The 1,798-megawatt coal-fired San Juan Generating Station near Farmington has been ordered by the U.S. Environmental Protection Agency to install more pollution controls to cut emissions that cause haze. The mine that supplies the plant’s coal, operated by the San Juan Coal Company, can be seen in the background. Photo Credit – Richard Pipes/Journal 10/23/2011 Albuquerque Journal: Battle Over San Juan By Michael Hartranft / Journal Staff Writer: It’s called selective catalytic reduction — a million-dollar term for pollution control if ever there was one. Make that hundreds of millions of dollars in the case of the giant, coal-fired San Juan Generating Station near Farmington, its owners and the consumers who use the electricity it generates.
The U.S. Environmental Protection Agency’s Region 6 office says SCR is the most cost-effective way — the agency estimates the cost at $345 million — to retrofit San Juan to cut pollutants that reduce visibility in national parks and wilderness areas and contribute to regional haze, as required by the Clean Air Act. It has given PNM and the other owners of the plant five years to complete the installation.
PNM argues that the federal agency’s prescription for San Juan would cost a lot more than the EPA claims it would — hitting New Mexico customers in the pocketbook — and says it can get satisfactory results for a lot less money.
The electric utility says the price tag for the EPA plan will approach $750 million, or more, causing up to an initial $85-a-year hit on the average residential customer’s bill to pay for PNM’s share of the project. It owns about 46 percent of San Juan, and the electricity generated there serves about 500,000 PNM customers.
Regardless of who is right on the cost estimate, this much is clear: The utility’s customers will pick up the tab, because the cost would be factored into rates.
Less costly plan
PNM says a less costly retrofit would achieve satisfactory results — nearly indistinguishable to the human eye. The cost of an EPA-required SCR system would be in addition to a $320 million environmental upgrade completed at the plant two years ago.
The EPA issued its ruling in August, and, on Sept. 16, PNM appealed to the 10th U.S. Circuit Court of Appeals. It also asked the EPA to stay the new rule until the court makes a decision.
“EPA’s aggressive, five-year compliance time frame means that without a stay, we will be forced to begin spending enormous sums of money without knowing if EPA’s decision will stand,” said Pat Themig, PNM vice president for generation.
The company claims that if it takes a year for a court ruling, it will already have spent $43.6 million on early design and construction.
The EPA, which stepped in with a plan when the state didn’t meet the deadline to submit its own, contends that SCR would cut one of the main haze-causing emissions, nitrogen oxide, by more than 80 percent — reducing visibility impacts by 50 percent in 16 Class 1 park and wilderness areas in four states affected by San Juan. The agency says it will also result in healthier air.
Environmental groups across the region hailed the EPA ruling.
“The EPA took a bold and necessary stand to protect people and businesses from coal’s toxic pollution,” said Bill Corcoran of the Sierra Club.
About coal itself
In some respects, the fight is over the use of coal itself. The Obama administration and some environmental groups have made no secret of their dislike for coal-fired generation of electricity, which tends to be much cheaper than “green” alternatives.
Gov. Susana Martinez said she supports developing alternative energy technology and making it a bigger part of the state’s overall energy portfolio. But the EPA decision is “detrimental” to New Mexico, she told the Journal in an email last week.
“In recent months, even President Obama has conceded that onerous environmental regulations can place a tremendous financial burden on states, businesses and families — and yet the EPA continues to try to impose these new, stifling regulations,” she said.
PNM says federal regulators combined the requirements of two separate rules — regional haze and cross-state pollution — into one to meet an Aug. 5 deadline set in a consent decree signed with WildEarth Guardians that applied only to cross-state pollution.
In doing so, it argues, the EPA did not give proper deference to a state plan for regional haze adopted in June by the Martinez-appointed Environmental Improvement Board, which proposed an alternative technology.
It contends the differences in visibility improvements between that technology — selective noncatalytic reduction — and SCR would barely be perceptible to the human eye.
The price tag for SNCR would be much lower, however — an estimated $77 million and about a $12-a-year impact on ratepayers.
San Juan employs about 400 people, with the adjacent San Juan Coal Mine that supplies the fuel providing jobs for another 500. The first two generating units were built about 40 years ago, and the company expects to keep the plant going for at least another 40.
It’s about visibility
“Our emissions are within the national ambient air quality standards for human health,” said Maureen Gannon, executive director of environmental services for PNM. “This is about visibility, about what the human eye can see. We believe the EPA has gone far over what the regulation was intended to do.”
The EPA is standing by its decision but says it will review the state’s plan and change its analysis if new information warrants.
However, it says an evaluation of the state-proposed SNCR technology showed it would achieve far less reduction in pollution and less visibility improvement.
The regional haze rule stems from a Clean Air Act provision that requires states to improve visibility in 159 Class 1 national parks and wilderness areas, such as the Grand Canyon, Mesa Verde National Park, Bandelier National Monument and 13 other sites in the New Mexico region.
The goal is to restore visibility by 2064 to what it would have been without human impact.
The rule required states to adopt implementation plans addressing the main pollutants that cause haze and to establish reasonable progress goals.
States were also required to evaluate best available retrofit technologies for older, large stationary sources that might be affecting Class 1 sites.
In 2006, the New Mexico Environment Department requested a best available retrofit analysis at San Juan to determine whether additional controls might be needed to comply.
