Salt River Project outlines dangers to Navajo coal plant at field hearing on water and power

PHOENIX, Ariz. - U.S. Environmental Protection Agency (EPA) efforts to impose tough new air emissions limits on the coal-fired Navajo power plant came up June 4 at a field hearing in Arizona by the U.S. House Subcommittee on Water and Power.

The oversight hearing, held in Phoenix at the behest of the Republican majority of the House Natural Resources Committee, was called, "Evaporating Prosperity: How Federal Actions Are Driving Up Water and Power Costs, Threatening Jobs and Leaving Arizonans High and Dry." At the hearing, Subcommittee Chairman Tom McClintock, R-Calif., and Reps. Paul Gosar, R-Ariz., and David Schweikert, R-Ariz., heard from witnesses about the impacts of federal actions and regulations.

"A generation ago, the principal objective of federal water and power policy was to create an abundance of both," said McClintock in a written statement. "But that objective has been abandoned in favor of radical and retrograde ideology that has caused government-created shortages and economic devastation throughout the West. The threatened destruction of Arizona's water and electricity supplies by federal fiat would leave local communities at the mercy of catastrophic wildfires and economic ruin.

"Activist" environmental groups and the EDPA have "targeted" the Navajo plant for actions that could lead to closure, said a subcommittee statement. Closure of the coal-fired plant would threaten over 3,000 jobs and could cost Arizona over $20bn in lost gross state product. As a chief supplier of electricity in the state and the power supply to the Central Arizona Project, Arizona's primary water delivery system, the plant's closure would increase costs for water and power consumers and endanger current and future Indian water right settlements, the subcommittee statement, written by the Republican majority, said.

"The Navajo Generation Station (NGS) affects tie into nearly every aspect of the Arizona economy. Shutting it down would cause a catastrophic rippling effect causing massive increases in power, water, and food costs," said Schweikert.

On March 16, Secretary of Energy Steven Chu released a Memorandum for Power Marketing Administrators that outlined four specific directives that could lead to higher energy costs, the subcommittee majority said. Witnesses at the hearing stated that the memo raises serious concerns about the manner and scope of how the PMAs' mission would change. These actions would increase energy rates and shift costs to consumers that receive no benefit.

"Secretary Chu's Memo directs the administrators of the PMAs to begin a process to fundamentally change the way they do business, which will increase electricity rates for millions of rural Americans and may not provide meaningful benefits," said Tom Jones, CEO for the Grand Canyon State Electric Cooperative Association.

Also testifying for the hearing was John Sullivan, Associate General Manager and Chief Resources Executive of the Salt River Project Agricultural Improvement and Power District (Salt River Project). Salt River Project is the operating agent and one of six participants in Navajo Generation Station (NGS), a 2,250-MW plant located on the Navajo Nation just outside of Page, Ariz. Salt River Project and the other participants are responding to numerous challenges relating to the continued operation of the plant, which provides critical baseload energy to meet each of its utility owners' customer needs year round, and plays a key role in Central Arizona Water Conservation District's (CAWCD) delivery of water to Native American communities, farmers, and cities in Arizona.

"NGS cannot be simply or easily replaced," Sullivan said. "Yet, the participants currently are faced with a set of complex issues that threaten the long-term viability of the plant. Those issues include the need for lease extension and rights-of-way renewals, and the negotiation of key agreements, including for coal." To address these challenges, Salt River Project has been working closely with Native American Tribes and other affected stakeholders to develop a resolution to ensure the plant's continued operation, Sullivan said.

Unfortunately, while Salt River Project has been working to secure the necessary agreements, EPA has been working to develop a regulation that could put the future of NGS in jeopardy, Sullivan added. This regulation, called the Best Available Retrofit Technology (BART) rule, could require costly additional emission control technologies to combat regional haze.

Emissions from NGS currently are controlled by hot-side electrostatic precipitators (ESPs), wet limestone scrubbers, and Low-NOx Burners and Separated Overfire Air (LNB/SOFA). The ESPs and scrubbers reduce particulate matter by 99 percent and the scrubbers reduce SO2 emissions by more than 95 percent. LNB/SOFA, which were voluntarily installed by the NGS owners at a cost of $45m, have reduced NOx emissions by about 40 percent.

The total cost of the additional controls under consideration by EPA as part of the BART rule is estimated to be between $550m and $1.1bn, Sullivan said. "However, SRP's modeling results suggest that the visibility improvement that would be achieved from installing such controls would be imperceptible to the human eye. As a result, SRP believes that LNB/SOFA is BART for NGS."

Sullivan said several other federal actions also could put the future viability of NGS at risk:

• The extension of an existing site lease that expires in 2019 and related agreements will trigger a review under the National Environmental Policy Act (NEPA) and the Endangered Species Act (ESA). NEPA could require the preparation of an environmental impact statement (EIS). The development of an EIS could take several years to complete and the outcome of that process is uncertain.

• Recently-issued regulations and potential future rules that are yet to be developed or finalized also could impact the future economic viability of NGS. These include EPA's new Mercury and Air Toxic Standards (MATS), as well as potential future regulations on coal ash, ozone, and greenhouse gases.

"Although the NGS participants are committed to securing all of the agreements and completing the reviews necessary to ensure the continued operation of NGS, it would be difficult for the participants to justify an investment of potentially more than $1 billion for emission controls given the uncertainties that the plant currently faces," Sullivan said. "As several of the NGS participants articulated to EPA in a March 12, 2012 letter, if the EPA imposes a requirement to install the most costly additional emission controls as BART before the lease is extended, other agreements are reached, and the NEPA and ESA processes are complete, the continuing viability of the plant is at substantial risk."

NGS has over 500 employees, more than 80 percent of whom are Navajo. NGS and Peabody Energy's (NYSE: BTU) Kayenta mine, which supplies the plant with coal, employ almost 1,000 people, with a combined annual operating budget of about $500m. "The plant and the mine provide significant economic benefit to the Navajo Nation and the Hopi Tribe through employment, scholarships, lease payments, and coal royalties," Sullivan testified.

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