The end of coal consumption at Sundt Unit 4 is among the possibilities for Tucson Electric Power at coal-fired power plants to meet the U.S. Environmental Protection Agency’s Regional Haze rule.
UNS Energy (NYSE: UNS), the parent of Tucson Electric Power (TEP), ran down the latest development in the Regional Haze area in its Nov. 7 Form 10-Q filing at the SEC.
The EPA’s Regional Haze rules require emission controls known as best available retrofit technology (BART). States must submit these goals and strategies to the EPA for approval. Because the coal-fired Navajo and Four Corners power plants, where Tucson Electric owns small stakes, are located on the Navajo Indian Reservation, they are not subject to state oversight. The EPA oversees haze planning for these power plants.
“Complying with the EPA’s BART findings, and with other future environmental rules, may make it economically impractical to continue operating the Navajo, San Juan, and Four Corners power plants or for individual owners to continue to participate in these power plants,” UNS Energy wrote. “TEP cannot predict the ultimate outcome of these matters.”
By plant, the haze situation is:
Navajo – In January 2013, the EPA proposed a BART finding that would require the installation of selective catalytic reduction (SCR) technology on all three units at Navajo by 2023 (total of 2,250 MW in three 750-MW units). In July 2013, plant operator Salt River Project (SRP), along with other stakeholders including impacted government agencies, submitted an agreement to the EPA that would achieve greater NOx reductions than the EPA’s proposed BART rule. In September 2013, EPA issued a supplemental proposal incorporating the provisions of the agreement as a better-than-BART alternative.
Among other things, the agreement calls for the shut down of one Navajo unit or an equivalent reduction in emissions by 2020. The shutdown of one unit will not impact the total amount of energy delivered to TEP from Navajo. Also, the remaining Navajo participants would be required to install SCR or an equivalent technology on the remaining two units by 2030. As part of the agreement, the current owners have committed to cease their operation of conventional coal-fired generation at Navajo no later than December 2044. The Navajo Nation can continue operation after 2044 at its election. If SCR technology is installed at Navajo, TEP estimates its share of the capital cost will be $42m. Also, the installation of SCR at Navajo could increase the power plant’s particulate emissions which may require that baghouses be installed. TEP estimates that its share of the capital expenditure for baghouses would be about $43m.
San Juan – In August 2011, the EPA issued a Federal Implementation Plan (FIP) for San Juan (about 1,800 MW total). This plan is more stringent than proposed by the state of New Mexico. The FIP requires the installation of SCR with sorbent injection on all four units to reduce NOx and control sulfuric acid emissions by September 2016. TEP estimates its share of the cost to install SCR with sorbent injection to be $180m to $200m.
In 2011, Public Service Co. of New Mexico (PNM) filed a petition for review of, and a motion to stay, the FIP with the U.S. Court of Appeals for the Tenth Circuit. In addition, the operator filed a request for reconsideration of the rule with the EPA and a request to stay the effectiveness of the rule pending the EPA’s reconsideration and review by the Tenth Circuit. The state of New Mexico filed similar motions with the Tenth Circuit and the EPA. Several environmental groups were granted permission to join in opposition to PNM’s petition to review in the Tenth Circuit.
In addition, WildEarth Guardians filed a separate appeal against the EPA challenging the FIP’s five-year implementation schedule. PNM was granted permission to join in opposition to that appeal.
In March 2012, the Tenth Circuit denied PNM’s and the state of New Mexico’s motion for stay. Oral argument on the appeal was heard in October 2012 and the parties are currently awaiting the court’s decision. In February 2013, the Tenth Circuit referred the litigation to the Tenth Circuit Mediation Office, which has authority to require the parties to attend mediation conferences to informally resolve issues in the pending appeals.
In February 2013, the state of New Mexico, the EPA, and PNM signed a non-binding agreement that outlines an alternative to the FIP. The terms of the agreement include:
- the retirement of San Juan Units 2 and 3 by Dec. 31, 2017;
- the replacement by PNM of those units with non-coal generation sources; and
- the installation of selective non-catalytic reduction technology (SNCR) on San Juan Units 1 and 4 by January 2016 or later depending on the timing of EPA approvals.
The New Mexico Environmental Department (NMED) prepared a revision to the regional haze SIP incorporating the provisions of the agreement, and in September 2013, the New Mexico Environmental Improvement Board approved the SIP revision. The SIP revision now awaits final EPA approval.
TEP estimates its share of the cost to install SNCR on San Juan Unit 1 would be about $35m. TEP owns 340 MW, or 50%, of San Juan Units 1 and 2. At Sept. 30, 2013, the book value of TEP’s share of San Juan Unit 2 was $114m. If Unit 2 is retired early, TEP expects to request Arizona Corporation Commission approval to recover, over a reasonable time period, all costs associated with the early closure of the unit.
Four Corners – In August 2012, the EPA finalized the regional haze FIP for Four Corners (about 2,100 MW total), which requires SCR technology to be installed on all five units by 2017. However, the FIP also includes an alternative plan that allows Arizona Public Service (APS) to close its wholly-owned Units 1, 2, and 3 and install SCR on Units 4 and 5. This option allows the installation of SCR to be delayed until July 2018. APS must select which FIP alternative to implement by Dec. 31, 2013. In either case, TEP’s estimated share of the capital costs to install SCR technology on Units 4 and 5 is about $35m.
Springerville – The BART provisions of the Regional Haze rules that require emission control upgrades do not apply to the coal-fired Springerville (about 1,560 MW total) plant. Other provisions of the Regional Haze rule requiring further emission reduction are not likely to impact Springerville operations until after 2018.
Sundt – In July 2013, the EPA rejected the Arizona state implementation plan finding that Sundt Unit 4, a 156-MW facility that can burn both coal and gas, is not subject to the BART provisions. The other units at Sundt fire gas and oil. Under the haze rule, Sundt Unit 4 will be required to reduce certain emissions within five years of the final EPA BART determination. The EPA postponed its expected release of a proposed BART requirement for Sundt Unit 4 until December 2013, with a final determination expected in May 2014. While TEP does not agree that Sundt Unit 4 is BART eligible, in anticipation of EPA’s proposed BART requirements, TEP has submitted a plan for EPA approval proposing to eliminate coal as a fuel after December 2017.