PNM contended that existing controls at the plant — which was undergoing a $320 million upgrade under a 2005 consent decree to settle emissions violations between 2001 and 2003 — would meet the requirements.
Last year, though it was supposed to have submitted a plan to EPA by January 2009, the New Mexico Environment Department under then-Gov. Bill Richardson proposed SCR as the best available technology to reduce nitrogen oxide emissions at San Juan. It later withdrew the plan, in part because of cost concerns raised by PNM.
EPA steps in
The EPA, which had set a January 2011 deadline to issue a plan if the state didn’t meet the 2009 deadline, stepped in with its own proposal in December, starting the hearing and public review process that culminated with the rule in August. New Mexico became the first state to have a federal plan imposed on it for haze.
Calling San Juan one of the nation’s largest sources of nitrogen oxide — 18,400 tons a year, according to the EPA — the federal agency says its plan would cut those emissions by more than 80 percent.
PNM contends the recent upgrade cut nitrogen oxide emissions by 44 percent — from 27,500 tons to 15,300 tons a year — and that its proposed fix would cut it by an additional 30 percent a year. The company says sulfur dioxide, particulate matter and mercury were also significantly reduced in the upgrade.
The EPA said it was bound by the haze rule to evaluate additional technologies and it found SCR the most cost effective. The evaluation also included selective noncatalytic reduction.
The nitrogen oxide limit set at San Juan was based on an assessment of the best-performing coal plants with SCR, Region 6 regional haze coordinator Joe Kordzi said.
“We found there were units that were consistently able to meet this emission limit that were similar to the ones PNM is operating at the San Juan station,” he said.
Kordzi said that, in terms of visibility, the SCR technology would improve it noticeably, while “SNCR hardly made any difference at all.” PNM disagrees and says improvements with SCR might not be visible to the naked eye.
The agency made some key changes based on PNM’s comments during the review process, Kordzi said, including giving owners five years, instead of three, to comply. It agreed to up its original cost estimate from $229 million to $345 million, largely due to issues raised by PNM, although that’s still nowhere near the $750 million PNM says the cost will be.
The EPA contends PNM and its consultant, Black & Veatch, overestimated numerous cost items.
The agency, among other things, said PNM failed to follow the EPA’s cost control manual, consistently used assumptions “at the upper end of the range” for key components, and included unnecessary equipment.
PNM’s cost position
PNM, however, says the EPA omitted critical elements, including $71 million in annual operating expense, as well as major capital costs. Those costs, it says, include $73 million-plus for added auxiliary power equipment, $78 million in lost generation due to extended outages, $126 million for an SCR bypass to protect the equipment during startup, and $78 million in interest during construction.
Black & Veatch’s original estimate was based on a best available retrofit analysis in 2007. Gannon concedes it wasn’t a “detailed engineering estimate,” but said the company is an architect/engineering firm that designs and builds SCRs and is familiar with construction complexities at San Juan — which include installing equipment 200 feet above the plant floor in already congested space.
“And we had some concern, maybe there is some truth to this concern about overestimation,” Gannon said. “So now we’ve had another company (Sargent & Lundy) go out — and they’re at $741 million.”
Not long after Gov. Martinez took office, the state Environment Department under her new secretary, F. David Martin, proposed a PNM-backed plan calling for SNCR, which it said would cost an estimated $77 million to install and would achieve a nitrogen oxide limit it believed would comply with the rule.
Gannon said EPA guidelines for making best available retrofit determinations require agencies to take into account cost, environmental impacts, existing pollution controls, remaining life of the source and degree of improvement that might result.
“When you use that five-factor path, the state plan meets that in terms of additional controls, costs and it does result in some visibility improvements, although you may not be able to see it,” Gannon said. “But you probably won’t be able to see SCR either.”
PNM’s modeling showed that the EPA’s proposed SCR technology would make noticeable visibility improvements at only one of the 16 areas, Mesa Verde.
The company contends the EPA used an antiquated version of the same model it used, in showing visible improvement in nine areas.
“There are some chemistry assumptions we don’t agree with,” Gannon said. “We actually brought in the developer of the model to do some additional modeling, and he, in essence, concurred with the result we were getting.”
She said that SNCR represents reasonable progress toward the Clean Air Act’s goal and that the state could come back in five years and require the plant to install SCR if it deems it necessary.
“For EPA to ask us to do this enormous project in such a short period of time does not make sense from a regulatory perspective,” she said.
Both PNM and the EPA are getting sideline support.
Carla Sonntag, executive director of the New Mexico Utility Shareholders Alliance, a group that represents 12,000 shareholders of gas and electric utilities, is chiefly concerned about the rule’s impact on ratepayers, particularly those with lower incomes.
“If there was a significant difference between the state plan and the EPA, that would be one thing to consider, but there’s really not. It’s negligible,” she said. “But the cost is exorbitant, and that’s going to go back into rates. We feel it’s just unjustified.”
The Sierra Club’s David Van Winkle, though, contends that PNM’s cost estimate is a scare tactic and that the rule should be a trigger point for PNM to rethink its continued investments in coal-fired power, still its major energy source.
“Just from a risk standpoint, you’d think you’d want to diversify … so that you’re not so heavily dependent on that one resource in an area that is heavily regulated,” Van Winkle said.
He allowed that the rule is a visibility regulation.
“But, it’s true that nitrogen oxide is a health problem, so why are we splitting hairs?” he asked.
— This article appeared on page A1 of the Albuquerque Journal