# This spreadsheet provides a summary of capital and annual cost for the retrofit of Selective

Catalytic Reduction (SCR) at the Navajo Generating Station. The spreadsheet includes a revised cost sheet for each of the Navajo electric generating units (3 total), and an other SCR sheet that summarizes and compares the capital and annual costs for other BART analyses in the U.S. with the Navajo units. A more detailed decription of each of the sheets is presented in the following sections. Revised Costs (Unit 1, Unit 2, Unit 3) - These sheets list a summary of the Navajo BART capital and annual costs for the specified unit that was presented in the Salt River Project, Navajo Generating Station - Units 1, 2, 3, SCR and Baghouse Capital Cost Estimate Report, August 17, 2010 (SL-010214, Revision D). Each of the sheets provides a summary of the line item desciptions and calculated capital and annual costs that were provided in the BART analysis. The sheets also contain a revised cost column and line-by-line analysis of each of the cost items. In some cases, the line item costs were revised or removed based on EPA Control Cost Manual or other cost estimation methodologies for the retrofit of SCR. The revised cost will be used to determine the cost effectiveness of applying SCR to the unit.

# Navajo Generating Station Cost Analysis submitted by Salt River Project (SRP), generated by Sargent and Lundy

**Unit 1 Bituminous Coal, 750 MW, Pulverized Coal. Tangential-Fired**  **Hot Side ESP, Wet FGD Cost estimates from the Salt River Project, Navajo Generating Station - Units 1, 2, 3, SCR and Baghouse Capital Cost Estimate Report, Revision D, August 17, 2010.** 

**Capital Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** SCR

Demolition $386,503 $386,503Demolition is not listed as a separate line item in the EPA control Cost Manual for SCR, however the cost is generally included in the retrofit factor for the SCR capital cost. Demolition for the Navajo facility involves the demolition of the existing flue and the installation of the new flues and blanking plates. Therefore this cost was included in the revised cost. Civil Work (Earthwork & Caissons) $1,232,247 $1,232,247The cost for civil work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Concrete $3,011,247 $3,011,247The cost for concrete work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Steel, Ductwork & SCR Box $29,495,996 $29,495,996The cost for the steel, ductwork, and SCR box are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Architectural (Elevators, Painting) $23,209 $23,209The cost for architectural services are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Mechanical Equipment (Fan rotating assembly for SCR alone cases) $10,780,458 $10,780,458The cost of the mechanical equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Anhydrous Ammonia System $416,576 $416,576The cost of the anhydrous ammonia system is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Piping $527,082 $527,082The cost of piping included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Insulation $4,512,662 $4,512,662The cost of insulation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal SCR System $50,385,980 $50,385,980 Electrical and Instrumentation & Control

Electrical Equipment $825,442 $825,442 Raceways $363,452 $363,452 Cable $471,568 $471,568 Grounding $20,847 $20,847 Lighting $299,231 $299,231 Communication $54,808 $54,808 Construction Power Allowance $189,230 $189,230 Control & Instrumentation $1,207,334 $1,207,334 Relocation & Modification of Existing Electrical Equipment $46,106 $46,106 Subtotal Electrical and Instrumentation & Control $3,478,018 $3,478,018 Sitework Civil Work (Roads, Surfacing, Erosion Control) $0 $0

Concrete $0 $0 Piping for Sitework (Drainage) $0 $0 Subtotal Sitework $0 $0 Other Direct Capital Costs

Construction Equipment $6,769,119 $6,769,119The cost of construction equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Scaffolding $4,701,733 $4,701,733The cost of scaffolding is not specifically included in the EPA Control Cost Manual for the calculation of the direct capital cost of the SCR (Eq. 2.36). However, scaffolding is required to ensure the safety of the workers and to allow access to the retrofit site. Therefore, this cost was included in the revised cost. Freight $1,974,160 $1,974,160This cost is included in the EPA Control Cost Manual, and EPA used S&L's estimate for freight. Sales Taxes $308,300 $308,300Sales tax is in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal Other Direct Capital Costs $13,753,312 $13,753,312 Total Direct Capital Costs $67,617,310 $67,617,310 Indirect Costs

Engineering, Procurement & Project Services $9,506,574 $9,506,574EPA considers S&L's estimate for "Engineering, procurement & project services" to represent analagous costs in the EPA Control Cost Manual as "Engineering and Home Office Fees" that are estimated as 10% of the direct capital cost (Table 2.5, Engineering & Home Office Fees). EPA is using the S&L estimate for this line item, however, if EPA estimated this cost based on 10% of the direct capital cost, including labor costs, the total cost would be $6,761,731.

