Rules Impact Arizona More Than Other States With Higher Emissions

Benson, AZ and Denver, CO. – Michelle Freeark, Director of Environmental Services for Arizona’s G&T Cooperatives, has been providing some hard truths about the U.S. Environmental Protection Agency’s proposed carbon rules on existing generation that show the agency has made flawed assumptions that could endanger grid reliability and significantly impact rates.

“AEPCO is concerned that EPA’s Clean Power Plan threatens to undo the work done by Congress since the 1930s under the Rural Electrification Act,” Freeark said during public hearings in Denver, Colorado.

“EPA has made the flawed assumption that we can fundamentally shift our energy portfolio, in a relatively short amount of time, without taking into account the transmission availability, generation constraints, voltage regulation limitations, natural gas availability, gas transportation infrastructure, and various other factors that make up a very complex energy system,” Freeark said.

Electric Co-op Utility officials from around the country are warning that the proposed rules will cost rural Americans billions of dollars without achieving the carbon reduction goals the agency wants.

See the complete transcript of Freeark’s testimony here:

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Comments of

Arizona Electric Power Cooperative, Inc.

Presented by Michelle R. Freeark

on

EPA’s Proposed Clean Power Plan

EPA Region 8 Building
1595 Wynkoop Street
Denver, CO 80202

July 30, 2014

     Good morning.  My name is Michelle Freeark.  I am the Director of Safety & Environmental Services for Arizona Electric Power Cooperative, Inc.  (AEPCO).

AEPCO is an electric generation cooperative which owns and operates the Apache Generating Station located in southeastern Arizona, approximately 30 miles east of Benson, Arizona.  This facility is the only generation owned and operated by AEPCO.  Apache Generating Station currently consists of two coal fired steam units, one combined cycle gas unit and three simple cycle gas turbines.

AEPCO is a member-owned, not-for-profit generation cooperative which provides wholesale power to six rural electric distribution, also not-for-profit systems serving end use customers in Arizona, California, and New Mexico. Those members serve approximately 150,000 meters, mostly residential, approximately 33% below the federal poverty level, including 7 tribes.

AEPCO is concerned that EPA’s Clean Power Plan threatens to undo the work done by Congress since the 1930s under the Rural Electrification Act. The Rural Electrification Act helped bring electricity to many rural areas of the United States. Most of rural electrification is the product of locally owned rural electric cooperatives that borrow funds from the Rural Electrification Administration to build new lines and provide service on a not-for-profit basis.  The Rural Electrification Administration is now the Rural Utilities Service (RUS) and is part of the U.S. Department of Agriculture. Since the passing of the Rural Electrification Act, co-ops distribute electricity to consumers through distribution lines that cover more than 75 percent of the nation’s land mass.

Given the importance of rural electric distribution and generation to those it serves, AEPCO is concerned about multiple aspects of EPA’s proposed Clean Power Plan, both as it relates specifically to Arizona and AEPCO and also more generally as it related to cooperatives and small utilities.

Based on evaluation of EPA’s documents on development of the state CO2 goal for Arizona, it appears that EPA contemplates the complete replacement of Arizona’s, and AEPCO’s, coal-fired resources by other existing natural gas combined cycle (NGCC) generation.  This is problematic for several reasons.

First, it is not clear that this generation capacity actually exists. EPA used gross, not net, generation, which overstates available resources.  It is also unclear whether EPA reduced the generation to account for reserves, transmission constraints, transmission losses, and related issues.

Second, EPA used an annual average capacity factor. This capacity may not be available during peak periods and for operational reasons, coal-fired units cannot be used interchangeably with natural gas fired units for peaking. EPA needs to evaluate capacity on a seasonal, if not hourly, basis to determine how much capacity can effectively be redispatched.  Any such analysis must account for reserves, transmission constraints, transmission losses and related issues discussed above.

Third, the rule assumes that this capacity is available for purchase by operators of existing coal-fired units.  It is not clear that this is the case or that the rate impacts are acceptable.  Currently, our cost to generate from natural gas is roughly double that of a coal-fired resource. Further, today, over 90% of the energy we supply to our members comes from coal. This increase in fuel cost alone could result in a substantial rise in electricity costs for Arizona ratepayers.

Fourth, it is not clear that even switching to NGCC will help AEPCO and similarly situated cooperatives and small utilities to meet the goal. EPA’s goal of 702 lbs/MWh is well below the carbon intensity that AEPCO can achieve at its units due to their elevation and design, even with efficiency improvements. It is also not clear that AEPCO can purchase any existing units that could achieve this rate.  AEPCO is thus forced to rely on energy efficiency and renewable energy. Unfortunately, under Arizona’s utilities structure, AEPCO does not participate directly in energy efficiency goals and renewable energy – its members do.  Under EPA’s proposal, it is not clear whether AEPCO can get credit for that work or that such credit would be “enforceable” as EPA defines that term.

Fifth, EPA needs to provide more clarity on how early action affects our obligations.  AEPCO has committed under the Regional Haze program to convert one of our coal units (ST2) permanently to natural gas by December 5, 2017.  We need a stronger assurance that this reduction is creditable.  But it will not be enough.

Simply put, EPA has made the flawed assumption that we can fundamentally shift our energy portfolio, in a relatively short amount of time, without taking into account the transmission availability, generation constraints, voltage regulation limitations, natural gas availability, gas transportation infrastructure, and various other factors that make up a very complex energy system.

AEPCO needs flexibility to shift over time from high emitting CO2 sources, we simply cannot take both coal units off-line by 2020 and continue to serve our members with safe, reliable and affordable energy.

The projected cost of Clean Power Plan are unreasonable, unaffordable, and impracticable for AEPCO and, more importantly, for the members relying on AEPCO for electricity. Unless EPA is careful about designing its Clean Power Plan it could have unintended results such as stranding assists thus imposing unwarranted costs on investors or in the case of Cooperatives, U.S. taxpayers.

In conclusion, we believe the EPA should re-evaluate the “Building Blocks” and the assumptions used in determining the target reductions for Arizona. Thank you for giving us the opportunity to speak today.