Testimony of Bill Long

President, Southeastern Colorado Water Conservancy District

Hearing on S. 2974: To authorize the construction of the Arkansas Valley
Conduit in the State of Colorado and for other purposes (Arkansas Valley
Conduit Act)

Before the Subcommittee on Water and Power

U.S. Senate Committee on Energy and Natural Resources

July 8, 2008

\[Mr. Chair\] My name is Bill Long, president of the Southeastern
Colorado Water Conservancy District ("Southeastern"), and I am
testifying today in support of S. 2974: a bill to authorize the
construction of the Arkansas Valley Conduit in the State of Colorado,
and for other purposes (Arkansas Valley Conduit Act). I thank the
Subcommittee for the opportunity to testify today. I also thank Senators
Allard and Salazar for their leadership in introducing this legislation
and the Subcommittee for holding this hearing today.

As background for my testimony, Southeastern is a statutory water
conservancy district (*see* C.R.S. § 37-45-101, *et seq*.), which was
formed on April 29, 1958, by the District Court for Pueblo County,
Colorado. Southeastern's district boundaries extend along the Arkansas
River from Buena Vista to Lamar, and along Fountain Creek from Colorado
Springs to Pueblo, Colorado. Southeastern administers, holds all water
rights for, and repays reimbursable costs for the Fry-Ark Project, a
\$550 million multi-purpose reclamation project authorized by Congress
and built by the U.S. Bureau of Reclamation ("Reclamation"). The Project
diverts water underneath the Continental Divide, from the Fryingpan and
Roaring Fork River drainages, into the Arkansas River drainage, where
Project water is stored in Pueblo Reservoir and other reservoirs.
Southeastern provides Project water and return flows to supplement the
decreed water rights of water users within Southeastern's boundaries.
Southeastern repays a large part of the Project's construction costs
(estimated at \$127 million over a minimum 40-year period), as well as
annual operation and maintenance costs, in accordance with its repayment
contract with the United States. Payments are made from property tax
revenues available to Southeastern, supplemented by revenue from Project
water sales.

On August 16, 1962, John F. Kennedy flew to Pueblo, Colorado to
officially and proudly proclaim the authorization of the Project, and
the start of construction. Both the 1962 Act, and the1978 Amendment
contemplated the construction of the Arkansas Valley Conduit, which has
yet to be developed, primarily because the constituents do not have the
funding to develop it.

As early as 1953, the Secretary of the Interior acknowledged that
additional quantity and better quality of domestic and municipal water
was critically needed for the Arkansas Valley, and in particular for
those towns and cities east of Pueblo. House Document 187, 83d Congress,
1^st^ Session, and the Fryingpan-Arkansas Final Environmental Statement
dated April 16, 1975, both of which have been incorporated by reference
into the Authorizing Act, recognized that the Arkansas Valley Conduit
would be an effective way to address this need. The local water
available from the Arkansas River alluvium has historically been high in
Total Dissolved Solids (TDS), sulfates, and calcium, and has
objectionable concentrations of iron and manganese.

Representatives of local and county governments, water districts and
other interested citizens of the Lower Arkansas River Basin formed a
committee in 2000 to consider a feasibility study of the Arkansas Valley
Conduit. These interested parties formed the Water*Works!* Committee
and, along with Southeastern, began to review the feasibility of
developing the Arkansas Valley Conduit. Some of the relevant conclusions
reached are as follows:

-   The cost of the Arkansas Valley Conduit compares favorably with any
    "no action alternative," which would still require the communities
    involved to make substantial financial investments to address
    current water quality and safe drinking standards.

-   The financial capabilities of the participating agencies are
    estimated to be inadequate to fund the construction of the proposed
    Arkansas Valley Conduit, under a 100 percent funding requirement,
    but Arkansas Valley Conduit participants could afford to pay 20
    percent cost-share.

-   There is an adequate water supply to make the Arkansas Valley
    Conduit feasible.

As mentioned above, the Arkansas Valley Conduit was included in the
original Fry-Ark reports integrated into the Fry-Ark Authorization Act.
The Arkansas Valley Conduit was not built because communities in the
Lower Arkansas River Basin could not fully fund the Arkansas Valley
Conduit project. A study of the Arkansas Valley Conduit was prepared for
Southeastern, the Four Corners Regional Commission and the Bureau of
Reclamation in 1972. The report's recommendations for construction of a
water treatment plant, pumping station and conduit to serve 16
communities and 25 water associations east of Pueblo were not
implemented at that time due to the lack of federal funding. Evaluations
on the quantity of water needed to satisfy long-range objectives for
water users in the Southeastern district area were prepared in 1998.
Additionally, an update of the estimated construction costs presented in
the 1972 report was prepared in 1998.

The question of how to fund the construction of the Arkansas Valley
Conduit has dominated Southeastern's and its partners' efforts over the
past five years. Recently, we have been discussing with the Bureau of
Reclamation, our Congressional delegation and other governmental
partners an approach that would apply current and future miscellaneous
revenues generated by Fry-Ark to repay the debt on certain Fry-Ark
components in a different manner than is currently provided for in the
repayment contract between Southeastern and the United States, including
construction of the Arkansas Valley Conduit.

Unique among Federal Reclamation projects, the Fryingpan-Arkansas
Project (Fry-Ark) is beginning to generate significant miscellaneous
revenues from storage of non-project water in Fry-Ark facilities through
"excess capacity" or "if-and-when" contracts. We propose using this
miscellaneous project revenue, generated by the Fry-Ark itself, to count
towards the 100 percent payment of actual costs requirement.

The estimated cost of the Arkansas Valley Conduit is \$300 million and
will take until 2021 to design, permit, acquire rights-of-way, and
construct. The participants have secured a guaranteed loan for \$60.6
million from the State of Colorado to help in their repayment
obligation.

The proposed repayment schedule is based on 65% Federal share and 35%
local share. The local reimbursable portion would be \$105 million and
would be paid back with interest. The Federal non-reimbursable portion
of the Arkansas Valley Conduit would be \$195 million, and would be paid
without interest.

It is estimated that construction of the Arkansas Valley Conduit would
be complete in 2020 and would begin delivering water in 2021, at which
time payment on the reimbursable portion of the Fry-Ark costs would
begin with 3.046% interest.

The Arkansas Valley Conduit participants would make a \$40 million
payment toward the \$105 million reimbursable construction costs.
Contract Revenue would be used to make payments on the remaining
reimbursable balance of the Arkansas Valley Conduit.

Once the reimbursable portion repayment is complete, Contract Revenue
would be used to pay for the non-reimbursable \$195 million (without
interest.) This non-reimbursable portion repayment would be complete in
2072, within the 50 year requirement of the Fry-Ark authorizing
legislation.

To implement this approach, the Fry-Ark authorizing act will need to be
amended to limit Arkansas Valley Conduit beneficiaries' repayment
obligation to not more than 35 percent. The combined Fry-Ark Contract
Revenue and Arkansas Valley Conduit beneficiary payments will pay 100
percent of the Arkansas Valley Conduit construction costs, with interest
being applied only on the 35 percent reimbursable Arkansas Valley
Conduit beneficiary obligation.

The citizens and communities of the Lower Arkansas River Basin have
waited 30 to 50 years for this project that will improve their water
quality and supply. The need for the Arkansas Valley Conduit has been
well established for more than 50 years. The Lower Arkansas River Basin
communities continue to seek federal assistance in moving this
much-needed project forward. We ask this subcommittee's prompt action in
support of S. 2974. We look forward to working with our Congressional
delegation and this Subcommittee to bring this much-needed project to
fulfillment.