P.O. Box 43020 • Phoenix, AZ 85080-3020
 

23636 North Seventh Street • Phoenix, AZ 85024
 

623-869-2333 • www.cap-az.com 

February 23, 2011 

Mr. David J. Hayes 

Deputy Secretary 

Department of the Interior 

1849 C Street, N.W. 

Washington, DC 20240 

Mr. Jared Blumenfeld 

Regional Administrator, Region 9 

United States Environmental Protection Agency 

75 Hawthorne Street 

San Francisco, CA 94105 

RE:	 Comments to the National Renewable Energy Laboratory (NREL) Report, Navajo 

Generating Station and Air Visibility Regulations: Alternatives and Impacts (the 

"Report") 

Dear Mr. Hayes and Mr. Blumenfeld: 

The Central Arizona Water Conservation District (CAWCD) respectfully submits the 

following additional comments to the Report. On February 6, 2012, CAWCD provided 

to 001 its initial comments, but the submission limitations did not allow sufficient space 

to address concerns of vital importance to the BART determination. 

CAWCD manages the Central Arizona Project (CAP), a critical water delivery system 

supporting over 80% of Arizona's population and economic activity. The system relies 

on the Navajo Generating Station (NGS) for over 90% of the power required to operate 

the system. Consequently, the analysis and conclusions set forth in the Report are of 

extraordinary significance to CAWCD and Arizona, and deserve thorough scrutiny so 

that accurate and complete information supports the important decisions ahead. 

CAWCD acknowledges that NREL had limited time to draft the Report, and this 

limitation is reflected in certain key elements of the Report that could confuse the BART 

analysis. While the Report supports the conclusion that the recently added pollution 

control systems at NGS are BART, there are critical assumptions and findings that 

require correction, clarification or context. In addressing these concerns, CAWCD has 

elaborated on its initial comments and included additional issues. These comments 
February 23, 2012 

Page 2 

address (1) visibility findings, including those relating to EPA's visibility modeling 

methodology, (2) cost considerations related to the installation of additional control 

technologies and closure ofNGS, (3) the lack of evaluation of recently installed pollution 

controls as BART, (4) the effect ofNREL's erroneous assumption regarding the elasticity 

of demand for CAP water, (5) the disproportionate effect the installation of additional 

control technologies would have on Indian tribes and non-Indian agricultural users, and 

(6) the effects on municipal and industrial (M&I) users. 

Our comments address the five factors for detennining what technologies constitute 

BART under the Clean Air Act (CAA). However, it is especially important to focus on 

the point of BART analysis, which is improvement to visibility. In this regard, the 

primary conclusion drawn from the Report is that, if NGS is required to install SCR or 

other technologies at a price of $500 million to $1.1 billion, EPA can "reasonably expect" 

no perceptible improvement to visibility. Indeed, the Report defines the "fundamental 

question" as "how reducing NOx from NGS would contribute to improved visibility 

at the Grand Canyon and other areas of concern." (Report, p. IV). The answer to 

this fundamental question is, at best, inconclusive. (Id.). With this decisive issue in 

hand, our comments follow. 

1. Additional Control Technologies Yield Imperceptible Changes in Visibility. The 

CAA states that EPA "shall take into consideration...the degree of improvement in 

visibility which may reasonably be anticipated to result" from use of proposed BART 

technology (emphasis supplied). NREL examined the modeling used by all parties to this 

proceeding, and concluded that whether any incremental contribution to haze by NGS "is 

significant or even perceptible is a matter of debate among experts in the field of 

visibility science." (Report, pp. 113, IV). 

According to the Report, NGS "is already using the best available control for reduction of 

S02, the pollutant with the largest potential to impact visibility." (Report, p. 85). These 

sulfate particles are 3-5 times or more significant than nitrates in calculated visibility 

impacts in the Southwest. (Report, p. 90). With regard to NOx, upon completion of the 

installation of LNB/SOFA in 2011 at a cost of $45 million, NGS achieved a NOx 

emission rate of slightly more than 0.21 lb/mmBtu, or nearly 25% less than the 

presumptive BART emission limit of 0.28 Ib/mmBtu established by EPA for facilities 

similar to NGS in design and type of coal used. 

Against this backdrop, NREL noted that "[t]he data and other studies summarized here 

are inconsistent and inconclusive as to whether current levels of NOx emissions from 

Navajo GS (especially with LNB/SOFA in operation) by themselves impact visibility." 

