# Harvey Economics ♦ 600 South Cherry Street, Suite 220 ♦ Denver, Colorado 80246

tel. 720.889.2755 ♦ fax 720.889.2752 ♦ www.harveyeconomics.com ♦ he@harveyeconomics.com



# March 15, 2012

Mr. Linus Everling

General Counsel

Gila River Indian Community

Law Office

525 W. Gu u Ki

P.O. Box 97

Sacaton, Arizona 85247

Re: Updated Impacts of EPA BART Changes at NGS on the GRIC- Revised

Cost of Capital Assumption



# Dear Mr. Everling:

On February 28 th 

# , 2012, Harvey Economics (HE) sent you a draft letter report describing the

estimated impacts to the Gila River Indian Community (GRIC) resulting from the US

Environmental Protection Agency’s (EPA’s) propos ed best available retrofit technologies (BART)

for the Navajo Generating Station (NGS). The impacts outlined in that report were based on

information about the costs of each BART scenario and an assumed 3.7 percent cost of borrowing

for SRP. Since that time, SRP has requested that HE revise the 3.7 percent assumption to reflect the

weighted average cost of capital for all NGS owners. As of early March 2012, the weighted average

cost of capital for all NGS owners is estimated to be 6.2 percent. Enclosed please find HE’s

updated findings related to the impacts of BART at NGS on the GRIC, which are based on the

revised cost of capital assumption.

The conclusions of our updated work are generally similar to those found in the February 28 th 

# letter;

they indicate that the EPA’s proposed BART changes to the NGS will have major negative impacts

upon the GRIC. In general, the updated analysis included in this report shows that the increased

costs of BART technologies due to the revised cost of capital result in larger impacts to the GRIC

than shown in the previous report.

The GRIC’s agricultural enterprise, which operate s on small margins similar to most agriculture,

will be adversely affected by increased Central Ar izona Project (CAP) water costs attributable to

EPA’s actions. This will result in a loss in the econo mic viability of irrigated agriculture on certain

GRIC croplands, which will mean a loss of GRIC employment, personal income, and the

substantial investments that have been made in the GRIC agricultural system by the U.S. and the

GRIC in partnership.

A separate, but profound, impact on the GRIC will stem from revenue losses to the Lower Colorado

River Basin Development Fund (LCRBDF). Simplifying the complex flow of monies into this Fund

and to its recipients, HE has reached the conclusion that the reduction in the NGS surplus revenues

into the Fund attributable to EPA’s proposed BART technologies will serve to reduce monies

available to pay for GRIC’s CAP water and infrastructure. The GRIC are the largest of the CAP

# Harvey Economics

Page 2



# Indian contractors, and hold a priority position with respect to infrastructure monies coming from

the Fund.

In short, the EPA’s proposed BART changes at NGS will substantially diminish any economic

benefit the GRIC might have achieved from the utilization of CAP waters and the related

investments in agriculture, some of which are in place at the present time.



# Overview of Data Sources and Methods

As noted in the February 28 th 

# letter report, HE gathered information from extensive interviews with

the Salt River Project (SRP), the U.S. Bureau of Reclamation (BOR), and Central Arizona Water

Conservation District (CAWCD). SRP is the plant operator and has been responsible for marketing

NGS surplus power until the fall of 2011, when the Western Area Power Administration (WAPA)

assumed that responsibility. The BOR provides th e power for pumping CAP waters and oversees

the LCRBDF. The CAWCD is responsible for ope rating and managing the CAP project. Mr. Gene

Franzoy, of Franzoy Consulting, Inc., provided considerable information about historical and

projected agricultural activities and water use within the GRIC on a timely basis. Additional

interviews were conducted with GRIC economic development personnel and individuals

responsible for the GRIC farming enterprise. HE also relied upon numerous secondary sources,

including the U.S. Department of Census data, USDA agricultural census information, and U.S.

Department of Energy, and Energy Information Administration data.

The information about updated costs and scheduling used as the basis for the analysis found in this

report was obtained through continued discussi ons with SRP throughout late 2011 and early 2012.

SRP also provided additional information about the life expectancy of NGS.

In this current impact analysis, HE relied upon the State of Arizona IMPLAN model to calculate

indirect, induced and total impacts on the basis of the direct effects to the GRIC, which HE

independently calculated. 1 

# There are a number of different models, referred to as econometric,

input-output models, available for making these types of impact estimates. IMPLAN and other

models generate “economic multipliers” to estima te impacts; IMPLAN outputs include estimates of

total impacts to employment, personal income, the production of goods and services and tax

revenues.



# Overview of Resu lts and Findings

Scenario definition. 

# The possible scenarios for EPA BART implementation were based upon a

review of EPA documents filed to date on this matter and available through the internet, plus

discussions with the SRP. Each of the scenarios identified, low NOx burners (LNB), SNCR, SCR,

SCR plus baghouse and NGS closure, all represent distinct options which the EPA might consider

adopting as BART for NGS. It is our understanding that, at the present time, the EPA is seriously

considering a recommendation of installing SCR on each of the three units at NGS. However, if

that recommendation should, in fact, occur, the operator will recommend that baghouses also be

installed for the three units to comply with the PSD air permit, which will substantially increase the

1 

# The Arizona IMPLAN model was created by the Minne sota IMPLAN Group (MIG). The Arizona IMPLAN tool

models the structure and function of the statewide economy and estimates the impacts of activities occurring within the

state based on the interactions between industries , households, institutions and governmental agencies.

# Harvey Economics

Page 3



# cost of this BART option. Should that occur, it is quite possible that one or more of the current

NGS owners of the plant will choose to simply close the facility and each of the NGS owners will

then develop their own source of alternative power. With other issues pending for NGS, the option

for NGS closure has a reasonable chance of occurring. The construction time periods and the costs

for each of the scenarios were based upon the Sargent and Lundy reports and information

forthcoming from the SRP.

CAP energy costs. 

# HE’s report projects increases in CAP energy costs per acre-foot attributable

to the EPA BART implementation scenarios. Compared with the CAP energy costs under the

baseline scenario, the LNB/ SOFA scenario woul d increase costs only slightly, by between 0.3 and

0.8 percent per year. The SNCR scenario would reach a peak impact of 4.9 percent in 2015. The

SCR and SCR plus baghouse scenarios would have peak impacts on CAP energy costs of 10.5

percent and 20.4 percent, respectively, in the year 2020. Under the NGS closure scenario, CAP

energy costs would increase by about 55 percent, as compared with the baseline costs. Increased

CAP energy costs under NGS closure would resu lt because the CAWCD would be required to

purchase power on the open market at a much higher rate compared with its cost for NGS power. 2



# Impacts on GRIC agriculture. 

# The GRIC currently has an active agricultural enterprise,

irrigating about 37,000 acres. Their plans are to increase irrigated acres to 77,000 acres by 2030.

