Fortis reports developments at U.S., Canadian power operations

Fortis Inc. (TSX: FTS), which in 2014 bought UNS Energy, the parent of Tucson Electric Power, reported in a Feb. 19 financial filing various developments related to Tucson Electric and its various other power generating interests.

UNS Energy is primarily comprised of Tucson Electric Power (TEP), UNS Electric and UNS Gas. TEP generates, transmits and distributes electricity to approximately 415,000 retail customers in southeastern Arizona. UNS Electric is a vertically integrated regulated electric utility, which generates, transmits and distributes electricity to approximately 93,000 retail electric customers in Arizona’s Mohave and Santa Cruz counties. TEP and UNS Electric currently own or lease generation resources with an aggregate capacity of 2,746 MW, including 53 MW of solar capacity. Several of the generating assets in which TEP and UNS Electric have an interest are jointly owned. As at Jan. 1, approximately 48% of the generating capacity is fueled by coal.

Another Fortis company is Central Hudson Gas & Electric, a regulated transmission and distribution utility, serving about 300,000 electricity customers and 77,000 natural gas customers in eight counties of New York State’s Mid-Hudson River Valley. It owns minimal gas-fired and hydroelectric generating capacity totalling 64 MW. Central Hudson was acquired by Fortis in 2013.

Another affiliate is FortisBC Electric, which includes FortisBC Inc., an integrated electric utility operating in British Columbia. FortisBC owns four hydroelectric facilities with a combined capacity of 225 MW. Also included in the FortisBC Electric segment are:

  • the operating, maintenance and management services relating to the 493-MW Waneta hydroelectric facility owned by Teck Metals Ltd. and BC Hydro;
  • the 149-MW Brilliant hydroelectric plant and the 120-MW Brilliant hydroelectric expansion plant, both owned by Columbia Power Corp. and Columbia Basin Trust (CPC/CBT); and
  • the 185-MW Arrow Lakes hydro plant owned by CPC/CBT.

In eastern Canada, there is also Newfoundland Power, Maritime Electric Co. Ltd. and FortisOntario Inc. Newfoundland Power is an integrated electric utility and the principal distributor of electricity on the island portion of Newfoundland and Labrador. Newfoundland Power has an installed capacity of 139 MW, of which 97 MW is hydro. Maritime Electric is an integrated electric utility and the principal distributor of electricity on Prince Edward Island. Maritime Electric also maintains on-Island generating facilities with a combined capacity of 150 MW. FortisOntario provides integrated electric utility service in Ontario.

The Caribbean segment includes Caribbean Utilities Co. Ltd. and Fortis Turks and Caicos. Caribbean Utilities is an integrated electric utility and the sole provider of electricity on Grand Cayman, Cayman Islands, serving about 28,000 customers. The company has an installed diesel-powered capacity of 132 MW. Fortis holds an approximate 60% controlling interest in Caribbean Utilities, which is a public company traded on the Toronto Stock Exchange. Fortis Turks and Caicos is comprised of two integrated electric utilities serving customers on certain islands in the Turks and Caicos. These utilities have a combined diesel-powered capacity of 76 MW.

Fortis Generation includes the financial results of non-regulated generation assets in Belize, British Columbia, Upstate New York and Ontario. In British Columbia, assets include the 16-MW run-of-river Walden hydro facility and the corporation’s 51% controlling ownership interest in the 335-MW Waneta Expansion hydro facility. All of the output of Walden is sold to BC Hydro under a long-term contract that cannot be terminated prior to 2024. Construction of the Waneta Expansion, which is adjacent to the Waneta Dam and powerhouse facilities on the Pend d’Oreille River, south of Trail, British Columbia, commenced late in 2010 and the facility is expected to come into service in spring 2015. The output of the Waneta Expansion will be sold to BC Hydro and FortisBC Electric under 40-year contracts. The corporation’s 51% controlling ownership interest in the Waneta Expansion is conducted through Waneta Expansion LP, with CPC/CBT holding the remaining 49% interest.

Central Hudson contracts for capacity out of revived Danskammer plant

Looking at various developments for the power companies:

