APS expects to complete New Mexico Four Corners deal by year end

Mon Sep 16, 2013 9:16pm BST

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(Reuters) - Power company Arizona Public Service (APS) hopes to close its deal to buy Southern California Edison's (SCE) interest in the Four Corners coal plant in New Mexico by the end of the year, Damon Gross, a spokesman for APS, said Monday.

In a federal filing Friday, APS, the main subsidiary of energy holding company Pinnacle West Capital Corp (PNW.N), said it was able to move forward with the SCE deal now that utility regulators in Arizona voted to stop exploring a possible deregulation of the state's power market.

When the Arizona Corporate Commission decided to look at power deregulation again in May, APS said it could not close on its agreement to buy SCE's 48 percent interest in two units at Four Corners due to uncertain market conditions.

Most other states that deregulated their electric markets forced local utilities to sell their power plants or set up competitive generation units.

This was not the first time Arizona contemplated deregulating the power market. The state planned to open its market to competition in the late 1990s when other states implemented their retail markets.

But, Arizona stopped its move to competition in 2002 after California gave up on its deregulation following the energy crisis, according to a report by Moody's Investors Service, a bond credit rating agency.

APS said the principal remaining condition to completing the SCE deal is the execution of a new coal supply contract for the plant. APS, which operates the Four Corners plant for its owners, already wholly owns three of the five units at the plant.

APS said the coal contract is dependent on a related transaction whereby ownership of the coal supplier that operates the mine that serves Four Corners would be transferred to the Navajo Nation.

In addition, APS said the plant's other owners must approve of the coal contract.

CALIFORNIA EXITS COAL

SCE, a unit of Edison International (EIX.N), agreed to sell its share in Four Corners to APS for $294 million in November 2010 as part of a state plan to exit of coal generation.

The deal is worth less today because it has declined by $7.5 million per month since October 2012, APS's Gross said.

Units 1, 2 and 3 at Four Corners.

Units 4 and 5 are 48 percent owned by SCE, 15 percent by APS, 13 percent by PNM Resources' (PNM.N) Public Service Co of New Mexico, 10 percent by Salt River Project, 7 percent by El Paso Electric (EE.N) and 7 percent by UniSource Energy's (UNS.N) Tucson Electric.

APS has said it plans to shut Units 1, 2 and 3 if it acquires SCE's stake in Units 4 and 5.

APS said it would shut those units in part because they are older and smaller than Units 4 and 5 and it is not economic to upgrade them to meet increasingly stringent federal emissions requirements.

Since 2009, energy companies have shut or converted about 16,000 MW of U.S. coal-fired generation and have announced plans to shut another 37,000 MW over the next 10 years.

Units 1 and 2 at Four Corners are each 170 MW and entered service in 1963. Unit 3 is 220 MW and entered service in 1964. Units 4 and 5 are 770 MW each and entered service in 1969 and 1970.

(Reporting by Scott DiSavino; Editing by Leslie Adler)

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