Construction Management/Field Engineering $10,538,367 $10,538,367EPA considers S&L's estimate of Construction Management/Field Engineering to represent the "General Facilities" costs that are included in the EPA Control Cost Manual as 5% of the direct capital cost (Table 2.5, General Facilities). The EPA Control Cost Manual also includes a 5% Process Contingency (Table 2.5) under indirect installation costs. The facility estimated this cost as 65% of the direct labor cost (including per diem). EPA is using the S&L cost estimate, however, if EPA estimated this cost as the sum of construction management/field engineering as 10%, to include 5% for general facilities, and 5% for process contingencies, of the direct capital cost, the total would be $6,761,731.
S-U Commissioning $648,515 $648,515Start-up/commissioning costs are included in the EPA Control Cost Manual as 2% of the total plant cost (Table 2.5, Preproduction Cost). The facility estimated this cost as 4% of the direct labor cost. EPA used S&L's estimate for SU commissioning.
Owners Construction Management, O&M Support & Contract Services $6,244,287 $0The S&L/SRP cost analysis included owners costs as typical expenditures that an owner will experience during an air quality control retrofit project. These expenditures include costs for: project development, financing, project management, plant startup/construction support, and taxes/advisory fees/legal. These costs are not included in the EPA Control Cost Manual and are not included in the revised cost estimate.
Spare Parts & Special Tooling $565,000 $565,000The cost of spare parts and special tooling are not specifically included in the EPA Control Cost Manual. Although it is unclear why spare parts and special tooling are necessary, for conservativism, this cost was included in the revised cost.
Owner's Legal Support & Insurance $5,000,000 $0The S&L/SRP cost analysis included the owner's legal support and insurance. The EPA Control Cost Manual does not include legal fees, and states that insurance on an SCR system is a minimal cost and is included in the capital recovery. Therefore, this cost is not included in the revised cost estimate. Lost Generation During Short Outages $5,670,000 $5,670,000The facility assumed that the SCR installation would exceed the scheduled outage by a total of 7 days at a rate of $45/MWh @ 750 MW in lost power generation. EPA included this cost in the revised cost estimate. Ammonia Unloading Facility at Railhead $0 $0Ammonia unloadling costs for Units 1 and 2 are covered under Unit 3 as a common cost. Subtotal Indirect Costs $38,172,743 $26,928,456 Other Construction Indirect Costs

Indirect Labor & Materials Cost $8,597,356 $8,597,356 Overtime $1,832,068 $1,832,068The cost of electrical equipment which includes the raceways, grounding, lighting, communication, construction power allowance, control & instrumentation, and electrical equipment relocation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, all of these costs were included in the revised cost.

Site work costs for Units 1 and 2 are covered under the site work costs for Unit 3.

The cost of indirect labor & materials, overtime, per diem, contractor's G&A, and contractor's profit are not explicit line items costs included in the EPA Control Cost Manual. However, EPA included these costs as additional indirect

# Per Diem $7,325,012 $7,325,012 Contractor's G&A $5,754,981 $5,754,981 Contractor's Profit $4,247,315 $4,247,315 Subtotal Other Construction Indirect Costs $27,756,732 $27,756,732 Total Indirect Costs $65,929,475 $54,685,188
Contingency $15,224,333 $15,224,333The EPA Control Cost Manual includes project contingency costs as 15% of total direct capital costs and total indirect installation costs in the calculation of total capital investment. 15% of direct and indirect costs would be $17,367,153. EPA used S&L's estimate of contingency. Escalation $0 $0The facility did not include any costs for escalation in the BART submittal. Therefore this cost was not included in the revised cost. Allowance for Funds Used During Construction (AFUDC) $3,053,632 $0The EPA Control Cost Manual assumes the allowance for funds used during construction (AFUDC) are zero for the retrofit of a SCR. Total Capital Cost $151,825,000 $137,527,000 9%

**Annual Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** Fixed Annual Costs (FAC)

Operating labor $0 $0The facility did not present any costs associated with operating labor. Therefore no operating labor cost was included in the revised annual costs. Maintenance labor & materials $395,000 $395,000Maintenance labor & materials costs are included in the EPA Control Cost Manual. Therefore, the facility's estimate was included in the revised annual cost. Subtotal FAC $395,000 $395,000 Variable Annual Costs (VAC)

Anhydrous Ammonia Reagent $1,035,000 $1,035,000The EPA Control Cost Manual includes costs for raw materials, such as reagent costs. Therefore, the facility's estimate was included in the revised annual cost. Auxiliary and ID fan power $1,809,000 $1,809,000The EPA Control Cost Manual includes costs for utilities used by the SCR process. Therefore, the facility's estimate was included in the revised annual cost.

