Arizona Public Service looks at further reductions in coal-fired capacity

Arizona Public Service in October 2015 retired the coal-fired Cholla Unit 2, has plans to retire two more Cholla coal units next decade, and is still evaluating what to do with its stake in the Navajo coal plant.

James C. Wilde, the Director of Resource Planning for Arizona Public Service, covered the resource plans for the utility in June 1 testimony filed with the Arizona Corporation Commission in support of a rate hike request.

He wrote: “While continued low natural gas prices provide clear savings for this portion of APS’s current and future fleet, they also have created opportunities for customer savings in the coal fleet. In its 2014 IRP, APS discussed how low natural gas prices have changed the fleet outlook and how APS expected to be utilizing more natural gas resources in the future. As this specifically relates to the Cholla Power Plant, APS retired Cholla Unit 2 in October of 2015 and announced it would no longer burn coal in the remaining Cholla units by no later than the mid-2020’s. While APS retains the option to convert the remaining Cholla units to natural gas operation, the 2014 IRP contemplated a retirement of the two remaining units by 2025. The 2014 IRP demonstrated savings for this retirement case of approximately $100 million in net present value (NPV). Today, the updated estimate of NPV customer savings of the retirement case is approximately $400 million.”

Cholla Unit 2 required significant and expensive upgrades to comply with the federal Mercury and Air Toxics Standards (MATS) and the Regional Haze Rule. Cholla 2 did not have fabric filters to manage mercury emissions, nor did it have selective catalytic reduction (SCR) – this is similar to the coal-fired Four Corners Units 1-3, which were retired at the end of 2013. Unlike Four Corners Units 4 and 5, which are getting SCRs installed, Cholla has much smaller units and as a result, there are no economies of scale. So, when costly environmental upgrades were required, there simply wasn’t enough energy produced from the smaller units at Cholla to absorb the high cost of the additional emissions equipment that would be required, Wilde noted.

APS is continually assessing the best path for the remaining Cholla units based upon economics and the changing environmental regulatory landscape. In communication with plant co-owner PacifiCorp and the U.S. Environmental Protection Agency, APS has decided that it will no longer burn coal in Cholla Units 1 and 3 after the mid-2020s but has not yet determined whether the units will be retired or converted to natural gas.

Wilde said that Peabody Coalsales LLC (a Peabody Energy subsidiary) is the sole provider of coal to the Cholla plant. While Peabody’s April 13  bankruptcy declaration has not yet affected delivery, on May 4 APS filed a motion with the U.S. Bankruptcy Court for the Eastern District of Missouri to seek a determination that APS has the right to terminate its coal supply agreement for Cholla. Peabody is contesting the motion. “Should the agreement be terminated, APS will evaluate its options to purchase coal from available resources,” Wilde wrote.

Notable is that Peabody supplies Cholla out of its Lee Ranch/El Segundo strip mining operations in New Mexico, and there are relatively few other coal mines in the region that would be options for Cholla supply.

Wilde added that the APS plan for Four Corners continues to be executed. Due to the large size of Units 4 and 5, the economics of continuing to invest in this plant was overwhelmingly favorable for APS’s customers as demonstrated during the last rate case. At this point, APS and the other owners have begun work to install the required SCR upgrades by 2018, and the on-going lease and fuel agreements have been signed by the continuing owners.

The other APS interest in coal generation is at the Navajo Generating Station in Page, Arizona. APS’s share of this plant is 315 MW, or 14% of the plant’s output. There are currently three large generating units at the Navajo site, but due to the departure of the Los Angeles Department of Water and Power and NV Energy by the end of 2019, coupled with an agreement with the EPA regarding future emission controls, it’s likely that one of the units will close by 2020. The current lease and coal supply agreements expire at that time, so the continuing ownership amounts and agreements are currently being evaluated. As a result of the upcoming decision as to whether to continue in the plant beyond 2019, APS will be performing analysis and considering what is best overall for customers. At this time, APS has made no decision regarding its future participation at Navajo, Wilde added.

APS looks at future power needs

In total, APS expects to need over 3,500 MW of additional resources by 2022 to cover power contract expirations and anticipated future load growth.  As discussed in its 2014 IRP and 2017 Preliminary IRP, APS has a multi-faceted plan to meet its future load growth needs. One of the first steps is the implementation of the Ocotillo Modernization Project (OMP), which replaces approximately 220 MW of natural gas powered steam turbines installed in the 1960s with 510 MW of state-of-the-art, fast ramping combustion turbines.

APS has also issued an all-source request for proposal (RFP) seeking 400 MW-600 MW of flexible, peaking capacity to be in commercial operation starting in 2020. The remainder of APS’s near term needs will be primarily met with resources such as market purchases, microgrid resources, demand side management programs and renewable energy.

Battery storage is anticipated to play a role in APS’s future resource fleet, providing that costs come down as expected and the technology is sufficiently mature, Wlide wrote. APS is currently anticipating that by the early to mid-2020s, battery storage will begin to be cost effective relative to other technologies and will look toward the recently issued all-source RFP for current price information. Meanwhile, APS is planning to gain experience with battery storage as part of its Solar Partner Program as well as its Solar Innovation Study. “While the backbone of the future flexible resource fleet is projected to be quick-starting natural gas generation, battery storage levels in APS’s resource portfolio are planned to increase as costs become more competitive with other resource options,” Wilde said.

The OMP retires 220 MW of aging steam generating units located at APS’s Ocotillo Power Plant in Tempe and replaces them with 510 MW of state-of-the art combustion turbine technology, for a net site increase of 290 MW. The OMP adds peak capacity that will be needed to meet future resource needs and the new combustion turbines will provide operational flexibility in APS’s portfolio to help manage an evolving load shape while integrating increasing levels of renewable energy. The combustion turbines selected for this project are capable of multiple starts and stops each day and have fast ramping capabilities, so they start providing power to the grid within six minutes and can be at full capacity in less than ten minutes. Thus, the OMP provides a key resource to help address the changing load shape and increasing renewable energy on APS’s system.

The site’s attributes and existing infrastructure which includes, among other things, existing water supplies, existing natural gas pipelines and transmission infrastructure provide for a favorable economic opportunity for APS’s customers. The unique location of the OMP in the Phoenix load pocket also affords dynamic voltage support for the grid, Wilde wrote.

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.