Ms. Janet McCabe 

Acting Assistant Administrator 

U.S. Environmental Protection Agency 

William Jefferson Clinton Building 

1200 Pennsylvania Avenue, N.W. 

Mail Code: 6101A 

Washington, D.C. 20460 

McCabe.janet@Epa.gov 

VIAE-MAIL 

Dear Ms. McCabe: 

DAVID A. HANSEN 

Vice President 

Fossil Operations 

P.O. Box 53999 

Phoenix, AZ 85072 

Mail Station 9085 

Tel 602 250 4402 

Arizona Public Service Company ("APS") has owned (along with a number of 

other co-owners) and operated the Four Corners Power Plant ("Four Corners") on land 

leased from the Navajo Nation since the 1960s. Through the decades, APS has 

developed a very strong relationship with the Nation. The Navajo Transitional Energy 

Company's-an entity of the Navajo Nation-purchase of the Navajo Mine in 2013 has 

further solidified APS's partnership with the Nation. In light of this strong relationship, 

APS desires to support the Navajo Nation in its efforts to coordinate with the U.S. 

Environmental Protection Agency ("EPA") to develop a Clean Air Act Section 111( d) plan 

that assists the Nation with its transition away from coal toward low-carbon energy 

development. Nevertheless, we feel it important to set forth our position and discuss 

our concerns regarding certain aspects of the Navajo Nation's proposal. 

EPA issued its supplemental proposal for Carbon Pollution Emission Guidelines 

for Existing Stationary Sources: EGUs in Indian Country and U.S. Territories; Multijurisdictional Partnerships ("Supplemental Proposal") on October 28, 2014. In 

developing the Supplemental Proposal, EPA conducted considerable outreach and 

consulted with tribal officials to permit tribes to have meaningful and timely input into 

the proposed rule's development. With respect to the Navajo Nation, EPA held a 

consultation with the Nation on September 15, 2014. Three days later, on September 18, 

the Navajo Nation sent a letter to EPA summarizing the information presented at the 

consultation and setting forth the Nation's position on the Supplemental Proposal. 

Among other things, the Navajo Nation raised concerns about the application of the four 

building blocks to the two coal-fired power plants on the Navajo Nation-Four Corners 

and Navajo Generating Station, the impact of the proposed rule on renewable energy 

projects on Navajo lands, and the ability of the Navajo Nation to control any available 
Ms. Janet McCabe 

July 14, 2015 

Page 2 of 4 

carbon credits under a trading program. It is primarily the concept of a carbon trading 

program on the Navajo Nation about which APSis concerned. 

EPA noted in its Carbon Pollution Emission Guidelines for Existing Stationary 

Sources: Electric Utility Generating Units proposal that it was "aware of actions that 

have been taken or are being taken by some sources in tribal areas or territories and will 

be mindful of these actions in considering establishment of a [federaln1(d)] plan." 79 

Fed. Reg. 34830,34854 (June 18, 2014). EPA also noted "some present and planned 

actions being taken to reduce criteria pollutants from EGUs in Indian country will result 

in significant C02 emission reductions relative to emissions in the 2012 baseline period 

used in computing the state C02 performance goals in this proposal." I d. at 34854-55. 

The subsequently issued Supplemental Proposal confirmed that EPA's references to past 

actions related to APS's permanent closure of Four Corners Units 1, 2, and 3 on 

December 30, 2013. See 79 Fed. Reg. 65482, 65496 (Nov. 4, 2014) (explaining the 

shutdown of three electric generating units at Four Corners to comply with 

requirements for Best Available Retrofit Technology ("BART") resulted in "substantial 

C02 reductions"). EPA explained that these emission reductions, along with the 

emission reductions expected to result from the closure of one unit at Navajo 

Generating Station or curtailment of generation at that plant, represent approximately 

30 percent of total power plant C02 emissions in Navajo territory in 2012. I d. As a 

result, EPA concluded that "the Navajo territory would meet the proposed goal without 

additional actions beyond the shutdowns .... " Id. APS appreciates EPA's recognition of 

these actions-actions that resulted in real, permanent C02 reductions-and we are very 

pleased that, provided the rule is finalized as proposed, we will be able to take credit for 

these actions and comply by converting to a mass-based goal. 

The Navajo Nation has asked us to support its alternative proposal, and while 

APS continues to be supportive of many of the Nation's positions and concepts, 

including issues related to an appropriate baseline, the inability to make meaningful 

unit heat rate improvements, and the Supplemental Proposal's early compliance option, 

'we remain concerned about one key aspect: the creation of a carbon trading program on 

the Navajo Nation. 

