![](media/image1.wmf){width="1.35in" height="0.4270833333333333in"} *A
subsidiary of Pinnacle West Capital Corporation*

+-------------------------+--------------------+-----------------------+
| C.V. Mathai, Ph. D.     | Tel. 602-250-3569  | Mail Station 8376     |
|                         |                    |                       |
| Manager for             | Fax 602-250-3872   | PO Box 53999          |
| Environmental Policy    |                    |                       |
|                         | e-mail             | Phoenix, Arizona      |
| Environmental, Health & | c.mathai@aps.com   | 85072-3999            |
| Safety Department       |                    |                       |
+-------------------------+--------------------+-----------------------+

**Via email: 1605bguidelines.comments@hq.doe.gov**

June 22, 2005

Mr. Mark Friedrichs, Esq.

PI-40

Office of Policy and International Affairs

U.S. Department of Energy

Room 1E190

1000 Independence Avenue, S.W.

Washington, D.C. 20585

**Subject: 10 CFR Part 300, General Guidelines for Voluntary Greenhouse
Gas Reporting, 70 Fed. Reg. 15164 (March 24, 2005)**

Dear Mr. Friedrichs:

Arizona Public Service Company (APS) respectfully submits the following
comments on the Department of Energy's Revised General Guidelines
("Guidelines") and draft Technical Guidelines for the §1605(b) Voluntary
Reporting of Greenhouse Gases Program, [70 Fed. Reg]{.underline}. 15164
(March 24, 2005). The Guidelines are a significant improvement over
previous versions; however, APS is concerned that they fall short of the
goal set in § 1605(b) of the Energy Policy Act. Specifically, our
concerns relate to the provisions associated with the two-tier reporting
and registering system, state-mandated renewable energy purchases and
demand-side management of electricity, greenhouse gas (GHG)
sequestration, and coal ash reuse, as discussed below in detail.

APS is an investor-owned electric utility with headquarters in Phoenix,
Arizona, serving about one million customers in Arizona. APS owns or
operates several fossil fuel-fired power plants and the nation's largest
nuclear power plant. From its inception, APS has been and continues to
be a participant in the Department of Energy's (DOE) Voluntary
Greenhouse Gas Emissions Reporting Program. As a signatory to the DOE's
1995 Climate Challenge Accord, APS was one of the few utilities which
committed to keep 2000 emissions below their 1990 emissions levels, and
APS kept that commitment. However, we are disappointed that we did not
receive "credits" for our early, voluntary GHG reduction activities.
With a "baseline" year of 2002 under the new Guidelines, we would not be
eligible to receive "transferable credits" even if they become available
at some time in the future.

APS believes that the data reported under the 1605(b) program should be
accurate and credible. The Guidelines impose many onerous conditions,
creating significant disincentives for APS to register its GHG emission
reductions. We also do not find any tangible incentives, such as
transferable credits, to warrant making expensive and time consuming
efforts to participate in the program as a Registrant. To the contrary,
we are afraid that we could be penalized for reducing emissions early,
should a future year be chosen as the "baseline" for the purpose of
allocating legally transferable credits, similar to the situation with
the current proposed 2002 baseline which does not recognize our early
activities previous to that year. Furthermore, there is no assurance
that transferable credits will result even if all the suggested
requirements are met.

APS's commitment to reduce GHG emissions will continue. Currently, we
are engaged in numerous projects, including investment in PowerTree
Carbon Company, Hydrogen fuel station and use demonstration projects,
generation of power from solar power plants, biomass, and methane
capture from landfills, avoiding GHG emissions via DSM programs, coal
ash reuse, eliminating release of SF~6~ (under an APS partnership with
the U.S. EPA), etc.

Finally, APS endorses the Comments submitted by the Edison Electric
Institute (EEI), PowerTree Carbon Company, and the Utility Solid Waste
Activities Group (USWAG), and incorporates them here by reference.

If you have any questions, please contact me.

Sincerely,

![](media/image2.png)

C. V. Mathai, Ph. D.

Manager for Environmental Policy

**DETAILED COMMENTS OF ARIZONA PUBLIC SERVICE COMPANY ON DOE'S INTERIM
FINAL GUIDELINES AND PROPOSED TECHNICAL GUIDELINES UNDER SECTION 1605(b)
OF THE ENERGY POLICY ACT**

**1. Introduction**

Arizona Public Service Company (APS) is an investor-owned electric
utility with headquarters in Phoenix, Arizona, serving about one million
customers in Arizona. Over the past several years, APS's electric power
demand has been increasing at about three times the national average due
to significant population growth throughout the Southwest, and
especially in Arizona.

