Mention the Salt River Project and what immediately comes to mind is a water project that made the desert bloom.
But when people talk about SRP’s business, they’re talking about an electric utility.
SRP’s electricity sales account for nearly 99 percent of the project’s annual revenue, which amounted to $2.2 billion last year. And it accounts for all of the project’s "profits." The water side of SRP’s business loses $30 million to $40 million annually, and the power business covers that loss and generates enough of a surplus to pay down the debts on both sides.
It’s a far different situation than was envisioned in 1903 when the project was created to provide water to farmers in the Salt River Valley. Back then, the small amount of electricity that was generated in the process of operating the water-storage dams on the river was used primarily to pump irrigation water for farmers.
The big growth in the power business didn’t happen until after World War II, when rapid growth in the metro Phoenix area and widespread use of air conditioning created an exploding demand for electricity from urban customers.
By 1952, the demand for electricity in SRP’s service territory exceeded the dam’s hydroelectric capacity, and SRP started building other power plants, beginning with the Kyrene Generating Station in south Tempe.
In the late 1960s, SRP started participating in massive coal-fired generating plants, beginning with the Four Corners Generating Station near Farmington, N.M. In the 1980s, it began supplying customers with power from the Palo Verde Nuclear Generating Station west of Phoenix, which SRP partially owns.
Also, SRP invested heavily in transmission lines and today owns more than 30 percent of Arizona’s transmission system.
Despite such large energy investments, SRP still must buy 20 percent to 25 percent of its electricity on the wholesale market. Most of that power is purchased during the summer, when high temperatures drive demand for electricity to run air conditioners. During the winter, SRP plants generate a surplus of power, which is sold on the wholesale market to utilities in colder parts of the West that need more electricity for winter heating.
In 1997, SRP formed a subsidiary called New West Energy to sell electricity in the deregulated retail markets of the West, primarily California. That didn’t last long. When retail deregulation caused the price of electricity to jump in California, the retail market was regulated again. Today, New West is involved primarily in helping its California customers use energy more efficiently, said David Areghini, manager of SRP’s power group.
The prospect of retail deregulation fueled investments in so-called "merchant" generating stations in Arizona that run on clean-burning natural gas and was slated to supply demand for electric power throughout the West. Although deregulation has been curtailed, those plants still sell power to customers in the wholesale market, such as SRP.
For example, the project has agreed to take the entire output of a new generating plant built by Reliant Energy Co. in Casa Grande. In the next five months, another 5,000 megawatts of merchant power will become available in Arizona, Areghini said.
SRP has avoided involvement in the merchant power business, instead expanding its plants to serve itscustomers. Those expansions — the Kyrene plant in Tempe and the San Tan plant in Gilbert — have been controversial with area residents. Despite opposition, the Kyrene project was completed last year, and the San Tan project is under construction with a 2005 completion date.
The problems with those two East Valley projects highlight difficulties SRP faces in the future as it seeks to meet the growing demand for electricity in its service area. Customers want to have sufficient electric power to fill their needs, but many don’t want power plants and transmission lines near their homes. Also, SRP faces environmental opposition to many of their plans.
SRP has agreed to purchase 100 megawatts of power from an expansion of the coal-fired Springerville Generating Plant planned by Tucson Electric Power, but that expansion is mired in controversy over pollution control. Also, SRP is planning a major transmission line that will loop south from the Palo Verde area through Pinal County and up to east Mesa, but its route is strongly opposed by Casa Grande residents who live near its proposed route.
"There’s no way you can make a transmission line look attractive," Areghini admitted.
Controversies further afield also are having an impact on future planning. The Zuni tribe in New Mexico opposes plans to open a new coal mine to supply fuel to SRP’s Coronado Generating Station near St. Johns. And the Mohave Generating Station near Laughlin, Nev., from which SRP receives more than 300 megawatts of power, faces a range of problems including the need for more pollution controls and a new water source for a coal-slurry pipeline that supplies fuel to the plant from a coal mine in the Navajo Nation. The Hopi tribe says the use of an underground aquifer is draining its water supply.
Solar, wind and other forms of renewable energy will continue to expand as alternate sources, but they have their own problems. Solar energy remains more expensive, and windmills create their own visual pollutions and can be hazardous to birds.
"We continue to look at that (renewable energy), but in the near future it won’t replace a substantial amount of what we have now," Areghini said.
With the Valley’s power needs expected to double in the next 20 to 25 years, there will be no shortage of energy conflicts in SRP’s future.