P.O. Box43020 • Phoenix, AZ 85080-3020 23636 North Seventh Street • Phoenix, AZ 85024
623-869-2333 • www.cap-az.com



### February 23, 2011

Mr. DavidJ. Hayes Deputy Secretary Departmentofthe Interior 1849 C Street,N.W. Washington, DC 20240
Mr. Jared Blumenfeld Regional Administrator, Region 9 United States Environmental ProtectionAgency 75 Hawthorne Street SanFrancisco, CA94105
RE: Commentsto theNational Renewable EnergyLaboratory (NREL) Report,

### Navajo GeneratingStation andAir Visibility Regulations: Alternatives andImpacts (the "Report")
DearMr. 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 001its initial comments, but the submission limitations did not allow sufficient space to address concerns ofvital importanceto the BARTdetermination.
CAWCD manages the Central Arizona Project (CAP), a critical water delivery system supporting over 80% ofArizona's population and economic activity. The system relies
on the Navajo Generating Station (NGS) for over 90% ofthe 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 importantdecisions ahead.
CAWCD acknowledges that NREL 

### had limited time to draft the Report, and this limitation is reflected in certain key elements ofthe Reportthat 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 commentsFebruary23,2012 Page2

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 lackofevaluationofrecently installed pollution controlsas BART, (4) the effectofNREL'serroneousassumption regardingthe elasticity ofdemand 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 effectsonmunicipal 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, ifNGS is required to install SCR or othertechnologies at a priceof$500 millionto $1.1 billion, EPA can "reasonablyexpect"
no perceptible improvementto visibility. 

### Indeed, theReport defines the "fundamental question" as "how reducing NOx

### from NGSwould contribute to improved visibility at the Grand Canyon and other areas ofconcern." (Report, p. IV). The answer to this fundamental question is, at best, inconclusive. (Id.). With this decisive issue in hand, ourcommentsfollow.
1. 

### Additional ControlTechnologies 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 ofproposed 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). Accordingto the Report, NGS "is alreadyusingthebestavailablecontrol for reductionof 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 ofthe 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 similarto NGS in design and type ofcoal 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 GrandCanyonandotherareasofconcern." (Report, pp. 113, IV).
The Report notes that there was no improvement in visibility even upon the 

### complete shutdownofMohave Generating Station,evenwhenthe CALPUFF 5.8modelingusedbyFebruary23,2012 Page 3

EPA had predicted marked improvement in visibility ifMOS 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 nojustification for retrofit of NOS ata costof$500 millionto $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 modeling, concludingin the Reportthat:

• EPA's modelingexaggerates the visibility benefits ofadditional 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,priorto full installationofexistingcontrolsatNOS

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 Farmingtonthat are impacted by local ammonia sources." Id. Use of EPA's higher ammonia values produces modeled ammonium nitrate concentrations

### an order of magnitude higherthan 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. Onthe 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 ifammonia values are too high, "the modeling process can significantly overestimate nitrate particle formation, thus overestimating visibility impact" ofpowerplantemissions. (Report,p. 92). Moreover, CAW 0 concurs with the Report's recognition ofavailable measured values and theiruse to correlate with predictive models. Measured values can indicate ifmodels
are biased and not consistentwithactual atmospheric reactions and resultingcomponents. 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 theFebruary23, 2012 Page4
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 ofthe 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 priorto thecomplete installationofthe LNB/SOFAcontrols atNOS.
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 improvementtied to NOxreductions.
3. Excessive Costs Do NotSupportAdditional 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 ofany conclusive scientific evidence that installation ofSCRor 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/SOF A) as BARTis a glaringomission.
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 ofthis amountwas approximately $11 million. Whilethese amounts are significant, paymentwasplannedin advance, spread overthree years and managed within the typical annual range ofthe 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 indistinguishableby humaneyesfrom 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 "Spatialand Season Patternsand TemporalVariability ofHaze and its Constituentsin the United States, ReportV, June 2011." lIbid.,Chapter9, page 9-10.
3 Ibid., Chapter9, Figures9.3.4 and9.3,5,page9-9.February 23, 2012 Page 5
emissions control systems have already been installed at NGS. LNB/SOFA was installed during 2009-20II and S02scrubbers were installed in the late 1990s.
As stated above, the cost ofinstallation for the LNB/SOFA controlsinstalled by theNGS
owners were financed through the Development Fund. Use ofthis financing mechanism
was possible becausethe costs ofLNB/SOFA, spread over three years, were sufficiently low relative to the annual expenditure budget and cash flows ofthe Development Fund and could be planned and managed accordingly. On the other hand, the cost ofSCR or SCR+BHwould completely overwhelm the Development Fund. Itis not possible to fund expenditures of this magnitude using the Development Fund since the cash flow to accommodate this levcl ofspending simplydoes not exist.
Reclamation's share ofth cost ofthe S02 scrubbers was funded by CAP construction appropriations provided by Congress to Reclamation. CAWCD's share of the reimbursable costs ofCAP construction is being repaid to the United States overa 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 cunentlyin place oravailable.
TheNRELReport assumes that Reclamation's share ofany SCRor SCR+BHinstallation would be financed by revenue bonds issued by CAWCD, and declares that "CAWCD's Replacement Fund could assist with the funding ofthe SCR; however, the fund will not cover the full cost ofthe 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 ofdebt service for general obligation bonds would be property taxes and would require the approval ofthe electorate ofCAWCD's three-county service area, which is far from certain. The source ofdebt service for revenue bonds would be CAWCD delivery rates, and the harsh financial impact on rates and CAWCD customers is discussed in a number ofplaces in the 

