Ill d Arizona's **G~T**Co operatives T **"'~,.,, .,**  **f.n.·r~~'** c ...,.. l,..,,,-, **~** EPA's Clean Power Plan and Arizona's G& T Cooperatives March 12, 2015 Ariz o na's Introductions **G~T** Coopemt lve s r ............ **t.-~.·,** ...,,.....,..... **~** • Michelle Freeark, Director of Safety & Environmenta l • Eric Hiser, counse l for AEPCO - Jorden , Bischoff & Hiser, P. L.C. • Ralph Roberson, P.E., cons ultant to AEPCO - Principal, RMB Co nsulting & Research, Inc . T: \ADMIN ASSl\L trhTemp \AZ G&T PPt Template . pptx August 8, 2012Ar iz ona's Agenda
**G~T** C oo pe rative s

r ... h., ..... **l.h.,~.,·t.,'f'(** ...,..... **~** • Brief overview of AZ's G& T & Apac h e Stat i on • Discussion abo ut lack of fl exibility in A riz ona (based on ADEQ's an al ysis) • Discussion about co mpli an ce o pti ons ana l yzed by AZ's G&T • Overview of Subca t egor i zation Sol uti on • Overview of Arizona So lution • Impact on AZ 's G& T if nothing changes • Concl usi on Cooperative's Organization and Membership Ar izo na Electric Power Coo p erative (AEPCO) is a generatio n cooperative, wh i ch ow n s and operates Apache Generating Station, in Cochise, AZ. • Southwest Tra n smission Cooperat i ve (SWTC) owns and operates the transmission system to deliver AEPCO's power . • Toget h er, 'the G& T' serves six ru ralel ectric distribution cooperatives over a large geographical area with numerous towns and small cities, serving about 150,000 meters pr i mari ly for reside n tial use. • The territory is rural , sparsely populated, and price - sensitive, with one third of customers living below the federal poverty l ine. T· \AO M IN ASSl\L trhTcmp \AZ G &T PPt Tcmplatc . pp tx 2

Ariz o na' s**G~T** C oo perative s r.... 1.--.. ,...,,.._ t ... .., .. ........... -£!:. A ugust 8, 20 12Apache Generating Station Unit Year Bulh Net capacky Fwl STI 1963 72MW ,.. ST2 1978 17 SMW coalfsu ST3 1979 175MW cool/s•• GTI 1964 IOMW ,.. GT2 1972 20MW B"'/ oll GT3 19H 6SMW ,.. GT4 2002 38MW su/oll

T otal Net 555MW Capac• tv Transmission System ... ...._

t-0... ..,... .... • « ........ **':."1~·.;-- -···**  •!1J , -..:;::_ ,..._""...- ...-::· -· **~I•WoN** ... -:-l':. .. **.:~--· ~~-~7f£i:7** 
rv **--~ ~-=---,** 

**<" ~**  -·· \ **~--.r- ~··-**  ..·•·

,., .. __ l• ,..., ..._._ T:\A DMIN ASS1\LirhTcmp\AZ G&T PPt Templatc . pp1X 3

Arizona's **T**Cooperat i ves r ... t- .... ,... .. <" t •• 'I"''' .... **~. ~**  Arizo n a's**T** Cooperatives l.""t..._ "" F.sv..-w'( .. **~1'"•n.r• ~**  August 8, 20 12Ari zo n a's Cooperatives and Rural Arizona **G~T** Cooperat i ve s Apache Stati on. 555 MW net gen e rating capacity (two 175 MW Coal Unit s) locat e d in Cochi se County S WTC 620 mil es of transmission li nes and 2 4 substations i n 7 counties G& T Cooperatives employ 245 union I nonunion p eople, mor e than 100 at

Apache Station, most live in the surrounding ar ea. Direct economic impact on rural cities,

town s, and businessesCurrent Membership <1 h\A**\II** R«'• l ulrrm rnl-. .\lr mhr,.... lntn EClluncm **\';~ lky**  LC CiiOlham Co unl,_ rc **~~ (1m**  Al'utl.tl RhJYIH"IIl C'IIh **f'll1bf't'** \l oloo • cloCSnl1•hur Sprinp l '.!llc y EC f""' EC lnh, n . \lru•lJn \ 'aU<V l:A

