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 ofEnvironmental Services Arizona Electric Power Cooperative, Inc. (AEPCO) P0 Box 2165 1000 South Highway 80 Benson, Arizona 85602 DearMs. Freeark: I am responding to yourletterdatedJune 29, 2012, regardingtheproposed emission limitfornitrogen oxides (NO) atthe Apache Generating Station in Cochise, Arizona. In ourproposedrulepublished in the Federal Registeron July 20, 2012, weproposed an emission limit of0.050 lb/MMBtu on Units 2 and 3 ofthe Apache Generating Station, butwe statedthatwe would considerthe informationprovided in yourJune 29 letter and any additional informationreceived during the commentperiod. In yourJune 29 letter, you state that affordability is affectedby small size, the incomeprofiles ofAEPCO’s service area, and AEPCO’s abilityto access financing. Ifour analysis ofthis information indicates that installation of SCR would have a severe impact on the economics ofoperating Apache Generating Station, we will incorporate such considerations in our selection ofBART. To facilitate our analysis, we request additional information from AEPCO byAugust 24, 2012. EPArequests the following additional information to facilitate ouranalysis: current andprojectednet income/earnings forthe company and contributed capital/patronage capital; information onthe customer base ofmembercooperatives andratepayers; and information on financing available to AEPCO for any new capital investment (such as pollution control equipment). Ourrequestfor documents fromAEPCO includes documents from yourmembers ifsuch documents are relevantto our analysis. Pleaseprovide documentation forthe informationmentionedin the preceding paragraph, including:

- Annual reports

- Documents on AEPCO’s memberinvestmentprogram to provide working capital support referenced in yourJune 29, 2012 letter.

- An estimate ofthe remaininguseful life ofeach ofthe units atApache Generating Station.

- Clarification ofthe schedule and amortizationperiod used for analysis ofcapital investments (includingpollution controls), andthe ability ofAEPCO to recoup capital costs from theirrate base overtime. Notethat EPAhas proposed a compliance date offive years frompromulgation ofour 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 of the 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