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Released October 18, 2013 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The owners of the Navajo Generating Station (NGS) may have to pay several hundred million dollars to reduce air emissions from the massive power plant, located about 20 miles from the Grand Canyon in northern Arizona. But the owners don't yet know exactly how much they will pay, or when, or what pollution control technologies they will be installing. Despite those critical uncertainties, the owners are happier now than they were in early 2013, when a draft regulation from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) could have required them to install as much as $1.1 billion of pollution-control equipment by 2018.
It's not clear exactly how proposed regulations swirling around NGS will affect the dynamics of the Western and Southwestern U.S. power markets. Plant owners have closed, or have announced commitments to close, more than 3,500 MW of coal-fired capacity in the region by 2020. Nearly 1,600 MW of generating capacity at Mohave already have been closed. Operators of the Four Corners, San Juan and Reid Gardner stations have announced their commitment to close more than 1,900 MW of generation at those units over the 2013-20 timeframe. Beyond 2020, additional coal-fired unit closures in the region are expected.
NGS, the largest power plant in the Southwest at 2,250 megawatts (MW), was built in the 1970s for $650 million, a sum that included about $200 million in environmental-control equipment. Twenty years ago, the owners invested an additional $420 million to install scrubbers to reduce emissions of sulfur dioxide (SO2). This past February, the EPA issued a draft rule to reduce NGS's emissions of oxides of nitrogen (NOX) under the Best Available Retrofit Technology (BART) provision of the Clean Air Act. The agency asserted NOx emissions from NGS were impairing visibility at 11 national parks and wilderness areas.
Reducing NOx emissions by installing selective catalytic reduction (SCR) equipment on all three of Navajo's units would have cost NGS's owners an estimated $544 million. And because SCRs increase particulate emissions, the owners might have to spend an additional $556 million to install baghouses to reduce the plant's particulate emissions. And the EPA wanted it all done by 2018.
It might not make economic sense to install $1.1 billion of emissions-control equipment on a coal-fired power plant that first started operating when Gerald Ford was president. But beyond the cost, which was no small matter, the terms of the original EPA proposal would have required that equipment to be installed by 2018. That was the insurmountable obstacle. The owners said the plant's diverse ownership, including its partial ownership by a unit of the U.S. Department of the Interior (DOI) (Washington, D.C.), made it impossible to meet that deadline. Two of the owners were in the process of selling their respective stakes in NGS. The generating station's lease and coal contracts had to be renegotiated.
NGS's owners include the Salt River Project (SRP) (Phoenix, Arizona), Los Angeles Department of Water & Power (LADWP) (Los Angeles, California), Arizona Public Service Company (APS) (Phoenix, Arizona), NV Energy (NYSE:NVE) (Las Vegas, Nevada), Tucson Electric Power (TEP) (Tucson, Arizona) and the U.S. Bureau of Reclamation (Washington, D.C.). APS is a unit of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona) while TEP is a unit of UniSource Energy Corporation (NYSE:UNS) (Tuscon, Arizona). SRP is the operator at NGS.
"One of the most significant challenges we faced was that two of the plant's owners--LADWP and NV Energy--said their future did not include NGS," said Grant Smedley, SRP's manager of environmental policy and innovation, in an interview. LADWP is negotiating to sell its interest in NGS by the end of 2015. Legislation that passed earlier this year in Nevada would force NV Energy to dispose of its NGS stake by 2019. For more on NV Energy's plan to exit coal-fired electricity, see June 10, 2013, article - NV Energy Begins Process to Exit Coal-Fired Electricity Business.
Navajo's ownership structure could affect overall compliance costs, Smedley said in an interview. Aside from the EPA's regulatory process, before turning dirt on any pollution control project, Navajo's owners needed to go through a raft of other federal approval procedures that will take several years to complete. All of this meant there was no way the plant could comply with the EPA's original 2018 deadline.
So the owners convened a working group to propose alternative compliance plans to the EPA. They submitted their alternate proposal to EPA in July, and last month the agency responded favorably.
The working group, which involved several environmental organizations and Native American groups, proposed closing one unit of Navajo by 2020, and installing SCR equipment to lower NOx emissions by 2030. Their proposal contains several assumptions, including that LADWP and NV Energy dispose of their interests in NGS by 2019 as planned and that the Navajo Nation, on whose tribal land the plant sits, chooses not to exercise an option to purchase a portion of the plant.
