Arizona Public Service Co. (APS) is to buy Southern California Edison’s (SCE’s) 48% stake in Units 4 and 5 of the coal-fired Four Corners Power Plant near Farmington, N.M, if state and federal regulators agree. Arizona’s largest utility said on Monday that if the deal goes through, it would also shut down the plant’s “older, less efficient” Units 1, 2, and 3, and install more emission controls on the remaining units at the 2,040-MW five-unit power plant.

APS will pay $294 million for the SCE share, which it said “is substantially less than other generation alternatives.”

The deal was impelled by several factors, chief among them state and federal air-quality rules. The plant on Navajo Nation land, and the neighboring coal-fired, 1,800-MW San Juan Generating Station have been blamed for a haze that affects views of Mesa Verde National Park and others in the area.

The U.S. Environmental Protection Agency in October had proposed that APS install pollution controls on Units 1, 2, and 3—the first of which came online in 1963—to cut emissions of nitrogen oxides by 80%. The EPA said the controls would cost some $717 million, but APS said costs could soar to nearly $875 million. Emission controls on Units 4 and 5 are now reportedly expected to cost $95 million.

SCE has also been barred by a 2006 California law from long-term investments in coal generation. SCE informed the Four Corners’ other owners that it would end participation in the plant by 2016, when the current lease with the Navajo Nation expires.

APS owns 100% of Units 1, 2, and 3 of the plant that is located near where the state lines of Arizona, New Mexico, Utah, and Colorado come together. The utility also owns 15% of Units 4 and 5. The units’ other current owners include SCE (48%), El Paso Electric (7%), PNM (13%), Salt River Project (10%), and Tucson Electric Power (7%).

In announcing the agreement with SCE, APS Senior Vice President of Fossil Generation Mark Schiavoni said that there would be no layoffs at the plant, which employs 549 workers (74% of whom are Navajo).

The anticipated shutdown of Units 1, 2, and 3 would reduce the plant’s capacity by 560 MW, for a new total of about 1,540 MW. APS would own 970 MW, replacing the energy lost through the closures with SCE’s 48% share in Units 4 and 5. APS said that the closures would also significantly reduce regional emissions: Emissions of NOX would decline by 36%, mercury by 61%, particulates by 43%, CO2 by 30% and SO2 by 24%.

APS noted, however, that the Four Corners plant—one of the largest coal-fired plants in the nation—meets or exceeds all current state and federal environmental regulations and has performed at a high level for more than four decades.

The transaction requires approval from the Arizona Corporation Commission, the California Public Utilities Commission, and the Federal Energy Regulatory Commission. In addition, the acquisition is contingent on the Navajo Nation approving a lease extension for the plant beyond 2016. It also requires successful negotiation of a new fuel contract with mine-operator BHP Billiton for the post-2016 period. “Assuming timely receipt of required approvals and extensions of the land-lease and fuel contract, the companies are targeting closing the purchase by the end of 2012,” APS said.

Sources: POWERnews, APS, SCE, EPA