Gross operating margins (gross revenues less farm operating expenses), are relatively thin,

projected to be $113 per acre by the year 2030. As the GRIC increases irrigated agriculture, they

plan to utilize more CAP water, reaching 141,000 acre-feet by the year 2044. Because of rising

CAP energy costs, the GRIC agricultural operating margins will be adversely affected by the EPA

BART implementation scenarios; under the SCR plus baghouse scenario, operating margins will

decline by almost 20 percent in 2030 and, under the NGS closure scenario, by 67 percent. These

declines in agricultural operating margins will lead to direct cumulative employment losses of

9,000 job years, direct cumulative personal income losses of more than $266 M to the GRIC, and

$402 M cumulative losses in sales of goods and service during the period of impact under the NGS

closure scenario. 3 

# Further, the investment in canals, pum p stations and other facilities to support

GRIC agriculture, projected to be $645M at co mpletion, will be jeopardized by the EPA BART

implementation scenarios. For instance, under the SCR plus baghouse scenario, more than 40,000

acres of the total 77,000 acres will become uneconomic for GRIC crops by 2044. Under the NGS

closure scenario, the total loss in acreage would be 61,000 acres out of the 77,000 acres total, by

2044. As these acres go out of production, the lost investment previously made would amount to

$339M and $514M for the SCR plus baghouse and NGS closure scenarios, respectively.

Impacts on the LCRBDF related to the GRIC. 

# NGS surplus power amounts to those

resources to which the BOR is entitled from the NGS plant, less the power required for CAP

pumping. Those power resources are then sold by WAPA and the profits from those sales are an

important revenue source for the LCRBDF. NGS surplus power revenues will be determined by the

price WAPA is able to obtain from those sales which are, of course, uncertain over time. Although

prices have been low recently, a gradual return to a more normal price range is anticipated over

time. HE has assumed a price recovery from the current level of $31 per MWH to $50 per MWH by

the year 2025, but this electricity price assumption does not affect the negative impact of the EPA

2 

# Interview with CAWCD personnel, October 2011.

3 

# A job year is one full time person employed for one year.

# Harvey Economics

Page 4



# BART scenarios on that surplus power, since the cost of power would increase regardless of the

power sales price under those scenarios. The cumulative negative impacts of the EPA BART

implementation scenarios on NGS net revenues are projected to be almost $244M under the SCR

plus baghouse scenario and almost $2.0B under the NGS closure scenario.

The losses to the LCRBDF revenues under the a lternative BART implementation scenarios will

occur when the NGS net surplus exceeds the CAWCD repayment obligation less other minor

revenues. That is projected to occur in the year 2019. Hence, the impacts to LCRBDF revenues

occur thereafter. On a cumulative basis through the year 2044, the SCR plus baghouse scenario

would result in a negative effect on LCRBDF revenues of approximately $182M. Under NGS

closure, the loss in LCRBDF revenues would amount to approximately $849M.

In the cascading distributions under the LCRBDF, Indian CAP contractors are in the first priority

for payment of part of their CAP water resources. Since the GRIC represent between 57 percent and

71 percent of the Indian CAP contractors depending on the year, they stand to lose the most from

these revenue losses. The cumulative loss to the GRIC would be about $113M under the SCR plus

baghouse scenario and $497M under the NGS closure scenario through 2044.

Total losses. 

# Beyond the GRIC’s present and future utilization of CAP waters for agriculture,

their intention is to eventually use a total of about 231,800 acre-feet for all uses within the GRIC.

All these waters will be subject to higher CAP en ergy charges which will result in losses to the

GRIC. Under the SCR plus baghouse scenario, the cumulative loss from higher CAP energy cost

alone through the year 2044 would amount to $69M and $289M under the NGS closure scenario.

The final tables in the presentation represent a summary of the losses which the GRIC would face

as a result of the alternative EPA BART implementation scenarios. Total monetary losses under the

SCR plus baghouse scenario, including the lost value of agricultural investment, would amount to

$930M. Under the NGS closure scenario, a distinct possibility, the losses to the GRIC would be

more than $2B.

Along with these losses would be the losses to employment opportunities and the economic

development prospects associated with the availability of reasonably priced water. Cumulative

losses for GRIC sales of goods and services would be about $505M and $1.7B under the SCR plus

baghouse and NGS closure scenarios, respectively.

Please let me know if you have any questions.

