### Attachment

NPS Comments on the BART Determination by New Mexico Environment Department for Public Service Company of New Mexico’s San Juan Generating Station, Units 1

- 4 August 1 7
, 2010

San Juan Generating Station Source Description:

The 

### San Juan Generating Station (SJGS) consists of four coal

- fired electric generating units (EGUs) and associated support facilities. Coal for the units is supplied by the adjacent San Juan Mine and is delivered to the facility by conveyor. SJGS Units 1 and 2 are Fost er Wheeler subcritical, dry

- bottom,

wall

- fired boilers that operate in a forced draft mode and have a unit capacity of 360 and 350 MW, respectively. Units 3 and 4 are B&W subcritical, dry

- bottom, opposed wall

- fired boilers that operate in a

forced draft mo de , and each have a unit capacity of 544 MW. The presumptive limits for Nitrogen Oxide ( NOx ) , which apply to each boiler (> 200 MW) at this large (>750 MW) facility are 0.23 lb/ mmB tu for dry bottom

, wall

- fired boilers burning sub

- bituminous coal.

Consent Decree: On March 5, 2005, 1 Public Service of New Mexico (PNM) entered into a consent decree (CD) with the Grand Canyon Trust, the Sierra Club, and the New Mexico Environment Department ( NMED ) to settle alleged violations of the C lean A ir A ct . The consent decree required PNM to meet a particulate matter ( PM ) average emission rate of 0.015 lb/ mmB tu (measured using EPA Reference Method 5), and a 0.30
lb/ mmB tu emission rate for NO X (daily rolling, thirty day average), for each of Units 1, 2, 3, a nd 4. As a

re sult, PNM has installed new Low

- NO X burners (LNB) with overfire air (OFA) ports and a neural network (NN) system to reduce NO X emissions, and pulse jet fabric filters to reduce the PM emissions. In 2009, SJGS ranked #10 in the nation with NO X emissions of 18,359 tons.

Based upon the modeling results presented by NMED, the cumulative (three

- year 98 th percentile average) impact of SJGS’ pre

- consent decree emissions ranked fifth

- worst of all of the BART sources we have evaluated at 24.47 dv, w ith the maximum (three

- year 98 th percentile average) impact of 4.38 dv occurring

at Mesa Verde National Park. SJGS’ post

- cons ent decree impacts are now estimated by NMED to be 19.84 dv cumulatively, with the maximum (three

- year 98 th percentile average) imp act of 3.57 dv occurring at Mes a Verde National Park. If the BA RT proposals of the four BART sources 2 with higher cumulative impacts are implemented as proposed, SJGS post

- consent decree impacts would then rank

fourth

- worst (ahead of PGE Boardman after it installs Selective Catalytic Reduction ( SCR ) )

.

PNM’s BART Analysis for NOx and PM: PNM submitted the BART analysis for the SJGS to the NMED on June 6, 2007. The BART analysis was performed in two stages. First, a BART anal ysis was performed for the consent decree technologies being implemented at the SJGS. In the second stage of the BART analysis, additional control technology alternatives to the consent decree technologies were identified and evaluated. To determine the vi sibility improvements from both the consent decree technology upgrades and additional control technology, the

NMED determined it was appropriate to review both pre

- consent decree to consent decree visibility improvement and improvement projected from conse nt decree plus additional control technologies.

T he Five

- Step Process in the BART Analysis: Step 1

– Identify All Available Retrofit Control Technologies Step 2

– Eliminate Technically Infeasible Options

1 On May 5, 2004

, EPA proposed new BART provisions and re

- proposed the BART guidelines.

2 Four Corners Power Plant, Navajo Generating Station, Centralia, PGE Boardman2

Step 3

– Evaluate Control Effectiveness of Remaining Control Technologies Step 4

– Evaluate Impacts and Document the Results a) Costs of Compliance b) Energy Impacts c) Air quality environmental impacts d) Non

- air environmental impacts e) Remaining useful life Step 5

– Evaluate Visibility Impacts

Step 1 of the BART Analysis: Identification of All Available Retrofit Emissions Control Technologies

NOx Control Technologies PNM identified the following available NOx control technologies: 1) Low NOx Burners, Overfire Air, and Neural Network 2) Selectiv e Non Catalytic Reduction (SNCR) 3) Selective Catalytic Reduction (SCR) and SCR plus Sorbent Injection 4) SNCR/SCR Hybrid and SNCR/SCR Hybrid plus Sorbent Injection 5) Gas Reburn 6) Nalco Mobotec ROFA and Rotamix 7) NOxStar 8) ECOTUBE 9) PowerSpan ECO 10) Phenix Clean Combustion 11) e

- SCRUB

PM Control Technologies

PNM identified the following technologies as available in their BART analysis for PM. 1) Flue Gas Conditioning with Hot

- Side ESP 2) Pulse Jet Fabric Filter (PJFF) 3) Compact Hybrid Particulate Co llector 4) Max

- 9 Electrostatic Fabric Filter

NPS: W e agree that NMED has evaluated a comprehensive suite of control options.

Step 2 of the BART Analysis: Eliminate Technically Infeasible Control Technologies

NOx Control Technologies
PNM excluded the fol lowing NOx control technologies:

1) Selective Non Catalytic Reduction PNM determined that SNCR technology was technically infeasible because the technology was unable to meet the presumptive limits for NOx; determined by EPA to be 0.23 lb NO X / mmB tu for dry bottom

, wall

fired boilers burning sub

- bituminous coal. A vendor estimated that the technology could only achieve
0.24 lb NO X /mmBtu . In order for the technology to achieve the presumptive limit, PNM stated that the ammonia slip limit would need to be r aised from 5 ppm to 10 ppm, and that this higher ammonia slip posed additional operational problems.