(Report at 92). In the final analysis, NREL could not conclude that additional retrofit 

would have any effect on visibility, stating that "[t]he body of research to date is 

inconclusive as to whether removing approximately two-thirds of the current NOx 

emissions from NGS would lead to any perceptible improvement in visibility at the 

Grand Canyon and other areas of concern." (Report, pp. 113, IV). 

The Report notes that there was no improvement in visibility even upon the complete 

shutdown of Mohave Generating Station, even when the CALPUFF 5.8 modeling used by 
February 23,2012 

Page 3 

EPA had predicted marked improvement in visibility if MOS had simply been retrofitted 

with S02 control. Certainly, given the Report's conclusions regarding visibility, and the 

issues surrounding EPA's preferred modeling tool, there is no justification for retrofit of 

NOS at a cost of $500 million to $1.1 billion. 

2. EPA's Visibility Modeling Methodology is Flawed. Because visibility is the 

fundamental issue in BART analysis, it is absolutely critical that EPA rely on the most 

accurate visibility model in making its determination. NREL calls into question EPA's 

model ing, concluding in the Report that: 

•	 EPA's modeling exaggerates the visibility benefits of additional controls 

•	 Salt River Project's modeling assumptions compare more favorably with actual 

measured values 

•	 IMPROVE monitoring data cited in the Report has indicated improving visibility 

trends in the southwest, prior to full installation of existing controls at NOS 

The Report pointedly indicates discrepancies among the EPA and SRP modeling 

procedures, which predict the resulting visibility impact, in deciviews, from NOS. NREL 

calls into question EPA's modeling, stating that "[m]easurements specific to this region 

indicate that actual visibility impacts may not be as great as those estimated by 

CALPUFF 5.8 as applied by EPA." (Report, p. 92). The Report focuses significant 

discussion on background ammonia, which affects visibility outcomes. Importantly, the 

NREL report indicates that the higher background concentrations of ammonia assumed 

by EPA are inconsistent with actual measurements in the relevant Class I areas, stating 

that "EPA's ammonia background values correspond more closely with data collected in 

more urban or agriculturally developed areas near Farmington that are impacted by local 

ammonia sources." Id. Use of EPA's higher ammonia values produces modeled 

ammonium nitrate concentrations an order ofmagnitude higher than measured values for 

many cases. (Report, p. 80) (emphasis supplied). This could account for EPA's inflated 

nitrate contribution to visibility degradation in its 2009 model. On the other hand, SRP's 

ammonia background levels match more closely with similar rural and isolated sites, 

causing NREL to conclude that "use of the SRP ammonia background values in 

CALPUFF produces a much better comparison between modeled and measured values." 

(Id.) This is critical, because if ammonia values are too high, "the modeling process can 

significantly overestimate nitrate particle formation, thus overestimating visibility 

impact" of power plant emissions. (Report, p. 92). 

Moreover, CAW 0 concurs with the Report's recognition of available measured values 

and their use to correlate with predictive models. Measured values can indicate if models 

are biased and not consistent with actual atmospheric reactions and resulting components. 

This is certainly true of the EPA modeling. The Report highlights the trends from the 

monitoring network, Interagency Monitoring of Protected Visual Environments 

(IMPROVE). The EPA, as well as other federal and state agencies, operate the 

IMPROVE network. The IMPROVE Report V comprehensively presents visibility 

trends, as well as the contribution from nitrate ions and ammonium nitrate to haze in the 
February 23, 2012 

Page 4 

Southwest. l That report presents that there are decreasing trends in nitrate and 

ammonium nitrate contribution for impacting visibility, and "reductions in atmospheric 

loadings of NOx in the southwest United States do not seem to correspond to equal 

reductions in nitrate loadings at most of the Class I IMPROV sites in the Navajo GS 

region." (Report, p 84.) This uncertainty of anticipated visibility improvements in the 

western United States is repeat d in IMPROVE Report V when "any of a number of 

particulate components may be responsible for the worst haze days" and cites examples 

such as wildfires and wind-blown dust. 2 The Report indicates that the trends may imply 

that "much of the nitrate is transported in from outside the region, or is from natural 

sources" (Report, p.84). Even disregarding trends from specific components that 

contribute to haze, all but one monitoring site in the Southwest showed improvement for 

the clearest days and annual means when compared to the baseline period.J CAWCD 

emphasizes that the trends, measured by the IMPROVE monitoring network, were 

established prior to the complete installation of the LNB/SOFA controls at NOS. 

