TEP looks to use less coal with new power purchases

Tucson Electric Power (TEP) is looking to diversify its power generation portfolio, which includes receiving a smaller percentage of the output from Unit 1 at the coal-fired Springerville Generating Station, the potential purchase of additional natural gas-fired resources in Arizona and the expansion of renewable energy resources.

As part of the company’s resource diversification strategy, TEP issued a request for proposals for non-coal-fired generating capacity. After evaluating several bids, TEP entered into exclusive negotiations with Entegra Power Group LLC to purchase a 550 MW gas-fired combined-cycle generating unit at the Gila River Generating Station in Gila Bend, Ariz.

TEP currently receives all of the output from SGS Unit 1, a coal-fired generating facility with a continuous capacity rating of 387 MW, through a 14 percent ownership and leases for the remainder.

Under the terms of the leases, TEP can purchase additional interests at a pre-determined appraisal price but was required to notify other owners of its election to purchase before Sept. 1, 2013. TEP has agreed to purchase an additional 25 percent share of the unit and associated facilities when the leases expire on January 1, 2015.

Once the transaction is completed, TEP will own 151 MW of the unit’s output. TEP may negotiate to purchase additional interests in Unit 1, but does not expect its final ownership to exceed 50 percent. TEP will continue to operate Unit 1 and the other 3 Units at SGS: Unit 2 which is owned by a unit of TEP, and Units 3 and 4, which are owned by Tri-State Generation and Transmission Association and Salt River Project, respectively.

These decisions are part of TEP’s long-term resource strategy, which also includes the potential retirement of coal-fired resources at the San Juan Generating Station (San Juan) near Farmington N.M. TEP owns a 50 percent interest in both San Juan Units 1 and 2, or 170 MW of each unit.

In February, the state of New Mexico, the U.S. Environmental Protection Agency, and Public Service of New Mexico (the operator of San Juan) signed a non-binding agreement that would require, among other things, the closure of Units 2 and 3 by the end of 2017 and the installation of nitrogen-oxide reducing technology on Units 1 and 4 by early 2016. The agreement requires approval by federal and state agencies.

Tucson Electric Power provides electric power service to about 408,000 customers in southern Arizona.

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