The NMED did not agree with PNM’s assertion that

, because SNCR could not meet the presumptive

limits

, the technology should be eliminated as technically i nfeasible. Therefore

, the NMED requested3

PNM to perform the complete five

- factor BART analysis required by the BART Guidelines on SNCR.

PNM submitted the five

- factor analysis of SNCR in a subsequent submittal dated May 30, 2008.

2) Natural Gas Reburn: PNM determined that the current boiler space inhibits sufficient residence time for the natural gas reburn zone.

3) NalcoMobotec ROFA (Rotating Over Fire Air) and Rotamix: PNM determined the Rotamix technology was technically infea sible due to limited application at coal

- fired boilers equivalent to the size
of Units 1

- 4 at SJGS. PNM determined ROFA technology was technically infeasible because ROFA is a variant of OFA, which at the time was being installed at Units 1

- 4 at SJGS.

The NMED did not agree with PNM’s position that Rotamix has limited application at coal

- fired boilers equivalent to the size of Units 1

- 4 at SJGS. The NMED did not agree that because ROFA is a variant of OFA, the technology can be eliminated as technically in feasible. Therefore

, the NMED requested PNM to perform the complete five

- factor analysis for ROFA and Rotamix. PNM performed the analysis and submitted the analysis in two subsequent submittals dated March 29, 2008

, and August 29, 2008.

4) NOxStar : NOxStar currently has only one major installation in the US. In addition, PNM stated that in recent discussions the supplier has identified limited ability and willingness to market the commercial technology.

5) ECOTUBE : ECOTUBE has limited application t o boilers similar to Units 1

- 4 at the SJGS.

6) PowerSpan : PowerSpan has not been demonstrated on large boilers, such as Units 1

- 4 at SJGS.

7) Phenix Clean Combustion : PNM determined that the Phenix Clean Combustion system is still in the

demonstration and testing stage, and there are no commercial retrofits at facilities similar to SJGS.

8) e

- SCRUB : PNM determined that the e

- SCRUB technology has only one known medium scale

installation with limited data.

PM Control Technologies
PNM excluded the foll owing PM control technologies as technically infeasible:

1) Flue Gas Conditioning with Hot

- Side ESP : Flue gas conditioning does improve collection efficiencies,
but will not achieve an emission limit lower than the current PM limit in their air quality pe rmit.

2) Compact Hybrid Particulate Collector : The compact hybrid particulate collector does not provide a performance guarantee lower than the current permitted limit for PM.

3) Max

- 9 Electrostatic Fabric Filter : The Max

- 9 electrostatic fabric filter has been installed in a small

sized utility boiler, but there are no commercial installations of a similar size to Units 1

- 4 at SJGS.

During the NMED review of available PM control technologies, the NMED requested PNM to perform a complete five

- factor BA RT analysis on Wet Electrostatic Precipitator (WESP). The NMED believes this technology should have been identified as technically feasible in Step 1 of the PM BART analysis. PNM performed a complete five

- factor BART analysis on WESP and PJFF and submitted this information in a subsequent submittal dated August 28, 2008.

NPS: We agree with NMED’s selection of technically

- feasible control options.4

Step 3 of the BART Analysis: Evaluate Control Effectiveness of Remaining Control Technologies



### PNM contracted with Black & Veatch ( B&V ) to determine the control effectiveness of each remaining available NO X 

### and PM control technology for Units 1

- 4. F or the LNB/OFA+SCR option, PNM assumed 0.07 lb/mmBtu; this represents only a 77% reduction from the current
LNB/OFA 0.30 lb/mmBtu emission rate

.

NPS: PNM has underestimated the ability of SCR to reduce emissions. EPA’s Clean Air Markets (CAM) data and vendor guarantees 3 

### show that SCR can typically meet 0.05 lb/mmBtu (or lower) on an annual average basi s. 4 

### We are including 2007

- 2009 CAM data ( electronic Appendix A ) that shows that SCR can achieve year

- round emissions of 0.05 lb/mmBtu or lower

at 26 coal

- fired EGUs, eight of which are dry

- bottom, wall

- fired units like SJGS. Although we

believe that SCR is capable of even lower annual NO

x 

### emissions at SJGS, we will continue to assume 0.05 lb/mmBtu in our analyses to reflect our understanding of vendor guarantees. 5 

### PNM has not provided any documentation or justification to support the higher values used in its analyses.

W e are also presenting information from industry sources that supports our understanding that
SCR can achieve 90% reduction 6 

### and reduce emissions to 0.05 lb/mmBtu or lower 7 

### on coal

- fired boilers. For example, according to the Institute of C lean Air Companies white paper titled “Selective Catalytic Reduction (SCR) Control of NO

x 

### Emissions from Fossil Fuel

- Fired Electric Power Plants” (published in May 2009), “ By proper catalyst selection and system design, NO X 

### removal efficiencies exceeding 90 percent may be achieved.” And, according to the June 13, 2009 “Power” magazine article “Air Quality Compliance: Latest Costs for SO 2 

### and NO X 

### Removal (effective coal clean

- up has a higher

– but known

–

price tag)” by Robert Pe ltier, “An excellent example of the significant investment many utilities have made over the past decade is American Electric Power (AEP), one of the largest public utilities in the U.S. with 39,000 MW of installed capacity with 69% of that capacity coal

- f ired. AEP is under a New Source Review (NSR) consent decree signed in 2007 that requires the utility install air quality control systems to

reduce NO X 

### by 90%...”

3 Minnesota Power has stated in its Taconite Harbor BART analysis that “The use of an SCR is expected to achieve

a NO X emission rate of 0.05 lb/mmBtu based on recent emission gu arantees offered by SCR system suppliers.”

