Document 3Gznby8JGGXgxRKB9V0a4eba

To: Gunasekara, MandyfGunasekara.Mandy@epa.gov] From: Shepherd, Ray Sent: Tue 5/2/2017 1:34:30 AM Subject: NGS deck for EPA NGS Estimated Impact of Potential EPA Regulatory Relief - May 1 2017.pdf Mandy- Happy to discuss further, but the key is $1 billion in value from regulatory relief. Hope this helps E-mail Disclaimer: The information contained in this e-mail, and in any accompanying documents, may constitute confidential and/or legally privileged information. The information is intended only for use by the designated recipient. If you are not the intended recipient (or responsible for the delivery of the message to the intended recipient), you are hereby notified that any dissemination, distribution, copying, or other use of, or taking of any action in reliance on this e-mail is strictly prohibited. If you have received this email communication in error, please notify the sender immediately and delete the message from your system. 17cv1906 Sierra Club v. EPA ED_001523A_00000146-00001 NA VAJO GENERA TING STA TION May 2017 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00001 Peabody NGS Remains a Very Low Variable Cost Generating Resource NGS Is Near the Bottom / Most Efficient Part of the Dispatch Stack - Navajo is a low cost resource in \ -re; 7. NGS is positioned to remain so even with recent declines in gas prices $60 $50 $40 ID $30 S20 $10 $0 BHt Wnd * Muclear CT Gas HTDVBaWCMDSOCW^ INC. allwshts reserved Solar ST Coal Other > Hydro CC Other Renewable - ST / IC Gas NAVIGANT 2 17cv1906 Sierra Club v. EPA ED_O01523A_00000147-00002 NGS Remains an Economically Viable Generating Source Peabody NGS Projected to Have Positive Operating Margins and Cash Flow Magnel - For the longer term, including installation of SCR and baghouse, NGS cost is projected to be $302 mVmn 7H Present Value below the cost of market replacement of energy and capacity. 7; w 7- : 1 online, cost savings would exceed $580 milion SWO.OO $,<< ntnooo g $000,900 on B SBOO, $900,000 mm p <9. O >O' . it >O I. IWwjc flMml OikM nO&C$ ( -I > t ' , .( ' t 1 ' m An .>V O'. Utuuun *unsbn n*oOtoig Oxxst , _________ , ^f M*rfcCirjc|j^ , , ww a. xmi ataa mo xon xm xm m tuo xbo aoi mn 3 nn s mo nor m so anon Note:Assumes PsabtKiyproixxiedataiprices, vittianttu^ fUitottcanon coalprices 2OZSandlatex Also assumescurmtripafmeritimuel farNauajoiease Iin' 3 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00003 NGS Regulatory Relief Results in $1.1 Billion of Potential Value Peabodu mu Navigant NGS Economic Analysis Base Case Results Comparison (2020 2040) NPV (2020$) NPV (2020$) NPV (2020$) Base Case Base Case Base Case NGS Variable Cost NGS Fixed Cost NGSCapEx Navajo Lease Cost Navajo Total Cost $000s $000s $000s $000s $000s 2 Units,SCR $2,146,473 $1,329,125 $208,054 $9,644 $3,693,296 3 Units,SCR $3,233,231 $1,476,806 $312,081 $9,644 $5,031,762 3 Units No SCR $3,233,231 $1,476,806 $0 $9,644 $4,719,681 Market Cost of Energy Market Cost of Capacity Market Replacement Cost $000s $000s $000s $3,433,066 $757,847 $4,190,913 0 $5,164,842 $1,136,770 $6,301,613 0 $5,164,842 $1,136,770 $6,301,613 EnergyCost Savings Fixed/Capacity Cost Savings NGS Cost Net Cost/Savings NGS All-In Cost - Levelized Market Replacement All-In Cost - Levelized NGS All in Cost Savings- Levelized $000s $000s $000s $/MWh $/MWh $/MWh $1,286,593 -$788,976 $497,617 $35.28 $40.04 $4.75 $1,931,611 -$661,760 $1,269,851 $31.93 $39.99 $8.06 $1,931,611 -$349,679 $1,581,932 $29.95 $39.99 $10.04 Savingsavailablefrom Regulatory Relief: Retain 3 UnitOperation (SCR in 2030 All 3 Units) Retain 3 Unit Operation (No SCR) NPV( 2020 $000) Levelized ($/MWh) $772,234 $3.30 $1,084,315 $5.28 4 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00004 Fuel Costs Peabodu Coal Is Stable, Reliable Source of Baseload Generation Coal and Gas Fuel Costs ($/mmBtu) $14 Coal cost volatility has been very low; averaging less than -$2.00/ mmBtu since 2007 $12 Conversely, gas prices are subject to significant volatility, $10 ranging from $2 - $13/mmBtu Coal costs have consistently $8 been more competitive than natural gas NGS fueled by coal is home grown and reliable given its proximity to Kayenta mine 2007 2009 2011 2013 2015 2017 Source: Bloomberg and Peabody Assumes average coal plant heat rate (Btu/kWhr) is comparable to simple cycle natural gas plants Nearly all of the natural gas consumed in Arizona is imported from other states 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00005 Peabodu SRP Utilizes Unrealistically Low Gas Prices to Paint an Uneconomic Future for NGS IBM $/mmbtu Natural Gas Price Forecast $6.50 $5.50 ,43 $4.50 $3.50 $3, $3.49 $2.50 $3.07 12.99 $2.88 $2.86 $2.86 $2.86 $2.89 $2.94 $2-99 $1.50 17 18 19 20 21 22 23 24 25 1 Analyst Range ------ SRP: NYMEX 2/13/17 --Navigant The NYMEX forward curve lacks significant liquidity more than two 18 months to two years into the future, and is not a reliable predictor of medium to long term future prices Industry analysts and consultants are currently forecasting gas prices that are considerably higher than the forward curve 6 Private and Confidential 1) Slide 13: SRP's slide titled Gas Price Forecasts Dropping Over Time 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00006 SRP Gas Price Forecast Shifted Dramatically in FEB 2017 SRP Gas Price Forecast Peabodu ENERGY $1.00 $0.00 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 --'JAN2017 1 NYMEX2/13/17 2 In FEB 2017, SRP changed the method they used to forecast long term natural gas prices, shifting to using the forward curve SRP did not use the NYMEX forward curve as their gas price forecast in any of their seven previous Financial Plans3 1) Slide 12: SRP's slide titled Gas Price Changes 2) NYMEX close as of 2/13/17 7 Private and Confidential 3) Slide 13: SRP's slide titled Gas Price Forecasts Dropping Over Time, FP12 through FP18 17cv1906 Sierra Club v. EPA ED_001523A_00000147-00007