Fitch Ratings, in a May 21 ratings announcement for bonds offered by the city of San Antonio, Texas’ electric and gas systems, said that municipal utility CPS Energy is emphasizing renewable energy and getting ready to shut the Deely coal plant in 2018.
The bond proceeds will be used to fund a portion of the utility’s overall capital improvement plan. The utility is a combined municipal utility that provides retail electric and natural gas services to the city of San Antonio. The service area continues to enjoy modest but consistent growth, Fitch noted.
Financial margins have experienced some pressure in the past two years as a result of increased borrowing and delayed rate increases. However, financial margins remain healthy.
CPS enjoys a competitively priced and sufficient generation portfolio. In practice, CPS is usually in a long resource position, resulting in the need for some amount of wholesale sales to balance assets with demand. The long position is more pronounced following the acquisition of the Rio Nogales gas plant in fiscal 2013.
CPS is in the process of reinvesting in its generation portfolio to include more renewable generation and to replace older coal-fired resources with lower emission gas-fired generation and energy efficiency programs, Fitch pointed out.
CPS owns sufficient generation, 6,557 MW, to serve its own native load with a system peak of 4,911 MW. Coal is still the predominant fuel type (42.3% of energy in 2014) but this is expected to decline in 2018 with the closure of its oldest coal plant.
The J.K. Spruce II unit, a 785 MW coal-fired facility, was brought on line in May 2010 and 192 MW of natural-gas peaking units came on line in December 2010. In April 2012, CPS purchased a 750 MW gas-fired combined cycle plant (Rio Nogales) that went into commercial operation in 2002.
The Rio Nogales plant capacity is intended to replace the 840 MW Deely coal-fired plant, once the Deely plant closes in 2018. CPS has decided to close the Deely plant 15 years ahead of schedule in lieu of spending an estimated $565m to install scrubbers to bring it into compliance with potential new Environmental Protection Agency (EPA) standards, Fitch said. In overall cost planning, the purchase price of the Rio Nogales plant replaced the anticipated cost of environmental improvements at Deely that would have likely been needed to maintain the plant. However, in the interim years until Deely’s closure, CPS will take additional power supply risk, since the plant is excess to its native demand, Fitch pointed out.