)lu•bfr llrad q1.1rtn ' Si n(C' 1 9l9 : \1 11a. C'A 1961 Dnnc:m ,, \/ 1961 Pima. , \7 197J UuiU1<od City •.I£ 1961 \\'jlloo, , "'

1 961 **~lill1Ul. A/**  **~001** ll 11hnuu, ;'\\'

·''"'' or l..l ar136 -153 1.217 1.512 **0~9 ~**  11. 573

Tu.lw, •to. **f~1or ,~·l**  H.t'""l•l"'' **~** Ar i zo n a's**G~T** Cooperatives r ........ ..,.L ... "f\'t ... , ....... **."~** )l flff\ )ltOlbff' Srn t"d Prr M ilt **~.000** .' **.IS ,7**  **~S** 21 **~~.999** 13 **.19~** 10 10:,613 I •1\ 11-r eq uir e mcnt s m e mb ers ( "1\RM s") purc h ase all th er eq uir e m e nt s n ecessary f or s erving th eir distribution cooperative memb ers from AEPCO • Partial -r equirements member s (" PRM s") pu r chase both fr om AEPCO and from other ma rk et so ur ces •Cl ass D M ember Vall ey t akes sched ulin g and tr ad in g se rvi ces from A E P C O T :\A DM IN ASS'I\L uhTcmp \AZ G&T PP t Tcmpla te. pptx 4 AugustS. 2012Ar i zona's AEPCO's Concerns **G~T** Cooperatives r .... **~..,** • ...._l.r.,-n''.·"'r" "' ,.'' ..... **,.** • AEPCO previously met with EPA over re gio nal haze. -Severely affected by $192 million proposal - Worked with EPA to deve l op al ternative, $30 million but 25 % increase in fuel costs -T hought we had made AEPCO viable for medium term • Cl ean P ower Proposal jeopardizes ga in s Arizona CPP Compliance 1. 800 Cu rr en t (2012) [minion• ! PA Uke• lct l on 1, 4531b/ M Wh / on <Ute plan• t .600 / I PA Interim Goo! • (2020 ·202 9 Avcrqe) 7351b/MWh **~ ~~~~~~~~~~~~~** 

Arizona's **G~T** Coop e ra ti ves f. ........... .v **f~·fY\** '•"f'"'I.CI•n **~** EPA 2030GC»I 7021b/ M Wh 10 11 /0 14 70 16 /018 JOJO lOll lOll /Oib 1018 **10~** T: \ADMIN ASSl\L trhTemp \AZ G&T PPt Tcmplatc . pptx 5 AugustS, 20 12ADEQ on CPP Goal Calculation • Formula: Ariz o na's **T** Cooperatives r ... tw.'fV r,...,-"' .c**~**.. **,...-...-~** ..... **~** (Coa l Gen x Coal ER) + (OG Gen x OG ER) + (NGCC Gen x NGCC ER) +O ther Emissions Coal Gen + OG Gen + NGCC Gen + Other Gen - "Gen" = Generation in MWh - "E R" = Emission rate in lbs C0 2 /MWh - "OG" =Oil and Ga s - "Other" generation consists of IGCC and high utilization (> 33% capacity factor (CF)) combustion turbines. Other generation is exclude d from the r edis pat ch calculations in Step 3. • Arizo n a:(24,335,930 X 2,268) + (1,033,871 X 1,563) + (26,782, 325 X 900) + 17,227,768 24,335,930 + 1,033 ,871 + 26,782,325 + 19,361 = 1, 55llbs/MWh Ariz o na's ADEQ on CPP Goal Calculation **G~T** Cooperatives lui- ·... **~·,** .., .,..,.., ..**,._ ~**  • Arizona in 2029 : (0 X 2,132) + (0 X 1,563) + (52,152,126 X 900) + 17,227,768 0 + 0 + 52,152,126 + 19 ,361 + 1,818,486 + 3,663,325 + 9,216,009 = 702 lbs/MWh T: \A DMlN ASSl\LlrhTcmp\AZ G&T PPt Tcmplate . pptx 6 August 8, 2012Arizona's Estimated Clean Power Plan Impact on Arizona