4 For example, Salt River Project is using 0.05 lb/mmBtu as the design basis for its revised analysis of adding SCR at its Navajo Generating Station.

5 A NO X limit of 0.06 lb/mmBtu is appropriate for LNB/OFA+SCR f or a 30

- day rolling average, and 0.07 lb/mmBtu

for a 24

- hour limit and for modeling purposes, but a lower rate (e.g., 0.05 lb/mmBtu or lower) should be used for annual average and annual cost estimates.

6 For example, please see the May 2009 Institute of Clean Air Companies white paper titled “Selective Catalytic Reduction (SCR) Control of NO

x Emissions from Fossil Fuel

- Fired Electric Power Plants” and the June 13, 2009

, “Power” magazine article “Air Quali ty Compliance: Latest Costs for SO2 and NOx Removal (effective coal clean

up has a higher

– but known

– price tag)” by Robert Peltier. http://www.masterresource.org/2009/06/air

- quality

compliance

- latest

- costs

- for

- so2

- and

- nox

- removal

- effective

- coal

- clean

- up

- ha s

- a

- higher

- but

- known

- price

- tag/

7 12/15/09 presentation by Rich Abram of Babcock Power to the Minnesota Pollution Control Agency. Not only does Babcock Power say that SCR can achieve 0.05 lb/mmBtu, they are currently designing systems to go as low as

0.02 lb/mmBtu.5

Step 4 of the BART Analysis: Perform Impacts Analysis of Remaining Control Technologies

B&V pr epared the design parameters and developed estimates of capital and annua l costs for applications of SCR, SCR/SNCR Hybrid, ROFA, Rotamix, ROFA/Rotamix, P JFF, and WESP technologies. B&V relied on a number of sources to prepare the design parameters, inclu di ng information from the Nalco Mobotec equipment vendors, EPA cost manuals, engineering and performance data, and B&V’s own in

house engineering estimates.

PNM evaluated the energy impacts, non

- air quality environmental impact s, and remaining useful life of all additional technically feasible control options for NO X and PM. Following the initial submittal, the

NMED made additional requests for information on the impact analysis for SCR, SNCR, ROFA, Rotamix and WESP, and for furthe r consideration of inherent and additional control of SO 3 from both the SCR and SCR/SNCR Hybrid technology.

SCR Costs
The NMED reviewed the original cost analysis for SCR technology and subsequently requested PNM to provide additional information on the basis of their cost analysis of SCR technology. In response to the request, B&V provided additional clarification for the cost analysis f or SCR technology and submitted it

to the NMED on March 29, 2008. The submittal discussed how t he OAQPS control co st manual (Cost Manual) is an insufficient method for determining actual costs of retrofitting t he SJGS with SCR and provided a comparison between cost estimation based on the OAQPS manual and the B&V provided

estimate.

NPS: The B& V document discussed the need to escalate costs estimated using the Cost Manual

, and we agree. We have been advised by OAQPS 8 to use the Chemical Engineering Plant Cost Index (CEPCI) which has risen from 389.5 in 1998 (the Cost Manual SCR reference date) t o 521.9 in 2009. Application of the CEPCI indices results in an escalation of 1998 costs to 2009 by a factor of 1.34. It appears that PNM has escalated costs from 1998 to 2007 by a factor of 1.66.



### We are not sure how B&V concluded that “the Cost Manual is geared more towards developing

costs for new units than retrofitting controls on existing units.” The Cost Manual clearly contains an adjustment for retrofit situations.

“B&V takes guidance from EPA’s CUECost program in developing the costs of SCR system s,” EPA has explicitly advised use of the Cost Manual instead of CUECost. 9

PNM is including a separate cost for Owner’s Costs: “ 

### Owner’s costs include items such as staff for site coordination during construction, equipment receiving, contract management, interface with regulatory agencies, and owner engineering costs.” In its May 10, 2010

, formal comments to the

8 July 21, 2010, e

- mail from Larry Sorrels of EPA OAQPS to Don Shepherd: “ On cost indexes, I prefer the CEPCI for escalating/deescalating costs for chemical plant and utility processes since this index specifically covers cost items that's pertin ent to pollution control equipment (materials, construction labor, structural support, engineering & supervision, etc.).The Marshall & Swift cost index is useful for industry

- level cost estimation, but is not as accurate at a disaggregated level when compa red to the CEPCI. Thus, I recommend use of the CEPCI as a cost index where possible. ”

9 November 7, 2007

, statement from EPA Region 8 to the Nor th Dakota Department of Health: The SO 2 and PM cost analyses were completed using the CUECost model. According to the BART Guidelines, in order to maintain and improve consistency, cost estimates should be based on the OAQPS Control Cost Manual. Therefore, these analyses should be revised to ad here to the Cost Manual methodology.6

North Dakota Depart ment of Health, EPA rejected the inclusion of “Owner Costs” in the analysis of adding SCR to the Milton R. Young (MRYS) power plant: As noted above, the total direct capital costs used by B&McD appears to be overestimated. A large portion of this discrepa ncy comes from the “other” costs added by B&McD (Table 2) that are not included in the Control Cost Manual. These appear to be strictly contingencies and accounting items which would not be at all unique to MYRS and, therefore, are not justified in the an alysis. These accounting items are unauthorized under the Control Cost Manual, create an unlevel playing field for comparison with other BACT analyses and alone account for an increase in capital costs from the Control Cost Manual by a factor

of 1.6.