### NREL report. As for the latter point, there is no basis for any reference to the use ofthe CAWCD Replacement fund, which is in place to help fund major repairs and replacemenl ofexisting 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 ofotherexisting assets would have to be madeup 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 ofrevenue bonds, both ofwhich
were associated with the construction ofNewWaddell Dam. Series A was issued in 1990 and Series B was issued in 1991, for a total ofapproximately $264 million. There was refunding for a portion ofthese bonds in 1993, 1994 and 2001, and the last ofthe bonds were paid off in 20I1. The source of debt service for both series of bonds was an additional rate componentthat was applied to the power purchased by Salt River Project from the Reclamation shareofNGS 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 deliveryrates and revenues.February23, 2012 Page6
Theinitialcredit ratings for CAW D's Series A and Series B bonds wereAl 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 ofinitial issue, the range ofcoupon rates for the Series A bonds was 6.70-7.65% and the range of couponrates 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 amountofthe oflering, the credit rating ofthe issuer and the maturity ofthe bonds. The credit rating of the issuer, in turn, is dependent upon the security of the
revenue source. The ability ofCAW 0 to issue $100-275 million in revenue bonds in the current market is an untestedhypothesis,for the followingreasons:

• 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, particularlyfor an initial issue secured by waterrates.

• 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 offurther 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 significantlyhighercost impacts than those calculated in theNRELreport.
Toputthese issues into perspective, a 6% interest rate instead ofa 5% interest rate would result in an approximately 7% greaterincrease in the costofwaterthan 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 ofwater. 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 ofSCRs and 29%­ 32%for SCR+BH.Theseranges would become 14-17%and 31-34%at a 6% interest rate and 15-19%and 34-37%ata 7% interestrate.
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 ofwater (e.g., 16-19% for SCR and 35-38% for S R+BH for the Federal/Indianand Agricultural customers). A reduction in the amortization period to 10 years would result in approximately 60% greater increases in the cost ofwater (e.g. 21-26%for SCRand 46-51% for SCR+BHfor the Federal/Indianand Agricultural customers).February 23, 2012 Page7

c. The Report Erroneously Concludes that Installation of Additional Emissions Controls would be Less Costly than Closure ofNGS. 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 currentexcess capacity in the western powergrid.
Even ifone adopts the false choice ofinstallation versus closure,thedecisionwould 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 thatthe Reclamation situationwas morecomplex.
It is far from certain how Reclamation could commit to support a col1ective decision by NGS owners to install SCRor S R+BIl. Even ifReclamation were to concludeboth 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. Againstthis backdrop, NRELconcluded that the only viablefinancing mechanism for the U.S. share ofSCRor SCR+BH is borrowingby CAWCD. However, although NGS is an integral component ofthe CAP, CAWCD is not an owner ofNGS and has no financial obligation to the United States other than to make its annual CAP repayment installment, and no obligation whatsoeverundertheNavajoParticipationAgreement.
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 ofthe Report. Itis essential that EPAhave the correct costinformation available and consider it fully whenmaking its BARTdetermination. 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 thatdo not address visibility, significantly increasingthose estimates ofBART 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 BARTdecision." (Id.) NREL states that "We nevertheless provide separate estimates ofbaghouse costs for additional reference." (ld.)
TheNREL discussion ofthe chemicalprocesses 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 "blueplume" that canresult whenFebruary23, 2012 Page 8
the SCR causes increased SO] emissions and the SO} converts to vapor-phase sulfuric acid (Report, p. 49). orbent injectionbecomes 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 impropercharacterization ofa polishingbaghouse 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 ofthe 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 costofa "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 ofthe cost ofSCRcontrols on electricity costs ofpumpingdiscussed in the Report's conclusion (see pp. 111-112), and may lead others to the wrong conclusions
as well.
NREL'sapparent misunderstanding ofwhether a baghouse is "elective" implies thatcosts related to baghollses are unnecessary, and coupled with the incorrectcost estimates, adds
a layer ofconfusion to the Report and may lead EPA and otherreaders 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 costof GS power-in other words, thedemand 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 impactwould be real and substantial.

