At Arizona G&T Cooperatives (AzGT), we are energized by innovation.
Since we first began generating and transmitting energy under the Arizona Electric Power Cooperative (AEPCO) banner in 1961, the pursuit of innovation has driven our progress. This has been especially true over the past decade as we’ve embraced groundbreaking solutions to deploy new technologies, upgrade our operations, diversify our energy resources, build a smarter grid, strengthen our security and solidify our financial strength. It was a decade in which we transformed our company and laid the foundation for sustainable success.
Our commitment to finding new and better ways to deliver reliable, affordable energy to our Members and the customers at the end of the line will continue to light our way to progress—year after year and decade after decade.
AzGT’s Decade of Innovation by the Numbers
|547 MW||Market access capacity in 2021 (228 MW in 2012)|
|866 miles||of transmission line in 2021 (620 miles in 2012)|
|36 substations||in 2021 (26 in 2012)|
|41.6%||AEPCO combined equity in 2021 (21.9% in 2010)|
|$8 million||in patronage refunds returned to Members from 2012 to 2021|
|$356,020||in donations to charities and community organizations from 2012 to 2021|
Saving on Fuel Costs
Years of litigation with two major railroads that deliver coal to Apache Generating Station come to a successful conclusion, leading to millions of dollars in fuel cost savings for AEPCO and our Members. The rail settlement and resulting lower shipping costs allow us to purchase coal from lower-cost sources in Wyoming and other locations. Additional fuel cost savings are realized when natural gas becomes less expensive than coal, prompting us to burn natural gas in Apache Station’s steam units for the first time. Patrick Ledger, who led the battle with the railroads as our general counsel, completes his first full year as CEO of AzGT and implements further cost-saving measures across the organization.
Additional 2012 highlights:
- We continue installing the Smart Grid by adding fiber optic communications over power lines and further automating substations, increasing electric reliability by remotely monitoring and controlling the network.
- Our Benson control room enhances security by replacing electronic relay technology with computer-controlled digital equipment through a $4.2 million project incorporating U.S. Department of Energy (DOE) guidelines.
- We expand power-marketing services to Valley Electric Association.
- We begin the annual retirement of patronage to our Members. Over the next decade, more than $8 million is returned to Members.
- We rebuild and upgrade 13 miles of transmission line at Marana.
Merging to Save Costs
The process of consolidating AEPCO and Southwest Transmission Cooperative (SWTC) into a single company begins. AEPCO began operating in 1961. Forty years later, to prepare for possible opportunities presented by proposed electric industry deregulation, we began operating as three separate cooperatives—AEPCO, SWTC and Sierra Southwest Cooperative Services (Sierra). By 2013, the marketplace is changing again and we begin consolidating AEPCO and SWTC to position us to attract more reliable, affordable and flexible financing.
Additional 2013 highlights:
- Scheduling and trading services expand through our partnership with ACES Power Marketing, re-establishing service with Mohave Electric Cooperative (EC) and Sulphur Springs Valley Electric Cooperative (SSVEC). We assist Valley Electric Association with its transition into the California Independent System Operator market.
- We embark upon a $4.8 million project to enhance cybersecurity and meet new North American Electric Reliability Corporation (NERC) standards that take effect in 2016.
- The Arizona Corporation Commission unanimously approves rate reductions that reduce wholesale rates for AEPCO and SWTC by a combined 5.85%.
- We reduce financing costs and improve liquidity by establishing committed revolving credit facilities with CFC and CoBank.
- Working with the Grand Canyon State Electric Cooperative Association, we educate government leaders and the public about a proposal to deregulate Arizona’s electric industry that would have increased rates and reduced reliability for people in rural Arizona.
Increasing Reliability Via the Smart Grid
System reliability improves significantly through technology and equipment upgrades funded in part by a federal Smart Grid Grant awarded by the U.S. Department of Energy (DOE). Of the $32 million in federal funds managed by AEPCO in partnership with Member cooperatives SSVEC and Mohave EC, our $12 million share is used to convert to a new Energy Management System (EMS), add fiber optic communications over power lines and modernize several substations, increasing our ability to remotely monitor and control our network.
Additional 2014 highlights:
- We launch a plan to convert Steam Unit 2 (ST2) from firing coal to natural gas, and upgrade emissions reduction systems on both ST2 and Steam Unit 3 (ST3). The Environmental Protection Agency (EPA) approves the plan in 2015; the fuel switch and upgrades are completed in 2017 and 2018.
