TEP Prepares to Diversify Generation Portfolio with Planned Purchases

TEP Prepares to Diversify Generation Portfolio with Planned Purchases

TUCSON, Ariz.--(BUSINESS WIRE)-- Tucson Electric Power (TEP) is taking several significant steps to diversify its generation portfolio, which includes receiving a smaller percentage of the output from Unit 1 at the coal-fired Springerville Generating Station (SGS), the potential purchase of additional natural gas-fired resources in Arizona and the continued expansion of renewable resources.

"We're reshaping our generation portfolio by pursuing the opportunity to purchase a cleaner, favorably priced resource that will allow us to take greater advantage of low natural gas prices," said Paul Bonavia, Chairman and Chief Executive Officer of TEP and its parent company, UNS Energy Corporation (NYS: UNS) .


As part of the company's resource diversification strategy, TEP issued a request for proposals for non-coal-fired generating capacity. After evaluating several bids, TEP entered into exclusive negotiations with Entegra Power Group LLC to purchase a 550 MW gas-fired combined-cycle generating unit at the Gila River Generating Station in Gila Bend, Ariz.

This gas-fired resource and continued expansion of renewable resources will help the company continue to improve its emissions profile. In 2012, more than 5 percent of TEP's total retail sales were generated by renewable resources. TEP was selected as the 2012 Investor Owned Utility of the Year by the Solar Electric Power Association and is again this year a finalist for the award. TEP is also a finalist for Arizona Forward's 33rd Annual Environmental Excellence Awards. The company was nominated for its investment in solar energy at the University of Arizona Science and Technology Park.

TEP currently receives all of the output from SGS Unit 1, a coal-fired generating facility with a continuous capacity rating of 387 megawatts (MW), through a 14 percent ownership and leases for the remainder. Under the terms of the leases, TEP can purchase additional interests at a pre-determined appraisal price but was required to notify other owners of its election to purchase before Sept. 1, 2013. TEP has agreed to purchase an additional 25 percent share of the unit and associated facilities when the leases expire on Jan. 1, 2015.

Once the transaction is completed, TEP will own 151 MW of the unit's output. TEP may negotiate to purchase additional interests in Unit 1, but does not expect its final ownership to exceed 50 percent. TEP will continue to operate Unit 1 and the other 3 Units at SGS: Unit 2 which is owned by a wholly-owned subsidiary of TEP, and Units 3 and 4, which are owned by Tri-State Generation and Transmission Association and Salt River Project, respectively.

These decisions are part of TEP's long-term resource strategy, which also includes the potential retirement of coal-fired resources at the San Juan Generating Station (San Juan) near Farmington N.M. TEP owns a 50 percent interest in both San Juan Units 1 and 2, or 170 MW of each unit. In February, the state of New Mexico, the U.S. Environmental Protection Agency, and Public Service of New Mexico (the operator of San Juan) signed a non-binding agreement that would require, among other things, the closure of Units 2 and 3 by the end of 2017 and the installation of nitrogen-oxide reducing technology on Units 1 and 4 by early 2016. The agreement requires approval by federal and state agencies.

"While coal-fired resources will remain an integral part of our generating fleet, we will continue to carefully plan and evaluate options that enable us to create the most reliable and cost-effective resource portfolio possible for our customers. Acquiring a modern gas-fired resource provides us with additional flexibility to reliably integrate an increasing proportion of renewables into our supply portfolio," said David Hutchens, President and Chief Operating Officer.

Tucson Electric Power provides safe, reliable electric service to approximately 408,000 customers in southern Arizona. To learn more, visit tep.com. For more information about UNS Energy, visit uns.com.



Tucson Electric Power
News Media Contact:
Joseph Barrios, 520-884-3725
jbarrios@tep.com
or
Financial Analyst Contact:
Chris Norman, 520-884-3649
cnorman@uns.com

KEYWORDS:   United States  North America  Arizona

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