Steam $71,000 $71,000The EPA Control Cost Manual does not include costs for steam, however the low pressure steam is used to produce the ammonia reagent used for injection into the SCR. Therefore, the cost provided by the facility was used in the revised cost.

Catalyst replacement $672,000 $672,000It is unclear from the S&L/SRP cost submittal how the annual catalyst replacement cost was estimated. However, the facility's annual replacement cost is comparable to the calculated annual catalyst replacement cost using Section 4.2, Chapter 2 of the EPA Control Cost Manual. Therefore, the annual catalyst replacement cost submitted by the facility was used in the revised cost. Subtotal VAC $3,587,000 $3,587,000 Total Direct Annual Cost (DAC) $3,982,000 $3,982,000FAC + VAC Indirect Annual Costs (IAC)

Capital recovery $17,597,000 $12,981,576The facility calculated capital recovery assuming a 9.8% interest rate and 20 year equipment life. However, the design basis for the SCR capital cost estimate states that the SCR is designed for a 30-year life (See SCR and Baghouse Capital Cost Estimate Design Basis, Section 1.7(a), April 16,2010). The EPA Control Cost Manual states the interest rate to use in the CRF computation should be a "pre-tax, marginal (real rate of return" that is appropriate for the investor. However, for those cost analyses related to government regulations, an appropriate "social" interest (discount) rate should be used. For these types of analyses, the Office of Management and Budget (OMB) directs that a real interest rate of 7% be used (October 1992). The latest real interest rate for cost effectiveness analyses published by OMB is 2.8% for a 20 year period (Revised January 2008). EPA calculated capital recoveries using 3% and 7% interest rates in determining cost effectiveness for the Regulatory Impact Analysis for the Final Clean Air Visibility rule and the Guidelines for BART Determinations under the Regional Haze regulations. Therefore, a conservative approach was used to calculate the capital recovery in the revised cost using an interest rate of 7% and an equipment life of 20 years. Subtotal IAC $17,597,000 $12,981,576 Total Annual Cost $21,579,000 $16,963,576DAC + IAC 0.214 Note: The capital recovery factor used to calculate the capital recovery is calculated using the following equation: CRF=[i(1+i)n

# ]/[(1+i)n

# -1], where i=interest rate and n=number of years. line items costs included in the EPA Control Cost Manual. However, EPA included these costs as additional indirect costs associated with installation of SCR.**Navajo Generating Station Cost Analysis submitted by Salt River Project (SRP), generated by Sargent and Lundy Unit 2**  **Bituminous Coal, 750 MW, Pulverized Coal. Tangential-Fired Hot Side ESP, Wet FGD**  **Cost estimates from the Salt River Project, Navajo Generating Station - Units 1, 2, 3, SCR and Baghouse Capital Cost Estimate Report, Revision D, August 17, 2010.**

**Capital Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** SCR

Demolition $736,198 $736,198 Demolition is not listed as a separate line item in the EPA control Cost Manual for SCR, however the cost is generally included in the retrofit factor for the SCR capital cost. Demolition for the Navajo facility involves the demolition of the existing flue and the installation of the new flues and blanking plates. Therefore this cost was included in the revised cost. Civil Work (Earthwork & Caissons) $1,917,885 $1,917,885 The cost for civil work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Concrete $4,782,725 $4,782,725 The cost for concrete work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Steel, Ductwork & SCR Box $37,845,393 $37,845,393 The cost for the steel, ductwork, and SCR box are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Architectural (Elevators, Painting) $23,511 $23,511 The cost for architectural services are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Mechanical Equipment (Fan rotating assembly for SCR alone cases) $11,515,809 $11,515,809 The cost of the mechanical equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Anhydrous Ammonia System $420,721 $420,721 The cost of the anhydrous ammonia system is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Piping $545,564 $545,564The cost of piping included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Insulation $6,072,318 $6,072,318 The cost of insulation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal SCR System $63,860,124 $63,860,124 Electrical and Instrumentation & Control

