El Paso seeks New Mexico approval to sell 7% share of Four Corners coal plant

El Paso Electric (EPE) applied April 27 at the New Mexico Public Regulation Commission for all necessary approvals for EPE to sell its 7% ownership interest in the coal-fired Four Comers Units 4 and 5 to Arizona Public Service (APS), the majority owner and operator of Four Comers.

The sale would be under a Purchase and Sale Agreement executed Feb. 17, with an anticipated closing date of July 6, 2016. EPE specifically requests approval for the abandonment and sale of its Four Comers interest, determination of certain ratemaking principles, and any other approvals deemed necessary for the contemplated transactions by the New Mexico commission.

EPE’s ownership interest and participation in Four Comers was approved by the commission when it granted EPE a Certificate of Convenience and Necessity (CCN) in 1966. The original agreements contemplated a 50-year term for the project, which terminate in July 2016.

“With the upcoming expiration of key contracts, EPE and the other co-owners have been faced with a variety of decisions regarding the future of this coal-fired generation project,” said the application. “EPE has given serious consideration to potential issues surrounding any potential new obligations and/or extended contracts to participate in Four Corners after 2016. EPE explored alternatives that included a competitive bidding process to sell its ownership interest to another co-owner or other potential buyers, without initially finding a potential buyer who would submit a bid for purchase. After economic evaluation and consideration of EPE’s options, EPE determined not to enter into new or extended obligations past July 2016 for participation in extending the life of Four Corners. As a result of that decision, APS and EPE entered into negotiations that culminated in the sale to APS.

“EPE has been planning for the July 2016 termination of its Four Corners participation since 2009. Because of the original 50-year term of operation, the expiring coal supply contract in July 2016, and numerous risks and uncertainties associated with extending Four Corners beyond its contractual term, EPE assumed for planning purposes in its 2009 and 2012 Integrated Resource Planning (‘IRP’) processes that EPE’s participation in Four Comers would end in July 2016.

“EPE considered other resource options in its 2012 IRP, and thereafter through a competitive Request for Proposals (‘RFP’) process, selected and obtained Commission approval for other resources that better fit EPE’s customer needs and operating system and transmission constraints. As a result, EPE is developing generation resources closer to its load to decrease the amount of remote generation that must be transmitted long distances, to provide improved dispatch flexibility, and to accommodate renewable energy resource additions. [T]he Commission approved a CCN for four new gas-fired generating units (collectively, the ‘Montana Power Station’ or ‘MPS’). MPS Units 1 and 2 were put in service in March 2015, and MPS Units 3 and 4 are scheduled to be in service for the peak seasons of 2016 and 2017, respectively, EPE has also received approval for purchases of renewable solar energy for its system, including a 50 MW solar energy purchase, known as Macho Springs, that was approved in Case No. 12-00386-UT.”

The Four Corners power plant is located in northwestern New Mexico, on land leased from the Navajo Nation approximately 360 miles from EPE’s service territory. The plant’s coal supply is provided by the adjacent Navajo coal mine and coal will be supplied after July 2016 pursuant to a new contract entered into by new mine owner Navajo Transitional Energy Co. and other Four Corners owners. EPE is not a signatory to that agreement. EPE owns 7% of units 4 or 5, providing approximately 108 MW to EPE.

Four Corners currently includes two units producing approximately 1,500 MW. In August 2012, the U.S. EPA published its Federal Implementation Plan for the Best Available Retrofit Technology at Four Corners to address regional haze issues. As a result, APS decommissioned Units 1, 2, and 3 at the plant in December 2013, and will install selective catalytic reduction equipment on the surviving Units 4 and 5 by 2018.

New Montana gas plant and new solar farm meet capacity needs out to at least 2019

EPE engaged in a competitive bidding process for new capacity resources through an RFP. The winning bid was a self-build proposal for four units of the MPS, each an 88-MW simple cycle, gas-fired combustion turbine located at a previously undeveloped site east of E1 Paso, Texas. With the addition of the approved Montana units, and a long-term purchase power agreement for 50 MW of solar energy from the Macho Springs facility, EPE does not need to rely upon the 108 MW currently supplied to EPE from its Four Comers ownership and participation and does not require replacement generation immediately to replace Four Comers generation.

Nadia Powell, employed by EPE as Director of Remote Asset Management, said in April 27 supporting testimony: “EPE’s seven percent interest in FCPP Units 4 and 5 is equivalent to 108 MW of coal fired generation to be removed from EPE’s generation fleet and operating system. EPE has been planning for the 2016 retirement of these units from its fleet as reflected in its 2009 and 2012 IRPs. EPE has already obtained approvals for, and has completed or commenced construction of four new gas-fired generating units (Montana Units 1-4), which will be located within EPE’s control area and, therefore, will not be subject to southern New Mexico transmission constraints, and will accommodate the addition of renewable resources onto EPE’s system. EPE requires no ‘replacement generation’ at this time. EPE’s current Load and Resource Table, addressed by EPE witness Acosta, shows EPE’s need for additional generation for capacity reserve margin purposes does not arise until the 2019-2021 time frame.”

Ricardo Acosta, employed by EPE as Director of Resource and Delivery Planning, noted in his April 27 testimony: “The last major generation units EPE added to its fleet were MPS Units 1 and 2, which are LMS 100 gas-fired combustion turbines with a net summer capacity of 88 MW each and which went into commercial operation on March 19 and 20, 2015, respectively. In addition, the NMPRC has issued regulatory approval for MPS Units 3 and 4, which are scheduled for commercial operation for the peaks in 2016 and 2017, respectively. Many of EPE’s gas fired generating units have been in service more than forty years and some have been in operation for more than 50 years, and have seen their original retirement dates extended as part of EPE’s planning processes. EPE embarked on a significant capacity addition/replacement plan beginning with Newman Unit 5, Rio Grande Unit 9 and continuing with the construction of four units at MPS. Extending the lives of some of EPE’s older local units during this period of construction has provided EPE additional flexibility/reliability until the expected new generation is completed. This allows EPE to maintain a reliable system and at the same time introduce newer, more efficient generating technology into the EPE system.”

Acosta also wrote: “Additionally, in its 2012 IRP, EPE indicated it would engage in contract negotiations for a 50 MW solar facility located near Deming, New Mexico. The resulting long-term purchased power agreement was approved by the Commission in NMPRC Case No. 12-00386-UT, and EPE began receiving power from the Macho Springs solar facility in May 2014. The MPS units and the Macho Springs facility will eventually provide 402 MW of capacity, which will allow EPE to meet load growth and compensate for unit retirements and the loss of Four Comers Units 4 and 5.”