**G~T** Cooperative s T··h"' '" r,.. **,~"·** ( '''f'J"A''" **~** Arizona was one of the sta tes hit harde st by E PA's I I l (d) proposal. th e result of

which wou ld be the s hut down of all of the s tate's non-tribal coal generation by 2020 s tranding $3.8 billi on in a ssets ( Pace Global St ud y. 2020 dollar s). T he Arizona Departm e nt of Enviro nment al Qual ity demonstrated in its lil cd comments that Arizona does not have the ncxibility necessary to comply with the rule' s targets excep t via direc t ap pli ca t ion of th e B uildin g Blocks as the EPA proposed. If the EPA's propo sal is left unmodified, the following arc anticipated outcome s for the state's energy future. - Electnc ra tes will rise significantly as ar esu lt of the loss of the st ate 's coal plant s, a c h eape r gencro tion source th nn natural gns .' - Ari z ona will go from a net ex{l_Oner of power to a net impon er withm th e next d eca d e, and w1ll be fo rced to rel y upon its n eig h bo rs in ord erto se rve its peak s ummer de mand . - El ectri c reliabilit y in the reg i on w 1ll s utTer unul remedies ca n be effec t ed . - With a heav y dependency on n atura lg as , the s tate 's electri c cu s tomer s would bec o me captive c onsumer s to natural gas pro ce Ouctu auon.

Atl1on.1 l Oll [ ltcttlc Gene t.lt ior'l MI ... ( M Whl 1 N,mu al c;a sr iK' I COSt IS at lll U.ICd at 50 · H ..,e mo re **'' pe**  **ru •'**  **~** th.l n eoot l 0\ct the ht.\1 10 )C'an, but U hi& hl > \ 'OIIo ll k ADEQ: No Flexibility in CPP as Proposed for Arizona Arizona's **G~T** Cooperatives t u.fw:.,-.r-fJ>If'C''t .•, ........ f'O **~** St •pl• & )b (Rodispolch) Step 6&7 (St ole Go oI Ph o se I & ll(lbs/MWh)) Sc e n• rlo R l'diSJWtdwd R e:dbpi i C.h R C'dllp.'ttche d lnlttrhn Go• l F ln 1l Go •Ior Co al Gen . 0/G 1t11m NGCCGtn . or Rolo(2020 Ro lo (2030 ond

( MW h) Gen.(MWh) ( MW h) ·2029 ther ea fter) **o~ v.r>ace)**  1 EPA G0o1 l C.t l cula li on 0 0 S2,tS2. t27 735 702 2. IS" RE and 1. 6 1% lncrtm t fl\41 6.)37,309 217,5 14 **S.l-11** ,l (}! 77 C 702 EE S..Yings 3 21 % RE3nd 1. 61 % 1 ncrt men :•l 9.7 0 7.7 6! J l2 .<1 S **~** 2 ,0 31 .940 103 702 rr S.. Yi n gs 4, 33 " RE and 1.00 " **ncrrmen ~l**  !7 ,269,395 73-' .S tt 34.1 2 8. 2 20 as a 70 2 HS.. ..; ng>

S. l3% RE •rd 2 00 " l•cr<mtn t al 9.06 .9 15 <0 7 .b tl 4 7.Z77 . 601 HS 60 1 £E S.Yinl' 1- T:\A OMI N A SS "I\ LtrhTemp \AZ G&T PPt Tcmplate . pptx 7 Augu st8, 2012EPA's Building Blocks (BB) Implications on AEPCO 881: Efficiency Improvements Ariz on a's**G~T** Cooperatives f •••W. •• &wrl\ I .• ...,..,..,,..... **~** • AEPCO has iden t ified roughly 1 to 1.5 % in available hea t rate improvements with a rea s onab le payback schedule, assuming that coal units were preserved beyond 2020. Thi s is well b e low the EPA's assume d level of 6%. Planned regional haze an d MATS inves tment s are imprudent with 2020 end. 882: Re-d is patch to N atural Gas • Although AEPCO has n a tural gas re s ources, they are not designed to be operated as primary load following un its, and th e h ea t rat es average from 11 -1 4 MM8tu/MWh at best (compared to 10 .6 MM8tu/MWh), resulting in extremely co stl y energy. • Load follow ing units are required at Apache Generating Station to provid e th e area's grid reliability . 883: Use of low or Zer o-Emitting Sources AEPCO has contracts for roughly 30MW of hydro resources. Hydro elect ric generati on , under the proposed lll(d) rule, will not help in blend ing down AEPCO's CPP em ission ra te . The active generation required to supplement and back - up intermittent so l ar or wind generation, and

th e small size of AEPCO' sfl eet, mak e acqui s ition of the se resources unattractive.