Yours truly,

Edward F. Harvey

Principal

EnclosuresHarvey EconomicsMarch 15, 2012FinalPage 1PROJECTEDIMPACTSOFEPABARTIMPLEMENTATIONONTHEGRICA.ScenarioDefinitionsB.CAPEnergyCostsC.ImpactsonGRICAgricultureD.ImpactsontheGRICfromBARTImplementationEffectsontheLowerColoradoRiverBasinDevelopmentFund(LCRBDF)E.SummaryImpactsonGRICCAPWaterValueHarvey EconomicsMarch 15, 2012FinalPage 2A.ScenarioDefinitionsHarvey EconomicsMarch 15, 2012FinalPage 3AlternativeEPABARTImplementationScenariosforNGSBaseline–3units,combined2,250MWcapacity;SO2scrubbersLowNoxBurners(LNB)–Appliedtotheboilersofthe3unitsandusestheseparatedoverfiretechnology;fullinstallationrecentlycompletedatNGSSNCR–Selectivenon‐catalyticreduction;reducesNOxbyinjectionofureaintofluegasinstacksforthreeunitsSCR–Selectivecatalyticreduction;reducesNOxbyinjectionofammoniainplantexhaustofthreeunitsSCRplusBaghouse–IfSCRisstipulatedasBART,theNGSplantoperatorbelievesthebaghouseswillneedtobeaddedtoeachunittocollectadditionalparticulatematterforcompliancewiththePSDpermit.NGSClosure–IfanyofthesixcurrentNGSownerselectnottopaytheincreasedEPABARTcostsandnosubstitutebuyerisfound,theNGSplantwillmovetowardclosure,perhapsbyDecember31,2017.WithconsiderationofpendingNavajoleasenegotiationsandEPAMACTrules,NGSclosureisadistinctpossibility.Harvey EconomicsMarch 15, 2012FinalPage 4Construction Plans and Costs of EPA BART Implementation Alternatives, in MillionsNotes: (1) Assumes Final EPA Rule by Summer of 2012.(2) Assumes 6.2 percent cost of long-term capital and financing over 20 years.(3) Total annual costs are net increases compared to current costs.(4) Capital costs are based on purchase of a combined cycle naturalgas replacement plant for all NGS owners, other than BOR.(5) Operating costs reflect savings of natural gas plants compared to coal plants and CAWCD's purchase of power on the open market.Sources: Sargent & Lundy, "SCR and Baghouse Capital Cost Estimate Report - Revision D", August, 2010; NREL, “Navajo GeneratingStation and Air VisibilityRegulations: Alternativesand Impacts”, January, 2012; SRP, March 2012; U.S TreasuryDepartment, March 13, 2012; and Harvey Economics, 2012.Engineering andConstructionStart Date(1)ConstructionEnd DateCapitalCostAnnualizedCapital Cost(2)AnnualOperating CostsTotal AnnualCosts(3)LNB/ SOFA2009 2011 $45.0 $4.0 $0.0 $4.0SNCRSept, 2012 Dec, 2013 $39.2 $3.5 $19.0 $22.5SCRJuly, 2014 July, 2017 $544.2 $48.1 $11.9 $60.1SCR + BaghouseJuly, 2014 July, 2017 $1,131 $100.0 $20.6 $120.7NGS Closure(4,5)N/A N/A $766.5 $67.8 $2.3 $70.1Harvey EconomicsMarch 15, 2012FinalPage 5B.CAPENERGYCOSTSHarvey EconomicsMarch 15, 2012FinalPage 6OverviewofCAPEnergyCosts1.CAWCDrecoupsthecostofpumpingwaterfromtheColoradoRiverthroughitscanalsviatheCAPenergychargeperAFdelivered.2.Approximately95percentofCAPpowercomesfromtheNGSplantthroughtheU.S.BORpowerallocation.3.ThevariablecostsofNGSpower,almostallcoalcosts,arerecoupedthroughtheCAPenergycharge.4.CAPenergycharges,currently$53perAF,haveincreasedbyanaverageof4.73percentperyearoverthepast15years.ThisincreaseisalreadygreaterthanthatanticipatedintheanalysisdoneinsupportoftheAWSA,whichwas3.7percentforallcosts.5.TheGRICisresponsibleforpayingCAPenergychargesforagriculturalandotherusesofCAPwater,exceptwaterleasedtocities.Harvey EconomicsMarch 15, 2012FinalPage 7Increases in CAP Energy Cost per AF under Alternative EPA BART Implementation Scenarios andPercent Change from BaselineNote: Assumes 2.2 percent annual energy escalation price based onDOE Projections: EIA, AE02011 National Energy Modeling System.Source: Harvey Economics, 2012.YearCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChange2012 $0.41 0.8% $0.53 1.1% $0.41 0.8% $0.41 0.8% $0.41 0.8%2015 $0.41 0.7% $2.73 4.9% $3.99 7.2% $7.33 13.2% $0.41 0.7%2020 $0.41 0.7% $2.73 4.3% $6.60 10.5% $12.85 20.4% $35.03 55.6%2025 $0.41 0.6% $2.73 3.9% $6.60 9.4% $12.85 18.3% $38.97 55.5%2030 $0.27 0.3% $2.59 3.3% $6.47 8.2% $12.71 16.2% $43.09 54.9%2035 $0.00 0.0% $1.96 2.2% $4.49 5.1% $9.27 10.6% $47.44 54.1%2040 $0.00 0.0% $1.96 2.0% $1.23 1.3% $2.13 2.2% $52.90 54.1%2044 $0.00 0.0% $1.96 1.8% $1.23 1.2% $2.13 2.0% $57.72 54.1%LNB/SOFA SNCR plus LNB SCR plus LNBSCR + Baghouseplus LNB NGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 8C.IMPACTSONGRICAGRICULTUREHarvey EconomicsMarch 15, 2012FinalPage 9Irrigated Acres, Baseline and Operating Margin for GRIC Agriculture, 2012 toNote: * Baseline water costs include an increase in CAP water costs, but not increases due to BART implementation.Sources: Franzoy Consulting,Inc. and Harvey Economics, 2012.YearCottonAlfalfaSmallGrainsVegetablesMelonsTotalIrrigated AcresGross MarginExcept Water CostsBaselineWater Costs*Operating Marginfor GRIC AgricultureOperatingMarginPer Acre2012 21,342 4,155 10,274 491 1,511 37,773 $12,955,692 $4,282,190 $8,673,502 $2302015 24,882 4,844 11,978 572 1,762 44,038 $15,104,638 5,782,012$ $9,322,626 $2122020 30,918 6,019 14,884 711 2,189 54,722 $18,769,066 8,802,879$ $9,966,187 $1822025 36,230 7,054 17,442 834 2,565 64,123 $21,993,492 11,813,654$ $10,179,838 $1592030 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 17,746,625$ $8,663,421 $1132035 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 18,953,258$ $7,456,788 $972040 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 20,533,602$ $5,876,444 $762044 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 21,958,804$ $4,451,242 $58Irrigated Acres by Crop TypeHarvey EconomicsMarch 15, 2012FinalPage 10Water Requirements and Water Sources for GRIC Agriculture, 2012 to 2044Note: * Includes delivery loss and 22% irrigation loss.**Water resources do not equal water requirements because GRIC non-agricultural water requirements are included in these totals.Source: Franzoy Consulting, Inc., 2012.YearCottonAlfalfaSmallGrainsVegetablesMelonsTotal WaterRequirements*CAPSRPGroundwaterReclaimedGila RiverTotal WaterResources**2012 99,026 37,437 29,795 810 3,264 229,868 35,000 25,900 28,968 15,000 125,000 229,8682015 115,451 43,646 34,738 945 3,805 267,996 38,053 25,900 59,542 19,500 125,000 267,9962020 143,460 54,235 43,165 1,174 4,728 333,012 59,315 25,900 95,797 27,000 125,000 333,0122025 168,106 63,553 50,580 1,375 5,540 390,222 79,285 25,900 125,537 34,500 125,000 390,2222030 201,863 76,315 60,738 1,652 6,653 468,583 135,269 25,900 140,414 42,000 125,000 468,5832035 201,863 76,315 60,738 1,652 6,653 468,583 135,669 25,900 137,414 44,600 125,000 468,5832040 201,863 76,315 60,738 1,652 6,653 468,583 138,669 25,900 134,414 44,600 125,000 468,5832044 201,863 76,315 60,738 1,652 6,653 468,583 141,069 25,900 132,014 44,600 125,000 468,583Water Requirements, by Crop Type (AF) Projected Water Sources (AF)Harvey EconomicsMarch 15, 2012FinalPage 11Differences from Baseline GRIC Agricultural Operating Margins under Alternative EPABART Implementation Scenarios(thousands)Note: * Total includes all years from 2012 to 