Electrical Equipment $673,840 $673,840 Raceways $433,785 $433,785 Cable $433,171 $433,171 Grounding $31,799 $31,799 Lighting $369,037 $369,037 Communication $63,509 $63,509 Construction Power Allowance $224,038 $224,038 Control & Instrumentation $1,245,971 $1,245,971 Relocation & Modification of Existing Electrical Equipment $413,338 $413,338 Subtotal Electrical and Instrumentation & Control $3,888,488 $3,888,488 Sitework Civil Work (Roads, Surfacing, Erosion Control) $0 $0

Concrete $0 $0 Piping for Sitework (Drainage) $0 $0 Subtotal Sitework $0 $0 Other Direct Capital Costs

Construction Equipment $12,156,041 $12,156,041 The cost of construction equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Scaffolding $6,777,893 $6,777,893 The cost of scaffolding is not specifically included in the EPA Control Cost Manual for the calculation of the direct capital cost of the SCR (Eq. 2.36). However, scaffolding is required to ensure the safety of the workers and to allow access to the retrofit site. Therefore, this cost was included in the revised cost. Freight $2,347,280 $2,347,280This cost is included in the EPA Control Cost Manual, and EPA used S&L's estimate for freight. Sales Taxes $478,700 $478,700 Sales tax is in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal Other Direct Capital Costs $21,759,914 $21,759,914 Total Direct Capital Cost $89,508,526 $89,508,526 Indirect Costs

Engineering, Procurement & Project Services $14,141,710 $14,141,710 EPA considers S&L's estimate for Engineering, procurement & project services to represent the "Engineering and Home Office Fees" that are included in the EPA Control Cost Manual as 10% of the direct capital cost (Table 2.5, Engineering & Home Office Fees). EPA is using the S&L cost estimate, however, if EPA estimated this cost based on 10% of the direct capital cost, including labor costs, the total would be $8,950,853.

Construction Management/Field Engineering $15,191,829 $15,191,829 EPA considers S&L's estimate of Construction Management/Field Engineering to represent the "General Facilities" costs that are included in the EPA Control Cost Manual as 5% of the direct capital cost (Table 2.5, General Facilities). The EPA Control Cost Manual also includes a 5% Process Contingency (Table 2.5) under indirect installation costs. The facility estimated this cost as 65% of the direct labor cost (including per diem). EPA is using the S&L cost estimate for this line item, however, if EPA estimated this cost as the sum of construction management/field engineering as 10%, to include 5% for general facilities, and 5% for process contingencies, of the direct capital cost, the total would be $8,950,853.
S-U Commissioning $934,882 $934,882 Start-up/commissioning costs are included in the EPA Control Cost Manual as 2% of the total plant cost (Table 2.5, Preproduction Cost). The facility estimated this cost as 4% of the direct labor cost. The facility methodology was used in the revised cost.
Owners Construction Management, O&M Support & Contract Services $8,163,050 $0 The S&L/SRP cost analysis included owners costs as typical expenditures that an owner will experience during an air quality control retrofit project. These expenditures include costs for: project development, financing, project management, plant startup/construction support, and taxes/advisory fees/legal. These costs are not included in the EPA Control Cost Manual and are not included in the revised cost estimate.
Spare Parts & Special Tooling $555,000 $555,000 The cost of spare parts and special tooling are not specifically included in the EPA Control Cost Manual. Although it is unclear why spare parts and special tooling are necessary, for conservativism, this cost was included in the revised cost.
Owner's Legal Support & Insurance $5,000,000 $0 The S&L/SRP cost analysis included the owner's legal support and insurance. The EPA Control Cost Manual does not include legal fees, and states that insurance on an SCR system is a minimal cost and is included in the capital recovery. Therefore, this cost is not included in the revised cost estimate. Lost Generation During Short Outages $5,670,000 $5,670,000The facility assumed that the SCR installation would exceed the scheduled outage by a total of 7 days at a rate of $45/MWh @ 750 MW in lost power generation. EPA included this cost in the revised cost estimate. Ammonia Unloading Facility at Railhead $0 $0 Ammonia unloadling costs for Units 1 and 2 are covered under Unit 3 as a common cost. Subtotal Indirect Costs $49,656,471 $36,493,421 Other Construction Indirect Costs