### In section 2.16, “Construction Indirects”, PNM discusses the “c ost items included in construction indirects include construction equipment, construction contractor overhead and profit, tools, site trailers and utilities, construction supervision, and construc tion contractor administrative support.” PNM then states that, “The Cost Manual does not address these costs in any way yet these are real costs that will be incurred in order to support the direct cost of installing the SCR system.” We believe that the Co st Manual does indeed, address these costs as discussed below.

Chapter 2

. Cost Estimation: Concepts and Methodology 2.3.1 Elements of Total Capital Investment

Indirect installation costs include such costs as engineering costs; construction and field expenses (i.e., costs for construction supervisory personnel, office personnel, rental of temporary offices, etc.); contractor fees (for construction and engineering firms involved in the project); start

- up and performance test costs (to get the control sy stem running and to verify that it meets performance guarantees); and contingencies.

Chapter 2
, Selective Catalytic Reduction 2.4.1 Total Capital Investment
, Indirect Capital Costs Indirect installation costs are those associated with installing and erecting the control system equipment but do not contribute directly to the physical capital of the installation. This generally includes general facilities and engineering costs such as construction and contractor fees, preproduction costs such as startup and testing, inventory capital and any process and project contingency costs.

In his book Estimating Costs of Air Pollution Control , William Vatavuk (who was primarily responsible for the Cost Manual while at EPA) provides this insight regarding Indirect Costs:
"The indirect (soft) installation costs comprise engineering costs, construction and field expenses (e.g., rental of trailers and like equipment), contractor fees (for firms involved in the project), startup and performance tests (to get the contr ol system running and to verify that it meets the vendor's guarantees), and contingencies."



### PNM states that “there are two main reasons that the Cost Manual was not used. First, the price of SCR systems (and other AQC retrofits) has increased dramaticall y in the past 10 years, and especially since 2005. Second, the Cost Manual does not include many categories of equipment and construction that are required for the complete installation of an SCR system consistent with common industry practices. ” However, a common

- sense application of an escalation factor (such as the CEPCI) to the Direct Capital Cost remedies the first problem, and we disagree that the Cost Manual approach omits significant costs.7



### We note that, in NMED’s December 21, 2007

, letter to PNM, the NMED requested that the cost estimate for SCR be performed using the OAQPS Cost Manual. While PNM presented an extensive comparison of its method for estimating capital costs versus that of the Cost Manual,

we were unable to find a simi lar discussion regarding annual costs. The only information we could find regarding annual costs (which are critical to the cost

- benefit analyses), was contained in PNM’s Appendix B “ Details of Cost Calculation Using OAQPS Cost Manual .”

We also performed a parallel cost estimate using the Cost Manual for SJGS Unit 3 (see

electronic attachment Appendix B ) . However, we used the CEPCI ratio and catalyst 10 

### and ammonia costs obtained from vendor quotes and from Salt River Project’s BART analysis for the Navajo Generating Station because they were better

- documented an d appeared more realistic.

Our 2009 Direct Capital Cost was $28 million (versus PNM’s $37 million in 2007) and our Total Capital Investment was $39 million (versus PNM’s $52 million). The differences between the two sets of estimates are primarily due to the escalation factors used.

Regarding annual costs, using its 1998 Direct Capital Cost (which yielded a Total Capital

Investment and Indirect Annual Cost that is too low ), PNM estimated a Direct Ann ual Cost of $3.5 million, an Indirect Annual Cost of $ 3.0 million and a Total Annual Cost of $6.4 million. Using our 2009 Direct Capital Cost, we estimated a Direct Annual Cost of $3.0 million, an Indirect Annual Cost of $3.7 million and a Total Annual Cost of $6.7 million.

PNM has overestimated the cost of adding SCR to all four units at SJGS. A useful metric for estimating the Total Capital Investment (TCI) is the SCR cost expressed in $/kW. The TCI costs estimated by PNM are shown below:

Unit SJGS #1 SJGS #2 SJGS #3 SJGS #4 Capital Cost (TCI) $156,805,000 $ 169,251,000 $ 215,568,000 $ 199,558,000 Capital Cost ($/kW) $ 436 $ 484 $ 396 $ 367

Further evidence that PNM has overestimated its SCR costs can be found in a June 2009 article in “Power” magazine: 11

“One more current data set is the historic capital costs reported by AEP averaged over several years and dozens of completed projects. For example, AEP reports that their historic average capital costs for SCR systems are $162/kW for 85% to 93% NO X removal...”

“...historical data finds the installed cost of an SCR system of the 700MW

- class as approximately $125/kW over 22 units with a maximum reported cost of $221/kW in 2004 dollars. This data was reported prior to the dramatic increase in commodity prices of 14% per year average experienced from 2004 to 2006 (from the FGD survey results). Applying those annual increases to the 2004 estimates for three years (f rom the date of the survey to the end of 2007) produces an average SCR system installed cost of $185/kW...”

10 2010 vendor quotes for low

- oxidation catalyst ranged from $4,895 to $6,250 per cubic meter.

11 June 13, 2009

, “Power” magazine article “Air Quality Compliance: Latest Costs for SO2 and NOx Removal (effective coal clea n

- up has a higher

– but known

– price tag)” by Robert Peltier. http://www.masterresource.org/2009/06/air

- quality

- compliance

- latest

- costs

- for

- so2

- and

- nox

- removal

- effective

- coal

clean

- up

- has

- a

- higher

- but

- known

- price

- tag/8 “Overall, costs were reported to be in the $100 to $200/kW range for the majority of the systems, with only three reported installations exceeding $2 00/kW.”