BB4 : Energy Efficiency Due to the low population density and hi gh transportation cost of resources, energy efficiency programs are ex trem ely difficult to implem en t a nd highly uneconomical in rura l communities. As a non - load serving e ntity , AEPCO has no opportunities for energy efficiency savings at the retail load level. Ariz o na 's AEPCO Compliance Options **G~T** Coope ratl ves tuh. .-.. .ll'Oo1"C\•t_.:. • **...,.~..,.~o 1-**  • Improve the heat rate/carbon efficiency of "a ffected EGUs"· I • Redu ce utilization of "a ff e cted EGU s"; • Purcha se an existing "affec ted EGU 11to reduce th e overall C0 2/ MWh of AEPCO's fleet ; • Build a new EGU not subject to the Clean Power Plan and s hut down affected EGU s as appropriat e; • Build/purchase renewable energy, s uch as s olar phot ov oltaic, wi nd, or so lar -thermal; • Purch as e power on the market , if available; and • Any combination of the above. T: \A DMI N ASSl\LtrhTcmp\AZ G&T PPt Tc:mplate . pptx 8 Au gust8,20 12Ariz ona's Options Studied **G~T** Coop er at i ves **Jo-.l-fl(f.N!"0'\ l<'1"'"'"''•**  **~** • AE P C O eva l uate d th ree optio ns: - Ba se C ase: Convert ST2 and ST3 as req ui red b y RHR FIP/SIP in l ate 2017 and operate through 2035 pursuant to existing contracts. - C om pli an ce Option : Purchase MW of an existing affected NGCC unit in 2015; convert ST2 to natural gas in 2017; retire ST3 in 2017; purchase MW NSP5 compl i an t generation; and purchase solar PV an d Wartsilas as needed to both achieve Interim and Final Goa ls and minimize additional costs . - E xit O pt io n: Purchase MW of unaffected NGCC in 2015; convert ST2 to natural gas in 2017; retire ST3 in 2017; retire ST1 and ST2 in 2019; purchase MW new, NSPS NGCC start i ng 2020; pu r chase solar PV and Wartsilas as needed to achieve Interim and Final Goals

and minimize additional costs. Ariz o na's Case Study Results **G~T** Coope r at i ves f.ut+ .. • 'lo **f"'"T!''(~'(,.,.AIIoo ~**  .. • Base Case: - $ mil lion re d uces CPP u nit s t o lb/ M W h ( 22 .4%} a nd portf o lio to lb/ M W h (16.7 % } • Comp li ance Case : - $ million red uc es C PP unit s to lb/ M W h ( 68 .2 %) a nd po rt fo lio to lb/ M W h (5 6.0 %) • Exit Ca se : - $ mi ll ion el iminate s C PP units (1 00 % ) and re du ces por tf olio to lb/ M W h (53.6% ) ., T :\A D MI N ASSl\L trh Te mp \AZ G&T PPt Tcmplatc . pp tx 9 A ug ust8, 20 12Case Study Results C.teaorv Emllt\J fl>Rd Chirps $/KW-Me>nth Exlttlna OI.M Total ulstlna FOO!d ond O&M Charses. S/ICW · Month (C..podty **Ch•~Jel** Addition•! Fl•ed ChlfiH lor Option, $/ICW·Month Fl>ed OfoM CMU for OpUon Uppades $/l(W-Month Total ftxtd & O&M Costs for Option

Uparwdcs, S/KW·Month

GRAND TOTAL flii.ED Plus O&M, S/KW· Month

R ""b 69 . 8% "''""' Base AEPCO Out of Market Morl<et Prlu Farecast (ACES) HIJh Prlc•. $ MWh

**low~ """·**  $/MWh **AEPCO/Pf ~~**  **.'AIIUil m~**  **~ Fl~d**  Cho'l@, $/KW· Month O&M Ch•'l•• S!KW· Month C.padty **Cha~Je,** $/KW· Month V.rlobl• oaM Ch•tJO. $/MWh Eneru Chlflt, S/MWh

