COMMISSIONERS GARY PIERCE • Chairman BOB STUMP SANDRA D. KENNEDY PAUL NEWMAN BRENDA BURNS ARIZONA CORPORATION COMMISSION

Statement ofGary Pierce Chairman ofthe Arizona Corporation Commission Arizona Regional Haze FIP EPA Public Hearing Docket No. EPA-R09-0AR-2012-0021 July 31 , 2012 Phoenix, Arizona Gary Pierce Chairman (602) 542-3933 Fax (602) 542-5560

My name is Gary Pierce, and I am Chairman of the Arizona Corporation Commission, which regulates Arizona's investor-owned and cooperative utilities and sets the rates paid by their customers. On July 23 , 2012, I sent a letter, along with two other commissioners, Commissioner Stump and Commission Bums, in opposition to the Federal Implementation Plan that the EPA has proposed for three-coal burning plants in Arizona.

In my role as commissioner, I strive to keep utility rates for the companies and cooperatives that I regulate as stable and low as reasonably possible for the benefit of Arizona' s citizens and businesses

. I know that economic development in Arizona greatly depends upon our ability to provide safe, reliable, and inexpensive energy to new and existing businesses. For this reason, I
am greatly concerned about EPA's proposed FIP.

Costs ofEPA's FIP To provide a sense of the economic impact EPA's FIP would have for Arizonans, let me describe the impact to AEPCO and its customers. AEPCO is a generation cooperative and owns the Apache Generating Station, which is located in Cochise County about 30 miles east of Benson. AEPCO provides most if not all of the electricity consumed by members of five electric distribution cooperatives in Arizona: Duncan Valley, Graham County, Trico, Mohave, and Sulphur Springs Electric Cooperatives. Under the FIP proposed by the EPA, AEPCO

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.govwould be required to invest a mtmmum of $80 million according to optimistic estimates developed by EPA. AEPCO thinks the costs will be closer to $180 million. To place this in perspective, AEPCO recently filed a rate case with our Commission, and I can tell you that AEPCO currently reports having a total of $232 million in net utility plant in service. In other words , under EPA's optimistic $80 million estimate, EPA' s FIP would require AEPCO to increase its existing rate base by approximately one-third. Under AEPCO's estimate, EPA's FIP would require AEPCO to increase its existing rate base by approximately 75 percent.

For the benefit ofthose who may not understand how ratemaking works, if a utility increases its rate base by one-third, and everything else like interest rates and operating expenses remains the same, the utility would need a one-third increase in its revenues during its next rate case. Adding insult to injury, EPA ' s FIP will also increase AEPCO 's operating and maintenance expenses by as much as $3.5 million per year. Thus, it is fair to conclude EPA's FIP would necessarily result in skyrocketing rates for AEPCO's customers, increasing utility bills for Arizona residents and businesses between 33 and 75 percent.

The financial impacts of EPA's FIP to APS' and SRP's customers are not quite as drastic, but they are still significant. For example, APS has already spent $324 million on the Cholla Power Plant to improve visibility and the proposed FIP would require an additional $311 million investment. Salt River Project is in the process of spending $500 million at its Coronado Generating Station to reduce emissions, but under the FIP they would be required to spend another $110 million.

Benefits ofEPA's FIP Now that I've addressed the cost of EPA's FIP, let me address its benefits because we can all recognize and appreciate that the environmental benefits of clean air are certainly worthy of expense, sometimes even significant expense. However, in this case, EPA's FIP is not even close to surviving a good faith cost-benefit analysis. First, we should recognize that the Regional Haze Rule and the FIP proposed by EPA does not protect human health, only human

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-2927/ 400 WEST CO NG RE SS STRE ET; TUCSON, ARIZONA 8570 1 -1347 www
.azcc.govvistas. Secondly, the incremental improvement of EPA's FIP over ADEQ's SIP will be less than one deciview, or in other words, there will be no visibility improvement. Even ifwe were to accept EPA's cumulative deciview model, which we believe is legally flawed, EPA's FIP would provide negligible benefit to human vistas

. In sum, EPA's FIP proposal will impose significant costs upon Arizona utilities, necessarily cause electric rates in Arizona to skyrocket, and result in no perceptible improvement over ADEQ's SIP proposal.

Process ofEPA's FIP I am also deeply troubled by EPA's public process for the proposed FIP. EPA appears to have adopted a "sue and settle" strategy for adopting a FIP in Arizona to circumvent public notice and coordination with Arizona that would otherwise be required under the Clean Air Act. It is my understanding that the proposed FIP was not available for public review until July 20thand that the technical support document was only made available on July 18th. Today's public hearing, which was initially proposed as the only public hearing on this matter, has provided a little more than a week for parties to complete their analysis of EPA's proposal and prepare responsive comments. It' s embarrassing that EPA initially thought that this meeting would provide sufficient public participation and comment for its proposed action.

While I appreciate that EPA has recognized the failings in the process it initially proposed, I still believe the revised process to be woefully inadequate considering the significance of this decision and the potential impact to the communities that are home to these plants. While an additional two weeks for public comment is an improvement, it is not sufficient towards addressing this matter in a way that is fully solicitous ofpublic input.
Request I urge the EPA to withdraw the FIP for the three plants in question and work with ADEQ to remedy any deficiencies in the SIP it has proposed.

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