1 

### Discussion of SJGS Coal Ranking for BART NO x 

### Presumptive Limit Determination

Summary of NMED/US EPA review: In an e-mail transmittal on March 20, 2008 from the New Mexico Environment Department (NMED) PNM received an evaluati on by US EPA of the San Juan coal that is combusted at the San Juan Generating Stat ion (SJGS) units. The e-mail transmittal is attached as Appendix A . The evaluation was performed by the US EPA and was based on the ASTM D388 classification method (attached as Appendix B ) to determine the coal ranking. Average coal analysis valu es referenced from the B&W Low NO x Burner/Overfire Air (LNB/OFA) contract were used in this evaluation (attached as Appendix C ). In the evaluation, EPA concedes that base d on the average coal analysis, the coal classification falls into a gray area between subbituminous and bituminous. However, EPA is concerned that since the coal analysis is an average value, if the heating value of the coal is the lower half of the range, th is would rank the coal as subbituminous. The EPA concludes that subbituminous rank should be assigned to the San Juan coal based on the following coal characteristics:

1. Heating value = 9,502 Btu/lb (especially concerned with the lower range of heating value since this is an average value).
2. Chlorine content = 0.03% is lower than typical bituminous coal (expected at 0.1%). 3. Volatile matter = 33.76% is higher than typical bituminous coal (expected at 16%).

Response: PNM agrees that the coal burned at SJGS falls into a gray area between subbituminous coal and bituminous coal. The main objective in inve stigating the ranking of the coal combusted at SJGS is to determine the applicable BART NO x presumptive emission limit. With respect to NO x combustion control performance, SJGS coal behaves more like a bituminous coal as the following discussion will illustrate. New, state-of-the-art com bustion controls are being retr ofitted as a result of the consent decree upgrades. The LNB, OFA, a nd Neural Network (NN) being installed on each of the SJGS units are equi valent to the BART technology used to develop the 0.39 lb/MBtu presumptive NO x limit for units combusting b ituminous coal, or 0.23 lb/MBtu for units combusting PRB subbituminous coal in the BART Rule.2 The ASTM D388 classification method refe renced by the EPA classifies coal based on the range of heating value (in Btu/lb) and the volatile matter content. The ASTM D388 method is based on the moist, mineral-matter free basis. The EPA compared the “as received” he ating value of 9,502 Btu/lb to the classification table in ASTM D388. This is not a valid comparis on because the “as received” heating value must be converted to a “moist, mineral-matter free” heating value. The Parr Formulas is used to convert the as-received heating valu e of 9,502 Btu/lb (as r eceived) referenced by the EPA to a value of 12,443 Btu/lb (moist, mineral-matter-free), and is as follows: Moist, mineral-free Btu = (Btu – 50 S) / {100 – (1.08A + 0.55S)} x 100, per lb where, Btu = heating value per lb (as received) A = ash, % S = sulfur, %

With the conversion of the San Juan coal heating value to th e correct basis for classification using ASTM D388, the average coal heating value fa lls into the high volatile C bituminous rank. The San Juan coal does not fall into the subbituminous rank of ASTM D388. The EPA also indicates that a coal cla ssification determined based on the average coal heating value will potentially negl ect subbituminous ranked coal that may be combusted. In response to this comment, a de tailed evaluation of the individual coal samples from the supply mine was made. Th e individual coal sampling period evaluated was from April 1, 2003 through February 29, 2008, which represented a total of 11,655 individual delivery samples. Statistical an alysis performed on these individual samples was made to group the data from each individual sample into the following:

1. Overall total and average
2. Daily average maximum
3. Daily average minimum
4. Single sample maximum 5. Single sample minimum

The results of this analysis are shown below:3 Daily Coal Sample Averages for April 2003 through February 2008

Tons Ave. %Moist. Ave. %Ash Ave. Btu/Lb. Ave. % Sulfur Parr # 3 Ave. PSO2 Overall total & averages 32,286,576 9.58 20.57 9,670 0.73 12,449 1.51 Overall total & averages

Tons Ave. %Moist. Ave. %Ash Ave. Btu/Lb. Ave. % Sulfur Parr # 3 Ave. PSO2 Daily averages max. and min.