  • In June 2014, Central Hudson entered into a contract to purchase available installed capacity from the Danskammer Generating Facility from October 2014 through August 2018 with approximately US$91 million in purchase commitments remaining as at December 31, 2014. In November 2013 Central Hudson entered into a contract to purchase 200 MW of installed capacity from May 2014 through April 2017, with approximately US$34 million in purchase commitments remaining as at Dec. 31, 2014. The Danskammer plant, mostly fired by coal, was shut earlier this decade after Superstorm Sandy hit the Northeast U.S. and flooded much of the plant. But a new owner is reviving the plant, with a commitment to burn no coal and instead use natural gas.
  • In November 2011, FortisBC Electric executed the Waneta Expansion Capacity Agreement (WECA). The WECA allows FortisBC Electric to purchase capacity over 40 years upon completion of the expansion, which is expected in spring 2015. Construction of the C$900 million Waneta Expansion is ongoing, with an additional C$100 million invested in 2014. Approximately C$679 million in total has been spent on the Waneta Expansion since construction began in late 2010, with approximately C$76 million expected to be spent in 2015. Fortis owns a 51% interest in the Waneta Partnership and will operate and maintain the non-regulated investment when the facility comes into service.
  • Caribbean Utilities was the successful bidder for new generation capacity and will develop and operate a new 39.7-MW diesel-power plant, including two 18.5-MW units and a 2.7-MW waste heat recovery steam turbine. The project cost is estimated at US$85 million and the plant is expected to be commissioned no later than June 2016.
  • In December 2014, UNS Energy purchased Unit 3 of the Gila River station, which is a gas-fired combined-cycle unit with a capacity of 550 MW, for approximately C$252 million (US$219 million). The purchase of Gila River Unit 3 is consistent with the company’s long-term energy resource diversification strategy.
  • UNS Energy leases Unit 1 of the Springerville Generating Station and a portion of the related coal handling facilities located in Arizona. In 2006 the company purchased a 14.1% undivided ownership interest in Springerville Unit 1 and agreed to purchase additional undivided ownership interests totalling 35.4%. In December 2014 and January 2015, UNS Energy closed the purchases of the additional ownership interests in Springerville Unit 1 for US$20 million and US$46 million, respectively, after which its ownership interests total 49.5%. Additionally, in 2015 UNS Energy expects to purchase expiring lease interests in the Springerville Coal Handling Facilities for US$73 million, net of expected reimbursements from third parties.
  • The Pinal Transmission Project at UNS Energy is the construction of a transmission line in Pinal County that will increase the company’s import capacity from Gila River Unit 3 and the Palo Verde trading hub. Construction of the transmission line is expected to be complete by the end of 2015, at a total projected cost of US$85 million. 

Coal issues loom for San Juan coal plant

The UNS Utilities are dependent on third parties to supply fuel, including natural gas and coal. In particular, the current coal supply contract for the San Juan station expires on Dec. 31, 2017, and TEP and other San Juan owners are currently in negotiations concerning the future San Juan fuel supply. If an economic long-term coal supply agreement can’t be secured, the continued operation of San Juan could be jeopardized, resulting in the retirement of San Juan Unit 1 earlier than expected, Fortis noted.

Tucson Electric owns 50% of Units 1 and 2 at the San Juan generating station, which represents approximately 20% of the total generation capacity at San Juan.

Tucson Electric is liable for a portion of final reclamation costs upon closure of the mines servicing the San Juan, Four Corners and Navajo generating stations in the southwest U.S. TEP’s share of reclamation costs at all three mines is expected to be US$49 million upon expiration of the coal supply agreements, which expire between 2017 and 2031. The mine reclamation liability recorded as at Dec. 31, 2014, was US$22 million and represents the present value of the estimated future liability. 

EPA’s Clean Power Plan a danger to Tucson’s coal capacity

The U.S. Environmental Protection Agency proposed carbon emission standards in June 2014 to reduce greenhouse gas (GHG) emissions from existing power plants, called the Clean Power Plan. The EPA’s proposal for Arizona would result in a significant shift in generation from coal to natural gas and renewables and could lead to the early retirement of coal generation in Arizona by 2020, Fortis warned. The Arizona Corporation Commission made that same point in Feb. 19 testimony at the Federal Energy Regulation Commission. The EPA is expected to finalize those standards by summer 2015.

These proposed regulations would, if adopted in the form proposed, result in a change in the composition of TEP’s generating fleet. As at Jan. 1, 2015, approximately 54% of TEP’s capacity is fueled by coal. The final rule issued by the EPA could significantly impair the ability to operate certain of TEP’s coal-fired plants on an economically viable basis or at all, Fortis reported. A substantial change in TEP’s generation portfolio could result in increased cost of operations and/or additional capital investments. The impact of final regulations to address global climate change will depend on the specific terms of those measures and cannot be determined at this time, it added.

Fortis is a leader in the North American electric and gas utility business, with total assets of more than C$26 billion and fiscal 2014 revenue of C$5.4 billion. Its regulated utilities account for approximately 93% of total assets and serve more than 3 million customers across Canada and in the United States and the Caribbean. Fortis owns non-regulated hydroelectric generation assets in Canada, Belize and Upstate New York. The Corporation’s non-utility investment is comprised of hotels and commercial real estate in Canada. In 2014 the corporation’s electricity distribution systems met a combined peak demand of 9,740 MW and its gas distribution systems met a peak day demand of 1,557 terajoules. 

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.