APS is an owner or operator of several fossil fuel-fired power plants
and the nation's largest nuclear power plant. From its inception, APS
has been and continues to be a participant in the Department of Energy's
(DOE) Voluntary Greenhouse Gas (GHG) Emissions Reporting Program under
Energy Policy Act's Section 1605(b). APS has also been a signatory to
the DOE's 1995 Climate Challenge Accord, and has been only one of the
few utilities which committed to keep 2000 emissions below their 1990
emissions levels; APS kept that commitment. APS constructed a
renewable-energy based mini-grid "village electrification" project in
Mexico which has been designated as a USIJI (U.S. Initiative on Joint
Implementation) Project. APS is currently involved in numerous renewable
energy projects and GHG sequestration/avoidance projects.

APS believes that GHG emissions from human activities are contributing
to climate change, although it is unclear what fraction of the observed
warming is attributable to those emissions. APS also believes in taking
prudent, voluntary actions to minimize GHG emissions and therefore
continues to undertake and participate in various programs, including
renewable energy projects, SF~6~ partnerships with the Environmental
Protection Agency (EPA), beneficial use of coal ash, sequestering carbon
in trees, etc.

As a regulated electric utility, APS also has an obligation to meet
customers' demand for electricity at affordable costs, and hence must
continue to use fossil fuels for power generation in the foreseeable
future. Accordingly, APS's GHG emissions are bound to increase in terms
of absolute tons although our emissions intensity will decline over the
next decade as our use of lower carbon-intensive fuels will increase.