EPA's modeling to date cannot be the basis for a BART determination for NOS. The 

Report highlights inherent problems with the model used, as well as inconsistencies with 

actual measured values that cast additional question to claims of potential visibility 

improvement tied to NOx reductions. 

3. Excessive Costs Do Not Support Additional Pollution Controls. 

a. The NREL Report Fails to Consider LNB/SOFA as BART. The Report's 

"cost of compliance" analysis is incomplete and misleading. In light of the extremely 

high cost of retrofit for SCR or SCR with sorbent injection and polishing baghouse 

(SCR+BH), and the lack of any conclusive scientific evidence that installation of SCR or 

SCR+BH will result in any actual or measurable improvement in visibility, the Report's 

failure to evaluate the recently added Low-NOx Burners and Separated Overfire Air 

(LNB/SOFA) as BART is a glaring omission. 

The NOS owners have voluntarily installed LNB/SOFA controls at NOS over the past 

three years at a total cost of approximately $45 million. The Bureau of Reclamation's 

share of this amount was approximately $11 million. While these amounts are significant, 

payment was planned in advance, spread over three years and managed within the typical 

annual range of the NOS capital expenditure budget and Development Fund cash flows. 

The costs for SCR or SCR+BH are estimated to be at least 12-25 times the cost of 

LNB/SOFA, with no established visibility benefits. Oiven its conclusions on visibility, it 

is inconceivable that NREL would ignore the option that produces a visibility impact 

indistinguishable by human eyes from the other alternatives, but at no incremental cost. 

b. The Assumptions for the Financing Alternatives Proposed in the NREL 

Report are Unrealistic and Incomplete. The NREL Report notes that two significant 

1 "Spatial and Season Patterns and Temporal Variability of Haze and its Constituents in the United States,
 

Report V, June 2011."
 

lIbid., Chapter 9, page 9-10.
 

3 Ibid., Chapter 9, Figures 9.3.4 and 9.3,5, page 9-9.
 
February 23, 2012 

Page 5 

emissions control systems have already been installed at NGS. LNB/SOFA was installed 

during 2009-20 II and S02 scrubbers were installed in the late 1990s. 

As stated above, the cost of installation for the LNB/SOFA controls installed by the NGS 

owners were financed through the Development Fund. Use of this financing mechanism 

was possible because the costs of LNB/SOFA, spread over three years, were sufficiently 

low relative to the annual expenditure budget and cash flows of the Development Fund 

and could be planned and managed accordingly. On the other hand, the cost of SCR or 

SCR+BH would completely overwhelm the Development Fund. It is not possible to fund 

expenditures of this magnitude using the Development Fund since the cash flow to 

accommodate this levcl of spending simply does not exist. 

Reclamation's share of th cost of the S02 scrubbers was funded by CAP construction 

appropriations provided by Congress to Reclamation. CAWCD's share of the 

reimbursable costs of CAP construction is being repaid to the United States over a period 

of 50 years with an effective interest rate of approximately 2.5%. Neither of these 

financing mechanisms (Congressional appropriations or low-cost 50-year federal loans) 

is cunently in place or available. 

The NREL Report assumes that Reclamation's share of any SCR or SCR+BH installation 

would be financed by revenue bonds issued by CAWCD, and declares that "CAWCD's 

Replacement Fund could assist with the funding of the SCR; however, the fund will not 

cover the full cost of the CR installation." With regard to the former, it is correct that 

CAWCD is authorized to issue either general obligation bonds or revenue bonds. The 

source of debt service for general obligation bonds would be property taxes and would 

require the approval of the electorate of CAWCD's three-county service area, which is far 

from certain. The source of debt service for revenue bonds would be CAWCD delivery 

rates, and the harsh financial impact on rates and CAWCD customers is discussed in a 

number of places in the NREL report. As for the latter point, there is no basis for any 

reference to the use of the CAWCD Replacement fund, which is in place to help fund 

major repairs and replacemenl of existing assets, not to install new, expensive assets of 

dubious value. If the CAWCD Replacement Fund was used to help pay for SCR or 

SCR+BH, the funds needed for the repair and replacement of other existing assets would 

have to be made up from elsewhere, so this suggestion is, at best, circular. 

