Edward Z

. Fox Tel 602/ 250-2916 Mail Station9 085 Vice President Fax6 021250-3002 PO Box 5399 9 and Chief SustainabililyOfficer edw ard

.fox@aps.com Pho enix,AZ 85072
-3999

November 24,2010

The Honorable Jared Blumenfeld, Regional Director, Region IX U

.S. Environmental Protection Agency 75 Hawthorne Street San Francisco, California 94105-3901

Re: EPA-R09-0AR-201 0-0683: Source Specific Federal Implementation Plan for ImplementingBest Available Retrofit Technology for Four Comers Power Plant: Navajo Nation
Dear Mr. Blumenfeld: On October 19,2010 the U.S. Environmental Protection Agency (EPA or the Agency) published a proposed 

### Source Specific FederalImplementation Planfor ImplementingBest AvailableRetrofit Technologyfor Four Corners PowerPlant:Navajo Nation (the Proposed FLP) 75 Fed. Reg

. 64221 (Oct. 19,2010). The Proposed FIP would require the Four Corners Power Plant (Four Comers or the Plant), located on the Navajo Nation, to achieve specific emission reductions ofnitrogen oxide (NOx) and particulates (PM) to comply with the Best Available Retrofit Technology (BART) requirements ofthe visibility protection program under the Clean Air Act. 42 U.S

.c. 7491A. The Proposed FIP would also impose new opacity limits for the electric generating units at the Plant and for fugitive dust associated with material handling_ The Proposed Rule solicits comments by December 20,2010. Arizona Public Service Company (APS or the Company) intends to submit detailed comments addressing the many issues raised in the Proposed FLP. However, since EPA issued the Proposed FIP, an important event has occurred that may have significant implications, both within and beyond the context ofthe Proposed FIP

. This event presents a unique opportunity to satisfy the Clean Air Act BARTrequirements in a manner that, compared to EPA's Proposed FIP is more cost effective, achieves better visibility improvement and more significant emission reductions from the Plant, and assures that the employment and economic benefits ofthe Plant for the Navajo Nation and local economy are sustained

.

# ~The**· Cdiso** **~** Winner of 2008 Edison Award**2oou~ard** I n r

ecognition ofinnovative leadership and**J.:DJ.~ON** r
.! r ' TRIC ,r-:STlTUH. operational excellence In the electric industryThe purpose ofthis letter is to outline APS's proposal to EPA. As we discussed with Ms

. Jordan and Ms. McKaughan in our offices on November 9, this is a proposal to resolve all issues associated with several Clean AirAct programs. Specifically, and as described in detail below, our proposal is to close Four Corners Units 1-3 by 2014 and to install selective catalytic reduction technology (SCRs) on Units 4 

### & 5 by 2018, in exchange for EPA's agreement that these actions resolve Four Comers' obligations under the BART, reasonably attributable visibility impairment (RAVI) BART, New SourceReview (NSR) and historical New Source Performance Standards (NSPS) programs ofthe Clean AirAct.


### BACKGROUND
On November 8,2010, APS announced that it has reached an agreement with Southern California Edison (SCE) to purchase SCE's ownership share ofUnits 4 

### & 5 at the Plant (the Agreement). SCE made the decision to divest from Four Comers based upon the California Public Utilities Commission's (CPUC's) rules' precluding California utilities from making "life extension" investments in electric generating units that do not meet a specified emissions standard

. The Agreement requires regulatory approvals from several agencies, including the CPUC, Federal Energy Regulatory Commissions, and the Arizona Corporation Commission. The Agreement establishes an anticipated closing date ofOctober 2012.2 Both parties must obtain the necessary regulatory approvals before the transaction can close

. On a parallel track, APS and the otherco-owners will be required to begin making significant capital expenditures to comply with final BART requirements, four to five years in advance ofthe effective compliance date ofthe new BART rule. Accordingly, ifEPA issues final BART rule in early 2011, APS and the co-owners would need to begin spending significant dollars almost immediately, to assure compliance with the 2016 deadline. The timing ofthe closing ofthe SCEtransaction, when superimposed on the schedule to begin capital expenditures to meet anticipated BART requirements, presents a significant challenge

. NeitherAPS nor any otherco-owner will be willing to spend capital on required pollution control upgrades ifthe transaction with SCEhas not closed: who would pay SCE's 48% share ofthose costs, with no certainty regarding future ownership ofthat share? 

### In short, if capital expenditures for SCRs for NOx control are required before the deal with SCEcloses, the co-owners may simply elect to close the entire Plant (all five units), rather than assume the risk of a multimillion dollar expenditure for which there may be no subsequent recovery. Significantly, APS also announced that, ifthe deal closes, APS will close Units 1-3 at some point in the future. 3 APS has not committed to a date certain for closing Units 1-3.

