Deregulation Uncertainty Forces Delay of Four Corners Transaction

August 23, 2013

Because of the uncertainty caused by the Arizona Corporation Commission’s exploration of electricity deregulation in Arizona, APS has delayed its plan to finalize a planned transaction related to the Four Corners Power Plant.

APS plans to modernize Four Corners, which powers 300,000 Arizona homes around the clock. The plan calls for purchasing Southern California Edison’s share of the two newest units at Four Corners (4 and 5), then closing the plant’s three oldest units (1, 2 and 3). APS would still install enhanced pollution controls on the two remaining units, which are not only newer but are more efficient and cleaner.

APS’s plan would not only significantly reduce carbon and NOx emissions, but it also would preserve more than 540 skilled labor jobs on the Navajo Nation in the Four Corners region, and maintain an affordable, reliable source of electricity for Arizonans for the long term.

APS Executive Vice President of Operations Mark Schiavoni discussed APS’s decision to delay the Four Corners transaction in the Arizona Yellow Sheet Report. Delaying, he said, is a way of “insulating its consumers and investors from an uncertain future.

‘Would you make a bet, sitting here today, without knowing the business environment you have to operate in [and] make that investment? No – no one would.

‘It’s not fair to customers. It’s not fair to our shareholders or anybody.’

Schiavoni also stressed that APS always seeks a balanced mix of energy sources, which helps make rates predictable over time. ‘Because of our customers, you want a diverse portfolio so you don’t get yourself tied to any one generating resource or type of resource, and that is something that we don’t feel you want to give up,’ he said.

If Arizona deregulated now, the incentive to build or invest in power plants, which are expensive and take years to complete, likely goes away. He added that while natural gas is cheap today, it hasn’t always been and it may not always remain cheap – and that’s why APS is interested in keeping the Four Corners option open.

‘If you can predict where the gas market is going to go five years from now, you’d probably be very wealthy,’ he said. Schiavoni said ultimately what’s at issue is control over Arizona’s energy. Right now, a regulated market offers predictable and low rates and reliability, he said.

‘Do you want to put Arizona’s energy future in someone else’s hands or do you want to maintain it in Arizona’s hands?’ he said.