NREL's assumptions about CAW 0 revenue bonds were simplifying assumptions, but 

NREL did not provide any sort of sensitivity analysis on the conclusions derived from 

these assumptions. CAW 0 has only issued two series of revenue bonds, both of which 

were associated with the construction of New Waddell Dam. Series A was issued in 1990 

and Series B was issued in 1991, for a total of approximately $264 million. There was 

refunding for a portion of these bonds in 1993, 1994 and 200 1, and the last of the bonds 

were paid off in 20 I 1. The source of debt service for both series of bonds was an 

additional rate component that was applied to the power purchased by Salt River Project 

from the Reclamation share ofNGS generation. Consequently, the credit ratings assigned 

to CAWCD's only revenue bond issues were tied to SRP's credit rating (pegged at one 

step below SRP's then-current rating) and were not based on CAWCD's own water 

delivery rates and revenues. 
February 23, 2012 

Page 6 

The initial credit ratings for CAW D's Series A and Series B bonds were Al for Moody's 

and AA- for both Standard & Poors and Duff & Phelps (now Fitch). The ratings were 

subsequently upgraded by one step to AA2 and AA, respectively. At their time of initial 

issue, the range of coupon rates for the Series A bonds was 6.70-7.65% and the range of 

coupon rates for the Series B bonds was 5.40-6.50%. 

The NREL report assumes that CAWCD revenue bonds to finance SCR or SCR+BH 

would be 5%, amortized over 20 years. While this figure is currently in the range of 

municipal revenue bonds, thc interest rate necessary for a successful bond offering 

considers the amount of the oflering, the credit rating of the issuer and the maturity of the 

bonds. The credit rating of the issuer, in turn, is dependent upon the security of the 

revenue source. 

The ability of CAW 0 to issue $100-275 million in revenue bonds in the current market 

is an untested hypothesis, for the following reasons: 

•	 CAWCD has never independently established a credit rating. The only bond 

series issued by AWCD were directly tied to SRP's credit rating. 

•	 $100-275 million is a r lativel large municipal bond issue for a special purpose 

district, particularly for an initial issue secured by water rates. 

•	 There are significant uncertainties that could affect the ability to amortize 

CAWCD revenuc bonds over 20 years, including the renewal of the NGS land 

lease and coal contract and the potential imposition of further emissions controls. 

Moreover, the security of the revenue stream is affected by the price elasticity 

issue discussed below. 

Lower credit ratings, higher interest rates or shorter amortization periods would all result 

in significantly higher cost impacts than those calculated in the NREL report. 

To put these issues into perspective, a 6% interest rate instead of a 5% interest rate would 

result in an approximately 7% greater increase in the cost of water than the figures shown 

in the NREL report (Tables 1-13 and Chapter 4). A 7% interest rate instead of a 5% 

interest rate would result in an approximately 15% greater increase in the cost of water. 

To illustrate, NREL calculated a range of cost increases to the cost of water for 

Federal/Indian and Agricultural customers of 13-16% for installation of SCRs and 29%­

32% for SCR+BH. These ranges would become 14-17% and 31-34% at a 6% interest rate 

and 15-19% and 34-37% at a 7% interest rate. 

Even more profoundly, a reduction in the amortization period from 20 years to 15 years 

would result in an approximately 17% greater increase in the cost of water (e.g., 16-19% 

for SCR and 35-38% for S R+BH for the Federal/Indian and Agricultural customers). A 

reduction in the amortization period to 10 years would result in approximately 60% 

greater increases in the cost of water (e.g. 21-26% for SCR and 46-51 % for SCR+BH for 

the Federal/Indian and Agricultural customers). 
February 23, 2012 

Page 7 

c. The Report Erroneously Concludes that Installation of Additional 

Emissions Controls would be Less Costly than Closure of NGS. NREL's conclusion 

that installation of SCR or S R+BH would be a less costly alternative than closure 

obfuscates the real issue; that is, NREL's visibility and costlbenefit findings point to the 

obvious conclusion that the current control technology in place is BART for NGS. 

Nonetheless, NREL's conclusion regarding installation vis-a-vis closure is seriously 

flawed due to the cost analysis discussed above and NREL's analysis of available 

alternatives, which is based solely on current excess capacity in the western power grid. 

