Arizona Public Service (APS) has completed its purchase of Southern California Edison’s (SCE) (NYSE:EIX) ownership in Units 4 and 5 of the coal-fired Four Corners Power Plant near Farmington, N.M. As part of its plan – originally announced in November 2010 – APS has permanently closed the plant’s older, less efficient Units 1, 2 and 3, and will install additional emission controls on the remaining cleaner, more efficient units.
“This is a milestone occasion,” said Don Brandt, APS Chairman, President and Chief Executive Officer. “We have completed a transaction that will benefit the environment, allow us to continue to support the economy of the Navajo Nation and surrounding community, and help electric users in the Southwest with an important, low-cost generating resource.”
Reflecting on the significance of the transaction, Brandt added, “It is bittersweet because generations of Four Corners employees have dedicated their careers to running those three units to keep the lights on for our customers.”
With the closing of the APS-owned Units 1, 2 and 3, capacity at Four Corners is reduced from 2,100 megawatts to 1,540 megawatts, enabling the plant to serve half a million homes. Acquiring SCE’s 48 percent interest in the larger Units 4 and 5 will increase APS’s total Four Corners capacity from 791 megawatts to 970 megawatts. APS now owns 63 percent of Units 4 and 5, which constitute the plant moving forward.
Environmental benefits derived from reduced emissions and more efficient fuel use will increase significantly. Emissions of particulates are expected to decline by 43 percent, nitrogen oxides (NOx) by 36 percent, carbon dioxide (CO2) by 30 percent, mercury by 61 percent and sulfur dioxide (SO2) by 24 percent.
On Monday afternoon, Units 1, 2 and 3 – which helped ensure a reliable supply of energy for APS customers since 1963 (Units 1 and 2) and 1964 (Unit 3) – were permanently shut down in a ceremony for plant employees. Closure of the three older units by Jan. 1, 2014, and the installation of selective catalytic reduction equipment on Units 4 and 5 by July 31, 2018, will satisfy Best Available Retrofit Technology (BART) requirements for the plant issued by the U.S. Environmental Protection Agency in August 2012.
Decommissioning work, including complete dismantle and removal of the older units and any associated structures, will begin immediately and is expected to last about three years. Employees with responsibilities operating and maintaining Units 1, 2 and 3 now will focus on decommissioning activities.
The final purchase price for the Southern California Edison share is approximately $182 million, which is substantially less than other generation alternatives.
“Our plan for the plant moving forward saves APS customers nearly a half-billion dollars over other energy sources and maintains a highly reliable, cost-effective source of electricity generation for APS and other users in the Southwest,” said Mark Schiavoni, APS Executive Vice President, Operations. “Along with natural gas, nuclear, renewables and energy efficiency, coal has an important place in our company’s balanced energy portfolio.”
As APS committed when the agreement was announced in 2010, Schiavoni reiterated that no layoffs are planned at the plant, which employs 434 workers (82 percent of whom are Native American). Any required reduction in workforce will come through normal attrition. The Four Corners Power Plant and supporting mining operations create an estimated $225 million annual economic impact on the Navajo and New Mexico economies. During the next 30 years, their operation could generate more than $6.3 billion in economic value for the region, at least 70 percent of which will benefit the Navajo Nation.
APS has also filed an application with the Arizona Corporation Commission to recover costs associated with the purchase of SCE’s interest in the plant. The company’s 2012 rate case settlement includes a provision that allows APS to seek rate relief for those expenses prior to its next rate case. The filing amounts to a bill impact of about 2 percent. For a typical APS residential customer, monthly bills would increase from $140.12 to $142.89.