APS Pilot Aimed at Developing Substitute Natural Gas; DOE Provides $8.9 Million; Gas Price Stability a Goal.

PHOENIX -- An APS pilot program aimed at developing an economical process to produce natural gas from coal and bring a measure of stability to natural gas prices in the West received a boost in the form of an $8.9 million financial assistance award from the U.S. Department of Energy.

The Department of Energy cooperative agreement, awarded this spring, will help cover costs associated with the Coal to Substitute Natural Gas Project's goal to produce pipeline-quality substitute natural gas (SNG) to fuel existing power plants. The project will be a five-year effort.

"This pilot holds the promise of utilizing America's abundant coal resources while decreasing environmental impacts," said Ed Fox, APS Vice President, Communications, Environment & Safety. "The system has the potential to produce SNG below the projected market price for natural gas, while significantly reducing greenhouse gas emissions."

The Coal to Substitute Natural Gas Project will "gasify" coal into natural gas and is being designed to decrease and control greenhouse gas emissions, including the management of carbon associated with the use of burning coal in the production of electricity. In addition, the gasification process will use significantly less water than most coal operations.

Unlike traditional gasification projects, which inject oxygen into the coal under pressure, the APS project will use hydrogen to react with highly pressured coal to produce a methane-rich gas, which will then undergo a clean-up process before finally being injected into existing natural gas pipelines.

The APS process, called hydrogasification, will maximize the use of carbon in coal to produce methane (CH4), while minimizing the production of carbon dioxide. A process called methanation will be used to transform any oxidized carbon to methane and water. The goal will be a highly efficient fuel production facility with zero emissions.

Another substantial advantage of the project is that no new infrastructure would be required, because the SNG would use an existing natural gas pipeline. In the past, the high cost of infrastructure has been a deterrent to using different types of fuels in the production of electricity.

"Ultimately, we hope to stimulate regional improvements to energy fuel sources and significantly improve environmental performance," said Ray Hobbs, APS project manager, and senior consulting engineer. "The support APS has received from the DOE Fossil Energy Program and the National Energy Technology Laboratory has been integral to this project."

APS, Arizona's largest and longest-serving electricity utility, serves more than 1 million customers in 11 of the state's 15 counties. With headquarters in Phoenix, APS is the largest subsidiary of Pinnacle West Capital Corp. (NYSE: PNW)