Even if one adopts the false choice of installation versus closure, the decision would have 

to be made by each owner individually. The NREL report did recognize the difference 

between the decision that would have to be made by the utility owners and Reclamation, 

and conceded that the Reclamation situation was more complex. 

It is far from certain how Reclamation could commit to support a col1ective decision by 

NGS owners to install SCR or S R+BI l. Even if Reclamation were to conclude both that 

(i) there is sufficient benefit to installing SCR or SCR+BH and (ii) that doing so is 

preferable to NGS closure. it is highly unlikely that Reclamation would be able to obtain 

Congressional appropriations for that purpose. 

Against this backdrop, NREL concluded that the only viable financing mechanism for the 

U.S. share of SCR or SCR+BH is borrowing by CAWCD. However, although NGS is an 

integral component of the CAP, CAWCD is not an owner of NGS and has no financial 

obligation to the United States other than to make its annual CAP repayment installment, 

and no obligation whatsoever under the Navajo Participation Agreement. 

d. NREL's Assumptions and Cost Estimates Regarding Certain BART 

Alternatives is Erroneous and Misleading. There are significant errors in both the 

assumptions and the presentation of capital cost information regarding SCR, sorbent 

injection, a polishing baghouse and a "full baghouse" that could confuse readers of the 

Report. It is essential that EPA have the correct cost information available and consider it 

fully when making its BART determination. 

Importantly, N EL misstates the relevance of a polishing baghouse to the BART 

analysis, dismissing "other analyses" that "count the cost of technologies such as 

baghouses that do not address visibility, significantly increasing those estimates of BART 

costs." (Report, p. 4). NREL continued, stating that "[h]ere, we treat such costs as 

elective and supplemental costs, not as costs that would be inherent to a BART decision." 

(Id.) NREL states that "We nevertheless provide separate estimates of baghouse costs for 

additional reference." (ld.) 

The NREL discussion of the chemical processes that occur when flue gases interact with 

an SCR does not support the notion that sorbent injection and a polishing baghouse 

downstream of the SCR are "elective" or "do not address visibility" (Report Section 

3.2.2). A polishing baghouse would only be needed as a consequence of a BART 

determination requiring SCR. A polishing baghouse is certainly not elective if it is 

determined to be essential to control opacity due to the "blue plume" that can result when 
February 23, 2012 

Page 8 

the SCR causes increased SO] emissions and the SO} converts to vapor-phase sulfuric 

acid (Report, p. 49). orbent injection becomes necessary to tie up the increased SO} into 

particulates, which then must be controlled by a polishing baghouse to assure that NGS 

can meet its permit limits (separate and apart from BART considerations) for particulate 

emissions. (Report, pp. 49 & 51). 

In addition to the improper characterization of a polishing baghouse as "elective," NREL 

misstates cost estimates. In Section 3.1 of the Report, NREL presented detailed 

descriptions of alternative tcchnologies that are or could be used at NGS to control 

emissions. With respect to SCR, REL summarized cost estimates made by both the 

National Park Service (NPS) and Sargent & Lundy (S&L). Table 3-6 appears to correctly 

summarize the NPS and S&L capital cost estimates for SCR alone. However, the cost 

information presented in Table 3-11 confuses the issue of adding a baghouse to SCR. 

Table 3-11 states that the capital costs for SCR with a polishing baghouse would be 

$554,042,000. In fact, the S&L study that was the source of the figures in Table 3-11 

shows that the cost of SCR with a polishing baghouse would be $1,130,972,0004-the 

cost that Table 3-11 shows for SCR with a "full baghouse." Yet, the S&L study did not 

assess the cost of a "full baghollse.,,5 

Clearly, in Table 3-11 REL has mischaracterized the cost of SCR with a polishing 

baghouse, and the cost (and concept) of a "full baghouse." Less clear is what NREL 

actually did with this cost information. The confusion appears to affect, at minimum, the 

estimated impact of the cost of SCR controls on electricity costs of pumping discussed in 

the Report's conclusion (see pp. 111-112), and may lead others to the wrong conclusions 

as well. 

NREL's apparent misunderstanding of whether a baghouse is "elective" implies that costs 

related to baghollses are unnecessary, and coupled wi th the incorrect cost estimates, adds 

a layer of confusion to the Report and may lead EPA and other readers to draw erroneous 

conclusions. 