"This plan provides a roadmap to cleaner air, climate progress and a stronger clean energy economy," said Vickie Patton, General Counsel at Environmental Defense Fund, in a statement announcing the working group's proposal. "We had to work through some difficult issues, but together we were able to develop an approach that provides for cleaner air at the Grand Canyon and surrounding communities, that begins a cost-effective clean energy transition at the Navajo Generating Station, and that provides for crucial clean energy economic development for the Navajo Nation, Hopi Tribe and Gila River Indian Community."
The EPA responded favorably to the working groups' proposal. In a September 25 statement, Jared Blumenfeld, EPA's Regional Administrator for the Pacific Southwest, said: "These creative alternatives achieve greater emissions reductions at NGS while giving tribes and owners more flexibility. This is good news for visitors to national parks and for public health."
Separately, EPA Administrator Gina McCarthy said of the working group's proposal, "We consider it a significant step forward. If you read the (original) proposal we put out, it was an open invitation to stakeholders to come up with an alternative."
SRP's Smedley said: "What the working group tried to do was find an alternative that gives the owners more flexibility and time." Spending several hundred million dollars to lower the plant's NOx emissions, while "significant," will not render NGS uneconomic, he said, adding: "We're really pleased that the EPA recognized the effort of the working group to reach a compromise that balances a lot of interests."
One set of interests involve Native American tribes in Arizona that receive water that is pumped using electricity from NGS. Another is the City of Tucson, located about 350 miles from the Grand Canyon, which similarly depends on water from northern Arizona that is pumped using electricity from NGS.
Next month, the EPA will hold a series of public meetings in Arizona to gather stakeholder comments on the revised plan for NGS. The agency will take additional comments until next January, and a new rule is expected next summer.
Though complex, the working group's proposal that has been embraced by the EPA doesn't specify how NGS will deal with particulate emissions, which generally increase after the installation of SCR equipment. Working backward from the working group's 2030 effective date, SRP's Smedley said that sometime in the mid-2020s the owners would have to apply to EPA for an air-quality permit to install SCRs. That process, in turn, would trigger a second EPA regulatory matter: the cost to reduce emissions of particulates using Best Available Control Technology (BACT).
Assuming this timeframe is retained in the final rule, sometime in the mid-2020s, when the EPA makes its permit decision on Navajo's SCRs, the agency also will have to decide whether to require NGS to install baghouses to reduce particulate emissions. "When you look that far into the future, there may be less costly particulate-control options available than baghouses," Smedley said. "Today, baghouses are the most effective, and expensive, way to control particulate emissions. Who knows what options will be available in the 2020s?" Today, NGS's only other particulate-control option would be to modify its electrostatic precipitators, Smedley said.
View Plant Profile - 1015877 1015381 1016385 1523368 1016380
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
It's not clear exactly how proposed regulations swirling around NGS will affect the dynamics of the Western and Southwestern U.S. power markets. Plant owners have closed, or have announced commitments to close, more than 3,500 MW of coal-fired capacity in the region by 2020. Nearly 1,600 MW of generating capacity at Mohave already have been closed. Operators of the Four Corners, San Juan and Reid Gardner stations have announced their commitment to close more than 1,900 MW of generation at those units over the 2013-20 timeframe. Beyond 2020, additional coal-fired unit closures in the region are expected.
NGS, the largest power plant in the Southwest at 2,250 megawatts (MW), was built in the 1970s for $650 million, a sum that included about $200 million in environmental-control equipment. Twenty years ago, the owners invested an additional $420 million to install scrubbers to reduce emissions of sulfur dioxide (SO2). This past February, the EPA issued a draft rule to reduce NGS's emissions of oxides of nitrogen (NOX) under the Best Available Retrofit Technology (BART) provision of the Clean Air Act. The agency asserted NOx emissions from NGS were impairing visibility at 11 national parks and wilderness areas.
Reducing NOx emissions by installing selective catalytic reduction (SCR) equipment on all three of Navajo's units would have cost NGS's owners an estimated $544 million. And because SCRs increase particulate emissions, the owners might have to spend an additional $556 million to install baghouses to reduce the plant's particulate emissions. And the EPA wanted it all done by 2018.
It might not make economic sense to install $1.1 billion of emissions-control equipment on a coal-fired power plant that first started operating when Gerald Ford was president. But beyond the cost, which was no small matter, the terms of the original EPA proposal would have required that equipment to be installed by 2018. That was the insurmountable obstacle. The owners said the plant's diverse ownership, including its partial ownership by a unit of the U.S. Department of the Interior (DOI) (Washington, D.C.), made it impossible to meet that deadline. Two of the owners were in the process of selling their respective stakes in NGS. The generating station's lease and coal contracts had to be renegotiated.