4 S&L Study,August 17,2010,pp. ES-3 through ES-6 and pp. 1-1 and 1-2 and2-2 and 2-3.
5 Although S&Ldid not study any baghouseotherthan a polishingbaghouse, NRELposits thata "full baghouse" would be required ifsorbentinjection and a polishing baghouse is noteffective in minimizing the S03 and sulfuric acid formation by the SCRand downstream equipment(Report, p. 51). Certainly, if such a baghousewas required it would not be "elective," and the expense would haveto factor in thecost ofinstalling and then removingthe ineffective polishingbaghouse.February23,2012 Page9

Demand for CAP water is mostelastic for the Indian and non-Indian agricultural sectors. Agriculture is an industr in which per acre profit margins are thin and the cost ofwater is a major factor in the cost ofproduction. 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 challengesand 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 140,000acre-feet peryearand 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 waterby providing price incentives for farmers to use CAP water in lieu ofpumpinggroundwater. Directuse and in-lieu banking by Indian and non-Indian agriculture cunenlly accountfor more than50% oftotal CAPdeliveries.
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 costofCAP water, non-Indian agricultural waterusers within CAP's service area would turn to additional pumping ofless-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 eliminatethe amountofwaterdelivered to agriculture underthis 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, ifthe cost of CAP waterincreasesdramatically:

• Central Arizona's farmers, the vast majority of which are family owned and operated, would see their profit margins substantially reduced and theirvery 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 landis 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 ofthe Arizona Water Banking Authority to meet its interstate banking obligations to the State of Nevada, its finning obligations toFebruary23, 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 inabilityto store sufficientwaterfor the future, eitherthrough their
own actions or through the actions of the Arizona Water Banking Authorit

. The use ofCAP water is critical to the success ofArizona's water management program, and the affordabilityofCAP water is critical to its continued beneficial use.
5. DisproportionateEffect onTribes and Agricultural Users. While we agree that the Report accurately concludes that, should EPA select SCRor 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 ofthe harm that could becreated and the ensuing chaosthat 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 ofCAP 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 CAPwaterfor Indianuse and to facilitate waterrights settlements.
To provide funding for these future settlements, Title I amended section 403(f) ofthe Colorado River Basin Project Act of 1968 to allow additional uses ofmoney 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 ofNOS, which was the first component ofthe CAP to be built.
Under the 1968 Actand CAWCD's repaymentcontract, 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 ofthe U.S. Treasury to repay the costs ofconstructing the CAP and NOS. Title I ofthe AWSA made a critical change to thatprocess. Now, after monies are deposited in the DevelopmentFund and havebeen credited against CAWCD's repayment obligation, they are no longer returned to the general treasury. Instead, the funds maybe used, withoutfurther appropriation, to pay theFebruary23, 2012 Page 11
fixed operation and maintenance costs ofdelivering 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 ofthese revenues injeopardy, so too are outstanding future water rights settlements ofthe eleven tribes currently without full waterrights settlements.
A critical component ofthe AWSA was the relinquishment by CAP's agricultural water users oflong-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 ofCAPnon-Indian agricultural priority waterfor future Indian settlements. Inreturn, 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 ofCAP water delivered to tribes who have signed water settlement agreements. This dramatically understates the true impact as does all ofChapter 6, whichpurports 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'srole. Infact, the Reportfocuses only onan assortmentoftribes, some with settlementsand 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 remainingIndian waterrights claims.
Section 6.2 ofthe 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 ofwater 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 eleventribes mayhave outstanding/unresolvedclaims:

• HavasupaiTribe
• Hopi Tribe (partial seulementproposed)
• HualapaiTribe
• Kaibab BandofPaiute Indians
• NavajoNation (partial settlementproposed)
• PascuaYaquiTribe
• SanCarlosApache(partial settlementonly)February

### 23, 2012 Page 

### 12

• SanJuan SouthernPaiute
• Tohono O'odham (partial settlementonly)
• Tonto Apache
• Yavapai-ApacheNation
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 everreceive
a water rights settlement in the future given that all the other settling parties, including the United States, are bound by the terms ofthe AWSA. Thus, these tribes mayvery 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 ofthe 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 operatingthe CAP system, CAWCD would have to reconsidera number ofcritical assumptions that have been the basis for numerous agreements and contracts overthe last several decades.


### b. AgricuIture
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 ofthe short-term, limited supplies they accepted in return is now threatened by an action of the federal government less than a decade after Congressional passageofthe 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 ofpercentage 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 otherusers.
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 ofexcess NOS power. In addition to having to pay increased energyFebruary 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 storageto offsetfuture CAP shortages.
CAWCD appreciates the opportunity to submit these additional comments. Based on the five factors ofBART analysis under the CAA,the Report supports the conclusionthatthe 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 waypossible. Sincerely,
I 

### I

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# L

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.**---J:~ri7tVfl10** eer General Manager

NREL.ltr

### 2-23-12**F~bruary** 23, 2012 Page 14

cc: TheHonorablePaul Gosar TheHonorabl Trent franks TheHonorable BenQuayle TheHonorable Ed Pastor TheHonorable David Schweikert The HonorableJeffFlake The Honorable Raul 

### M. Grijalva TheHonorableJon Kyl TheHonorableJohn McCain Gina McCarthy. AssistantAdministratorfor Air and Radiation,EPA Letty Belin,Attorney, oalitionfor CleanAffordableEnergy