4. Demand for CAP Water is Not Inelastic. In the section evaluating the impact of 

BART alternatives on CAP water rates, NREL assumed that demand for CAP water 

would not vary with the cost of GS power-in other words, the demand for CAP water 

is inelastic. NREL did conced , however, that "high prices for CAP water may prompt 

some water users to seek other available water sources, but there is no easy way to 

quantify such a curtailment in CAP water demand." We understand that NREL was not 

given sufficient time to fuBy assess how much impact increased rates would have on 

demand for CAP waler; nevertheless, the impact would be real and substantial. 

4 S&L Study, August 17,2010, pp. ES-3 through ES-6 and pp. 1-1 and 1-2 and 2-2 and 2-3. 

5 Although S&L did not study any baghouse other than a polishing baghouse, NREL posits that a "full 

baghouse" would be required if sorbent injection and a polishing baghouse is not effective in minimizing 

the S03 and sulfuric acid formation by the SCR and downstream equipment (Report, p. 51). Certainly, if 

such a baghouse was required it would not be "elective," and the expense would have to factor in the cost 

of installing and then removing the ineffective polishing baghouse. 
February 23, 2012 

Page 9 

Demand for CAP water is most elastic for the Indian and non-Indian agricultural sectors. 

Agriculture is an industr in which per acre profit margins are thin and the cost of water 

is a major factor in the cost of production. While there are some important differences 

between Tribal agricultural enterprises and non-Indian agriculture, both must compete in 

the same competitive commodity markets and both are subject to the same operational 

challenges and market uncertainties. 

In recent years, non-Indian agricultural users have taken delivery of roughly 400,000 

acre-feet per year of AP water for direct use, while on-reservation agricultural 

enterprises have used approximately 140,000 acre-feet per year and are rapidly increasing 

their use. CAP water also has been delivered to agricultural users under Arizona's in lieu 

recharge program. Under this program, parties such as the Arizona Water Banking 

Authority, municipalities and even Tribal interests have partnered with non-Indian 

agricultural water users to "bank" CAP water by providing price incentives for farmers to 

use CAP water in lieu of pumping groundwater. Direct use and in-lieu banking by Indian 

and non-Indian agriculture cunenlly account for more than50% of total CAP deliveries. 

Arizona's agricultural interests, both on-reservation and off-reservation, can only be 

expected to act rationaUy and to seek to preserve their profitability. In response to 

substantial increases in the cost of CAP water, non-Indian agricultural water users within 

CAP's service area would turn to additional pumping of less-expensive, non-renewable 

groundwater to which they retain legal rights. Tribal users and those non-Indian 

agricultural users without sufficient groundwater pumping capacity would be forced to 

retire land from production. Agriculture's in lieu banking partners also would be faced 

with additional costs to store water for future use and could be expected to reduce or 

eliminate the amount of water delivered to agriculture under this program. 

In a qualitative sense, one could predict the impacts to non-Indian agriculture, Arizona's 

economy and to its water management programs to include the following, if the cost of 

CAP water increases dramatically: 

•	 Central Arizona's farmers, the vast majority of which are family owned 

and operated, would see their profit margins substantially reduced and 

their very profitability threatened 

•	 Financing entiti s such as Farm Credit Services could refuse to provide 

financing to farmers receiving CAP water 

•	 Local economies, especially in rural Arizona, would be damaged as land is 

taken out of production, fann workers are laid off and supporting 

industries are affected 

•	 Vast regions would see a return to water level declines, land subsidence 

and earth fissuring as the remaining farming operations return to pumping 

groundwater 

•	 The ability of the Arizona Water Banking Authority to meet its interstate 

banking obligations to the State of Nevada, its finning obligations to 
February 23, 2012 

Page 10 

Indian tribes and to reach its firming goal for municipal customers would 

be threatened 

•	 Arizona's ability to use its full annual entitlement to the Colorado River 

could be curtailed 

•	 CAP water users could see their exposure to future shortages increased 

due the inability to store sufficient water for the future, either through their 

own actions or through the actions of the Arizona Water Banking 

Authorit . 

The use of CAP water is critical to the success of Arizona's water management program, 

and the affordability of CAP water is critical to its continued beneficial use. 

5. Disproportionate Effect on Tribes and Agricultural Users. While we agree that 

the Report accurately concludes that, should EPA select SCR or SCR+BH as BART, the 

economic impacts would fall disproportionately on tribes and agricultural CAP water 

users, we are concerned that EPA still does not have a complete picture of the harm that 

could be created and the ensuing chaos that could result. 

