Fitch: Apache coal-to-gas conversion a major issue for Arizona cooperative

Fitch Ratings said Feb. 12 that it has affirmed the rating for Sulphur Springs Valley Electric Cooperative‘s (SSVEC) implied senior secured obligations at ‘A-‘, while the Rating Outlook is “Stable.”

SSVEC is a non-profit, distribution cooperative providing electricity to a primarily residential customer base of approximately 51,000 in southeastern Arizona. Power supply is met (approximately 80%) through a long-term, partial requirements contract with the Arizona Electric Power Cooperative (AEPCO). Supply needs not provided by AEPCO are purchased on the market.

Power costs may increase significantly over the next four years depending on the outcome of a still unresolved dispute between AEPCO and the U.S. Environmental Protection Agency over coal-fired capacity at the 605-MW Apache power plant. A tentative agreement between AEPCO and the EPA reduces projected capital costs to a manageable level, but the proposal is still waiting for final approval.

AEPCO provides SSVEC with power primarily from its dual-fuel capable (coal and natural gas) but principally coal-fired Steam Units 2 and 3 (ST2 and ST3) located at the Apache Generation Station in Cochise County. The EPA issued a final ruling in November 2012 imposing stricter regional haze-related emission standards on several power facilities within Arizona, including the Apache Station. AEPCO, the EPA, and the state have negotiated a proposed agreement that would convert ST2 to natural gas along with other changes. The agreement, if finalized, would reduce estimated environmental compliance costs to much more manageable levels that originally projected. The agreement is proceeding through the regulatory approval process, Fitch noted.

An unfavorable ruling for AEPCO and the subsequent installation of selective catalytic reduction (SCR) and related emissions reduction equipment would likely lead to a significant increase in AEPCO’s wholesale power rate that would pressure SSVEC’s financial performance without a commensurate increase in retail rates, Fitch said.

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.