2044, not just those shown in the table.Source: Harvey Economics, 2012.YearDifferencePercentChangeDifferencePercentChangeDifferencePercentChangeDifferencePercentChangeDifferencePercentChange2012($14.4)-0.2%($18.5)-0.21%($14.4)NA($14.4)NA($14.4)NA2015($15.6)-0.2%($103.8)-1.1%($151.8)-1.6%($278.9)-3.0%($15.6)NA2020($24.3)-0.2%($161.7)-1.6%($391.7)-3.9%($762.2)-7.6%($2,077.8)-20.8%2025($32.5)-0.3%($216.2)-2.1%($523.6)-5.1%($1,018.9)-10.0%($3,089.5)-30.3%2030($37.0)-0.4%($350.3)-4.0%($874.8)-10.1%($1,719.8)-19.8%($5,828.2)-67.2%2035$0.00.0%($265.7)-3.6%($609.5)-8.2%($1,257.4)-16.9%($6,435.7)-86.3%2040$0.00.0%($271.6)-4.6%($170.8)-2.9%($295.0)-5.0%($7,335.4)-124.8%2044$0.00.0%($276.3)-6.2%($173.7)-3.9%($300.1)-6.7%($8,142.1)-182.9%Total($502.8)-0.2%($7,054.9)-2.5%($12,992.4)-4.7%($25,266.1)-9.1%($136,200.7)-49.1%LNB SNCR plus LNB SCR plus LNBSCR plusBaghouse plus LNB NGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 12Employment and Income Losses Attributable to GRIC Agricultural Impacts from EPA BART Implementation ScenariosNotes: Direct losses will be within GRIC. Total losses will includeGRIC losses plus induced and indirect effects within the GRIC and Phoenix Area.Although cumulative employment losses are the same for SCR and SCR plus baghouse, cumulative income losses are greater under SCR plus baghouse becausethey occur earlier.Sources: IMPLAN and Harvey Economics, 2012.DirectTotalDirectTotalDirectTotalDirectTotalDirectTotalEmploymentPeak Annual Loss0 0 0 (2) (376) (465) (366) (457) (316) (427)Cumulative JobYears0 (3) 0 (35) (6,023) (7,434) (6,389) (7,943) (9,046) (11,736)Personal Income (millions)Peak Annual Loss$0.0 $0.0 $0.0 ($0.1) ($11.1) ($14.9) ($10.8) ($14.6) ($9.3) ($13.8)Cumulative Loss$0.0 ($0.1) $0.0 ($1.3) ($177.2) ($237.0) ($188.0) ($253.6) ($266.1) ($377.8)Total Sales of Goods and Services (millions)Peak Annual Loss($0.04) ($0.06) ($0.4) ($0.6) ($12.0) ($26.9) ($12.5) ($27.7) ($17.4) ($35.7)Cumulative Loss($0.5) ($0.9) ($7.1) ($12.5) ($190.2) ($427.1) ($213.3) ($473.5) ($402.3) ($848.7)SNCR plus LNB SCR plus LNBSCR plusBaghouse plus LNB NGS ClosureLNB/SOFAHarvey EconomicsMarch 15, 2012FinalPage 13Investment in GRIC Agriculture Jeopardizedby EPA BART Implementation StrategiesSource: Harvey Economics, 2012.GRIC FarmDevelopment PlanLNBSNCR plus LNBSCR plus LNBSCR plus Baghousesplus LNBNGS ClosureAcres 77,000 0 0 (40,443) (40,443) (61,387)Farm Investment(millions)$645 $0 $0 ($339) ($339) ($514)Potential Losses by 2044Harvey EconomicsMarch 15, 2012FinalPage 14D.EPABARTIMPLEMENTATIONEFFECTSONTHELCRBDFANDIMPACTSONTHEGRICSCAource: Harvey EconoSHFLOWSANDomics, 2012.FUNDINGPRIORITIESOFTHELOWERCOLORADORIVERBASINDEVELOPMENTHarMFUNDrvey EconomicsMarch 15, 2012FinalPage 15Harvey EconomicsMarch 15, 2012FinalPage 16OverviewofNGSSurplusPowerSalesAmountofelectricityresourceavailableforsaleequalsBORproductionsharelessCAPpumpingrequirements.Surpluspowerpreviouslysoldthroughexchangesimilartospotmarket.*Electricitysalespricecurrentlylowbyhistoricalstandards.TotalNGSsurplussaleslesscostsofNGSproductionequalssurpluspowerrevenueavailableforLowerColoradoRiverBasinDevelopmentFund(LCRBDF).CostsofNGSproductiondrivenbyNGScapitalandoperatingcosts,includingEPABARTimplementation.*CertainNGSsurpluswillbesoldtoSRPandperhapsotherutilities.WaterAreaPowerAdministrationwillmanagefuturesales.Harvey EconomicsMarch 15, 2012FinalPage 17Alternative EPA BART Scenario Impacts on Net NGS Surplus Power Revenues,Assuming Power Price Recovery to $50 per MWh by 2025 (thousands)Note: Totals include revenue losses occurring in all years between 2012 and 2044.Source: Harvey Economics, 2012.YearBase CaseLNBSCR plus LNB2012 $28,784.7 ($351.7) ($453.9) ($351.7) ($351.7) ($351.7)2015 $37,294.8 ($351.7) ($2,337.0) ($3,418.3) ($6,282.5) ($351.7)2020 $51,995.5 ($351.7) ($2,337.0) ($5,660.5) ($11,014.8) ($51,995.5)2025 $65,414.4 ($351.7) ($2,337.0) ($5,660.5) ($11,014.8) ($65,414.4)2030 $71,536.3 ($234.5) ($2,219.8) ($5,543.3) ($10,897.6) ($71,536.3)2035 $78,564.4 $0.0 ($1,678.9) ($3,850.9) ($7,944.1) ($78,564.4)2040 $86,901.6 $0.0 ($1,678.9) ($1,055.6) ($1,823.3) ($86,901.6)2044 $94,517.6 $0.0 ($1,678.9) ($1,055.6) ($1,823.3) ($94,517.6)Total $2,199,152.0 ($6,917.3) ($65,548.8) ($125,791.6) ($243,605.6) ($1,960,361.5)SNCR plus LNBSCR plusBaghouse plus LNBNGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 18Fixed OM&R Costs of Indian CAP WaterNotes: (1) The CAP OM&R charges are projected to increase ata rate of 2.98% per year, based on the average annual increase projected between 2013 and 2016.(2) The projected Indian CAP water delivery schedule is based on projections provided by the GRIC and assumed growth of 2%-3%per year for other tribes.These numbers assume 71,000 AF of water are leased by the GRIC over time.Sources: BOR and CAWCD, September, 2011; and Harvey Economics, 2012.YearProjected Indian CAP WaterDelivery Schedules (AF)Projected CAP FixedOM&R Charges per AFTotal Indian CAP FixedOM&R ObligationsGRIC % of TotalIndian CAP Water2012 377,914 $73 $27,587,745 75%2015 351,677 $81 $28,485,836 72%2020 356,585 $93 $33,285,896 68%2025 375,026 $108 $40,544,630 64%2030 396,405 $125 $49,634,653 61%2035 421,189 $145 $61,079,700 57%2040 424,000 $168 $71,213,110 57%2044 424,000 $189 $80,090,182 57%Harvey EconomicsMarch 15, 2012FinalPage 19RelationshipofNGSSurpluslossestoLCRBDFLossesandLossesfortheGRIC3⁄4LCRBDFrevenuelossesundereachEPABARTimplementationscenarioarebasedoncomparisonswithrevenuegeneratedundertheBaselinescenario.3⁄4AnnualCAWCDpaymentsoffsetanyreductionsinNGSsurpluspowersalesrevenue,uptotheamountoftheannualCAPrepaymentbyCAWCD.3⁄4Therefore,revenuelossestotheLCRBDFonlyoccurwhenbaselinerevenuesareprojectedtobegreaterthantheannualCAPrepayment.3⁄4LostrevenuetotheLCRBDFmeanlossesfirsttotheIndianCAPcontractorsbecauseoftheirorderinthetwo“cascades”.AsbyfarthelargestIndianCAPcontractor,GRICstandstolosethemost.3⁄4TheportionoftotalrevenuelossesattributedtotheGRICisbasedonthepercentageofGRICCAPwatersubjecttofixedOM&RcostsrelativetototalIndianCAPwatersubjecttofixedOM&R.Harvey EconomicsMarch 15, 2012FinalPage 20LCRBDF Revenue Losses under Alternative EPABART Implementation Scenarios (thousands)Note: Totals include revenue losses occurring in all years between 2012 and 2044.Source: Harvey Economics, 2012.YearLNB2012 $0.0 $0.0 $0.0 $0.0 $0.02015 $0.0 $0.0 $0.0 $0.0 $0.02020 ($351.7) ($2,337.0) ($5,660.5) ($5,884.4) ($5,884.4)2025 ($351.7) ($2,337.0) ($5,660.5) ($11,014.8) ($15,581.5)2030 ($234.5) ($2,219.8) ($5,543.3) ($10,897.6) ($27,568.8)2035 $0.0 ($1,678.9) ($3,850.9) ($7,944.1) ($41,402.6)2040 $0.0 ($1,678.9) ($1,055.6) ($1,823.3) ($50,447.1)2044 $0.0 ($1,678.9) ($1,055.6) ($1,823.3) ($91,934.4)Total ($4,220.7) ($51,531.1) ($99,847.6) ($182,314.8) ($848,821.0)SNCRplus LNBSCRplus LNBSCR plusBaghouse plus LNBNGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 21Lost LCRBDF Revenues Available to