69,272 10.91 25.56 10,170 0.88 12,866 1.86 Daily averages maximums 966 7.64 17.65 9,132 0.52 12,131 1.04 Daily averages minimums

Tons %Moist. %Ash Btu/Lb. % Sulfur Parr # 3 PSO2 Single sample max. and min.

4,710 12.99 31.99 10,415 1.07 13,098 2.19 Single sample maximums

454 6.83 16.50 7,994 0.50 11,811 0.99 Single sample minimums

In order to compare the results to ASTM D388, the “as received” heating value was converted to “moist, mineral-free” heati ng value (using Parr #3 formula). These results are provided above under the column labeled “Parr #3”. The results indicate that

no samples from the all-underground supply period (from April 1, 2003 through February 29, 2008) would be classified as subbituminous. The lowest coal heating value from the single sample minimum is 11,811 (moist, mi neral-matter-free). In the ASTM D388 classification, the high volat ile C bituminous rank ranges from 11,500 to 13,000 Btu/lb (moist, mineral-matter-free). Therefore, essentially all the coal burned at SJGS would be considered bituminous coal according to ASTM D388. The second classification criteria that the EPA used was the average volatile matter content which for SJGS is 33.76% (as received). The SJGS value was compared with the properties of coal found in B&W’s Steam book (41 st Ed., Chapter 9, Table 5, attached as Appendix D ) for various US coals. EPA stat ed that the bituminous coals can have volatile matter content as low as 16%. It should also be noted, however, that in the same table, the range of volatile matter cont ent for bituminous ranked coal ranges from 16% to 40%. Therefore, the relatively high volatile matte r content of the San Juan coals at 33.76% is within the range of expected content level for bitu minous coals. In fact, it is higher than all the subbituminous coals listed in Table 5 and f its much better in the range of coals listed as bituminous. The chlorine content of the San Juan coals at 0.03% was also referenced by the EPA as differentiator in determining the coal ranking. While, it is tr ue that the chlorine content is lower for the San Juan coals than other bituminous coals (EPA expected value of 0.1%), the chlorine content in coal does not impact the NO x emission level. Therefore, chlorine content is irrelevant for th e determination of the presumptive NO x limit. In the PNM SJGS BART submittal to NMED in June 2007, Section 4.1.4 of the report (attached as Appendix E ) discusses reasons why NO x emissions levels achieved using combustion controls at SJGS should not be compared to a PRB subbituminous coal4 for the purposes of establishing a NO x presumptive limit. The reasons provided are briefly recapped below:
1. Oxygen content < subbituminous: SJGS coal oxygen content at 9.38%, is lower than bituminous coal (10.09%) and substantially lower than subbituminous coal (11.68%). Oxygen content in coal impacts NO x emissions because higher fuel oxygen content reduces the amount of additional air (i.e., nitrogen) required for combustion, reducing amount of nitrogen for formation of NO x . 2. Moisture content < subbituminous: SJGS coal moisture content at 8.72%, is lower than bituminous coal (9.40%) and substa ntially lower than subbituminous coal (29.95%). Moisture cont ent in coal impacts NO x emissions because higher fuel moisture content reduces the flame temperature and, therefore, reduces the formation of thermal NO x . 3. Nitrogen content > subbituminous: SJGS coal nitrogen cont ent at 1.08%, is higher than subbituminous coal (0.63%). N itrogen content in coal impacts NO x emissions because of the oxidation of fuel-bound nitrogen to form NO x . 4. SJGS boiler design (smaller effective boiler volume): the SJGS effective boiler volume is smaller when compared to boile rs designed to combust PRB coal with similar steam output capacity. The smaller volume boiler will operate hotter, thus increasing thermal NO x formation.

This fundamental understandi ng of the variation in NO x formation from different types of US coals and the i nherent SJGS boiler design char acteristics explains why the expected NO x rates of boilers burning the coal fired at SJGS cannot be as low as boilers firing PRB subbituminous coals.

