Tucson Electric reworks coal unit retirements based on air, coal contract needs

Tucson Electric Power (TEP) has reworked the planned retirement data for some of its power plants, including a change to 2031 for retirement of units at two coal-fired power plants.

In a Nov. 5 rate case filing at the Arizona Corporation Commission, Michael E. Sheehan, Tucson Electric Power’s Senior Director of Fuels and Resource Planning, explained the retirement timeline changes. He noted that TEP currently owns 2,454 MW of generating capacity, of which 50% is coal fired and 50% is gas fired.

“TEP is proposing shortening the expected service lives for the units at Navajo and San Juan,” wrote Sheehan about two coal-fired plants where TEP owns partial stakes. “At the same time, TEP is proposing to extend the expected service lives at Four Corners and for a number of TEP’s local area must-run units at Sundt and North Loop by ten years. The retirement dates for Luna, Springerville, DeMoss Petrie and North Loop Unit 4 will remain unchanged. Finally, TEP has added Gila River Unit 3 as a new generating unit with an expected service life of 45 years from its original 2003 in service date.”

TEP is recommending a change to the Four Comers retirement date based on the terms of the new Four Corners 2016 Coal Supply Agreement (CSA) with the tribal-owned Navajo Mine Coal Co. that goes into effect July 7, 2016. The CSA will be in effect through July 6, 2031. As a result, TEP is recommending July 7, 2031, as the new retirement date for Units 4 and 5 of Four Corners.

Sheehan explained: “Setting the Four Corners retirement date to 2031 is appropriate, because it aligns the retirement date with the new CSA and follows the rate making matching principle by aligning the benefits of the Four Corners generation resources to the retail customers who will incur the O&M and capital costs associated with plant operations through 2031. If TEP’s partihipation ends at Four Corners in 2031 then the matching principle is equably maintained. If future resource decisions are made to extend the life of the unit beyond 2031, per the terms of the new CSA, TEP must give the Navajo Mine Coal Company notice by July 6, 2026 to exercise that option. If TEP exercises this option to extend the CSA, TEP can adjust the retirement date in a subsequent rate case based on the termination idate of a new CSA that extends beyond 2031. In 2031, Four Comers Unit 4 will be 62 years old and Four Corners Unit 5 will be 61 years old.”

Navajo retirement in part based on regional haze need

Sheehan added about another coal plant: “TEP is recommending a change to the Navajo retirement dates based on the terms of EPA’s final BART ruling that was issued for Navajo on July 28, 2014. The final BART ruling commits the Navajo participants to two specific requirements. The first requirement mandates that Navajo must cease operations on one of the existing three units by January 1, 2020. The second requirement mandates that the remaining two units install selective catalytic reduction (SCR) emission controls by December 31, 2030. Given these requirements, TEP is recommending December 31, 2019 as the new retirement date for Navajo Unit 1 to coincide with this unit’s planned retirement date. For Navajo Units 2 and 3, TEP is recommending December 31, 2030 as the new retirement date.

“First, changing the Navajo retirement date on Unit 1 to December 31, 2019 aligns with the actual closure date mandated by EPA’s final BART ruling. Second, setting the Navajo retirement date for Units 2 and 3 to December 31, 2030 is appropriate based on the significant cost of the SCR investments that would be required to continue operating these units beyond 2030. Finally, aligning the retirement date to the final EPA BART ruling supports the rate making matching principle as described above in the case of the Four Corners Power Plant. In 2030, Navajo Unit 2 will be 55 years old and Navajo Unit 3 will be 54 years old.

“TEP is recommending a change to the San Juan retirement dates based on the terms of EPA’s final BART ruling that was issued for San Juan on September 26, 2014. The final BART ruling committed the San Juan participants to retire San Juan Unit 2 by December 31, 2017 and install selective non catalytic reduction emission controls on San Juan Unit 1 by January 2016. Given these requirements, TEP is recommending December 31, 2017 as the new retirement date for San Juan Unit 2 to coincide with this unit’s mandated retirement date under the EPA’s final San Juan BART ruling. For San Juan Unit 1, TEP is recommending to change to the retirement date based on the feasibility of future coal supply agreement extensions.

“On January 1, 2016, the new San Juan Coal Supply Agreement (‘SJCSA’) will take effect between the new miner, Westmoreland Coal Company and PNM. The term of the new SJCSA is through June 30, 2022. In order for the coal supply to be extended beyond 2022, PNM will have to negotiate a new supply agreement with the current coal miner or potentially source coal from an alternative mine. Per the terms of the new SJCSA, PNM will have to negotiate an extension prior to January 1, 2019.”