### Five industry studies conducted between 2002 and 2007 have reported the installed unit capital cost of SCRs, or the costs actually incurred by owners, expressed in dollars per kilowatt. These actual costs are lower than estimated by PNM for SJ GS.

The first study evaluated the installed costs of more than 20 SCR retrofits from 1999 to 2001. The installed capital cost ranged from $106 to $213/kW, converted to 2007 dollars. 12 

### Costs are escalated through using the Chemical Engineering Plant Cost Index ("CEPCI").

The second survey of 40 installations at 24 stations reported a cost range of $76 to $242/kW

, converted to 2007 dollars. 13



### The third study, by the Electric Utility Cost Group, surveyed 72 units totaling 41 GW, or 39% of installed SCR systems in the U.S. This study reported a cost range of $118/kW to $261/kW

, converted to 2007 dollars. 14



### A fourth study, presented in a course at PowerGen 2005, reported an upper bound range of $180/kW to $202/kW , converted to 2007 dollars. 15



### A fifth summary study, focused on recent applications that become operational in 2006 or were scheduled to start up in 2007 or 2008, reported costs in excess of $200/kW on a routine basis, with the highest application slated for startup in 2009 at $300/kW. 16



### Thus, the overall range for these industry studies is $50/kW to $300/kW . The upper end of this range is for highly complex retrofits with severe space con straints, such as Belews Creek, reported to cost $265/kW

, 17 

### or Cinergy's Gibson Units 2

- 4. Gibson, a highly complex, space

-

12 Bill Hoskins, Uniqueness of SCR Retrofi ts Translates into Broad Cost Variations, Power Engineering, May 2003. Ex. 2. The reported range of $80 to $160/kW $123

- $246/kW was converted to 2008 dollars ($116

- $233/kW) using the ratio of CEPCI in 2008 to 2002: 575.4/395.6.

13 J. Edward Cichanowicz, Why are SCR Costs Still Rising?, Power, April 2004, Ex. 3; Jerry Burkett, Readers Talk Back, Power, August 2004, Ex. 4. The reported range of $56/kW

- $185/kW was converted to 2008 dollars ($83

- $265/kW) using the ratio of CEPCI f or 2008 to 1999 (575.4/.390.6) for lower end of the range and 2008 to 2003 (575.4/401.7) for upper end of range, based on Figure 3.

14 M. Marano, Estimating SCR Installation Costs, Power, January/February 2006. Ex. 5. The reported range of $100

- $221/kW w as converted to 2008 dollars ($130

- $286/kW) using the ratio of CEPCI for 2008 to 2004: 575.4/444.2. http://findarticles.com/p/articles/mi_qa5392/is_200602/ai_n21409717/print?tag=artBody;col1

15 PowerGen 2005, Selective Catalytic Reduction: From Planning to Operation, Competitive Power College, by Babcock Power, Inc. and LG&E Energy, December 2005, Ex. 6. The reported range of $160

- $180/kW) was converted to 2008 dollars ($197

- $221/kW) using the ratio of CEPCI for 2008 to 2005 (575.4/468.2).

16 J. Edwar d Cichanowicz, Current Capital Cost and Cost

- Effectiveness of Power Plant Emissions Control Technologies, June 2007, pp. 28

- 29, Figure 7

- 1 (Ex. 1).

17 Steve Blankinship, SCR = Supremely Complex Retrofit, Power Engineering, November 2002, Ex. 7. The unit

c ost:($325,000,000/1,120,000kW)(608.8/395.6)=$290/kW. http://pepei.pennnet.com/display_article/162367/6/ARTCL/none/none/1/SCR

- =

- Supremely

- Complex

- Retrofit/9



### constrained retrofit in which the SCR was built 230 feet above the power station using the largest crane in the world, 18 

### only cost $251 /kW in 2007 dollars. 19



### All of PNM’s TCI estimates, when reduced to $/kW, far exceed even the highest co s ts reported by the industry. In addition to its high estimates for Direct Capital Cost (DCC), it appears that PNM has applied much higher ratios to the DCC than used by the Cost Manual to

estimate Indirect Installation Costs. (Please see our cost analyses in electronic Appendix B .) Fo r example, the PNM estimates for T otal Indirect Installation Costs are typically 50% of the DCC, compared to the 20% ratio used by the Cost Manual. PNM’s Total Plant Costs are typically 170% of the DCC, versus the 138% used by the Cost Manual. And, PNM’s T otal Capital Investment is typically 217% of the DCC versus the Cost Manual’s 141% ratio.

In addition to the unusually high ratios used by PNM to estimate its TCI, the estimates generated by PNM for its operating costs are also consistently higher than corresponding estimates generated by the Cost Manual.

PNM used a 3% TCI factor instead of th e Cost M anual ’s 1.5% to estimate its annual

maintenance costs. PNM’s reagent costs (per ton) are much higher than any we have seen elsewhere. PNM’s power costs are much higher than the Cost Manual estimate.

PNM has assumed a two

- year catalyst life instead of the typical three years. PNM’s estimates are based upon achieving 0.0 7 lb/mmBtu, which represents 77 % NO

x 

### reduction from the Consent Decree limit of 0. 30 lb/mmBtu to be achieved by combustion controls. Although modern SCR systems are typically designed to achieve 90+% NO

x 

### reductions, we assumed a 0.05 lb/mmBtu ( an 83 % reduction) “target” for SCR based upon the performance of the boiler retrofits discussed above.

T hese issues collectively result in PNM’s extraordinarily high Total Annual Cost and Cost/ton

estimates.