- We implement the Geographic Information System, a new mapping system developed by AzGT engineers. This new business information management system maps the location of every asset in our system, from poles to substation switches to parts.
We begin implementing our plan to comply with new regional haze regulations mandated by the EPA. The plan achieves greater sulfur dioxide (SO2) and particulate matter reductions than the plan originally proposed by the EPA, and results in nearly $170 million in savings. We begin converting Apache Station’s coal-fired ST2 to burn natural gas, and upgrading Apache Station’s other coal-fired unit, ST3, with selective non-catalytic reduction technology and improved scrubbers. A new emission control system is launched to meet EPA mercury compliance requirements. These measures substantially reduce Apache Station’s emissions and carbon footprint.
Additional 2015 highlights:
- We implement State Estimator, a new high-tech application that syncs with our EMS to enhance transmission system reliability.
- The reliability and security of our substation operations are improved by installing new, standardized Remote Terminal Units and a new cyber secure substation automation platform.
- AEPCO joins WestConnect as a regional and inter-regional transmission planning entity mandated by the Federal Energy Regulatory Commission (FERC).
- Southwest Public Power Agency, Inc. joins AzGT as a Class D member.
- Our Information Technology team implements a new business disaster recovery and continuity system that enables the restoration of critical operations in the event of a major hardware and equipment loss. The project involves 200 servers and 300 networking devices.
- Processes, procedures and technology are upgraded to enhance the physical security of AEPCO operations and comply with new NERC guidelines. This includes installing new security cameras and access card readers at our Benson campus.
- We migrate from a legacy Supervisory Control and Data Acquisition (SCADA) operation to an updated system with improved features and security. This increases reliability and decreases the time required to implement changes to the transmission network.
- We receive the Visionary Award from the Beacon Group for our commitment to providing custodial service jobs to people with disabilities.
Responding to Market Changes
The merger of SWTC into AEPCO is completed. Together, AEPCO and Sierra comprise AzGT. The merger allows us to convert AEPCO’s Rural Utilities Service mortgage to an indenture, improving our ability to attract capital and build financial strength. For the first time in our history, AEPCO seeks and obtains investment-grade credit ratings. The merger also increases administrative efficiencies and provides cost savings as we no longer need to file costly and time-consuming separate generation and transmission rate cases. Through this consolidation, Sierra is established as a vehicle for serving the renewable energy needs of our Member cooperatives and customers.
Additional 2016 highlights:
- The Central Arizona Water Conservation District (CAWCD), the financial arm of the Central Arizona Project, becomes an AzGT Class D member.
- Our Resource Planning team develops a preview for a 10-year horizon of expected changes to NERC compliance standards for reliability.
- Construction begins on nitrogen oxide (NOx) reduction technologies that allow ST3 at Apache Generating Station to meet an EPA regional haze requirement.
- For the first time in history, we seek and obtain investment-grade credit ratings. We receive ratings of “A-” from Fitch May and “A” from S&P Global Ratings, both with a stable ratings outlook. The ratings provide a public benchmark of our financial strength. We secure our first Committed Line of Credit through a $100 million bilateral agreement with CFC and CoBank.
- Our board of directors approves a $100,000 Rural Economic Development Loans & Grants (REDLG) low-interest loan to Benson Hospital. The critically needed funds are used to build a clinic and office that house two primary care doctors and a nurse practitioner.
- The 2-MW, $5.8 million SunAnza project goes live. Built by AEPCO for Anza Electric Cooperative in southeastern California, the fixed-axis solar array helps the cooperative meet California’s renewable energy standards.
- We enter into a joint operating agreement with ATC Development Co., a branch of Wisconsin-based American Transmission Co., to form a transmission company called ATC Southwest. The new company develops transmission projects in Arizona and the southwestern United States.
- For the fifth straight year, the Society for Human Resource Management recognizes AzGT for innovative human resources best practices.
Growing our Business
Through our partnership with ACES, we attract two new Class D Members: the Metropolitan Water District of Southern California, a public power district with 19 million customers, and Lincoln County Power District #1 of southern Nevada. Since 2011, the ACES West Regional Trading Center has operated out of AzGT’s Benson headquarters. Working hand-in-hand with ACES allows us to execute an aggressive power-marketing strategy—buying and selling energy while managing market risk—that brings down our total energy cost to among the lowest of G&T cooperatives nationally.