NGS's owners include the Salt River Project (SRP) (Phoenix, Arizona), Los Angeles Department of Water & Power (LADWP) (Los Angeles, California), Arizona Public Service Company (APS) (Phoenix, Arizona), NV Energy (NYSE:NVE) (Las Vegas, Nevada), Tucson Electric Power (TEP) (Tucson, Arizona) and the U.S. Bureau of Reclamation (Washington, D.C.). APS is a unit of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona) while TEP is a unit of UniSource Energy Corporation (NYSE:UNS) (Tuscon, Arizona). SRP is the operator at NGS.
"One of the most significant challenges we faced was that two of the plant's owners--LADWP and NV Energy--said their future did not include NGS," said Grant Smedley, SRP's manager of environmental policy and innovation, in an interview. LADWP is negotiating to sell its interest in NGS by the end of 2015. Legislation that passed earlier this year in Nevada would force NV Energy to dispose of its NGS stake by 2019. For more on NV Energy's plan to exit coal-fired electricity, see June 10, 2013, article - NV Energy Begins Process to Exit Coal-Fired Electricity Business.
Navajo's ownership structure could affect overall compliance costs, Smedley said in an interview. Aside from the EPA's regulatory process, before turning dirt on any pollution control project, Navajo's owners needed to go through a raft of other federal approval procedures that will take several years to complete. All of this meant there was no way the plant could comply with the EPA's original 2018 deadline.
So the owners convened a working group to propose alternative compliance plans to the EPA. They submitted their alternate proposal to EPA in July, and last month the agency responded favorably.
The working group, which involved several environmental organizations and Native American groups, proposed closing one unit of Navajo by 2020, and installing SCR equipment to lower NOx emissions by 2030. Their proposal contains several assumptions, including that LADWP and NV Energy dispose of their interests in NGS by 2019 as planned and that the Navajo Nation, on whose tribal land the plant sits, chooses not to exercise an option to purchase a portion of the plant.
"This plan provides a roadmap to cleaner air, climate progress and a stronger clean energy economy," said Vickie Patton, General Counsel at Environmental Defense Fund, in a statement announcing the working group's proposal. "We had to work through some difficult issues, but together we were able to develop an approach that provides for cleaner air at the Grand Canyon and surrounding communities, that begins a cost-effective clean energy transition at the Navajo Generating Station, and that provides for crucial clean energy economic development for the Navajo Nation, Hopi Tribe and Gila River Indian Community."
The EPA responded favorably to the working groups' proposal. In a September 25 statement, Jared Blumenfeld, EPA's Regional Administrator for the Pacific Southwest, said: "These creative alternatives achieve greater emissions reductions at NGS while giving tribes and owners more flexibility. This is good news for visitors to national parks and for public health."
Separately, EPA Administrator Gina McCarthy said of the working group's proposal, "We consider it a significant step forward. If you read the (original) proposal we put out, it was an open invitation to stakeholders to come up with an alternative."
SRP's Smedley said: "What the working group tried to do was find an alternative that gives the owners more flexibility and time." Spending several hundred million dollars to lower the plant's NOx emissions, while "significant," will not render NGS uneconomic, he said, adding: "We're really pleased that the EPA recognized the effort of the working group to reach a compromise that balances a lot of interests."
One set of interests involve Native American tribes in Arizona that receive water that is pumped using electricity from NGS. Another is the City of Tucson, located about 350 miles from the Grand Canyon, which similarly depends on water from northern Arizona that is pumped using electricity from NGS.
Next month, the EPA will hold a series of public meetings in Arizona to gather stakeholder comments on the revised plan for NGS. The agency will take additional comments until next January, and a new rule is expected next summer.
Though complex, the working group's proposal that has been embraced by the EPA doesn't specify how NGS will deal with particulate emissions, which generally increase after the installation of SCR equipment. Working backward from the working group's 2030 effective date, SRP's Smedley said that sometime in the mid-2020s the owners would have to apply to EPA for an air-quality permit to install SCRs. That process, in turn, would trigger a second EPA regulatory matter: the cost to reduce emissions of particulates using Best Available Control Technology (BACT).
Assuming this timeframe is retained in the final rule, sometime in the mid-2020s, when the EPA makes its permit decision on Navajo's SCRs, the agency also will have to decide whether to require NGS to install baghouses to reduce particulate emissions. "When you look that far into the future, there may be less costly particulate-control options available than baghouses," Smedley said. "Today, baghouses are the most effective, and expensive, way to control particulate emissions. Who knows what options will be available in the 2020s?" Today, NGS's only other particulate-control option would be to modify its electrostatic precipitators, Smedley said.
View Plant Profile - 1015877 1015381 1016385 1523368 1016380
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