Indirect Labor & Materials Cost $12,425,416 $12,425,416 Overtime $2,569,023 $2,569,023 Per Diem $10,656,693 $10,656,693 Contractor's G&A $7,894,783 $7,894,783 Contractor's Profit $5,985,262 $5,985,262 Subtotal Other Construction Indirect Costs $39,531,177 $39,531,177 Total Indirect Costs $89,187,648 $76,024,598
Contingency $23,051,807 $23,051,807 The EPA Control Cost Manual includes project contingency costs as 15% of total direct capital costs and total indirect installation costs in the calculation of total capital investment. 15% of direct and indirect costs would be $23,115,193. EPA used S&L's estimate of contingency. Escalation $0 $0 The facility did not include any costs for escalation in the BART submittal. Therefore this cost was not included in the revised cost. Allowance for Funds Used During Construction (AFUDC) $4,059,926 $0 The EPA Control Cost Manual assumes the allowance for funds used during construction (AFUDC) are zero for the retrofit of a SCR. Total Capital Cost $205,808,000 $188,585,000 8%

**Annual Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** Fixed Annual Costs (FAC)

Operating labor $0 $0 The facility did not present any costs associated with operating labor. Therefore no operating labor cost was included in the revised annual costs. Maintenance labor & materials $395,000 $395,000 Maintenance labor & materials costs are included in the EPA Control Cost Manual. Therefore, the facility's estimate was included in the revised annual cost. Subtotal FAC $395,000 $395,000 Variable Annual Costs (VAC)

Anhydrous Ammonia Reagent $1,035,000 $1,035,000The EPA Control Cost Manual includes costs for raw materials, such as reagent costs. Therefore, the facility's estimate was included in the revised annual cost. Auxiliary and ID fan power $1,809,000 $1,809,000The EPA Control Cost Manual includes costs for utilities used by the SCR process. Therefore, the facility's estimate was included in the revised annual cost.

Steam $71,000 $71,000 The EPA Control Cost Manual does not include costs for steam, however the low pressure steam is used to produce the ammonia reagent used for injection into the SCR. Therefore, the cost provided by the facility was used in the revised cost.

Catalyst replacement $672,000 $672,000 It is unclear from the S&L/SRP cost submittal how the annual catalyst replacement cost was estimated. However, the facility's annual replacement cost is comparable to the calculated annual catalyst replacement cost using Section 4.2, Chapter 2 of the EPA Control Cost Manual. Therefore, the annual catalyst replacement cost submitted by the facility was used in the revised cost. Subtotal VAC $3,587,000 $3,587,000 Total Direct Annual Cost (DAC) $3,982,000 $3,982,000 FAC + VAC Indirect Annual Costs (IAC)

Capital recovery $23,853,000 $17,801,090 The facility calculated capital recovery assuming a 9.8% interest rate and 20 year equipment life. However, the design basis for the SCR capital cost estimate states that the SCR is designed for a 30-year life (See SCR and Baghouse Capital Cost Estimate Design Basis, Section 1.7(a), April 16,2010). The EPA Control Cost Manual states the interest rate to use in the CRF computation should be a "pre-tax, marginal (real rate of return" that is appropriate for the investor. However, for those cost analyses related to government regulations, an appropriate "social" interest (discount) rate should be used. For these types of analyses, the Office of Management and Budget (OMB) directs that a real interest rate of 7% be used (October 1992). The latest real interest rate for cost effectiveness analyses published by OMB is 2.8% for a 20 year period (Revised January 2008). EPA calculated capital recoveries using 3% and 7% interest rates in determining cost effectiveness for the Regulatory Impact Analysis for the Final Clean Air Visibility rule and the Guidelines for BART Determinations under the Regional Haze regulations. Therefore, a conservative approach was used to calculate the capital recovery in the revised cost using an interest rate of 7% and an equipment life of 20 years. Subtotal IAC $23,853,000 $17,801,090 Total Annual Cost $27,835,000 $21,783,090 DAC + IAC 0.217420877 Note: The capital recovery factor used to calculate the capital recovery is calculated using the following equation: CRF=[i(1+i)n]/[(1+i)n-1], where i=interest rate and n=number of years. The cost of electrical equipment which includes the raceways, grounding, lighting, communication, construction power allowance, control & instrumentation, and electrical equipment relocation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, all of these costs were included in the revised cost.

Site work costs for Units 1 and 2 are covered under the site work costs for Unit 3.

