Tucson Electric Power to Cut Reliance on Coal 32% Over Next Five Years

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Tucson Electric Power Company (TEP) (Tucson, Arizona), a unit of UNS Energy Corporation (NYSE:UNS) (Tucson, Arizona), plans to reduce its reliance on coal-fired generation by about 32% over the next five years, according to its recent integrated resource plan (IRP) filed with the Arizona Corporation Commission (ACC) (Phoenix, Arizona). The utility currently gets about 1,538 megawatts (MW) from coal-fired generators, but by 2018 that will shrink to about 1,045 MW.

TEP plans to reduce its future reliance on coal-fired power by only purchasing half of Springerville Generating Station's Unit 2 when that plant's lease expires in 2015. Also, TEP proposed closing Unit 4 of the H. Wilson Sundt Generating Station in Tucson, instead of installing pollution controls on the 173-MW, coal-fired unit. Lastly, TEP expects to lose about 170 MW of generation if the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) accepts a plan to close two units of the San Juan Generating Station by 2018. That power plant is operated by Public Service Company of New Mexico (Albuquerque, New Mexico), a unit of PNM Resources Incorporated (NYSE:PNM) (Albuquerque). For more on the proposed closure of San Juan, see October 31, 2013, article - PNM Sees Future with More Solar, Gas and Nuclear Generation.

To replace some of the lost coal-fired generation, TEP and a sibling company, UniSource Energy Services, plan to buy a 550-MW, combined-cycle unit at the natural gas-fired Gila River Power Station in Gila Bend, Arizona. TEP plans to control about 413 MW of Gila River Unit 3, while UniSource Energy Services would own the remaining 137 MW. That transaction is expected to be completed by the end of 2014.

Buying Gila River Unit 3, which has been operating since 2003, would allow TEP to take advantage of natural gas prices, which are relatively low. The utility said it expects to continue evaluating other resource alternatives, such as long-term purchased power agreements and low-cost plant acquisitions.

"Being prepared to meet tomorrow's energy needs requires planning today," said David G. Hutchens, the president and chief operating officer of TEP and UNS Energy, in an April 8 statement announcing the filing of the IRP document with Arizona utility regulators. "Resource planning is an ongoing balancing process that involves minimizing costs to our customers, enhancing our sustainability and satisfying regulatory requirements, all while effectively using our current infrastructure and preparing for future system improvements to continue serving our customers with high reliability."

The TEP proposal continues the trend of asset rotation and retirements among coal-fired generators in the Southwest. Utilities in California, Nevada, Arizona and New Mexico have announced plans to reduce their reliance on coal-fired generation or get out of it altogether, typically driven by low natural gas prices and tightening environmental laws or regulations. More than 4,000 MW of coal-fired generation in the region is affected. For more on that trend, see January 20, 2014, article - APS Boosts Stake in Four Corners Power Plant, Commits to Installing SCR Equipment; October 18, 2013, article - Navajo Generating Station Looks for Favorable EPA Rule on Emissions Reductions; and June 10, 2013, article - NV Energy Begins Process to Exit Coal-Fired Electricity Business.

Like other electric utilities around the nation, TEP plans to further diversify its portfolio by increasing its investments in renewable energy and energy-efficiency programs. The utility, which serves about 413,000 customers in southern Arizona, plans to quadruple its renewable energy portfolio by 2028 to 788 MW, from 157 MW today. TEP's renewable resource portfolio will include solar, wind and biogas generation. Also, like its brethren electric utilities, TEP plans to reduce its need for new generating resources by a greater reliance on energy-efficiency programs. Those programs will reduce electric demand by a total of 312 MW by 2028, the utility projected.

By 2028, TEP's resource portfolio will consist of 43% coal-fired generation, 36% natural gas-fired generation, and 21% renewable energy and energy-efficiency resources. The utility projects it will add more than 50,000 customers over the next 10 years. Peak electric demand is projected to grow annually by about 1% to 1.5%, slightly ahead of industry averages.

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