the GRIC under Alternative EPA BARTImplementation Scenarios (thousands)Note: Totals include revenue losses occurring in all years between 2012 and 2044.Source: Harvey Economics, 2012.YearLNB2012 $0.0 $0.0 $0.0 $0.0 $0.02015 $0.0 $0.0 $0.0 $0.0 $0.02020 ($237.5) ($1,578.2) ($3,822.5) ($3,973.7) ($3,973.7)2025 ($225.8) ($1,500.6) ($3,634.6) ($7,072.5) ($10,004.7)2030 ($142.4) ($1,348.4) ($3,367.3) ($6,619.8) ($16,746.9)2035 $0.0 ($959.9) ($2,201.6) ($4,541.8) ($23,670.5)2040 $0.0 ($953.5) ($599.5) ($1,035.5) ($28,650.1)2044 $0.0 ($953.5) ($599.5) ($1,035.5) ($52,211.8)Total ($2,722.4) ($31,539.3) ($61,989.3) ($112,586.6) ($496,932.2)SNCRplus LNBSCRplus LNBSCR plusBaghouse plus LNBNGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 22Employment, Income and Sales Losses to the GRIC Attributable to LCRBDF Impacts from EPA BARTImplementation ScenariosNote: Direct losses will be within GRIC. Total losses will include GRIC losses plus induced and indirect effects within the GRIC and Phoenix Area.Sources: IMPLAN and Harvey Economics, 2012.DirectTotalDirectTotalDirectTotalDirectTotalDirectTotalEmploymentPeak Annual Loss(3) (5) (20) (30) (48) (73) (85) (127) (661) (994)Cumulative JobYears(34) (52) (400) (600) (785) (1,180) (1,426) (2,143) (6,295) (9,458)Personal Income (millions)Peak Annual Loss($0.2) ($0.2) ($1.1) ($1.6) ($2.8) ($3.8) ($4.8) ($6.7) ($37.8) ($52.5)Cumulative Loss($2.0) ($2.7) ($22.8) ($31.7) ($44.9) ($62.3) ($81.5) ($113.2) ($359.9) ($499.7)Total Sales of Goods and Services (millions)Peak Annual Loss($0.2) ($0.4) ($1.6) ($2.9) ($3.8) ($7.0) ($6.7) ($12.2) ($52.2) ($95.5)Cumulative Loss($2.7) ($5.0) ($31.5) ($57.7) ($62.0) ($113.4) ($112.6) ($205.9) ($496.9) ($909.0)SNCR plus LNB SCR plus LNBSCR plusBaghouse plus LNB NGS ClosureLNB/SOFAHarvey EconomicsMarch 15, 2012FinalPage 23LCRBDF Obligations after Indian CAP Fixed OM&RNotes: (1) The GRIC OM&R Trust Fund obligation was fulfilled in 2010.(2) Outlays for the LCRBDF Fund began in 2010 and will be completed by 2029 if the funds are available.(3) Totals include expenditures occurring in all years between 2010 and 2029.Source: Harvey Economics, 2012.Other Total AnnualYearGRIC OM&R Trust FundGRIC SCIPP-MIPObligationsObligationsCumulative Obligations2011 $0 $25,000,000 $11,863,312 $33,180,069 $70,043,381 $159,802,3372015 $0 $25,000,000 $16,195,943 $54,998,644 $96,194,587 $559,054,7232020 $0 $20,014,756 $22,441,649 $49,445,020 $91,901,425 $1,071,381,8122025 $0 $0 $34,268,965 $16,666,000 $50,934,965 $1,365,433,6772030 $0 $0 $0 $0 $0 $1,557,971,9632035 $0 $0 $0 $0 $0 $1,557,971,9632040 $0 $0 $0 $0 $0 $1,557,971,9632045 $0 $0 $0 $0 $0 $1,557,971,9632050 $0 $0 $0 $0 $0 $1,557,971,963TOTAL $0 $270,014,756 $487,629,484 $800,327,723 $1,557,971,963GRIC Related ObligationsHarvey EconomicsMarch 15, 2012FinalPage 24Present and Projected Utilization of GRIC’s CAP Allotment, in AFNote: Leased water assumed to increase accordingto the anticipated schedule of leases after 2011.Source: Harvey Economics, 2012.YearOn Reservation Irrigationand Other Tribal UsesLeasesExchangesTotal2012 274,625 28,000 9,173 311,7982015 242,795 60,000 9,005 311,8002020 231,795 71,000 9,005 311,8002025 231,795 71,000 9,005 311,8002030 231,795 71,000 9,005 311,8002035 231,795 71,000 9,005 311,8002040 231,795 71,000 9,005 311,8002044 231,795 71,000 9,005 311,800Harvey EconomicsMarch 15, 2012FinalPage 25Increased Costs of GRIC CAP Water Energy Charges and CAP OM&R Deficits Attributableto EPA BART Implementation Alternatives (thousands)Notes: (1) Calculations assume a recovery in NGS surplus electricity price to $50 per MWh energy price by 2025.(2) Increases in energy charge costs reflect impacts to agricultural and non-agricultural water use.Source: Harvey Economics, 2012.YearEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotal2012 $116 $0 $116 150$ $0 $150 116$ $0 $1162015 $103 $0 $103 684$ $0 $684 1,001$ $0 $1,0012020 $98 $238 $336 654$ $1,578 $2,233 1,585$ $3,823 $5,4072025 $98 $226 $324 654$ $1,501 $2,155 1,585$ $3,635 $5,2202030 $66 $142 $208 622$ $1,348 $1,970 1,552$ $3,367 $4,9192035 $0 $0 $0 470$ $960 $1,430 1,078$ $2,202 $3,2802040 $0 $0 $0 470$ $953 $1,424 296$ $599 $8952044 $0 $0 $0 470$ $953 $1,424 296$ $599 $895Total $1,926 $2,722 $4,648 18,513$ $31,539 $50,053 35,409$ $61,989 $97,399LNB SNCR plus LNB SCR plus LNBYearEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotal2012 $116 $0 $116 $116 $0 $1162015 $1,840 $0 $1,840 $103 $0 $1032020 $3,084 $3,974 $7,058 $8,407 $3,974 $12,3812025 $3,084 $7,072 $10,157 $9,352 $10,005 $19,3572030 $3,051 $6,620 $9,671 $10,341 $16,747 $27,0882035 $2,224 $4,542 $6,766 $11,385 $23,670 $35,0552040 $511 $1,035 $1,546 $12,696 $28,650 $41,3462044 $511 $1,035 $1,546 $13,852 $52,212 $66,064Total $68,590 $112,587 $181,176 $289,159 $496,932 $786,092SCR Plus Baghouse plus LNB NGS ClosureHarvey EconomicsMarch 15, 2012FinalPage 26E.SUMMARYOFEPABARTIMPLEMENTATIONIMPACTSONTHEGRICHarvey EconomicsMarch 15, 2012FinalPage 27Summary of Losses Facing the GRIC fromEPA BART Implementation Scenariosthrough 2044, in MillionsNote: Higher CAP energy costs include increased costsfor agricultural and non-agricultural water use.Source: Harvey Economics, 2012.GRIC Financial LossesLNBSNCRplus LNBSCRplus LNBSCR plus Baghousesplus LNBNGS ClosureLost Value of Agricultural Investment $0.0 $0.0 ($338.5) ($338.5) ($513.8)Higher CAP Energy Costs ($1.9) ($18.5) ($35.4) ($68.6) ($289.2)Lost Monies from the LCRBDFto Pay CAP Fixed OM&R Charges($2.7) ($31.5) ($62.0) ($112.6) ($496.9)Personal Income Reduction ($4.3) ($44.6) ($321.9) ($410.4) ($1,031.4)Total Monetary Losses ($8.9) ($94.6) ($757.8) ($930.1) ($2,331.3)Employment Losses(cumulative job years)(81) (853) (9,041) (10,910) (24,104)Harvey EconomicsMarch 15, 2012FinalPage 28Direct and Indirect Losses to the GRIC from EPA BARTImplementation Scenario Impacts on the LCRBDF, CAP WaterCost, and Agriculture, through 2044, in MillionsNotes: (1) Employment and income losses include direct and indirect workers.(2) The impacts presented in this table do not include the lost value of agricultural investment.Sources: IMPLAN and Harvey Economics, 2012.DirectTotalDirectTotalDirectTotalDirectTotalDirectTotalEmploymentPeak Annual Loss(4) (7) (28) (44) (442) (564) (485) (635) (1,066) (1,553)Cumulative JobYears(53) (81) (545) (853) (7,092) (9,041) (8,364) (10,910) (17,278) (24,104)Personal Income (millions)Peak Annual Loss($0.2) ($0.4) ($1.6) ($2.3) ($14.9) ($20.1) ($17.6) ($24.0) ($52.2) ($73.4)Cumulative Loss($3.0) ($4.3) ($31.1) ($44.6) ($238.3) ($321.9) ($300.9) ($410.4) ($736.8) ($1,031.4)Total Sales of Goods and Services (millions)Peak Annual Loss($0.4) ($0.7) ($2.6) ($4.6) ($6.1) ($21.5) ($11.1) ($30.2) ($67.3) ($130.1)Cumulative Loss($4.6) ($8.4) ($50.1) ($89.9) ($97.4) ($344.5) ($181.2) ($505.1) ($786.1) ($1,659.7)SNCR plus LNB SCR plus LNBSCR plusBaghouse plus LNB NGS ClosureLNB/SOFA

