Et ST.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION IX

75 Hawthorne Street

San Francisco, CA 94105-3901

AUG 0 6 2012

Ms. Michelle R. Freeark

Director of Environmental Services

Arizona Electric Power Cooperative, Inc. (AEPCO)

P0 Box 2165

1000 South Highway 80

Benson, Arizona 85602

Dear Ms. Freeark:

I am responding to your letter dated June 29, 2012, regarding the proposed emission limit for nitrogen

oxides (NO) at the Apache Generating Station in Cochise, Arizona. In our proposed rule published in

the Federal Register on July 20, 2012, we proposed an emission limit of 0.050 lb/MMBtu on Units 2 and

3 of the Apache Generating Station, but we stated that we would consider the information provided in

your June 29 letter and any additional information received during the comment period. In your June 29

letter, you state that affordability is affected by small size, the income profiles of AEPCO’s service area,

and AEPCO’s ability to access financing. If our analysis ofthis information indicates that installation of

SCR would have a severe impact on the economics of operating Apache Generating Station, we will

incorporate such considerations in our selection of BART. To facilitate our analysis, we request

additional information from AEPCO by August 24, 2012.

EPA requests the following additional information to facilitate our analysis: current and projected net

income/earnings for the company and contributed capital/patronage capital; information on the customer

base of member cooperatives and ratepayers; and information on financing available to AEPCO for any

new capital investment (such as pollution control equipment).

Our request for documents from AEPCO includes documents from your members if such documents are

relevant to our analysis. Please provide documentation for the information mentioned in the preceding

paragraph, including:

- Annual reports

- Documents on AEPCO’s member investment program to provide working capital support

referenced in your June 29, 2012 letter.

- An estimate ofthe remaining useful life of each of the units at Apache Generating Station.

- Clarification ofthe schedule and amortization period used for analysis of capital investments

(including pollution controls), and the ability of AEPCO to recoup capital costs from their rate

base over time. Note that EPA has proposed a compliance date of five years from promulgation

of our final action; AEPCO’s schedule should take this proposed compliance date into account.

I’iifl!et/ Oil Recv led Pope,
- Documentation on current rate structures, including information on seasonal and peak rates as

available. Detailed analysis regarding anticipated rate increases necessary to support an SCR

based BART determination.

- Consolidated Mortgage, Security Agreement and Financing Statement, dated August 3, 2009,

referenced in your June 29, 2012 letter.

- Documents on the $25 million unsecured operating line of credit with National Rural Utilities

Cooperative Finance Corporation, referenced in your June 29, 2012 letter.

- Wholesale power contracts that are approved by the United States Department of Agriculture’s

Rural Utilities Service, and related documents including any information AEPCO would like

EPA to consider regarding Times Interest Earned Ratio (TIER) ratios.

- Internal projections as to future performance.

- Documentation of grid capacity limitations on AEPCO’s ability to import power.

- Information on the customers served by member cooperatives (socio-economic characteristics of

the rate-payers, zip codes served), to support the claim in your June 29, 2012 letter (p. 8)

regarding the disproportionate burden of pollution control requirements on AEPCO customers.

- Documents regarding demand elasticity ofthe customer base. In the event of AEPCO rate

increases, what are the options for (and limitations on) individual Class A members for

purchasing power outside of AEPCO?

- Documents regarding AEPCO’s ability to access financing from the National Rural Electric

Cooperative Finance Corporation.

- Documents to evaluate AEPCO’s claims regarding rate case applications (such as past rate cases

evaluating AEPCO’s applications).

- Other internal records that document available equity and debt for AEPCO’s operations.

Please provide recommended points of contact, with contact information, for: (a) the Rural Utilities

Services, (b) the Federal Financing Bank, (c) the National Rural Utilities Cooperative Finance

Corporation, (d) the National Rural Electric Cooperative Finance Corporation, (e) the Arizona

Corporation Commission, and (f) the Central Arizona Project. (EPA is not required to contact any of

these entities, but we are seeking this information in case EPA determines that it is appropriate to reach

out for further information in order to perform our analysis).

Please identify clearly whether AEPCO wishes to claim a document, or some portion of information

therein, as confidential business information (CBI). If a portion of a document is claimed as CBI, please

provide a full copy with the CBI portion identified, and a redacted version that we may place in the

docket for this action.

To allow the public adequate time to evaluate and comment on this information, we are requesting this

information by August 24, 2012. Accordingly, your prompt response to this request will be appreciated.

Please contact Colleen McKaughan at 520-498-0118 if you have any questions about our request.

Sincerely

Director, Air Division