Tucson Electric completes buy of power block at Gila River plant

Tucson Electric Power (TEP) has taken another significant step toward diversifying its generating portfolio away from coal by purchasing a 413-MW share of the natural gas-fired Gila River Power Station in Gila Bend.

Under terms of the Dec. 10 purchase, TEP and UNS Electric Inc., a subsidiary of UniSource Energy Services (UES), acquired the 550-MW Gila River Power Station Power Block 3 from Gila River Power LLC for $219m. TEP will control 413 MW of its output, while UNS Electric will own the remaining energy.

“This acquisition contributes to an evolving resource portfolio that will continue to provide reliable, affordable and sustainable energy for our customers for many years to come,” said David G. Hutchens, TEP’s President and Chief Executive Officer.

Gila River Power Block 3, completed in 2003, features combined cycle technology that improves fuel efficiency by capturing waste heat and using it to help generate additional electricity.

TEP note that it is planning to significantly reduce its coal-fired generation capacity in coming years:

  • At the end of this year, the expiration of a lease for Unit 1 at the Springerville Generating Station in eastern Arizona will remove approximately 200 MW of coal-fired capacity from the company’s portfolio. The company is currently in a dispute at the Federal Energy Regulatory Commission with the owners of that capacity about getting that power onto the grid for sale after the lease expires on Dec. 31.
  • By the end of 2017, TEP will begin using natural gas exclusively as a fuel source for Unit 4 at the H. Wilson Sundt Generating Station in Tucson, removing another 120 MW of coal-fired capacity.
  • The company also is planning for the 2017 shutdown of Unit 2 at the San Juan Generating Station in New Mexico; TEP owns 170 MW of that coal-fired unit.

This portfolio diversification strategy will reduce TEP’s overall coal capacity by approximately 490 MW, or about 32%, by 2018. “Our resource plan will result in a 25 percent reduction in carbon dioxide emissions by 2020 without compromising the affordability, safety or reliability of our service,” Hutchens said.

Acquiring Gila River Power Block 3 is one of several steps TEP is taking to replace that coal power and diversify its generation portfolio. The company also is expanding its renewable resource portfolio, with a 35-MW solar array near Green Valley and a nearly 18-MW system at Fort Huachuca in Sierra Vista scheduled to come online this month. By the end of 2014, TEP expects to have more than 340 MW of total renewable generating capacity.

In addition to the continued expansion of its renewable solar and wind resources, TEP will be relying on cost-effective energy efficiency programs and will evaluate new storage technologies to help manage the intermittent output of renewable resources.

TEP, UES and their parent company, UNS Energy, are subsidiaries of Fortis, which owns utilities that serve more than 3 million customers across Canada and in the United States and the Caribbean.

FERC approved this buy from Entegra back in October

The Federal Energy Regulatory Commission on Oct. 20 granted approval for the Gila River deal. The Gila River station is a natural gas-fired facility located in Maricopa County, Arizona, with a total installed capacity of about 2,200 MW. Plant operator Gila River Power LLC is an indirect, wholly-owned subsidiary of Entegra Power Group, which is just emerging from Chapter 11 bankruptcy reorganization.

UniSource Energy Services (UES) said in a separate Dec. 10 announcement that this deal has strengthened its generating portfolio and reduced its reliance on the wholesale energy market. UNS Electric will control 137 MW of the unit’s energy. The plant represents UES’ first “base-load” power plant intended for near-continuous use. The company also owns natural gas-fired turbines with a combined capacity of 153 MW, but those units are designed to produce power only during periods of high demand, when UES’ peak can exceed 450 MW.

UES has traditionally purchased the majority of its power on the wholesale energy market at variable prices that reflect natural gas costs, regional energy demand and other market forces. Gila River Power Block 3 will reduce the need for such purchases. The plant is designed to operate throughout the year and is capable of meeting approximately one-third of UES electric customers’ energy needs.

To meet additional energy needs in the future, UES said it may consider acquiring additional gas-fired generating resources, building new local generating facilities and integrating storage technologies to help manage the intermittent output of renewable resources. UES also plans additional investments in renewable energy and energy efficiency programs.

UES provides electric service to approximately 93,000 customers. It also delivers natural gas to approximately 150,000 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.