Conclusion:
The discussions included here on the San Ju an coal heating value, coal volatile matter content, coal combustion characteristic s, and SJGS boiler de sign provide a strong basis for why the BART NO x presumptive limit for SJGS should not be based on the combustion of subbituminous coal. The proposed consent decree NO x control level of 0.30 lb/MBtu is appropriatel y in between the BART NO x presumptive limit for subbituminous coal (at 0.23 lb/MBtu) and bitu minous coal (at 0.39 lb/MBtu). In effect, the 0.30 lb/MBtu is equivalent (for SJGS) to the presumptive limit for PRB or eastern bituminous fuels.APPENDIX A NMED/EPA REVIEW OF COAL CLASSIFICATIONChang, Daniel

From: Norem, Nancy [Nancy.Norem@pnmresources.com]
Sent: Wednesday, April 30, 2008 5:10 PM
To: Fischer, Diane M.; Huggins, Roosevel t; Lucas, Kyle J.; Chang, Daniel Subject: FW: PNM - NOx Information Review

5/8/2008 I am forwarding you a string of emails that th e NMED sent me regarding SJ coal classification.

From: Trujillo, Rita, NMENV [mailto: rita.trujillo@state.nm.us] Sent: Thursday, March 20, 2008 4:38 PM To: Norem, Nancy Cc: Uhl, Mary, NMENV; Kuehn, Elizabeth, NMENV Subject: FW: PNM - NOx Information Review

Hi Nancy -

I'm forwarding to you an e -mail from Sikander Khan from EPA regarding the cla ssification of the S an Juan coal as subbituminous. Based on our conversation with and this e-mail from Sikander, we believe that the coal burned in the San Juan Generating Station should be classified as sub-bituminous.

Rita

From: Kuehn, Elizabeth, NMENV Sent: Friday, March 14, 2008 3:06 PM To: Uhl, Mary, NMENV; Trujillo, Rita, NMENV; Schooley, Ted, NMENV; Mustafa, Sufi A., NMENV; Kim, Gi-Dong, NMENV Subject: RE: PNM - NOx Information Review

A llBelow is a summary of our discussion with Sikander Khan at EPA regarding t he coal classification at the SJGS.

Thanks, Liz

From: Khan.Sikander@epamail.epa.gov [ma ilto:Khan.Sikander@epamail.epa.gov] Sent: Wed 2/27/2008 2:42 PM To: Kuehn, Elizabeth, NMENV Subject: RE: PNM - NOx Information Review

Liz,

Here is a summary of what we discussed today:

ASTM D 388 sets the guidelines for classifying coals and, especially for lignite, sub-bituminous and high-volatile bituminous coals, such classification is based on the higher heating value. For other coals, fixed carbon and volatile contents determine the exact class of these coals.

PNM does not provide sufficient in formation with thei r coal analysis to enable us to determine th e exact classification of their coal. They have provided on ly the average coal analys is. What we need is a range of analyses as well as information on surface moisture and ash mineral contents. With the gi ven information, the coal appears tofall in a gray area, where it can be classified as either sub-bituminous or high-volatile bituminous coal. However, since the analysis provided by PNM is for the average coal, it appears that some samples of this coal with heating values below the average may fall squarely in the sub-bituminous column. Please note that, if the analysis provided by PNM is av erage, chances are that half of the samples of this coal would have heating values below the 9,502 Btu/lb listed as an average.

The chlorine content and volatil e matter of the aver age coal appear to be a lot like what would be expected of sub-bituminous coals. The chlorine content at 0.03% is too low (I would expect bituminous coal chlorine to be generally higher than 0.1%). Th e average volatile matter at 33.76% is fairly high and is more typical of sub-bituminous coals. PNM also states that the minimum volatile matter would be 48% on a dry, ash free basis, which is also very high and is representative of a sub-bitumi nous coal. All of these numbers are based on informatio n provided in the contr act PNM recently signed with B&W for the supply of combustion controls. For examples of analyses of US coals, you can refer to B&W's Steam book (41st Edition, Chapter 9, Table 5). This table shows that the volatile content of eastern bituminous co als can be as low as close to 16%. The sub-bituminous coals would have volatile contents always exceeding 30%. Given the low chlorine content, relatively low heating value, and relatively high volatile content, the PNM coal can be classified as sub-bituminous.

