APS Proposes Compromise for Cholla Power Plant

Under a proposal to the Environmental Protection Agency, Arizona Public Service Co. will close its 260-megawatt Unit 2 at the coal-fired Cholla Power Plant in Joseph City, Ariz., by April 2016 and stop burning coal at the other APS-owned units (1 and 3) by the mid-2020s. The proposal is subject to EPA and state regulatory approvals. (Photo: Business Wire)

PHOENIX--()--The coal-fired Cholla Power Plant in Joseph City, Ariz., will close its 260-megawatt Unit 2 by April 2016 and stop burning coal at the other APS-owned units (1 and 3) by the mid-2020s if the U.S. Environmental Protection Agency (EPA) approves a compromise proposal offered by APS, the plant’s owner. APS also will ask the Arizona Corporation Commission to approve the plan.

APS made the proposal with the understanding that it would not be required to install expensive emission control equipment on the units to comply with current rules under the agency’s Regional Haze program. The environmental benefits of this proposal are greater in the long term than the benefits that would have resulted from adding the emissions control equipment.

“This proposal provides the best outcome, allowing Cholla to continue to operate, while meeting environmental requirements,” said David Hansen, APS Vice President of Fossil Generation. “This solution balances several needs — supporting the local economy the best way possible; the need to provide reliable, low-cost generation resources for customers; and complying with federal rules and regulations.”

In 2010, APS was notified that Unit 2 needed to upgrade its scrubbers and add a super-sized sophisticated air filter called a “baghouse” to meet the new Mercury and Air Toxic Standards. In 2012, the EPA published a federal implementation plan, which overrides certain parts of Arizona’s plan to deal with regional haze. The federal plan requires Cholla Unit’s 2 and 3 to add expensive Selective Catalytic Reduction (SCR) technology used to reduce nitrogen oxide emissions.

“When the EPA issued its final rules to manage regional haze, we told the agency that the cost of adding SCRs along with the other technologies required to meet the mercury rules placed the unit at risk of being uneconomic to operate,” said Hansen. “We are clearly aware of the potential impact closing Unit 2 may have on the neighboring communities and arrived at this decision only after carefully weighing the options.”

By closing Unit 2, mercury emissions are anticipated to decline by 51 percent, particulates by 34 percent, nitrogen oxides by 32 percent, and carbon dioxide and sulfur dioxide by 23 percent. There would be additional environmental benefits after units 1 and 3 stop burning coal. APS intends to continue working closely with the Arizona Department of Environmental Quality on environmental issues.

According to Hansen, there were three alternative approaches – investing hundreds of millions of dollars in equipment, converting the entire plant to natural gas by 2016, or closing the plant.

If EPA approves the APS compromise, it will save more than $350 million in potential costs that otherwise would be passed along to customers for emission control upgrades.

Potential job losses will likely be mitigated through normal attrition and retirements. Today the plant has 249 employees with an annual payroll of $29 million. It pays approximately $15 million in state, local and federal taxes annually.

The unit has been in service since 1978.

APS has been closing older, less reliable units and replacing them with newer, cleaner and more efficient sources of energy. This includes closing three units at the Four Corners Power Plant in Farmington, N.M., and two units at the Ocotillo Power Plant in Tempe, Ariz.

From an accounting perspective, APS intends to reclassify the remaining book value as a regulatory asset.

APS, Arizona’s largest and longest-serving electricity utility, serves nearly 1.2 million customers in 11 of the state’s 15 counties. With headquarters in Phoenix, APS is the principal subsidiary of Pinnacle West Capital Corp. (NYSE: PNW).

Contacts

APS
Media:
Steven Gotfried, 602-250-3040
Analyst:
Paul Mountain, 602-250-4952
aps.com/newsroom

Release Summary

Arizona Public Service Co. proposes closing its 260-megawatt Unit 2 at the Cholla Power Plant in Joseph City, Ariz.

Contacts

APS
Media:
Steven Gotfried, 602-250-3040
Analyst:
Paul Mountain, 602-250-4952
aps.com/newsroom