The Salt River Project's board of directors approved the acquisition of two natural gas-fired generating blocks at the Gila River power station, with a total capacity of approximately 1,100 MW, for $330 million.
The Phoenix-area utility agreed to sell the output of one of the power blocks to Tucson Electric Power Co., or TEP.
Salt River is purchasing block 1 and block 2 of the Gila River plant from CXA Sundevil Power I and CXA Sundevil Power II Inc. Each of the blocks consists of a 550-MW combined-cycle unit. The sellers are affiliates of Beal Bank USA and previously sold other interests in the Gila River plant.
The acquisition of block 1 will enable Salt River to meet system needs and defer planned capital expenditures associated with the construction of new generation.
"The acquisition of Unit 1 at the Gila River Power Station further bolsters SRP's resource portfolio," Salt River Deputy General Manager Mike Hummel said. "This purchase represents an attractive economic opportunity for SRP as it is a fraction of the cost to build a new generating facility."
The company acquired block 4 at the site in September 2016, it said in the release.
Separately, TEP said it signed a power purchase agreement with Salt River to add natural gas resources to its portfolio as it aims to meet a goal of obtaining 30% of its energy from renewable resources by 2030.
The southern Arizona utility will begin receiving the output of Gila River block 2 after Salt River's acquisition closes, expected in early 2018. Once the closing occurs, TEP will have the option to acquire block 2 for three years. TEP and its affiliate utility UNS Electric Inc. already own block 3.
The power purchase agreement will also help the Fortis Inc. subsidiary offset the potential loss of 508 MW of coal-fired resources, including 170 MW at the San Juan Generating Station unit 2, which will close at the end of this year; 170 MW at San Juan Unit 1, which the company plans to stop using beyond the expiration of its coal supply contract in June 2022; and 168 MW at the Navajo Generating Station.
Earlier this year, Tucson Electric said it expects to add 100 MW of solar energy at 3 cents/kWh from a new facility that is expected to go online in 2020.