As recommended by the BART Guidelines, we applied the OAQPS Control Cost M anual and industry data to SJGS . (Please see the workbooks in electronic Appendix B .) We assumed that

addition of SCR would reduce NO

x 

### to an annual emission rate of 0.05 lb/mmBtu. 20 

### We a lso assumed that Total Capital I nvestment for each of the SJGS units would be $200/kW, which appears to be the current industry avera ge for adding SCR. Using as much of the PNM information as was relevant, we estimated Direct Annual Costs, Total Annual Costs, and Costs per Ton of NO X 

### removed.

18 Standing on the Shoulder of Giants, Modern Power Systems, July 2002, Ex. 8.

19 McIlvaine, NOX Mar ket Update, August 2004, Ex. 9. SCR was retrofit on Gibson Units 2

- 4 in 2002 and 2003 at $179/kW. Assuming 2002 dollars, this escalates to ($179/kW)(608.8/395.6) = $275.5/kW.
http://www.mcilvainecompany.com/sampleupdates/NoxMarketUpdateSample.htm

20 Our r eview of CAM data ( see electronic Appendix A ) for eastern wall

- fired EGUs retrofitted with SCR indicates that they can meet 0.05 lb/mmBtu on an annual average basis.Unit SJGS #1 SJGS #2 SJGS #3 SJGS #4

Controlled Emissions (tpy) 730 704 1,094 1,140
Emissions Reduction (tpy) 3,649 3,520 5,468 5,698
Capital Cost (TCI) $ 72,000,000 $ 70,000,000 $ 108,800,000 $ 108,800,000 Capital Cost ($/kW) $ 200 $ 200 $ 200 $ 200

Direct Annual (O&M) Cost $ 2,760,029 $ 2,681,266 $ 4,169,103 $ 4,238,137

Total Annualized Cost $ 9,556,319 $ 9,288,771 $ 14,439,054 $ 14,508,087

Cost

- Effectiveness ($/ton) $ 2,619 $ 2,639 $ 2,641 $ 2,546



### Installation of SCR is typically done in conjunction with upgrading of combustion controls, and the overall costs and benefits are expressed as a “package.” However, PNM has installed the combustion controls to comply with the Consent Decree, so the cos ts have been split between the relatively inexpensive combustion control segment and the relatively expensive SCR segment.

The table below shows the total NO X 

### - control “package” costs.

Unit SJGS #1 SJGS #2 SJGS #3 SJGS #4
Emissions Reduction (tpy) 5,532 6,181 8,180 8,547

Capital Cost $ 86,500,000 $ 84,126,000 $ 121,515,000 $ 121,670,000
Capital Cost ($/kW) $ 240 $ 240 $ 223 $ 224

Annualized Cost $ 10,978,319 $ 10,666,771 $ 15,679,054 $ 15,764,087

Cost

- Effectiveness ($/ton) $ 1,985 $ 1,726 $ 1,917 $ 1,844



### The Total Capital Investment would be approximately $ 414 million.

The Total Annual Cost to remove over 2 8,000 tons/yr would be $ 53 million or $ 1,900 /ton.

T he controlled NO X 

### emission rate would be 3,700 tpy, and SJG S would become the 235 th


### largest NO

x 

### source in the U.S.

A unit

- by

- unit compilation of our detailed cost estimates is presented in (electronic file) Appendix B

.

Step 5 of the BART Analysis: Visibility Impacts Analysis of Remaining Control Technologies

The modeling approach followed the requirements described in the WRAP’s BART modeling protocol, CALMET/CALPUFF Protocol for BART Exemption Screening Analysis for Class I Areas in the Western United States dated August 15, 2006 . The refined modeling methodology is described in detail below.

Modeling Results From the air dispersion modeling methodology outlined in the previo us section, a CALPUFF model r un was conducted for the following control technologies for each unit during the BART engineeri ng analysis, including the pre

- consent decree: Consent Decree, Rotamix, ROFA/Rotamix, ROFA, SCR/SNCR Hybrid (SCR/SNCR Hybrid with Inherent SO 3 Removal), SCR with Sorbent (SCR with
Inherent SO 3 Removal and Sorbent Injection), PJFF, and WESP. To simplify the quantity of the modeling results, total visibility impacts at all 16 Class I areas were used to make comparisons of each control technology’s performance.11

NPS: We commend NMED for its thoroughness in modeling the viable NO X control options and for its presentation of those results in a way that illustrates the cumulative benefits of improving visibility across all 16 Class I areas. We suggest that modern low

- oxidation catalysts coupled with the inherent sulfuric

acid mist re moval capabilities of the air

- heater, baghouse, and wet scrubber would result in minimal

additional sulfuric acid mist emissions. For example, when we applied the EPRI method for esti mating

sulfuric acid mist emissio ns (see electronic Appen dix C ), we found that addition of SCR with a 0.5% oxidation catalyst 21 would add only 3

– 6 lb/hr of sulfuric acid mist emissions. It appears that the modeling results that most

- closely represent the likely emissions after addition of SCR are from the SCR with sorbent inje ction case.

Visibility Impact of NOx Control Technology The results of the facility

- wide analysis indicate the installation of SCR with sorbent control technology results in maximum visibility improvement at all of the 16 Class I areas when compared to the impact of the other control options. It is important to note that SCR with sorb ent control technology improves visibility more significantly than the other control options at Mesa Verde National P ark, which is the

closest , and most im

pacted, Class I area to the facility.

NPS: Modeling results for the SCR with inherent SO 3 removal and sorbent injection indicate that th is option would red uce cumulative impacts by 7.9 dv (as illustrated by NMED Figure 4) with a 1.2 dv improvement at Mesa Verde NP.