# Fw: EPA Ed Harvey report questions EPA Ed Harvey report questions

Colleen McKaughan Colleen McKaughan to: Eugene Chen, Anita Lee 04/12/2012 02:13 PM

History: This message has been replied to and forwarded .



# I just got this from Gila River. I think this is the last of the information.

Colleen W. McKaughan

Associate Director, Air Division

USEPA, Region 9

(520) 498-0118

----- Forwarded by Colleen McKaughan/R9/USEPA/US on 04/12/2012 02:18 PM -----

From: "Amy Mignella" <amy.mignella@gric.nsn.us>

To: Colleen McKaughan/R9/USEPA/US@EPA

Date: 04/12/2012 01:43 PM

Subject: EPA Ed Harvey report questions



# Colleen –

Please see the attached response to EPA questions prepared for the Community by Harvey Economics .

Sorry for the delay – I confused the sequence of events for this in the early days of my work here .

Please read this in the context of the other information provided by the Community since its drafting

and let us know if you have any additional questions after review.

Thank you for inquiring about it so that we were able to ensure its consideration.

Amy

Amy Mignella

Senior Assistant General Counsel

Office of General Counsel

Gila River Indian Community

P.O. Box 97

Sacaton, AZ 85147

(520)562-9766 direct line

(520)562-9769 fax

amy.mignella@gric.nsn.us

This transmission may contain privileged and confid ential information. It is intended only for the us e of the

person(s) named above. If you are not the intended recipient, you are hereby notified that any review

, dissemination, distribution or duplication of this communication is strictly prohibited. If you are n ot the

intended recipient, please contact the sender by e- mail and destroy all copies of the original message

.



# This message contains confidential information and is intended

only for the individual(s)named. If you are not the named

addressee you should not disseminate, distribute or copy this

email. Please notify the sender immediately by e-ma il if you have

# received the e

- mail by mistake

and permanently delete this e-mail from your system . E-mail

transmission cannot be guaranteed to be secure or e rror-free as

information could be intercepted, corrupted, lost, destroyed,

arrive

late or incomplete, or contain viruses. The sender therefore does

not accept liability for any errors or omissions in the contents

of this message, which arise as a result of e-mail transmission.

If verification is required please request a hard-c opy version.

# Harvey Economics ♦ 600 South Cherry Street, Suite 220 ♦ Denver, Colorado 80246

tel. 720.889.2755 ♦ fax 720.889.2752 ♦ www.harveyeconomics.com ♦ he@harveyeconomics.com



# MEMORANDUM

TO: COLLEEN MCKAUGHAN, EPA REGION 9

FROM: ED HARVEY, HARVEY ECONOMICS

DATE: JANUARY 24, 2012

RE: HE REPORT- ECONOMIC IMPACTS TO THE GRIC UNDER N GS BART SCENARIOS



# In November 2011, Harvey Economics (HE) prepared an analysis for the Gila River Indian

Community (GRIC) that focused on the economic impac ts to the GRIC resulting from a number

of NGS BART implementation scenarios. After reviewi ng the HE report, EPA Region 9

contacted the GRIC with several follow-up questions about the report, specifically requesting

information about the inputs to the economic impact calculations. This memo responds to that

request and also provides some additional backgroun d detail on the models and methodologies

used to estimate impacts to the GRIC.



# EPA Information Request

In an e-mail to the GRIC from Colleen McKaughan on January 3, 2012, EPA requested that HE

share its economic impact models and provide inform ation about the following model input

assumptions:

• Estimated total NGS energy production (MWh/yr);

• Estimated share of NGS available to BOR/CAP each ye ar (MWh/yr);

• Estimated incremental cost of power ($/MWh) for eac h year in the analysis;

• Estimated CAP water pumping volumes for each year ( AF/yr);

• Estimated MWh consumed for pumping by CAP each year (MWh/yr);

• Estimated Capital and Operating Expenses (CAPEX and OPEX) for baseline plant (nonincremental costs, i.e. non-SCR, non-baghouse CAPEX and OPEX);

• CAPEX each year for SCR and Baghouse and installati on schedule by NGS unit.

HE is unable to share the detailed models developed to assess the economic impacts to the GRIC

for a host of reasons. There are, in fact, numerous sub-models which are used to perform the

impact analyses. The manner in which each works and how they work together is very complex

and the provision of those models would not be cons tructive to an understanding of the impact

# Harvey Economics

Page 2



# estimates. Further, some of the models and data are proprietary. Information about the model

inputs is provided below as are brief descriptions of how those assumptions were applied in the

models used to estimate agricultural impacts to the GRIC and revenue losses to the Lower

Colorado River Basin Development Fund (LCRBDF). We would also be pleased to answer

further questions or provide briefings about the me thods and models as needed.



# Specific Model Input Assumptions

Exhibit 1 provides information about the specific a nalytical assumptions requested by EPA.

Exhibit 1

Model Attributes and Assumptions of Interest to EPA

Sources: Salt River Project; Bureau of Reclamation; Central Arizona Water Conservation District; and E nergy Information

Administration.



