March 22, 2012
By Vicki Vaughan
CPS Energy said Monday that it expects to close in April on its purchase of a natural-gas-fired plant in Seguin.
The 800-megawatt, 10-year-old plant in Seguin will mostly replace two aging coal-fired units that CPS plans to retire by 2018, CEO Doyle Beneby said Monday.Last fall, CPS said it hoped to buy a natural-gas plant that would replace its two coal-fired units at the J.T. Deely plant, which is 34 years old. The Deely units generate about 870 megawatts of electricity.
“We think this is a big opportunity for us, and we're excited,” Beneby said. “It allows us to continue on our path to diversity and balance in our generation mix.”
CPS' acquisition of the plant, known as the Rio Nogales power plant, will avoid the cost of making major upgrades to Deely, CPS' oldest coal plant.
To keep Deely in service until 2033 would require “hundreds of millions and possibly billions in retrofits that this natural-gas plant won't have to have,” Beneby said. “We've looked at the purchase through the lens of affordability,” he added, “and it not only helps clean the air in San Antonio but, from a cost-avoidance standpoint, gives our ratepayers the best chance of stable rates going forward.”
Beneby said he expects the Seguin plant to operate for 30 to 40 years.
The Rio Nogales power plant currently is owned by an affiliate of Tenaska Capital Management LLC, a private equity firm. A Tenaska Capital spokeswoman declined to comment.
CPS didn't immediately disclose the purchase price of the Seguin plant. But Beneby said it cost less than the cost of adding a $565 million pollution-control device at Deely that would be required under expected clean-air rule changes.
Beneby also said it's a plus that CPS can buy natural gas from Texas providers.
“We anticipate that this could help the local economy by using a fuel source that's produced here in Texas,” he said.
New technology has enabled drillers to tap vast amounts of natural gas from shale formations, including from the Eagle Ford Shale of South Texas.
Record natural-gas production, along with a mild winter, has led to a glut of natural gas. As of Monday, the price of natural gas was at its lowest in a decade, $2.27 per 1,000 cubic feet.
Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University, said CPS' planned purchase of a natural-gas plant is consistent with what utilities are doing across the country.
“You're seeing more natural-gas units going in and fewer coal units,” he said.
And Bullock doesn't expect natural-gas prices to rise much anytime soon.
“I think we'll see relatively low natural-gas prices for some time,” he said, “maybe not as low as now, but certainly low enough that it's more economical to use than coal.”
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