Toto! Cost, $/MWh T: \A DMIN ASS"IIl..trhTcmp\AZ G&T PP t Te mplat e. pp tx

--- PPA AEPCOExh l)ue 38. S% over Due 37 6% over Due 10

Arizona' s**G~T** Coope rativ es T.••IW• • •II'IIt.rt."'f•l ·u f"'-t ... **!•ro "**  62 l% '"'"' 8ue l'• Ar i zo n a's**G~T** Coope r atives T. ll.At•• • vlrnn'C ... **'I"~•,••-.. ,.**  Comments Comtnents August 8. 2012Arizona' s Impact on AEPCO **G~T** Coope rativ es T-• ... h'll\ •"' (ll(n.,·c"f't'T .. **,.,. ,**  • Unl ess changes, it appea rs that Interim Goal and Final goa l wi ll require sh ut down of Apache Station in 2020. • Eve n with c han ges in In terim Goal, A EP CO has no realistic way of r eac hin g the Fin al Goal by 2030 . • T hi s jeopa rdi zes 425 MW of 555 MW capacity. - C reat es reliability iss ues on transmission system • Places sign ific ant stra in on multicooperative coope ration Estimated Clean Power Plan Impact to AEPCO Arizona's **G~T** Coope rative s r. ... t .... .. r.noro·c •• **"~"'"'** ... **t** Analysis w as perform e d to project th e costs which AEPCO would incur in order to comply wi th th e

propo sed rule. Two primary options were considered: one in which AEPCO att e mpt s to keep existi n g gene r ating units , and another where the CPP - affected un it s are replac ed. Shown b elo w is the additional cost for th ese options (above AEPCO 's curren t debt). as well as the res ultin g po si tion of AEPCO relative to th e el ec tr ic pr ici n g of the Arizona market. It is a nticipated th at AE P CO cannot survive if its pricing is hi g h er than mark e t. Scenario: AEPCO Compliance Option Attemp t t o Rtmo ln In lll (d) pro& ,.m

by ,.tl r ln & C..oland b ltndl n& down Natural Gas emluk)n rate on ,.moinfn& u niU with Solor . **SS30~ 1** ( Jil % Drbtlnrrrast) 33.3 % ovt r Mork<t 1 The Addotoonal Cost for t hese option sis in addotlon to AEPCO's current debt of $186M . T: \ADM IN 1 \SS l\ LirhTcmp \AZ G&T PPt Template . pptx II

AEPCO Exit Option Rtt l ,. •ll offtctt d units In lll (d) Pro&,.m . Pun:hos t Ntw·Bu lld

osstts to ,.ploc. lo st copo city. $-113M (225% D tb tln rrus<) 37.6 % ov tr Markrt AugustS. 20 12Proposed lll(d) Impact on AEPCO Arizona's **G~T** Cooperatives **~**.... **,,..,..,,,..,.~'\·c** ... **'f'"'~•·'<"• ~**  .. If the aggressive IU targets of the proposed lll(d) rule were imposed on AEPCO, over 90% of AEPCO's most affordab le ca p acity, w hic h is 75% of AEPCO's tota l capacity, wou ld become stranded. Replacing the stranded capacity is expected to at least tr iple AEPCO's

existing de b t, whic h AEPCO bel ieves not to be sustainable. Both AEPCO and the St ate of Arizona require a rational and reasonable plan to achieve C02 redu c tions without compromising the afford ability and reliability of the Arizona el ectric

system. Solutions

AEPCO **Gener<~tlng** Capacoty Before/After CPP Proposed Rule p0 t ll.J .l.ff« ·.. .; **11,,:~ ·o~~**  .... **,..o~.~t** (t<, **.t.tt~:..J C.t~t**  ..Arizona's **G~T** Cooperatives T ...... t- ... **ttvtf\·~~•·••** "£!_ • EPA should subcategorize the affected EGU category to provide a pathway for sma ll public and cooperative utilities to achieve s ub stant ial reductions, but over a longer tim e frame cons istent w ith their financial abilities. • W ho: - Public and cooperative utilities with base year sales of 4 million megaw a tt hours or less - Disproportionat e ly affected by proposed Clean Power Plan T :\A DMIN ASST\LtrhTcmp\AZ G&T PPt Templatc . pptx 12 August 8. 20 12Ari zo n a's Who Qualifies G@T Cooperat i ves l• .. **~W..'l"W.fl'olo'\** l,e'I"T.,.,.••

