Arizona Public Service is still fighting a U.S. Environmental Protection Agency mandate for costly selective catalytic reduction (SCR) retrofits on the three units of the coal-fired Cholla power plant, said APS parent Pinnacle West Capital (NYSE: PNW) in its Feb. 21 annual Form 10-K report.
In 2007, the Arizona Department of Environmental Quality (ADEQ) required APS to perform a best available retrofit technology (BART) analysis for Cholla under the Clean Air Visibility Rule. APS submitted its BART recommendations to ADEQ in early 2008. The recommendations include the installation of certain pollution control equipment that APS believes constitutes BART. ADEQ reviewed the APS recommendations and submitted to EPA its proposed BART State Implementation Plan (SIP) for Cholla and other sources in Arizona in early 2011.
In December 2011, EPA provided notice of a proposed consent decree to address a lawsuit filed by a number of environmental non-governmental organizations, which alleged that EPA failed to promulgate Federal Implementation Plans (FIPs) for states that have not yet submitted all or part of the required regional haze SIPs. In accordance with the consent decree, in December 2012, EPA issued a final BART rule applicable to Cholla.
EPA approved ADEQ’s BART emissions limits for SO2 and particulate matter (PM), but added a SO2 removal efficiency requirement of 95%. In addition, EPA disapproved ADEQ’s BART determinations for NOx and promulgated a FIP establishing a new, more stringent “bubbled” NOx emission rate applicable to the two BART-eligible Cholla units owned by APS and the other BART-eligible unit owned by PacifiCorp. In order to comply with this new rate, APS will be required to install SCR control technology on all three of the Cholla units. APS’s total costs for these post-combustion NOx controls would be approximately $200m. This amount is not included in the utility’s current estimates for environmental capital expenditures in the Form 10-K. Under the FIP, APS has five years from December 2012 to complete installation of the equipment and achieve the BART emission limit for NOx.
“APS believes that EPA’s final rule as it applies to Cholla is unsupported and that EPA had no basis for disapproving Arizona’s SIP and promulgating a FIP that is inconsistent with the state’s considered BART determinations under the regional haze program,” said the Form 10-K. “Accordingly, on February 1, 2013, APS filed a Petition for Review of the final BART rule in the United States Court of Appeals for the Ninth Circuit. We expect briefing in the case to be completed in February 2014.”
Cholla is a four-unit, 995-MW, coal-fired plant located in northeastern Arizona. APS operates the plant and owns 100% of Cholla Units 1, 2 and 3. PacifiCorp owns Cholla Unit 4, and APS operates that unit for PacifiCorp. APS has a total entitlement from Cholla of 647 MW. APS purchases all of Cholla’s coal requirements from a coal supplier that mines all of the coal under long-term leases of coal reserves with the federal and state governments and private landholders. The Cholla coal contract runs through 2024. In addition, APS has a long-term coal transportation contract.
U.S. Energy Information Administration data shows that this long-term coal contract is with Peabody Energy (NYSE: BTU) for coal out of the El Segundo strip mine in New Mexico. PacifiCorp fuels official Cindy Crane said in January testimony filed at the Utah Public Service Commission in a rate case that the Peabody long-term contract for Cholla was the result of a request for proposals issued in May 2005 and includes two price reopeners: one as of Jan. 1, 2013, and the other as of Jan. 1, 2018. The Cholla plant owners reached a tentative agreement with Peabody in November 2013 under the first reopener, Crane said.