# Except for Attribute 4, the input assumptions shown in Exhibit 1 were mainly gathered from

detailed interviews with the Salt River Project (SR P), U.S. Bureau of Reclamation (BOR) and

Central Arizona Water Conservancy District (CAWCD) during the Fall of 2011. The annual

incremental cost of NGS power under each of the BAR T implementation scenarios is provided in

Attachment 1. These production cost increases are b ased on the capital and operating costs and

financing assumptions for each scenario. HE used th ese assumptions in a variety of models

developed to assess impacts to the GRIC.

Exhibit 2 identifies the capital cost and schedule assumptions for the SCR plus baghouses. **Model Attribute HE Assumption** 

1. Estimated total NGS energy production (MWh/yr) 18,106,996

2. Estimated share of NGS power available to BOR e ach year (MWh/yr) 4,400,000

3. Estimated power consumed for pumping by CAP eac h year (MWh/yr) 2,800,000

4. Estimated annual incremental cost of NGS power See Attachment 1

5. Average annual AF of water delivered by CAP (AF /yr) 1,500,000

6. Baseline annual NGS expenses (capital and opera ting costs) per MWh $31

7. Baseline total annual NGS expenses (capital and operating costs) $561,316,872

# Harvey Economics

Page 3



# Exhibit 2

HE Capital Cost and Schedule Assumptions for the SC R plus Baghouse Scenario

Source: Salt River Project; Sargent and Lundy; Harv ey Economics, 2011.



# Capital cost data was obtained from the SCR and Baghouse Capital Cost Estimate Report

prepared by Sargent and Lundy in August 2010. That report assumes a 74 month schedule. It is

HE’s understanding that EPA would require any BART scenario to be completed within 5 years;

therefore HE assumed a compressed schedule of 60 mo nths. The terms of the loan (interest rate

and time period) are based on recent SRP bonds.



# Agricultural Impacts

Franzoy Consulting, Inc. provided an understanding of current and future GRIC agricultural

operations, in terms of total irrigated acreage, cr op type, water requirements, water sources,

current water costs and GRIC investment in agricult ure. This data is included in the draft report.

The agricultural impacts to the GRIC under each BAR T scenario are generally based on the

difference between the total cost of water used for agriculture under the baseline and the cost of

water under each BART implementation scenario along with the resulting change in agricultural

operating margins. Only the cost of CAP water would change as a result of the BART scenarios;

the cost of other water sources are assumed to rema in constant. The baseline cost of CAP water is

assumed to increase over time as well.

Using the available data, an agricultural impact mo del was developed for the GRIC to determine

the operating margin for each crop given varying wa ter costs. Agricultural operating margins **Model Attribute HE Assumption** 

Interest Rate 3.68%

Loan Period (yrs) 20

Total Capital Costs

Unit 1 $372,184,000

Unit 2 $410,919,000

Unit 3 $347,869,000

Annualized Costs

Unit 1 $26,615,594

Unit 2 $29,385,609

Unit 3 $24,876,782

Installation Schedule

Timeline 60 month completion schedule

Unit 1 Installation begins 2016; ties in Fall 2017

Unit 2 Installation begins 2015; ties in Fall 2016

Unit 3 Installation begins 2014; ties in Fall 2015

# Harvey Economics

Page 4



# under each BART scenario were calculated by applyin g the cost of water to the GRIC crop

budgets; the margin under each BART scenario was th en compared to the margin under the

baseline to determine to form the basis of the impa ct analysis. Reduced operating margins result

in employment losses in the agricultural sector, as well as associated loss of personal income, as

acreage goes out of production.

The change in water costs under the BART scenarios would also have an effect on the GRIC’s

investment in agricultural infrastructure. In 2011, as part of the Pima-Maricopa Irrigation Project

Six Year Strategic Plan 2011-2016, it was determine d that the maximum sustainable irrigated

acreage for the GRIC is 77,000 acres. The current i ntention is for an expansion of irrigated

agriculture from around 34,000 acres in 2010 to 77, 000 acres by 2030. However, under all BART

scenarios, with the exception of LNB/SOFA, a portio n of the GRIC’s agricultural investment

would be lost as it would no longer be economically viable to maintain all acres in agriculture as

the cost of water increases.



# Impacts to the Lower Colorado River Basin Developme nt Fund

HE developed a detailed model of the LCRBDF based o n an understanding of the structure and

operation of the Fund gained from the Arizona Water Rights Settlement Act of 2014 and

interviews with the SRP, BOR and CAWCD. A graphic o f the Fund’s structure is provided in the

draft report, which illustrates the cascading prior ities of Fund revenues. In the LCRBDF model,

HE assumed that miscellaneous revenues and the Hoov er and Parker-Davis surcharge would

remain constant over the analysis period. Therefore , NGS surplus sales would be the only

fluctuating source of Fund revenues, other than the amount CAWCD would be required to pay

towards the CAP repayment obligation. Under each BA RT scenario, the amount of NGS surplus

power revenue available to the Fund is determined b y a number of factors, including the

following:

• The assumption of total annual NGS production (18,1 06,996 MWhs as shown in Exhibit

1);

• The assumption of total annual NGS power available for surplus sales (1.38 million

MWhs per year, exclusive of the 220 GWhs sold to SR P);

• 220 GWhs of surplus power are sold to SRP annually for $25 million and escalating over

time;

• The assumption of the sales price of surplus power (rising from a current value of $31 per

MWh to $50 per MWh by 2025);

• The cost of each BART scenario.

The only factor that varies among scenarios is the cost of the BART alternative itself; all other

inputs remain constant. Therefore, changes to surpl us power sale revenues are completely

dependent on the cost of each BART implementation s cenario.

# Harvey Economics

Page 5



# LCRBFD revenue losses would not occur under any BAR T scenario until after 2019. Fund

revenue losses do not occur before then because of the CAWCD repayment obligation. CAWCD

is required to make payments into the Fund to meet annual CAP repayment obligations, ensuring

annual Fund revenues of at least as much as the ann ual obligation. Under the baseline scenario,

total Fund revenues are equal to the repayment obli gation until 2019; after that point, revenues

under the baseline scenario are greater than the re payment obligation. The losses occur under the

BART scenarios because after that time, annual reve nues for those scenarios are less than under

the baseline.

The Fund was created to cover the costs of a number of items, including fixed O,M&R costs for

CAP Indian deliveries and a number of infrastructur e projects for the distribution of CAP water

to various tribes. The reduction of LCRBDF revenues under the BART scenarios will impact the

ability of the Fund to fully cover the O,M&R costs or pay for other projects.