**I"** • In order to qua li fy for relief , the sma ll public or coopera ti ve utility would need to demonstrate, app ly in g EPA's building bl ocks only to it s existing syste m resources, t hat: - One or more affected EGUs (a "non-achiev in g unit") cannot meet the relevant state Interim Goal or Final Goal ; AND - Such non - achieving unit(s) make up 20% or mo re of the s mall public or coo per ati ve uti li ty's ge n erati ng capacity; AND - Shutting down the unit in 2020 (or 2030) would occur prior to the end of the unit 's rema ining useful life; AND - The cost of building a repla ceme nt, NSPS -co mpliant unit together with the cost of paying down debt on the existing non achieving units, would be excessive . Ar i zona's Alternative Guideline **G~T** Cooperatives t .... t- .. **.,1,-.-rn·c..~~·"-'" ~**  • I nterim Goal Period : - Achieve all reasonably cost effective he at rate improvements on any non - achi eving unit(s) (no t just coa l -fire d ones);

- R e dispatch any NG CC units it owns and operates until 70 % annual capac i ty is achieved (offe r for di spat ch any not oper a ted); - In sta ll ren ewa ble energy or obtain RECs equal to 10 % of the nonachie ving unit(s) capacity within 5 years or plan approval or 2025, whichev er is earlier; - M eet one -h alf of the genera l state plan ene rgy efficiency goal , if the s mall public or cooperative util ity has loc al distribution ; and - Achieve r ed uctions equa l to the lesser of the state Final Goal or 15% of tota l carbon e m issions across the small public or cooperative utility 's portfolio by 2030, with at least 33% of that reduction to occur by 2020 or within thr ee year s of plan approval, whichever is earlie r. T :\A DMfN ASST\LtrhTemp\AZ G&T PPt Tcm plate . pptx IJ Augu s tS, 2012Ar i zo na' s Alternative Guideline

**G~ T**  C oope rati ve s r .... h-.·- I **~~of,,** c **'"'~'T"'""" ~**  • Fin al Goal P eriod:Shutdown the non-achieving unit(s) at the start of the final goal period; OR If any no n -a chieving unit{ s) will rem ain in operation b eyond 2029, then • continue any measures imposed on the non -a chieving unit(s) and the utility by the st ate plan effective in 2029; AND • install additi on al renewable energ y or obtain renewable energy credits (in a state plan recognizing such credits) equal to at least 10 % of the non-achieving unit(s)' capacity prior to the start of the final goal per iod and every five years thereafter if the uni t(s ) continue to run. • In a ddition ,all unit s covered by alternative must shut down at the earlier of the end of t heir remain ing useful life or December 31, 2039, as specified in state plan . Impact of Alternative Market Pll<e Foteust (ACES) HIJh Prlu, /MWit

Low Prkt, S/MWh AEPCD/PPACmt Comparison O&M **~rp.** S/KW-Monllt Capacity CNr£e, S/I(W·

Month V•rlablt O&M Charat, $/MWh Enerav Olar&•. $/MWh

Total C:0.. S/MWh T:\A DM IN ASS T\ Lir hT e mp \AZ G& T PPt T cmplatc . ppt x

PP A B uc:

AEPCOCom p llonc o 38 .5 % **r** b ut 37 . "' over bue 14

Ari zo n a's **G~ T**  C oope r at i ve s l .... t- . -..t, .. ,..,·c· ... 1' ..... ,. .... **,** CommrntsS mo ll Coop P ropo .. l **3% ove**  **~u** A ugust8, 20 12A ri zona's Impact of Alternative

**G~T** Cooperatives r;....,;;c. ..-.:i;nct('l'{",,,.., ...... ., .. **~** • AEPCO has evaluated the potential impact of its propo se d subcategory on EPA 's Clean Power Plan propo sa l. -EPA i s g uarante ed at l east 15% reduction or St ate Goa l ac hi evement by all smal l public and cooperative utiliti es. -I t w ill like ly be more: In A EPCO 's case, it results in a 21 % ove rall portfolio decrease Ariz o n a's Impact on C0 2 Reductions
**G~T** Cooperatives T ..... tw • ..-u .. f"'"'·t .... ".. '.r••o **~** • AEPCO assessed the preliminary impac t on carbon reduction s. -Un clear if all sma ll e nti ties qua li fy - Maximum leaka ge is 9 million m et ric tons {1. 2 % ) - Likely l eakage is 6 million metri c ton s {0.8 % ) • H owever, a ltern at i ve require s impro v ement s on tot al portfolio , further reducing leakag e from proposed Clean Power Plan. T: \ADM IN ASSnLtrhTcmp\AZ G &T PPt Tcmp l atc . pptx 15 August 8, 20 12Arizona Utility Group (AUG) Solution Arizona' sG@T Cooperatives T '" **h..r· ~**  Lr"tn •( ,,,._., ,, hh • **~** .. EPA should account for "remaining useful life " of coa l- fired power plants in establishing interim and final goals (similar to "book life " concept in Notice of Data Availability) and adjust Building Block lt2 re-dispatch schedule as follows: - Default re-dispatch date for all units is 40 years after startup date, or 2020, wh ichever is later - For EGUs that have installed a major pollution control retrofit (SCR, FGD, or ba ghouses) • prior to i ssuance of the finallll(d) rule, defau lt re -dis patch date is 20 years after s tart