After more than a century of struggles, the Arizona Water Settlements Act of 2004 

(AWSA) created a framework to resolve long-standing disputes on key water rights 

issues amongst the State of Arizona, the United States, Indian tribes, and non-Indian 

water users. CAP water and OS power were the tools used to bring long-term stability. 

The AWSA provided both a source of CAP water and funding for future Indian water 

rights settlements in Arizona. Title I ratified the Arizona Water Settlement Agreement 

among the parties, including the United States, which provided a mechanism for nonIndian agricultural water users with long-term contract entitlements to CAP water to 

relinquish their CAP entitlements in return for relief from specific federal debt and 

regulatory requirements. It then directed the Secretary of the Interior to reallocate this 

relinquished CAP water for Indian use and to facilitate water rights settlements. 

To provide funding for these future settlements, Title I amended section 403(f) of the 

Colorado River Basin Project Act of 1968 to allow additional uses of money deposited 

into the Lower Colorado River Basin Development Fund. Money in the fund is derived 

primarily from the sale of surplus NOS power, surcharges on the sale in Arizona of 

power from the Hoover and Parker-Davis power plants, and the annual payments 

CAWCD makes on its repayment obligation for the CAP. This repayment obligation 

includes the construction cost of NOS, which was the first component of the CAP to be 

built. 

Under the 1968 Act and CAWCD's repayment contract, monies deposited into the Lower 

Colorado River Basin Development Fund were credited each year against CAWCD's 

repayment obligation and then returned to the general fund of the U.S. Treasury to repay 

the costs of constructing the CAP and NOS. Title I of the AWSA made a critical change 

to that process. Now, after monies are deposited in the Development Fund and have been 

credited against CAWCD's repayment obligation, they are no longer returned to the 

general treasury. Instead, the funds may be used, without further appropriation, to pay the 
February 23, 2012 

Page 11 

fixed operation and maintenance costs of delivering CAP water to Indian Tribes, to fund 

the construction of distribution systems to deliver CAP water to Indian Tribes, and 

among other things to fund future Indian water rights settlement costs. Absent surplus 

revenue sales from OS, not only are existing water rights settlements that contemplate 

use of these revenues in jeopardy, so too are outstanding future water rights settlements 

of the eleven tribes currently without full water rights settlements. 

A critical component of the AWSA was the relinquishment by CAP's agricultural water 

users of long-term entitlements to CAP water. It was this relinquishment that allowed the 

federal government tofuHill the settlement of claims by the Gila River Indian 

Community and the Tohono O'odham Nation and to reserve an additional 67,300 acrefeet of CAP non-Indian agricultural priority water for future Indian settlements. In return, 

these agricultural water users expected to receive a quantity- and time-limited pool of 

CAP water at a price they could aHord. This expectation is now being threatened by the 

substantial increase in cost of OS power that could result from the current BART 

process. 

a. Tribes 

The Report's Executive Summary declares that EPA's BART determination will have 

diverse impacts on Arizona tribes falling into two primary categories: (1) those related to 

power generation and mining; and (2) those affecting the cost of CAP water delivered to 

tribes who have signed water settlement agreements. This dramatically understates the 

true impact as does all of Chapter 6, which purports to examine how "the Navajo GS, the 

Peabody Western Kayenta coal mine, and the Central Arizona Project (CAP) impact 

Arizona's Indian tribes, their people, and their homelands." Unfortunately, the discussion 

and Report do little to articulate the myriad issues associated with the CAP's role. In fact, 

the Report focuses only on an assortment of tribes, some with settlements and others with 

contracts while neglecting to mention that a majority of tribes with outstanding 

unresolved claims have yet to achieve a full settlement. This is particularly concerning 

given the recent Congressional authorizations to make CAP water available for use to 

settle all remaining Indian water rights claims. 