On November 8, 2010, APS entered into a Purchase and Sale Agreement ("PSA") 

with Southern California Edison Company ("SCE") to purchase SCE's 48 percent share 

of Four Corners Units 4 and 5· Subsection 2.6(a)(ii) of the PSA addresses the ownership 

of "Carbon Emission Allowances" allocated by a governmental authority after July 6, 

2016, which are based on any pre-July 6, 2016 measurement period. In its entirety, 

Subsection 2.6(a)(ii) reads as follows: "[SCE] will retain any Carbon Emission 

Allowances allocated to [SCE], or attributable to [SCE's] Facilities Share, and [APS] will 

surrender to [SCE] any such Carbon Emission Allowances attributable to [SCE's] 

Facilities Share." The rationale behind this provision was that SCE wanted to reserve 

for itself any potential monetary benefit that might flow from the period during which it 

owned a portion of Four Corners Units 4 and 5· Because any credits created under a 
Ms. Janet McCabe 

July 14, 2015 

Page 3 of 4 

Section 111( d) plan will likely be based on a pre-2016 baseline, APS expects that SCE will 

claim ownership of 48 percent of any carbon credits attributable to Units 4 and 5. If it 

does, we can expect SCE to take the position that APS is contractually obligated to 

turnover these credits to SCE. In such event, APS will be forced to purchase credits on 

the market in order to comply with the Section 111(d) rule at Four Corners. 

In a letter dated April 6, 2015, we explained to the Navajo Nation that it is 

essential for APS to have absolute legal certainty that, for the life of Four Corners, the 

plant participants will have a sufficient number of no-cost credits to operate Units 4 and 

5 at full capacity without any curtailment in generating capacity for purposes of 

complying with the Section 111(d) rule and any implementation plan developed 

thereunder. APS further informed the Nation that although we continue to be 

committed to its success, we will be unable to support its alternative Section 111(d) 

proposal until the carbon allowance issue is resolved, and APS is satisfied that it will be 

kept whole in the event a carbon allowance trading program is established on the Navajo 

Nation. 

After reviewing APS's April6letter and meeting with SCE to discuss the issue, 

the Navajo Nation assured us that it is committed to keeping us whole at Four Corners 

in respect to Section 111(d) compliance. APS appreciates the Navajo Nation's 

commitment in this regard and wants to be supportive of the Nation's alternative 

proposal. We are willing to do so, but only to the extent APS and the other co-owners 

are kept whole. Although APS has been working with the Navajo Nation on different 

approaches to achieving certainty, to date, the Nation has not been able to provide us 

with the assurances we require. As a result, APS is not in a position to support the 

Navajo Nation's alternative Section 111(d) proposal, because, as explained above, we 

believe there is a significant risk that Four Corners would be unable to continue normal 

operations, without an allowance shortfall, due to the SCE carbon emission allowances 

issue. 1 

Although we are aware that the on June 1, 2015, EPA delivered its final Clean 

Power Plan to the White House Office of Management and Budget for review, we are 

unaware of the status of the final Section 111(d) rule as it applies to power plants in 

Indian country and U.S. territories. Moreover, after the rule is finalized, EPA will need 

to develop a federal plan for the Nation. Therefore, we feel it important to inform EPA 

that APS does not support the Navajo Nation's proposal, because it creates a significant 

risk for APS and the other Four Corners co-owners and jeopardizes the continued 

viability of the plant. EPA applied the four building blocks described in its June 2, 2014 

1 To the extent a Navajo Nation trading program is established (i) under which carbon allowances or 

credits are created solely as a result of the reduction in C02 emissions that occurred due to the retirement 

of Four Corners Units 1, 2, and 3 in December 2013, and (ii) Four Corners receives a quantity of no-cost 

allowances each year (up to the total number allocated for compliance in that year) for purposes of 

complying with the Navajo Nation 111(d) plan, APS would potentially be supportive of such program. 
Ms. Janet McCabe 

July 14, 2015 

Page 4 of 4 

Clean Power Plan proposal to establish interim and final goals for the Navajo Nation, 

which were expressed as C02 emission rates. As proposed, the rule would not require 

additional emission reductions at Four Corners as a result of APS's closure of Units 1, 2, 

and 3 to comply with BART. EPA expects that Four Corners will be able to comply with 

the requirements of Section 111( d) without any further action, if the rate-based goal is 

simply converted to a mass-based goal. No credits or allowances would be established, 

and no trading program would be required. Accordingly, APS strongly encourages EPA 

to finalize the Indian country Section 111( d) rule as the agency proposed it. 

Sincerely, 

_£}~A~ David A. Hansen · 

Vice President, Fossil Generation 

cc. Joe Goffman (Goffman.joseph@Epa.gov) 

William Niebling (Niebling. william@Epa.gov) 

Mabel E. Echols@omb.eop.gov 

April Quinn (aquinn@nndoj.org) 

Ann Becker (Ann.Becker@APS.com)