The cost of indirect labor & materials, overtime, per diem, contractor's G&A, and contractor's profit are not explicit line items costs included in the EPA Control Cost Manual. However, EPA included these costs as additional indirect costs associated with installation of SCR.**Navajo Generating Station Cost Analysis submitted by Salt River Project (SRP), generated by Sargent and Lundy Unit 3**  **Bituminous Coal, 750 MW, Pulverized Coal. Tangential-Fired Hot Side ESP, Wet FGD**  **Cost estimates from the Salt River Project, Navajo Generating Station - Units 1, 2, 3, SCR and Baghouse Capital Cost Estimate Report, Revision D, August 17, 2010.**

**Capital Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** SCR

Demolition $735,830 $735,830 Demolition is not listed as a separate line item in the EPA control Cost Manual for SCR, however the cost is generally included in the retrofit factor for the SCR capital cost. Demolition for the Navajo facility involves the demolition of the existing flue and the installation of the new flues and blanking plates. Therefore this cost was included in the revised cost. Civil Work (Earthwork & Caissons) $1,427,672 $1,427,672 The cost for civil work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Concrete $3,714,517 $3,714,517 The cost for concrete work is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Steel, Ductwork & SCR Box $30,333,690 $30,333,690 The cost for the steel, ductwork, and SCR box are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Architectural (Elevators, Painting) $4,055,395 $4,055,395 The cost for architectural services are included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Mechanical Equipment (Fan rotating assembly for SCR alone cases) $10,869,742 $10,869,742 The cost of the mechanical equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Anhydrous Ammonia System $2,263,603 $2,263,603 The cost of the anhydrous ammonia system is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Piping $1,426,427 $1,426,427 The cost of piping included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Insulation $4,567,888 $4,567,888 The cost of insulation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal SCR System $59,394,764 $59,394,764 Electrical and Instrumentation & Control

Electrical Equipment $1,248,620 $1,248,620 Raceways $590,614 $590,614 Cable $707,185 $707,185 Grounding $67,123 $67,123 Lighting $633,462 $633,462 Communication $109,616 $109,616 Construction Power Allowance $378,460 $378,460 Control & Instrumentation $1,519,938 $1,519,938 Relocation & Modification of Existing Electrical Equipment $42,106 $42,106 Subtotal Electrical and Instrumentation & Control $5,297,124 $5,297,124 Sitework Civil Work (Roads, Surfacing, Erosion Control) $320,326 $320,326

Concrete $12,736 $12,736 Piping for Sitework (Drainage) $933,463 $933,463 Subtotal Sitework $1,266,525 $1,266,525 Other Direct Capital Costs

Construction Equipment $7,955,564 $7,955,564The cost of construction equipment is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost.
Scaffolding $6,135,353 $6,135,353 The cost of scaffolding is not specifically included in the EPA Control Cost Manual for the calculation of the direct capital cost of the SCR (Eq. 2.36). However, scaffolding is required to ensure the safety of the workers and to allow access to the retrofit site. Therefore, this cost was included in the revised cost. Freight $2,355,184 $2,355,184 Sales Taxes $663,500 $663,500 Sales tax is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, this cost was included in the revised cost. Subtotal Other Direct Capital Costs $17,109,601 $17,109,601 Total Direct Capital Costs $83,068,014 $83,068,014 Indirect Costs

Engineering, Procurement & Project Services $10,578,622 $10,578,622 EPA considers S&L's estimate for Engineering, procurement & project services to represent the "Engineering and Home Office Fees" that are included in the EPA Control Cost Manual as 10% of the direct capital cost (Table 2.5, Engineering & Home Office Fees). EPA is using the S&L cost estimate, however, if EPA estimated this cost based on 10% of the direct capital cost, including labor costs, the total would be $8,306,801.

