facility through a 14.1% ownership and leases for the remainder. The planned purchase of 35.4% of SGS Unit 1 would bring TEP’s ownership to about 49.5% when the current leases expire on Jan. 1, 2015.

TEP also announced it is in exclusive negotiations to purchase a 550-MW gas-fired combined-cycle unit at the Gila River Generating Station in Gila Bend, Ariz. That purchase could be finalized in late 2014, pending the completion of due diligence, the negotiation of a purchase agreement and the receipt of certain regulatory approvals. After evaluating several bids, TEP entered into exclusive negotiations with Entegra Power Group LLC to purchase this unit.

TEP expects that Gila River will replace the reduced output it will receive from Springerville Unit 1 in 2015 as well as the loss of 170 MW of coal-fired capacity from the anticipated retirement of San Juan Generating Station Unit 2 at the end of 2017. The company is currently evaluating a scenario in which TEP would purchase 400 MW of Gila River and UNS Electric the remaining 150 MW.

“The resource decisions we are making today will create long-term value for our customers and shareholders by diversifying our generating portfolio through the purchase of a modern gas-fired generating facility at a favorable price,” Bonavia said.

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.

UNS Energy is a Tucson, Arizona-based company with consolidated assets of approximately $4bn. UNS Energy’s primary subsidiaries include Tucson Electric Power, which serves approximately 412,000 customers in southern Arizona; and UniSource Energy Services, provider of natural gas and electric service for approximately 242,000 customers in northern and southern Arizona.

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.