of opera t ion following addition of the major pollutio n control retrofit, or 2020, which eve r is later - For EGUs that have been issued a permit incorporating a commitment to cease burning coal before th e effective date of the fina l rule , re-dispatch date is the date of the commitmentAllow states to set interim goals Apply appropriate natural gas emission rate (1000 lb/MWh) • fOf un i ts owned bv •m• ll enUifes .u defined by FER C, • maj or p oUu tlon cootrol retro fit wou ld ln du de equ i pment such u **~C.R** 1nd ESP and w ould have to be ln\t1lled prior to first **ye~r** of compfi.tnc e period (i.e., 1010) Estimated Nationwide Impact Ari zo n a'sG@T Cooperatives**T.uh""- wF~rn'(:.•'l•"""••.-•**  **~** 90,000 60,00070 , 000 **c:~**.g

**~** 60 , 000 **::::i:**

**~** 'g 50 , 000 **~~**- ::::s 40 , 000

.., 0Os;. (.J::::. 30,000::::: **ljljjj~ HJ** **jlll l.** .. I.'··' **.¢-~~~~~<....~~~r::.,~~~~"'o*"~~~~·~·<'·~~~~~tv~~~~~~b~"'Q~** • Coa l afte r 19 9 0; SCR, BH, or FGD afte r 2010 • Allowed Coal T :\A DMIN ASS 'I\ LuhTcmp\AZ G&T PPt Templatc . pptx 16 Au gust8, 2012Arizona' s AUG Solution Impact s **G~T** Coope r at i ves T,.,j...,, e'lo INrn"Cu,'o"l'.otl•c-• **~** E>hlb i t3 : Surrm"')' of Co s tlmp<!cts oft he Clean Power P l1111 (20 13 $) .UG itd t EPA Bu idi ng De li o (EPA BB- Ptr um p,., Scenario 8IO<k Setl\1no A Z Gil do Pllh) Ch an ;t **.~ ,.:"J·X'!.')A~f'rd'**  **)'"' ~**  M • **~-~·** •.:tAb (s.ft1\.t'IV U"''.-'\( ¥ '.tl **S':'-~** 1/1-,,V..., **11~·"·''N1** .. **,~** ..n **J'f'~J·** ... **'<~** f V!'f • r1• ....-.!.,_ ($/UIIon} f.!-:' 9 J..o>- **4~** p- -B "• :'."

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**•.\•• lt'N'.-~tm'\"(t**  (f8J itlorl) **~;:b** k IB J "B :-11!-o **~ ~**  ... :ll';t,c;t n .. **J~l'\»-ot f:At1.,Ct~**  • ...... "'

**uc.:~** o·a **~··** ( tl llll041}AUG Final Goal : 942 to 963 lb/ M Wh, a 34 to 35 % reduction Ar i zo n a's Summary

**G~T** Cooperatives t ..... t- ... r#loft\·c:. .. **1"'~•** ... **·~** • CPP as proposed imposes substantia l burdens on AEPCO, likely r esulting in shut down of Apache Station or excessive costs on relatively poor , few and rural rate payers of members • Subcategorization can significantly reduce the burden by allowing time to achieve EPA's goa ls at substantially le ss cost • AUG so l ution achieves similar reduction; two can work in tandem • Relief on timing and goals is needed to preserve rural electric service in AEPCO service area T: \AOMIN ASSl\LtrhTcmp\AZ G&T PPt Temp latc . pptx 17 August 8, 2012