It is easier to combust a coal with a higher volatile content in a boiler. This ease of burning for sub-bituminous coals is known to improve efficiency of combustion controls employed to reduce NOx. With the high volatil e coal content, PNM can be expected to achieve good performance from their new combustion controls. You can see the projected differences in NOx reduction for bituminous and sub-bituminous coals with combustion controls on the EPA website,

http://www.epa.gov/airmarkets/progsregs/epa

- ipm/ . Please scroll down to the bottom area of this web page, under the Section, Documentation for EPA Base Case 2006 (v3.0). Click on Section 3 and go to Table A 3-1:3. The last two columns of this table show the NOx reduction efficiencies that can be achieve d with different types of combustion controls on bituminous and sub-bituminous coals. The difference in the efficiencies in more pron ounced if you use the formulae in the second-last co lumn. Here you can assume a baseline NOx rate (for example 0.5 lb/MMBtu) without co ntrols for the two coals and then apply the formulae to see that the NOx reductio n efficiency for subbituminous coal is better than what you can achieve with bituminous coal, with the same NOx controls. The last column is the default efficiency that is sti ll better for the sub-bituminous coals. The main factor behind these projections is th e coal volatile content.
In one of your previous emails, you had referred to documents where PNM and B&W had defined the above coal to fall under sub-bituminous category. I believe that those documents provide another solid proof that this coal should be considered sub-bituminous type.

The contact at our North Carolina office that I mentioned goes by the name Ravi Srivastava and hi s phone number is 919-541-3444.

I hope that the above is of some help to you in resolving the issues with PNM. Good luck.

Sikander Khan US EPA

5/8/2008Telephone: 202-343-9781 Fax: 202-343-2356 Email Address: khan.sikander@epa.gov

Confidentiality Notice: This e-mail, including all attachment s is for the sole use of the intended recipient(s) and may contain confidential and privilege d information. Any unauthorized review, use, disclosure or distribution is p rohibited unless specifically provided under the New Mexico Inspection of Public Records Act. If you are not the intended recipient, please contact th e sender and destroy all copies of this message. -- This email has been scanned by the Sybari - Antigen Email System.

5/8/2008APPENDIX B ASTM D388 GUIDELINEAPPENDIX C B&W LNB/OFA FUEL DESIGN CRITERIAP u b l i c S e r v i c e C o m p a n y o f N e w M e x i c o o December 20, 2006

San Juan Generating Station Unit 3 and Unit 4

EXHIBIT A PERFORMANCE GUARANTEES

Proposal No.: P-005733 Contract No.: 0635-169C (#3); 0635-169A (#4) Page 3 of 14 The Babcock & Wilcox Company a McDermott Company Table 1.2.1 – Burner Design/Guarantee Basis

Description Units Design Basis

Total Heat Input from Fuel MBtu/hr 5485
Excess Air (Leaving Economizer) % 20 Number of pulverizers in service (1) # 5 or 6 Number burners in service # 35 or 42 Primary Air to Coal Flow Ratio Lb-air/lb-coal 1.95 Air Temperature Leaving Air Heater Deg F 579 Feedwater Temperature Deg F 479 Furnace Pressure Inches w.g. 9.9
Windbox Pressure “ H2O 17.4 Pulverizer Outlet Temperature Deg F 150 Overfire Air Flow Mlb/hr 1,213 Note (1): BWC reserves the right to select which mill is out of service.

Table 1.2.2: Design/Guarantee Basis Fuel Criteria (1)

Fuel Type: Æ Design Coal

Proximate Analysis : %wt. (as-fired) Moisture 8.93 Ash 21.78 Volatile Matter (VM) 33.76

Fixed Carbon (FC) 35.53 Total 100.00

HHV (Btu/lb) 9,502

Ultimate Analysis: %wt. (as-fired) Moisture 8.93 Ash 21.78 Carbon 54.21 Hydrogen 4.04P u b l i c S e r v i c e C o m p a n y o f N e w M e x i c o o December 20, 2006

San Juan Generating Station Unit 3 and Unit 4

EXHIBIT A PERFORMANCE GUARANTEES

Proposal No.: P-005733 Contract No.: 0635-169C (#3); 0635-169A (#4) Page 4 of 14 The Babcock & Wilcox Company a McDermott Company Sulfur 0.76 Nitrogen 1.00 Oxygen 9.28 Chlorine 0.03

Total 100.0

Fuel Limits: % Volatile Matter (%wt. dry, ash free) > 48.0 % Oxygen (%wt. dry, ash free) > 13.0

(1) Fuel samples shall be collected during the testing to confirm compliance with these criteria. The fuel analyses shall be performed in accordance with ASTM standard procedures.