**2. Detailed Comments on the Guidelines**

> **A) The Two-Tier System of Reporting and Registering Creates
> Disincentives to Participate.**
>
> The proposed two-tier system for large-emitting entities, with special
> provisions for small-emitting entities, creates inequities and is
> likely to reduce or eliminate the incentives for many utilities to
> voluntarily participate in the 1605(b) program, especially the
> "registration" requirement.\
> \
> EEI has provided a detailed analysis and comments on this issue, and
> APS supports and endorses EEI's position requesting that DOE eliminate
> the registration tier. While we understand DOE's rational for
> including this tiered system, we believe that it is counter productive
> to the overall goals of the program and will reduce the participation
> of large-emitting entities. The revised guidelines should work to
> increase and enhance the participation of large emitters, rather than
> deter participation. In the absence of any legislation specifying
> carbon credits or emissions trading programs, the attempt to create a
> class of "registered" reductions is premature and creates more
> problems than benefits.
>
> APS expended considerable resources in the mid 1990s in an effort to
> voluntarily reduce GHG emissions and to secure early action credits.
> However, because the Guidelines now use 2002 as the "new" baseline
> year in determining voluntary emission reductions, APS's early efforts
> are of no economic value to the company. We are concerned that a
> similar fate awaits those who choose to participate under the new
> Guidelines, and that DOE's promises of "transferable credits" under
> these Guidelines similarly will not be realized.
>
> Following on the Presidential directive to cleanse the 1605(b) data to
> make it eligible for "tradable credit" status, DOE and other
> Departments concluded that there is no statutory basis for allowing
> DOE to establish a legally defensible "GHG transferable credit
> system." In light of this conclusion, there is no reason to impose
> numerous requirements on a company before it can register its
> reductions.
>
> In sum, the burdensome registration requirements are a significant
> disincentive to entities pursuing voluntary efforts. The registration
> system will focus resources and effort away from the voluntary efforts
> themselves, with no real benefits to the participants. We encourage
> DOE to continue with the current single tier reporting system. If and
> when a clearer legislative and regulatory direction is provided for
> "registered" credits, DOE should then consider future revisions to the
> Guidelines to reflect national policy.
>
> **B) Renewable Energy Purchases Should Be Included in Carbon Reduction
> Reporting**
>
> Renewable energy is an important and growing component of APS's energy
> mix. As required by the Arizona Corporation Commission (ACC), APS has
> both internal generation and external (purchased) renewable energy in
> our generation portfolio. Our purchased renewable energy portfolio is
> expected to grow significantly in the near future, including a
> near-term contract for renewable energy. In fact, the ACC is currently
> revising the Environmental Portfolio Standards (EPS) requirements for
> APS. We anticipate that APS will be required to produce up to 15% of
> power for retail energy sales from renewable energy sources. The ACC
> will mandate that a significant portion of that come from purchase
> agreements. We are concerned that the Guidelines will not allow APS to
> include our purchased renewable energy in our carbon reduction
> reporting. If we are unable to include this energy production as part
> of our carbon reduction program, our total carbon generation and
> intensity values will be unfairly inflated. We should be encouraged to
> include renewable energy in our carbon management program, whatever
> the contractual arrangement for that power. APS believes that any
> renewable energy purchase under contracts required by regulatory
> agencies must be allowed to be part of GHG reporting/registering.
>
> **C) Non-State-Mandated Electricity Purchases and Sales Should have
> Emissions Reported by the Generator.**
>
> With respect to regular electricity sales and purchases, the issues
> are different. APS, like many other Western utilities, buys and sells
> electricity all the time, on a minute-to-minute basis, depending on
> electricity market prices. Often, it is impossible to track down where
> the electricity is generated. Therefore, it is only reasonable to
> conclude that the responsibility to report GHG emissions associated
> with such purchased electricity rests with who ever generates that
> power. The generator constantly monitors and records air pollutant
> emissions as required under the Clean Air Act (CAA) rules. It is easy
> for them to extend such data gathering to GHG emissions, and report
> under the 1605(b) program. Requiring the generators to keep track of
> their GHG emissions will yield a reliable and credible GHG reporting
> system, unlike the guessing one has to do to estimate GHG emissions
> associated with purchased power from the open market.
>
> **D) Coal Ash Reuse Should be Included**
>
> The Guidelines would not allow for registration of GHG reductions
> resulting from coal ash reuse. APS believes that offset strategies,
> such as coal ash reuse, are a critical part of an effective GHG
> reduction program. We have devoted considerable effort and resources
> towards developing beneficial uses for coal ash and have been tracking
> and reporting our coal ash reuse on our voluntary 1605(b) reporting
> for a number of years. The Utility Solid Waste Activities Group
> (USWAG) 1605(b) comments provide a detailed background, analysis and
> recommendations on this issue, which we endorse. We agree with USWAG's
> conclusion that suitable tracking and reporting programs have now been
> developed for the inclusion of coal ash reuse on 1605(b) reporting. We
> strongly support the inclusion of coal ash reuse in 1605(b) reporting.
>
> **E) Carbon Sequestration and Renewable Energy Project Reporting Needs
> Improvement Under the Guidelines**
>
> The Guidelines for ownership of emission reductions, coupled with the
> requirement for entity reporting, create procedural and cost burdens
> on forestry carbon sequestration and renewable energy projects that
> will make many of them infeasible and seriously discourage their
> expansion as part of the 1605(b) voluntary reporting system.
>
> APS believes that forestry carbon sequestration projects are an
> important contributor to voluntary carbon reductions in a climate
> change program. We are a member of the PowerTree Carbon Company, and
> have devoted significant resources and effort in developing forestry
> carbon sequestration as a part of our carbon reduction portfolio. The
> Guidelines contain a number of provisions which would make forestry
> efforts unattractive for voluntary carbon reductions. The comments
> submitted by the PowerTree Carbon Company detail these areas and
> provide reasonable recommendations and changes to the Guidelines that
> would continue to encourage this type of voluntary program to succeed.
>
> The comments and recommendations submitted by the PowerTree Carbon
> Company for forestry projects also apply to renewable energy concerns,
> particularly with respect to third party owners and contractual
> arrangements. We encourage DOE to consider comments from PowerTree
> Carbon Company and EEI that will improve the ability of reporting
> entities to include contractual arrangements with external renewable
> energy producers. This is a critical issue to APS and is a cornerstone
> of our climate change program and voluntary reporting.

**3. Conclusions**

APS appreciates the opportunity to comment on the DOE's latest version
of General Guidelines under Energy Policy Act Section 1605(b). APS
agrees with the DOE that the 1605(b) data should be accurate, reliable,
and credible. We are concerned, however, about the establishment of the
dual track of "reporting" and "registering" for voluntary GHG emissions
programs. In the absence of tangible benefits for developing the data to
meet the requirements for registering, APS may not be able to
participate in the 1605(b) program as a "registrant." The new Guidelines
impose many onerous conditions, thereby creating significant
disincentives for our participation in the program as registrant. APS
recommends that DOE eliminate unnecessary burdens specified to qualify
for registering GHG emission reductions/sequestrations and instead rely
on company's certification of the accuracy and reliability of the data
being submitted under a single "reporting" system. We are specifically
concerned about the provisions relating to the constraints in
registering state-mandated renewable energy purchases and demand-side
management of electricity, coal ash reuse, and carbon sequestration
programs. APS recommends that the Guidelines be revised to remove these
obstacles so that APS can continue with its GHG reduction programs and
report or register such reductions under the 1605(b) program.