Westmoreland Coal is in the process of buying the San Juan mine from the long-time owner, international miner BHP Billiton.

“Based on information obtained in San Juan’s 2015 SJCSA RFP process, some bidders provided information on potential mine expansion options for both five and ten year extensions beyond 2022,” Sheehan wrote. “Numerous factors, such as plant configuration, mine expansion development costs and the cost of complying with future environmental regulations will ultimately determine if extending the life of San Juan beyond 2022 is in the best interests of TEP customers. However, given the degree of uncertainty, TEP is recommending the mid-point date of June 30, 2027 as the new retirement date for San Juan Unit 1. This new retirement date reduces the expected San Juan Unit 1 life by nine years. In 2027, San Juan Unit 1 will be 51 years old.”

From Jan. 1, 2018, through June 30, 2022, the San Juan Generating Station will operate in a two-unit configuration (847 MW). After June 30, 2022, some or all of the owner participants at San Juan may choose to exit the project, thus further reducing the plant configuration, Sheehan noted.

The old and new retirement dates for coal-fired units are:

  • Four Corners Unit 4, was 2029, now 2031, TEP owns 55 MW of 785 MW (net) unit;
  • Four Corners Unit 5, was 2030, now 2031, TEP owns 55 MW of 785 MW (net) unit;
  • Navajo Unit 1, was 2034, now 2019, TEP owns 56 MW of 750 MW (net) unit;
  • Navajo Unit 2, was 2035, now 2030, TEP owns 56 MW of 750 MW (net) unit;
  • Navajo Unit 3, was 2036, now 2030, TEP owns 56 MW of 750 MW (net) unit;
  • San Juan Unit 1, was 2036, now 2027, TEP owns 170 MW of 340 MW (net) unit;
  • San Juan Unit 2, was 2033, now 2017, TEP owns 170 MW of 340 MW (net) unit;
  • Springerville Unit 1, old and new are both 2045, TEP owns 192 MW of 387 MW (net) unit; and
  • Springerville Unit 2, old and new are both 2050, TEP owns 406 MW of 406 MW (net) unit.

Retirements extended for several gas-fired units

Turning to non-coal capacity, Sheehan wrote: “Three natural gas fired steam units at Sundt (Units 1, 2, and 3) currently have retirement dates set for 2018, 2020 and 2022 respectively. In addition, two natural gas combustion turbines (Sundt CTs Units 1 and 2) have retirement dates set for 2017. Finally, three natural gas combustion turbines at North Loop (Units 1, 2, and 3) have retirement dates also set for 2017.

“Today all of the Sundt and North Loop facilities noted above account for approximately 390 MW or 16% of TEP’s total thermal generating capacity. These resources provide necessary must-run reliability services throughout the year and contribute to the Company’s peaking capacity requirements in order to meet TEP’s summer peak reserve margin obligations.

“Both the Company’s Resource Planning and Transmission Planning groups have routinely studied scenarios where local area generation was retired early in an effort to reduce fuel and on-going O&M costs. In all cases, the study results showed that TEP’s system reliability could only be maintained with the replacement of new-build transmission or new-build generation resources. As a result, the economics supported the continued operations of the existing local area generation resources versus retirement.

“The Company is recommending extending the retirement dates on all of the local area units by ten years. The Company has chosen a ten-year timeframe in order to properly determine the long-term viability of these older natural gas generation resources in the context of TEP’s future resource planning environment.”

Sheehan noted that in December 2014, TEP acquired 413 MW in natural gas combined cycle capacity from Gila River Unit 3. In January 2015, TEP reduced its share of capacity in the coal-fired Springerville Unit 1 from 387 MW to 192 MW. The 2014 integrated resource plan (IRP) originally targeted December 2017 as the date in which TEP would no longer utilize coal as a fuel source at Sundt. However, in August 2015, due to exhausted coal inventory and historically low forward natural gas prices, TEP stopped burning coal in Sundt Unit 4 and currently expects to operate the station solely on natural gas.

At San Juan, TEP is currently committed to reduce its coal capacity from 340 MW to 170 MW by the end of 2017. Over the next few years, TEP plans to procure 250 MW to 350 MW of capacity from the wholesale market to cover its near term load obligations. Longer term, TEP will continue to execute on its resource portfolio diversification strategy through increased commitments in natural gas, utility scale renewables, energy efficiency and new technologies such as battery storage.

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.