Construction Management/Field Engineering $13,751,653 $13,751,653 EPA considers S&L's estimate of Construction Management/Field Engineering to represent the "General Facilities" costs that are included in the EPA Control Cost Manual as 5% of the direct capital cost (Table 2.5, General Facilities). The EPA Control Cost Manual also includes a 5% Process Contingency (Table 2.5) under indirect installation costs. The facility estimated this cost as 65% of the direct labor cost (including per diem). EPA is using the S&L cost estimate for this line item, however, if EPA estimated this cost as the sum of construction management/field engineering as 10%, to include 5% for general facilities, and 5% for process contingencies, of the direct capital cost, the total would be $8,306,801.
S-U Commissioning $846,256 $846,256 Start-up/commissioning costs are included in the EPA Control Cost Manual as 2% of the total plant cost (Table 2.5, Preproduction Cost). The facility estimated this cost as 4% of the direct labor cost. The facility methodology was used in the revised cost.
Owners Construction Management, O&M Support & Contract Services $7,504,012 $0 The S&L/SRP cost analysis included owners costs as typical expenditures that an owner will experience during an air quality control retrofit project. These expenditures include costs for: project development, financing, project management, plant startup/construction support, and taxes/advisory fees/legal. These costs are not included in the EPA Control Cost Manual and are not included in the revised cost estimate.
Spare Parts & Special Tooling $685,000 $685,000 The cost of spare parts and special tooling are not specifically included in the EPA Control Cost Manual. Although it is unclear why spare parts and special tooling are necessary, for conservativism, this cost was included in the revised cost.
Owner's Legal Support & Insurance $5,000,000 $0 The BART analysis included the owner's legal support and insurance. The EPA Control Cost Manual does not include legal fees, and states that insurance on an SCR system is a minimal cost and is included in the capital recovery. Therefore, this cost is not included in the revised cost estimate. Lost Generation During Short Outages $5,670,000 $5,670,000The facility assumed that the SCR installation would exceed the scheduled outage by a total of 7 days at a rate of $45/MWh @ 750 MW in lost power generation. EPA included this cost in the revised cost estimate

Ammonia Unloading Facility at Railhead $2,000,000 $2,000,000The EPA Control Cost Manual includes costs for storage and production of the ammonia reagent. The manual does not include the cost for an ammonia unloading facility at the railhead in the calculation of total capital investment. However, it is believed that this cost is necessary to provide the needed infrastructure to provide a consistent and safe supply of ammonia to the facility. Therefore this cost was included in the revised cost. Subtotal Indirect Costs $46,035,543 $33,531,531 Other Construction Indirect Costs

Indirect Labor & Materials Cost $11,257,983 $11,257,983 Overtime $2,301,644 $2,301,644 Per Diem $9,184,758 $9,184,758 Contractor's G&A $7,089,429 $7,089,429 Contractor's Profit $5,301,914 $5,301,914 Subtotal Other Construction Indirect Costs $35,135,728 $35,135,728 Total Indirect Costs $81,171,271 $68,667,259
Contingency $18,559,039 $18,559,039 The EPA Control Cost Manual includes project contingency costs as 15% of total direct capital costs and total indirect installation costs in the calculation of total capital investment. 15% of direct and indirect costs would be $21,602,790. EPA used S&L's estimate of contingency. Escalation $0 $0 The facility did not include any costs for escalation in the BART submittal. Therefore this cost was not included in the revised cost. Allowance for Funds Used During Construction (AFUDC) $3,729,453 $0 The EPA Control Cost Manual assumes the allowance for funds used during construction (AFUDC) are zero for the retrofit of a SCR. Total Capital Cost $186,528,000 $170,294,000 9%

**Annual Cost S&L/SRP**  **Calculated Cost EPA Revised Cost**  **Comments** Fixed Annual Costs (FAC)

Operating labor $0 $0 The facility did not present any costs associated with operating labor. Therefore no operating labor cost was included in the revised annual costs. Maintenance labor & materials $395,000 $395,000 Maintenance labor & materials costs are included in the EPA Control Cost Manual. Therefore, the facility's estimate was included in the revised annual cost. Subtotal FAC $395,000 $395,000 Variable Annual Costs (VAC)

Anhydrous Ammonia Reagent $1,035,000 $1,035,000The EPA Control Cost Manual includes costs for raw materials, such as reagent costs. Therefore, the facility's estimate was included in the revised annual cost. Auxiliary and ID fan power $1,809,000 $1,809,000The EPA Control Cost Manual includes costs for utilities used by the SCR process. Therefore, the facility's estimate was included in the revised annual cost.

Steam $71,000 $71,000 The EPA Control Cost Manual does not include costs for steam, however the low pressure steam is used to produce the ammonia reagent used for injection into the SCR. Therefore, the cost provided by the facility was used in the revised cost.