Visibility Impact of PM Control Technology The visibility modeling performed for the WESP control option was p erformed on a facility

- wide and

unit

- by

- unit basis. The results of the facility

- wide analysis demonstrate a net improvement of 0.62 dv at Mesa Verde National Park and 0.14 dv improvement at San Pedro Parks Wilderness. The amount of visibility improvement at all other Class I areas was equal to or less than 0.1 dv improvement.

The results of the unit

- by

- unit impact analysis demonstrate a 0.21 dv i mprovement for Units 3 and 4 at Mesa Verde National Park. However, all other impact analyses show le ss than a 0.1 dv improvement at any of the Class I areas for Units 1

- 4.

NMED Selection of BART for PM and NOx In accordance with Section 169A(g)(7) of the Clean Air Act, the NMED considered the following five statutory factors in the BART analysis for the SJGS: (1) the cost s of compliance; (2) energy and nonair quality environmental impacts of compliance; (3) any existing pollution control technology in use at the source; (4) the remaining useful life of the source; and (5) the degr ee of improvement in visibility which may reasonably by anticipated to result from the use of such technology.

PM BART Determination

B ased on the five factor analysis, the NMED has determined th at BART for Units 1

- 4 for PM is existing PJFF technology and the existing emission rate of 0.015 lb/ mmB tu. The NMED ’s determination of BART was based on the following results of the full five fact or analysis: 1) Each of Units 1

- 4 is equipped with PJFF and is subject to a federall y

- enforceable emission limit of

0.015 lb PM/ mmB tu. 2) The NMED reviewed both the cost

- effectiveness and incremental cost

- effectiveness of additional control technology (WES P) and found these costs to be excessive. 3) There are additional energy impacts associated with the WES P technology and the NMED considers

these costs to be reasonable.

21 as assumed by Salt River Project for SCR at its Navajo Generating Station12

4) The NMED reviewed the visibility improvement that result ed from the installation o f the consent decree technology (PJFF and LNB/OFA) and that wo uld result from the addition of WESP technology.

The NMED determined that on a facility

- wide basis the visibility improved by 1.06 deciviews (dv) from

the installation of the co nsent decree tech nology at Mesa Verde National Park (Mesa Verde). The

installation of WESP would result in a facility

- wide improvement of 0.62 dv at Mesa Verde. Improvements on a unit

- by

- unit basis at all Class I areas showed very minor improvements, usually less
than 0.1 dv.

NOx BART Determination Based on the five factor analysis, the NMED has determined that BART for Units 1

- 4 for NOx is SCR plus sorbent injection and an emission rate between 0.03 and 0.07 lb/ mmB tu. The NMED ’s determination
of BART was based on the following results of the five factor analysis:

1) The PNM cost

- effectiveness of SCR + sorbent technology ranges from $5,946/ton for Unit 4 to $7,398/ton for Unit 2, and the incremental cost

- effectivene ss of SCR + sorbent ranges from $1,691/ton

for Unit 4 to $4,431/ton for Unit 2. Although th e NMED finds these values acceptable, they are conservative as demonstrated by the following evidence. These values are based on: (a) implementing the SCR projects separately at each u nit (expected synergies between the construction projects should lower these costs); (b) incorpor ating the cost of SCR bypass at each unit without sufficient justification for why

alternative fuels cannot be considered thus eliminating the need of the bypass altogether, or why the bypass fo r Units 3 and 4, two baseload units, could not be retrofitted with a catalyst that could

a ccommodate occasional startups, eliminating their bypass; (c) including the cost of a full balance d

- draft
conversion at each unit without sufficient justification of the 10 inches of additional pre ssure drop; 22 (d) including labor costs at the rates reflective of pre

- recession 2007 values; (e) including th e cost of purchase

power for 5 full weeks at each unit, 23 despite lack of detailed sche dule provided by PNM; (f) PNM’ s inclusion of various over

- head and other factors without ap propriate basis; and (g) an SCR removal efficiency of 77%, which significantly underestima tes the tons of NOx that can be removed (SCR can typically achieve 90% removal efficiency). Additionally, PNM assumed that SO2 to SO3 conversion of 1% due to the SCR catalyst. Lower conv ersion catalysts are available, leading to lower sorbent and capital

costs.

The NMED does not necessarily agree with the cost

- estimates supplied in the impact analysis and finds some of the costs have not been fully justified. Cost es timates for SCR supplied by the NPS were consistently three to over four times lower than the cost estimates supplied by PNM.

The NMED expects the actual costs of SCR technology to be between the two cost

- estimates supplied by

PNM and NPS.

2) The above notwithstanding, the cost

- effectiveness and incremental cost

- effectiveness of SCR plus sorbent technology calculated by PNM is considered reasonable by the NMED . These costs are in line

with acc eptable cost

- effectiveness values for BACT determinations, which involve a similar control technology evaluation process. With the considerations highlighted above, the cost

- estimates would likely be lower. Thus, the price per ton of NOx removal would be l ower.

3) The Guidelines state that regulatory agencies should require utility boilers to meet the presumptive limits, unless an agency determines that an alternative co ntrol is justified based on the consideration of

22 NPS: The OAQPS Control Cost Manual estimates a 7” H 2 O pressure drop across the SCR reactor and duct.

23 NPS: Salt River Project has estimated that addition of SCR at each unit at its Navajo Generating Station (NGS) would require eight weeks, with seven days of lost generation. It is unlikely that addition of SCR at SJGS would be as complex and time

- consuming as at NGS.13

statutory factors. The presumptive limit for NOx a t Units 1

- 4 at the SJGS is 0.23 lb/MMbtu. However, in light of the reasonable cost

- effectiveness and incremental cost

- effectiveness, acceptable energy impacts

and non

- air quality enviro nmental impacts, and visibility improvement resulting fr om installation of SCR plus sorbent , the NMED has determined BART as SCR plus sorb ent injection.