Additional 2017 highlights:
- Our Members and customers begin receiving a new allocation of low-cost, federally generated power from the Hoover Dam. Over the 50-year life of a network service agreement with Western Area Power Administration (WAPA), our Members will save millions of dollars in transmission costs.
- A new 50-MW transmission agreement creates a transmission path from the Palo Verde Substation to the Mead Substation, enhancing reliability and growth opportunities.
- The Apache Solar Project goes online and begins producing competitively priced renewable energy for our Member distribution cooperatives and our customer, Electrical District No. 2. The 20-MW solar array is built on AEPCO land adjacent to Apache Station.
- Apache Station’s Emergency Response team carries out our first joint safety exercise with neighboring fire rescue departments and training agencies.
Upgrading Security and Reliability
Cybersecurity and physical security are strengthened throughout the organization. We institute new security training, technology and tracking mechanisms, and hire additional security personnel—all to improve efficiency and electric reliability. By 2019, we add a wide range of best practices to make us more nimble in identifying and addressing risks related to compliance with standards mandated by Federal Emergency Regulatory Commission (FERC) and enforced by NERC. We invest in compliance software and a compliance management system. Sophisticated tools are implemented to improve cybersecurity, and we participate in exercises that help us plan how to respond to and recover from simulated cyber and physical security incidents. Security enhancements continue through 2021 as we upgrade our SCADA system, EMS, and telecommunications network.
Additional 2018 highlights:
- A reliable power supply is maintained through an all-time summer load peak for Class A Members of 690 MW. The all-system record is also broken with a peak load of 1,290 MW.
- An economic impact study conducted by Cochise College finds that each job at AzGT creates an additional 1.3 jobs in the regional community. In addition, we generate $244.8 million in annual economic activity in rural southeastern Arizona, which includes $38.1 million in associated household earnings supporting 499 jobs region-wide.
- We complete a planned major overhaul of Apache Station Gas Turbine 4, ensuring dependable operation of an important peaking resource to meet demand in an increasingly volatile Western market.
- A new, five-year contract is reached with the International Brotherhood of Electrical Workers, ensuring longer-term stability for AzGT as well as union employees.
Expanding Transmission Capacity
The Bagdad Interconnect Project is energized. Implemented in cooperation with Arizona Public Service (APS), this major project delivers backup power to a remote area in northwest Arizona served by Member Mohave Electric Cooperative. The interconnect also benefits APS customers. An additional cooperative project creates an interconnect from our Valencia Substation to CAWCD. Cooperative ventures with other regional transmission owners allow us to enhance our transmission capacity, save costs, improve reliability and position AEPCO for future growth. This strategy continues in 2020 as we convert a portion of WAPA’s existing transmission system to network service and create an interconnect between the AEPCO and CAWCD transmission networks. Agreements with APS and SSVEC outline plans to build joint facilities, increase reliability to the AEPCO and APS transmission systems, and provide mutual backup service to SSVEC.
Additional 2019 highlights:
- Gas Turbine 3 at Apache Station is overhauled to its original equipment manufacturer specifications, ensuring a source of reliable generation for years to come. The $4.25 million overhaul provides an alternative to replacing the unit at a cost of at least $50 million. The overhaul considerably reduces the unit’s heat rate, improves efficiency, reduces emissions, lowers its cost of producing energy and provides a reliable, low-water-use resource that’s ready for the demands of a capacity shortfall market.
- Important five-year gas unit contract extensions are achieved for gas-fired generation assets, assuring capacity and energy availability through 2025 for Steam Unit 1, Gas Turbine 1, Gas Turbine 2 and Gas Turbine 3.
- Our Energy Services team begins developing a complex billing system that sets us apart from other G&T co-ops by equitably allocating cost among our Members based on a “cost-causation” basis.
- For the first time, we participate in the national GridEx exercise, a biennial event coordinated by NERC. GridEx brings together utilities, law enforcement and government agencies to respond to and recover from simulated cyber and physical security incidents.
- A sophisticated, proactive process is introduced to ensure our operations remain compliant with NERC physical security standards. We institute a wide range of best practices from across the industry, and upgrade security systems and processes at all of our facilities.