Catalyst replacement $672,000 $672,000 It is unclear from the BART submittal how the annual catalyst replacement cost was estimated. However, the facility's annual replacement cost is comparable to the calculated annual catalyst replacement cost using Section 4.2, Chapter 2 of the EPA Control Cost Manual. Therefore, the annual catalyst replacement cost submitted by the facility was used in the revised cost. Subtotal VAC $3,587,000 $3,587,000 Total Direct Annual Cost (DAC) $3,982,000 $3,982,000 FAC + VAC Indirect Annual Costs (IAC)

Capital recovery $21,619,000 $16,074,549 The facility calculated capital recovery assuming a 9.8% interest rate and 20 year equipment life. However, the design basis for the SCR capital cost estimate states that the SCR is designed for a 30-year life (See SCR and Baghouse Capital Cost Estimate Design Basis, Section 1.7(a), April 16,2010). The EPA Control Cost Manual states the interest rate to use in the CRF computation should be a "pre-tax, marginal (real rate of return" that is appropriate for the investor. However, for those cost analyses related to government regulations, an appropriate "social" interest (discount) rate should be used. For these types of analyses, the Office of Management and Budget (OMB) directs that a real interest rate of 7% be used (October 1992). The latest real interest rate for cost effectiveness analyses published by OMB is 2.8% for a 20 year period (Revised January 2008). EPA calculated capital recoveries using 3% and 7% interest rates in determining cost effectiveness for the Regulatory Impact Analysis for the Final Clean Air Visibility rule and the Guidelines for BART Determinations under the Regional Haze regulations. Therefore, a conservative approach was used to calculate the capital recovery in the revised cost using an interest rate of 7% and an equipment life of 20 years. Subtotal IAC $21,619,000 $16,074,549 Total Annual Cost $25,601,000 $20,056,549 DAC + IAC 0.216571661 Note: The capital recovery factor used to calculate the capital recovery is calculated using the following equation: CRF=[i(1+i)n]/[(1+i)n-1], where i=interest rate and n=number of years. The cost of electrical equipment which includes the raceways, grounding, lighting, communication, construction power allowance, control & instrumentation, and electrical equipment relocation is included in the EPA Control Cost Manual in the calculation of the direct capital cost of the SCR (Eq. 2.36). Therefore, all of these costs were included in the revised cost.

The EPA Control Cost Manual does not include the costs for sitework in the calculation of total capital investment. However, the manual notes that these costs may be necessary to provide the needed infrastructure to service the facility. Therefore these costs were included in the revised cost.

The cost of indirect labor & materials, overtime, per diem, contractor's G&A, and contractor's profit are not explicit line items costs included in the EPA Control Cost Manual. However, EPA included these costs as additional indirect costs associated with installation of SCR.

# Total Capital Cost (EPA's revisions)

SCR 3+1 reactorSCR 2+1 reactorSNCR + PerNOxide ($40/KW estimate from URS) 2012 SRP cost for SNCR Unit 1 $137,527,000 $127,527,000 $30,000,000 $13,066,667 Unit 2 $188,585,000 $178,585,000 $30,000,000 $13,066,667 Unit 3 $170,294,000 $160,294,000 $30,000,000 $13,066,667 **TOTAL** $496,406,000 $466,406,000 $90,000,000 $39,200,000 Total Annual Cost (EPA's revisions) Total Annual Cost Annual Cost w/o O&M

3+1 reactor 2+1 reactor SNCR+PerNOxide (capital recover + annual maintenance cost = 1% of capital costs) 2012 SNCR cost at 7% Unit 1 $16,963,576 $16,019,647 $3,131,788 $1,233,401 Unit 2 $21,783,090 $20,839,161 $3,131,788 $1,233,401 Unit 3 $20,056,549 $19,112,620 $3,131,788 $1,233,401 **TOTAL** $58,803,215 $55,971,427 $9,395,363 $3,700,203

Total Annual O&M Costs

3+1 reactor Unit 1 $3,982,000 Unit 2 $3,982,000 Unit 3 $3,982,000 **TOTAL** $11,946,000 Ann Cap $46,857,215

# Total Annual Cost Annual Cost w/o O&M Total Annual Cost

2012 SNCR at 7% 2012 SNCR cost at 9.8% 2012 SNCR at 9.8% $7,566,734 $1,513,907 $7,847,240 $7,566,734 $1,513,907 $7,847,240 $7,566,734 $1,513,907 $7,847,240 $22,700,202 $4,541,722 $23,541,721

For Economic Modeling - SCR Costs

Total Capital Cost Annual O&M Cost Unit 1 $137,527,000 $3,982,000 Unit 2 $188,585,000 $3,982,000 Unit 3 $170,294,000 $3,982,000 For Economic Modeling - SNCR Costs

Total Capital Cost Annual O&M Cost Unit 1 $13,066,667 $6,333,333 Unit 2 $13,066,667 $6,333,333 Unit 3 $13,066,667 $6,333,333 From January 20, 2012 letter from Kelly Barr, SRP to Deborah Jordan, EPA $39,200,001 $18,999,999