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The National Renewable Energy Laboratory’s (NREL) study entitled “Navajo Generating Station and Air Visibility Regulations: Alternatives and Impacts” was released for public comment on January 18, 2011. NREL is a national laboratory of the U.S. Department of Energy. This report was produced under the direction of the U. S. Department of the Interior.

The report is available electronically at http://www.osti.gov/bridge

NREL is clear about the limitations of the report: “The work contained in the report represents the research and analysis that could be conducted and written within a three-month period. This short timeline necessarily limited the analysis for the report.”

NREL considered issues in addition to the BART rulemaking per se, particularly the broader energy policy goals that the Department of the Interior is attempting to promote in various venues. For this reason, the study will include a supplemental volume examining alternative generating options. This volume has not yet been released for public review and comment.

Agenda Number 7.Attachment.

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The NREL report essentially corroborates the potential BART impacts to CAP energy rates submitted by CAP to the EPA in November 2010.

NREL also concludes that should EPA select SCR or SCR/baghouses (in addition to Low NOx Burners/Separated Over Fire Air (LNB/SOFA), as the BART rule, the biggest economic impacts would disproportionately fall on tribes and agricultural users. Increases in the CAP energy rate would range from 13% to 32%.

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NREL states that “Installation of SCR technology on Navajo GS would result in a calculated cost/benefit ration larger than those calculated for BART controls proposed for other units in the region.” These units include Reid Gardner Station north of Las Vegas and the Apache Generating Station.

The report’s analysis of the cost of installing SCR technology versus the cost of NGS shutdown is flawed, as it is based on replacing NGS with power from unused capacity elsewhere in the West. NREL’s modeling suggests that more than four fifths of the replacement power for NGS would come from combined cycle natural gas generators.

The report does not recognize the critical relationship between the timing of the BART determination and the resolution of critical uncertainties surrounding continued operation of NGS and the Kayenta Mine. Key uncertainties include investment recovery timelines, possible changes in future plant ownership, plant site lease negotiations with the Navajo Nation, coal and water supply negotiations, etc.. The report fails to evaluate the cost of replacing NGS power from the perspective of the plant owners.

Navajo Generating Station will have been in service 45 years when its site lease with the Navajo Nation expires in 2019. The utility partners’ capital investment in NGS are on track to be fully depreciated no later than 2026. The report indicates that statistical analysis points to a normal operating life for large plants of 65 to 70 years.

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If NGS were to shut down, Indian and agricultural users of CAP water would see per acre-foot increases of as much as 66% while Municipal & Industrial users would see increases up to 52%.

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The NREL report concludes that it is uncertain whether the incremental contribution to haze from NGS NOx emissions is significant or even perceptible.

Data suggest that NOx is a weaker contributor to regional haze that SO2, which already has been reduced by 95% with the addition of scrubbers in 2000.

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The NREL report calls into question EPA’s modeling, particularly regarding its estimates of ammonia background levels, which do not correspond to measured levels in the relevant region. These overestimates translate into an overstatement of regional haze improvements from installing SCRs. In addition, NREL points out that the EPA recognizes that its model, CALPUFF Version 5.8, may overestimate nitrite formation. (The more recent CALPUFF Version 6.4 was utilized by SRP to model nitrite formation at NGS, but this version has not yet been approved for visibility modeling by the EPA).

At a cost of $500 million to $1.1 billion, installation of SCR technology “might not create any perceptible improvement in visibility” to the human eye.

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In light of the extremely high SCR costs and doubtful resulting benefits, the failure of the report to evaluate existing plant improvements, including the recently added LNB/SOFA technology as the BART standard, is a major limitation. With installation completed in 2011 at a cost of about $45 million, NGS achieved NOx reductions of approximately 40%. Failure to examine this alternative as BART results in a false choice between two stark alternatives—SCR retrofitting or plant shutdown.

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The report erroneously assumes that the cost of NGS power will not affect the amount of power required to operate CAP pumps. In turn, the report assumes that CAP water use will be unaffected by price increases. Demand for CAP water is variable, depending on the cost and availability of water. CAWCD’s tribal and agricultural customers will face price increases of 16% to 32% if EPA requires SCRs (or SCRs/baghouses), prompting some users to seek other available water sources, including groundwater extraction.

Because estimating this shift is difficult, the NREL report ignores this prospect. However, agricultural use of CAP water is highly dependent on cost, as evidenced by agriculture’s negotiations with CAP and other parties over time regarding costs and rates. In lieu of paying for renewable CAP water, some agricultural water users likely would return to use of finite groundwater supplies. This outcome would defeat the rationale for the CAP, which was intended to supply renewable water as a substitute for extraction of nonrenewable groundwater.

Nearly 1,000 people are employed at NGS and the Kayenta coal mine, with the majority being Native American (about 450 at the power plant and 400 at the mine). Wages and benefits for all Native employees are $52 million at the plant and $46.8 million at the mine. Plant closure, a distinct possibility, would destroy at least two-thirds of the Navajo and Hopi economies. In addition, an Arizona State University

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study concludes that NGS and the mine will account for over $20 billion in Gross State Product over 12 years and approximately 3,000 jobs.

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