In 2007, the CPUC promulgated the Greenhouse Gas Emissions Perfonnance Standard, prohibiting California load serving entities from making "life extension" investments in electric generating units that do not meet a specified emission limitation for greenhouse gases. 2The closing may occur before or after that date, but the purchase price varies accordingly. Uthe closing has not occurred by December 31, 2012, either SCE or APS may tenninate the transaction

. ) The Agreement is also contingent upon a lease extension being approved by the Navajo Nation Council and a new fuel purchase agreement being executed with BHP Billiton

. 2 ITHE APS PROPOSAL
Four Comers is currently faced with uncertainty on all sides: we have not yet consummated our transaction with SCE; we are facing potential BART costs of$1 billion for controls at a Plant at which one owner has announced its intent to divest by 2016; the National Parks Conservation Association petitioned the United States Departments ofthe Interior and Agriculture to certify to EPA visibility impairment reasonably attributable to Four Corners; we received a Notice ofIntent to Sue from EarthJustice concerning alleged NSR and NSPS violations; and we have received and responded to an EPA Clean AirAct 

### § 114 request for information concerning historic Plant projects, presumably in the context ofan NSR investigation

. In addition, we are facing myriad additional environmental regulations in the future, including mercury, coal combustion residues, ozone, carbon and others

. APS' proposed approach resolves these critical uncertainties, protects and enhances the environment, assures the Navajo Nation economic stability, and provides APS the flexibility it needs to manage the risks associated with finalizing this transaction

. To synchronize the timing ofthe transaction with SCE and the beginning ofBART expenditures, APS proposes closing Units 1-3 by 2014

. This action would result in Plant-wide NOx emission reductions of 16,184 tons per year, from 45,132 today to 28,948 tons. By taking this action by 2014, the environment would benefit a full three years ahead ofthe NOx and PM emission reductions that would occur under the EPA proposal. In addition, the benefits would include reductions in S02, mercury and C02emissions and a reduction in the use of water. APS would begin the process ofengineering new SCRs for Units 4 & 5 no later than 2014 and would have those controls installed and operational by the end of2018. While 2018 is two years later than the timeframe that would be required under a 2011 BART rule by EPA, the APS plan would result in greater emission reductions in 2018 and beyond than would occur under EPA's final BART rule. Table 1below shows NOx emission reductions resulting from the closure ofUnits 1-3 for the years 2014 to 2018, for both the Proposed FIP and the APS proposal. Under the APS proposal, the Plant-wide NOx emissions during this five year period would be 9,024 tons less than under the EPA's proposal. Furthermore, starting in 2019, annual NOx emissions from the Plant will be significantly lower than the emission limit included in the Proposed FIP

. Table 

### 1 Four Corners PowerPlant NOx Emissions (tons) Comparison ofEPA BART Proposal and APS Alternate Proposal



### 2014 2015 2016 2017 2018 2019 Total 

### (2014

­ 2018) EPA Proposal 45,132 45,132 45,132 9,184 9,184 9,184 153,764

APS Proposal 28,948 28,948 28,948 28,948 28,948 6,498 144,740

• Emissions are in short tons and assumes a plant-wide capacity factor of91 %

3Table 2 below shows emission reductions ofother pollutants that would result from closing Units 1-3. The APS proposal results in significant reductions ofall relevant pollutants, including a 30% reduction in the Plant's carbon footprint. 

### Table 2 Reductions Closing Units 1,2and 3

NOx (tons) 16,184 104,958
S02 (tons) 2,852 68,448
Particulate Matter (tons) 678 16,272

Mercury

(Ibs) 361 8,664
Water (Acrefeet) 6,000 144,000
C02 (tons) 5

.2M 125M

* Current emissions **Cumulative values assume APS proposal and continuing

operations through 2037 prior to end ofnew lease.

After SCRs are installed on Units4 & 5 in 2018, NOx emissions at the Plant would be 6,498 tons per year, compared to emissions under a fully implemented BART FIP of9, 184 tons per year. TheAPS proposal not only results in earlier and greateremission reductions than the Proposed FIP; the APS proposal, ifimplemented, would result in regional visibility improvement three years earlierthan under the Proposed FIP and in greater overall improvement after controls are installed on Units 4 & 5. APS' consultant (ABCOM) ran the CALPUFFModel Version 5.8 with the same input parameters EPA used for its Proposed 

### FW (including the IWAQM background ammonia concentrations) for current emissions (baseline), ProposedFIP emissions level, and two additional emissions scenarios: a) with zero emissions from Units I, 2, and 3; and b) with SCR emissions level specified in the Proposed FIP for Units 4 & 5. CALPUFF predicted deciview (DV) values for these four cases are shown below for the 16 Class I areas included in the analysis

. Clearly, the APS proposal (yellow bar) shows better visibility improvement than under the Proposed FIP (blue bar) for all the 16 Class I areas. In fact, closing Units 1-3 alone (green bar) shows significant DV change from the baseline levels (red bar). Clearly, closing Units 1-3 would result in significantchanges in DV and, ifclosed in 2014, the improvement would occur three years before the Proposed PIP requirements are in place. Additionally, the emission reductions from installing SCRs on Units 4 & 5 in 2018 would result in even greater visibility improvement than would be achieved under the Proposed FIP.