Section 6.2 of the Report notes that nine tribes have CAP water contracts and briefly 

mentions that the Navajo Nation and the Hopi Tribe are also in the midst of water rights 

settlement negotiations. No mention is made of the fact that the Navajo and Hopi 

settlement is only a proposed partial settlement of unresolved claims. In total the 

following eleven tribes may have outstanding/unresolved claims: 

• Havasupai Tribe 

• Hopi Tribe (partial seulement proposed) 

• Hualapai Tribe 

• Kaibab Band of Paiute Indians 

• Navajo Nation (partial settlement proposed) 

• Pascua Yaqui Tribe 

• San Carlos Apache (partial settlement only) 
February 23, 2012 

Page 12 

• San Juan Southern Paiute 

• Tohono O'odham (partial settlement only) 

• Tonto Apache 

• Yavapai-Apache Nation 

While it is true that these tribes would not necessarily be subjected to the increased rates 

associated with additional control technologies, it is unclear how they could ever receive 

a water rights settlement in the future given that all the other settling parties, including 

the United States, are bound by the terms of the AWSA. Thus, these tribes may very well 

be forced to fully adjudicate any and all claims against the United States, leaving water 

management in AriLona unce11ain for decades to come and leaving these tribes without 

reliable water supplies. Meanwhile, as to those tribes with signed water settlements, the 

United States would (i) ignore rights acknowledged to "be traced back to U.S.-Indian 

treaty law," articulated anew in contractual obligations, and ratified through recent 

Congressional acts, and (Ii) upset the delicate balance struck in the Law of the River, 

forcing a state political subdivision to shoulder the financial burden of the federal 

responsibility to provide access to a state's full entitlement to its water supply. Without 

the continued availability of cost-effective power from NOS to meet the fundamental 

requirements for operating the CAP system, CAWCD would have to reconsider a number 

of critical assumptions that have been the basis for numerous agreements and contracts 

over the last several decades. 

b. Agricu Itu re 

As discussed above, CAP agricultural users are particularly impacted by increases in the 

cost of water. It is perhaps most relevant to note here that the relinquishment of 

agriculture's long-term entitlement to CAP water was a key factor in final agreement on 

the AWSA. It is therefore particularly troubling that the affordability of the short-term, 

limited supplies they accepted in return is now threatened by an action of the federal 

government less than a decade after Congressional passage of the settlement. 

6. Effects on M&I Users. The above comments on the impacts to Tribes and 

agricultural users should not be taken to mean that the impacts to CAP M&I users would 

be negligible; in fact, the opposite is true. First, it is misleading to present the rate 

impacts in the form of percentage increases over CUlTent rates. Because the M&I users 

pay a higher total water cost to begin with, including energy, O&M and capital 

repayment components the percentage increase calculated in the report is less than that 

experienced by Tribal and agricultural water users who do not pay all of the rate 

components paid by the M&I users. In fact, the actual dollar increase, and the percentage 

increase in the energy component of M&I rates, is the same for municipalities and 

industries as it is for these other users. 

In particular, an NOS shutdown scenario would severely impact CAP's M&I customers. 

Under this scenario, M&I subcontractors would be required to make capital payments in 

an amount equal to the CAP annual repayment obligation, which is now substantially 

paid by the sale of excess NOS power. In addition to having to pay increased energy 
February 23, 2012
 

Page 13
 

costs for delivered CAP water of between $4 and $35 per acre foot, the M&I 

subcontractors would be required to pay CAP repayment charges of $29 per acre foot, as 

calculated by 'REL, on their total CAP subcontract entitlement. To the extent that M&I 

users continue to participate in in lieu recharge with the agricultural districts, the M&l 

parties also likely would have to absorb the increases in energy costs for deliveries to 

their agricultural partners. And it is these same M&l water users who are at risk from 

inadequate storage to offset future CAP shortages. 

CAWCD appreciates the opportunity to submit these additional comments. Based on the 

five factors of BART analysis under the CAA, the Report supports the conclusion that the 

current pollution control system in place at 'GS is BART. The clarifications, corrections 

and additional analysis set forth in this letter further bolster that conclusion. CAWCD is 

willing and available to participate further in this discussion or otherwise assist in any 

way possible. 

Sincerely, 

I 

I .{ i

'--- L- . L ---J:~ri7tVfl10 eer 

General Manager 

NREL.ltr 2-23-12 
F~bruary 23, 2012 

Page 14 

cc:	 The Honorable Paul Gosar 

The Honorabl Trent franks 

The Honorable Ben Quayle 

The Honorable Ed Pastor 

The Honorable David Schweikert 

The Honorable Jeff Flake 

The Honorable Raul M. Grijalva 

The Honorable Jon Kyl 

The Honorable John McCain 

Gina McCarthy. Assistant Administrator for Air and Radiation, EPA 

Letty Belin, Attorney, oalition for Clean Affordable Energy