4) Annual NOx emissions from the facility will be reduced by 16,100 tons from SCR plus sorbent, at the assumed 0.07 lb/MMbtu value used by PNM. At 0.03 lb/ mm Btu , the NOx emissions reduction from the facility will be greater still.

5) The NMED reviewed the visibility improvement that resulted from the installation of the SCR plus sorbent technology at the 0.07 lb/ mmB tu NOx level. The NMED determined that on a facility

- wide basis the visibility improved by 1.34 deciviews (d v) from the installation of SCR plus sorbent technology at Mesa Verde, 0.88 dv at San Pedro, 0 .75 dv at Bandelier , 0.73 dv at Capitol Reef, 0.67 dv at Canyonlands, 0.59 dv at Arches, 0.59 dv at Weminuche, 0.52 dv at Black Canyon, 0.49 dv at La Garita, 0.49 dv at West Elk, 0.44 dv at Grand Can yon, 0.43 dv at Pecos, 0.40 dv at Wheeler Peak, 0.34 dv at Petrified Forest, 0.31

at G reat Sand Dunes, and 0.28 dv at Maroon Bells. Visibility improvemen ts will be greater using a NOx

level of 0.03 lb/ mmBtu

.

6) Again using a NOx value of 0.07 lb/MMbtu, SCR plus sorbent technology reduced the number of days that each Unit exceeded a 0.5 dv impact. For Unit 1, the number of days exceeding 0.5 dv was reduced from 46 days to 16 days; Unit 2’s impact decreased fr om 46 days to 16 days; Unit 3’s impact decreased from 68 days to 31 days; and Unit 4’s impact dec reased from 67 days to 29 days. Impacts would be
further reduced at a NOx limit of 0.03 lb/ mmBtu

.



### 7) The installation of SCR plus sorbent technology will result in additional energy impacts and

nonair environmental impacts, and the remaining useful life of 20 year s did not further impact

costs. None of the additional energy or non

- air environmental imp acts p rohibit selection of this technology.

NPS: We commend NMED for the thoroughness and the critical approach of its analysis. We have provided additional data from EPA’s Clean Air Markets Database showing that SCR can

achieve much lower NO X 

### emission rates on an annual basis 24 

### than used by PNM in its analyses,

which supports NMED’s concern that PNM has underestimated the benefits of adding SCR . We have also provided SCR cost information from industry sources and publications that indicate

that PNM’s estimates of the costs of adding SCR at SJGS would far exceed any costs actually experienced at an EGU in the US. We have also provided information, based upon EPA’ s OAQPS Control Cost Manual that indicates that PNM has overestimated its annual cost s to operate and maintain SCRs at SJGS. This supports NMED’s concern that PNM has overestimated the cost of installing and operating SCR.

24 Please see our discussion of short

- term NO X emissions contained in electronic Appendix D

.Visibility Cost

- Effectiveness Analyses

Unit 1 2 3 4

Visibility Impact before CD (dv at Max Class I) 1.66 1.66 2.08 2.09

Visibility Impact after CD (dv at Max Class I) 1.34 1.34 1.73 1.72

Visibility Impact before CD (dv at Summed Class I) 7.47 7.50 10.54 10.65

Visibility Impact after CD (dv at Summed Class I) 5.92 5.89 8.31 8.20

Visibility Impact after BART (dv at Max Class I) 0.67 0.67 0.94 0.92

Visibility Improvement (dv at Max Class I) 0.67 0.67 0.79 0.80

Cost

- Effectiveness ($/98th % dv at Max Class I) $ 14,334,479 $ 13,863,837 $18,200,488 $18,135,109

Visibility Impact after BART (dv at Summed Class I) 2.82 3.08 4.07 4.01

Visibility Improvement (dv at Summed Class I) 3.10 3.10 4.24 4.19

Cost

- Effectiveness ($/98th % dv at Summed Class I) $ 3,079,373 $ 2,993,159 $3,402,762 $3,459,798

Total Visibility Improvement (dv at Max Class I) 0.99 0.99 1.14 1.17

Total Cost

- Effectiveness ($/98th % dv at Max Class I) $ 11,089,211 $ 10,810,916 $13,753,556 $13,512,075

Total Visibility Improvement (dv at Summed Class I) 4.65 4.41 6.47 6.65

Total Cost

- Effectiveness ($/98th % dv at Summed Class I) $ 2,359,238 $ 2,416,942 $2,422,099 $2,371,728



### We estimate that, as shown in the table above, addition of SCR to SJGS Units #1

- #4 represents

BART because it would result in cost

- effectiveness values that fall well within the $13 million

- $20 million average cost/deciview proposed as BART by other so urces and states.

We note that NMED has presented a range of 0.03

– 0.07 lb/mmBtu as a potential NO X 

### limit. We

assume that this would be a 30

- day rolling average limit, and suggest that 0.06 lb/mmBtu would be appropriate based upon a sampling of 2 28 mont hly averages 25 

### taken from the 26 EGUs with

annual NO X 

### emissions less than 0.06 lb/mmBtu. 214 of those monthly averages were less than 0.07 lb/mmBtu, which indicates that a limit of 0.06 lb/mmBtu could be achieved 94% of the time by these EGUs.

25 We deleted any month with less than 360 hours of data.