Table 1.2.3 – Flue Gas Analysis Entering Baghouse

ITEM UNIT 3&4 PERFORMANCE CONDITION DESIGN COAL Fuel Design coal Mass % Boiler Heat Input, MBtu/hr 5485.2

Flue Gas, lb/hr
CO 2 1,146,630 18.70
H 2 O 324,454 5.29
N 2 4,268,137 69.60
O 2 320,453 5.23
SO 2 8,600 0.14 HCl 210 0.003
SO 3 79 0.00 Ash, lb/hr + PAC lb/hr 63,464 1.035 Flue gas flow rate, lb/hr (w/solids) 6,132,027 100%APPENDIX D US COAL PROPERTIES (B&W STEAM, 41 ST EDITION, CHAPTER 9, TABLE 5)APPENDIX E PNM SJGS BART ANALYSIS (JUNE 2007) EXCERPT FROM SECTION 4.1.4SJGS fires a local New Mexico coal. Th e coal burned at SJGS has been referred to as both a subbituminous coal and a bitumi nous coal, since it possesses qualities that place it in a “gray area” between the bituminous and the subbituminous categories of coal. Based on these characteristics, th e ASTM D388 classification would place the SJGS coal in either of the bituminous Gr oup C or subbituminous Group A coal category. The difference between these two groups is not relevant, but the fact that the SJGS coal cannot be categorized as subbituminous Group C is very important in that subbituminous Group C includes PRB coals, which are known to produce very low NO x emissions when fired in utility boilers. Table 1 compares the fuel fired at SJGS to typical bituminous and PRB fuels. This fundamental unde rstanding of the variation in NO x formation from different types of US coals explains why the expected NO x rates of boilers burning the coal fired at SJGS cannot be as low as boilers firing PRB subbituminous coals. The coal burned at SJGS is less vola tile and has a lower oxygen and moisture content than PRB coals. The greater volat ility and higher oxygen and moisture content found in PRB fuels are key to the lower NO x emissions seen in boilers combusting PRB coal. The high volatility in PRB coals reduc es combustion time. The higher fuel oxygen content reduces the amount of additional air (i.e., nitrogen) required for combustion; the higher fuel moisture content reduces the fl ame temperature and, therefore, reduces the formation of thermal NO x . The nitrogen content in the fuel affects NO x generation because of the oxidation of fuel-bound n itrogen. As it relates to the amount of NO x generated from combustion, the coal burned at SJGS is more similar to the low-sulfur bituminous coal than it is to PRB subbituminous coal. A comparison of the New Mexico subbitumi nous coal burned at SJGS to a typical subbituminous PRB (Bucksin, WY mine) and a typical low-sulfur bituminous coal (Twentymile, CO mine) is shown in Table 4-3. Another factor affecting the potential for NO x reduction at SJGS is the boiler design. Because of the HHV of the coal, the SJGS boilers are smaller in size (effective boiler volume) than similar output capacity boilers combusting PRB coal. This has a negative effect on potential NO x emissions reduction because a smaller volume boiler will operate hotter, thus increasing thermal NO x formation. Additionally, SJGS Units 1 and 2 have limited flame length because of the high heat input bur ners on the front wall of the boiler. This reduces the effectiven ess of the overfire ai r from the OFA ports.Table 1 Coal Properties Comparison

Typical Subbituminous
PRB SJGS New Mexico Subbituminous Typical LowSulfur Bituminous Ultimate coal analysis, as received Carbon, % 49.00 54.52 64.05 Hydrogen, % 3.24 4.24 4.53 Sulfur, % 0.35 0.77 0.50 Nitrogen, % 0.63 1.08 1.63 Oxygen, % 11.68 9.38 10.09 Ash, % 5.15 21.29 9.80 Moisture, % 29.95 8.72 9.40 Total, % 100.00 100.00 100.00 Higher Heating Value, Btu/lb (as received) 8,400 9,692 11,400

Volatile matter, % (as received) 30.25 34.3 35.8 Volatile matter, % (dry) 43.18 37.6 39.5
Notes: 1. Typical subbituminous PRB analysis wa s based on Bucksin Mine (Wyoming).
2. Low-sulfur bituminous analysis was based on Twentymile Mine (Colorado).
3. SJGS New Mexico subbituminous analysis was based on BART analysis design basis.
4. SJGS New Mexico subbituminous volatile ma tter is referenced from SJGS consent decree Environmental Project Design Criteria, Sargent & Lundy, June 15, 2006.