- The credit rating agency Fitch Ratings upgrades us to an “A” rating, reflecting several years of sustained improvement in our operating costs and financial leverage.
- For the 10th consecutive year, AEPCO’s controllable and fixed costs remain flat or decreased when adjusted for inflation.
Diversifying Energy Resources
Financing closes for Anza Solar Phase II. The new phase adds 1.4 MW of solar panels and our first battery energy storage system to the 2.0-MW SunAnza Electric photovoltaic generation facility built in cooperation with our Member Anza Electric Cooperative. The project is part of a push over the prior decade to diversify our energy resources and expand our ability to purchase power from new sources. This includes a 20-MW solar field that is installed at Apache Station. Units are upgraded and overhauled to reduce emissions. We work with ACES to bring clean, low-cost hydropower from the Colorado River to our Members. And Sierra meets the renewable energy needs of AEPCO and our Members by maximizing solar and other renewable tax credits through cooperative lenders.
Additional 2020 highlights:
- We successfully work to avoid declaring an Energy Emergency Alert as the Western Interconnect battles a power crisis throughout the summer of 2020. AzGT and ACES personnel work around-the-clock to keep the lights on during the crisis triggered by widespread extreme heat, low capacity reserve margins and wildfires throughout Arizona and California.
- For the first time in history, a 2.7-mile transmission line project interconnects the transmission networks of AEPCO and CAWCD. This project improves reliability to our transmission system and services in AEPCO Member Trico Electric Cooperative’s service territory.
- A comprehensive participation agreement between AEPCO, APS and SSVEC outlines plans to construct joint facilities. An additional 25-year agreement covering service in Cochise County increases reliability for AEPCO and APS transmission systems, as well as mutual backup service in the SSVEC service territory.
- An organization-wide Enterprise Risk Assessment by our Internal Audit team sharpens the focus on potential threats to our operations. The initiative defines and evaluates the impact, likelihood, readiness and onset speed of organizational risks so we can proactively mitigate them.
- We successfully navigate the COVID-19 global pandemic with minimal impacts on our financial position. This, along with strong financial performance by us and our Members, results in AEPCO’s “A” credit ratings being affirmed by S&P Global and Fitch Ratings with stable outlooks.
- Converting 122 MW of existing WAPA point-to-point transmission capacity to network service increases our market access and delivers cost savings.
- A decade-long commitment to reduce the budget and control the costs of System Operations and Dispatch (SC&D) results in an SC&D cost that is lower than it was in 2010.
- A detailed cost-of-service study and other financial modeling prepare us for a 2021 rate case, leading to improvements in our rate design.
Serving our Community
A study performed by an economic research firm shows that AzGT’s economic impact on our region continues to grow. Researchers find that AzGT generated $285.1 million in direct, indirect and induced economic activity in 2020 throughout a four-county area of southeast Arizona ─ a 16% increase over the prior two years. The figure includes $45.3 million in associated household earnings, supporting 516 jobs region-wide. AzGT has a longstanding tradition of working to enrich our community by providing jobs, supporting the regional economy, sponsoring economic development loans, donating to worthwhile causes and urging people to register and vote. This includes using U.S. Department of Agriculture grant funds to offer low-interest loans to business development projects—from local hospitals and clinics to a fuel farm at the Benson airport.
Additional 2021 highlights:
- AzGT and its Member distribution cooperatives are members of Touchstone Energy®, a national cooperative that pools the resources of more than 750 electric utility co-ops around the nation to promote community involvement, education and outreach. We helped launch the national brand when it took off in the mid-1990s and continue to play a leadership role.
- AzGT’s commitment to improving the wellbeing of the communities we serve is featured in a national webinar designed to train other rural electric cooperatives. The Community Wellness Through Community Partnership webinar is sponsored by Touchstone Energy, the National Rural Electric Cooperative Association and the National Rural Economic Development Association.
- Our new, 24-ton state-of-the-art Versalift bucket truck features the most modern mechanical and technical features available as well as a 150-foot boom that allows our hotstick linemen to perform transmission line maintenance.
- AzGT and ACES employees and their families begin receiving COVID-19 vaccine shots at a temporary vaccination clinic established at our Benson campus.
- Upgrading and strengthening security remains a major focus as new 360-degree security cameras and additional electronic card readers are installed at our Benson campus.