4Arizona Public Service Four Corners Power Plant CALPUFFV5.8 Regional Haze Impacts using IWAQM Ammonia Background Concentrations
7

.5

., I !;l Baseline 7

.0 , DUnits4&5 Baseline 6

.5 I OEPA BART Case: SCRIPM Controls (Units t·5 ON) 6

.0 ' 5.5 , DUni1s4&5 SCRIPM Controls 5.0 , "i 

# .. 4.5 , :2: 4

.0 '**~** 'i' 3.5 f i**~** 3.0 : 

# m

25 1

### ~ 20 J: 1.5 I'
<: &; 1,0

0

.5 0.0**~** c 0

.'<1 c c 0**~** a c 0 >­ c '" a. z on u c '" c: 0 t '" U a. z Q; 

### ., a: 9
'0. '" U a. z c 0 t '" U '0**~** (!) ::;: z '" § 0 g '" (J) m (I> (!)**~** 21

·c 

### '" (!) '" -'**~ ~**  

### '" E 3 0 c (J) !!l Qj co c 0 e 

### '" a. z Q) E Q) > '" on 

### ., ::;:**~** on 0 Q Q) a. a. z u; (I> 0 LL '0

.'!? '5 Q) a.**~ ~**  '" a. e u 

### ., a. c '" (J)**~** 

# j

E**~ ~** **~** ill U;**~ ~** **~** '" Q) a. :;; 0; 

### .,**~**

u**~** '" Q '" ill 

### In addition to BART resolution, APS wishes to resolve any potential liability under the RAVI BART, NSR and NSPS programs as part ofthis settlement. It would be imprudent ofAPS to agree with EPA on a schedule to install SCRs, only to have an intervening lawsuit (by EPA or the environmental groups) accelerate that schedule or impose additional requirements. Accordingly, our proposal to close Units 1-3 in 2014 and install SCRs in 2018 includes a full resolution ofRAVI BART and all potentially alleged historic NSR and/or NSPS violations.
CONCLUSION
We respectfully submit that this proposal, made possible by the opportunity to acquire SCE's share ofUnits 4 & 5, deserves serious consideration by EPA. It is quite simply a win-win for everyone: for EPA, the environmental groups, the Navajo Nation and APS.
It is a win for EPA and the environmental groups. The proposal achieves earlier and greateremission reductions, and greater visibility improvement, than would be achieved under EPA's Proposed FIP. The three older units would be permanently closed down, substantially reducing emission ofNOx, S02, PM, mercury and greenhouse gases. The remaining newer units will be upgraded with state-of-the art SCRs, on a timeline that assures continuing visibility improvement.
It is a win for the Navajo Nation. APS is a significantcontributor to the economic stability ofthe Nation, comprising approximately 35% ofthe Nation's general fund. Together, Four Comers and the Navajo mine providejobs to roughly 1,000 people, more than 75% of whom are Native American

. Both APS and the mine have pledged not to lay any employees off ifUnits 1-3 close. The combined annual payroll is over $100 million, and the Nation receives approximately $65 million in tax and royalty payments annually as a result ofPlant operations. Federal, state, and local economies also benefit from nearly $40 million in tax payments that Four Corners and the Navajo mine make each year. Plant operations support local vendors as well, contributing an estimated $20 million annually for the services and goods those vendors provide. S

### Ifthe Plant shuts down entirely, these tremendous benefits evaporate, potentially crippling the already fragile economy and exacerbating the Navajo Nation's already high unemployment rate. Under APS's proposal, the Nation and surrounding community will continue to benefit from over . $\00 million in yearly payroll revenue - a critical asset to the local economy. The Nation also will continue to receive more than $60 million annually in tax, fee and royalty contributions, due to the continued operation ofUnits 4 & 

### 5. Finally, it is a win for APS. The proposal affords us the flexibility necessary to complete the transaction with SCE and to thoughtfully plan for and implement the future pollution upgrades to Units 4 & 

### 5, and it provides much needed regulatory certainty. We respectfully request that EPA give thoughtful consideration to our proposal.

CC: 

### Deborah Jordan Colleen McKaughan Anita Lee EPA Docket Center (EPA-R09-0AR-2010-0683; FRL-9213-7)

6