I hope this is helpful. Please let me know if you h ave further questions.Attachment 1Estimated Annual Incremental Cost per MWh of NGS Power Under Each ScenarioNote: Under NGS closure, replacement power costs would result in a 50 percent increase in power costs..Source: Harvey Economics, 2011.Year**Cost Increase** **Percent Change** **Cost Increase** **Percent Change** **Cost Increase** **Percent Change** **Cost Increase** **Percent Change** **Cost Increase** **Percent Change** 2011 $0.12 0.38% $0.00 0.00% $0.00 0.00% $0.00 0.00% $0.00 0.00%2015 $0.18 0.58% $0.23 0.75% $2.37 7.63% $4.85 15.63% $0.00 0.00%2020 $0.18 0.58% $0.54 1.75% $2.80 9.05% $5.61 18.08% N/A N/A2025 $0.18 0.58% $0.54 1.75% $2.80 9.05% $5.61 18.08% N/A N/A2030 $0.12 0.38% $0.54 1.75% $2.80 9.05% $5.61 18.08% N/A N/A2035 $0.00 0.00% $0.46 1.50% $0.66 2.13% $1.14 3.68% N/A N/A2040 $0.00 0.00% $0.46 1.50% $0.66 2.13% $1.14 3.68% N/A N/A2045 $0.00 0.00% $0.46 1.50% $0.66 2.13% $1.14 3.68% N/A N/A2050 $0.00 0.00% $0.46 1.50% $0.66 2.13% $1.14 3.68% N/A N/A**LNB SNCR plus LNB SCR plus LNB SCR plus Baghouse plus LNB NGS Closure** 

# Harvey Economics ♦ 600 South Cherry Street, Suite 220 ♦ Denver, Colorado 80246

tel. 720.889.2755 ♦ fax 720.889.2752 ♦ www.harveyeconomics.com ♦ he@harveyeconomics.com



# November 16, 2011

Mr. Linus Everling

General Counsel

Gila River Indian Community

Law Office

525 W. Gu u Ki

P.O. Box 97

Sacaton, Arizona 85247

Re: Proposed EPA BART Changes at NGS



# Dear Mr. Everling:

Enclosed please find Harvey Economics’ (HE’s) draft findings related to the impacts of the US

Environmental Protection Agency’s (EPA’s) proposed best available retrofit technologies (BART)

for the Navajo Generating Station (NGS). As you kno w, on August 23, 2011, the Gila River Indian

Community (GRIC) contracted with Harvey Economics t o identify and estimate the ultimate

impacts of these proposed changes on the GRIC. The enclosed tables and graphics provide the

results of our research and analysis, albeit prelim inary, since we continue to gather information and

refine these impact estimates.

Although the results are preliminary, the conclusio ns of our work are clear. The EPA’s proposed

BART changes to the NGS will have major negative im pacts upon the GRIC. The GRIC’s

agricultural enterprise, which operates on small ma rgins similar to most agriculture, will be

adversely affected by increased Central Arizona Pro ject (CAP) water costs attributable to EPA’s

actions. This will result in a loss in the economic viability of irrigated agriculture on certain GRIC

croplands, which will mean a loss of GRIC employmen t, personal income, and the substantial

investments that have been made in the GRIC agricul tural system by the U.S. and the GRIC in

partnership. A separate, but profound, impact on th e GRIC will stem from revenue losses to the

Lower Colorado River Basin Development Fund (LCRBDF ). Simplifying the complex flow of

monies into this Fund and to its recipients, HE has reached the conclusion that the reduction in the

NGS surplus revenues into the Fund attributable to EPA’s proposed BART technologies will serve

to reduce monies available to pay for GRIC’s CAP wa ter and infrastructure. The GRIC are the

largest of the CAP Indian contractors, and hold a p riority position with respect to infrastructure

monies coming from the Fund. In short, the EPA’s pr oposed BART changes at NGS will

substantially diminish any economic benefit the GRI C might have achieved from the utilization of

CAP waters and the related investments in agricultu re, some of which are in place at the present

time.



# Overview of Data Sources and Methods

HE’s performance schedule, abbreviated because of t he need to provide this information to EPA

and others in accordance with their decision-making process, has influenced our efforts to complete

# Harvey Economics

Page 2



# this assignment. The background, framework for the analysis, and key assumptions were

forthcoming from extensive interviews with the Salt River Project (SRP), the U.S. Bureau of

Reclamation (BOR), and Central Arizona Water Conser vation District (CAWCD). SRP is the plant

operator and has been responsible for marketing NGS surplus power until the fall of 2011, when the

Western Area Power Administration (WAPA) assumed th at responsibility. The BOR provides the

power for pumping CAP waters and oversees the LCRBD F. The CAWCD is responsible for

operating and managing the CAP project. All three e ntities were highly responsive and cooperative

in providing information for our analyses. Mr. Gene Franzoy, of Franzoy Consulting, Inc., provided

considerable information about historical and proje cted agricultural activities and water use within

the GRIC on a timely basis. Additional interviews w ere conducted with GRIC economic

development personnel and individuals responsible f or the GRIC farming enterprise.

In addition to these primary data sources, HE relie d upon numerous secondary sources, including

the U.S. Department of Census data, USDA agricultur al census information, and U.S. Department

of Energy, and Energy Information Administration da ta. HE also reviewed reports and previous

impact analyses prepared by the CAWCD; their staff was particularly helpful and timely in their

assistance. HE also reviewed the Arizona Water Sett lement Act and other reports and documents

related to the LCRBDF.

The analyses performed were dictated by the types o f impacts which we identified. Regarding

GRIC agriculture, the impacts from EPA’s proposed B ART changes would directly affect GRIC

water costs. This would occur because Indian CAP co ntractors pay CAP energy charges and 95

percent of CAP energy comes from the NGS plant. The refore, we examined increased NGS

production costs which the BOR would pass along to CAP to pump waters from the Colorado River

through CAP canals and conveyances to the GRIC and other CAP contractors. Higher NGS

production costs would be attributable to the costs of the BART alternatives. We relied upon the

Sargent and Lundy reports for those cost figures. C apital costs were assumed to be financed with

20-year bonds at the current SRP long-term borrowin g rate of 3.7 percent.

The effects stemming from the loss of revenue to th e LCRBDF were predicated on HE’s

understanding of the flow of monies into and out of that Fund, which are portrayed in a graphic in

our attachment. The focus of the impact of that seg ment of the impact analysis was on the NGS

surplus revenues. As NGS surplus monies exceed the CAWCD repayment obligation, those monies

are available to pay for CAP Indian water costs and other prioritized investments, which the Fund

has adopted over the years. If the EPA BART technol ogies are implemented, they will reduce the

NGS surplus, which will in turn reduce revenues ava ilable into the Fund. Whereas there are many

beneficiaries of the LCRBDF, Indian CAP contractors have a priority in the cascade of

beneficiaries to see that the large part of their C AP water is paid for, and the GRIC is by far the

largest of the Indian CAP contractors. Therefore, l osses to the NGS surplus attributable to the EPA

BART implementation beyond the CAWCD repayment obli gations will have an adverse affect on

the GRIC.



# Overview of Results and Findings

Scenario definition. 

# The possible scenarios for EPA BART implementation were based upon a

review of EPA documents filed to date on this matte r and available through the internet, plus

discussions with the SRP. Each of the scenarios ide ntified, low NOx burners (LNB), SNCR, SCR,

# Harvey Economics

Page 3



# SCR plus baghouses and NGS closure, all represent d istinct options which the EPA might consider

adopting as BART for NGS. It is our understanding t hat, at the present time, the EPA is seriously

considering a recommendation of installing SCR on e ach of the three units at NGS. However, if

that recommendation should, in fact, occur, the ope rator will recommend that baghouses also be

installed for the three units to comply with the PS D air permit, which will substantially increase the

cost of this BART option. Should that occur, it is quite possible that one or more of the current

NGS owners of the plant will choose to simply close the facility and each of the NGS owners will

then develop their own source of alternative power. With other issues pending for NGS, the option

for NGS closure has a reasonable chance of occurrin g. The construction time periods and the costs

for each of the scenarios were based upon the Sarge nt and Lundy reports and information

forthcoming from the SRP.

CAP energy costs. 

# HE’s report projects increases in CAP energy costs per acre-foot attributable

to the EPA BART implementation scenarios. Compared with the CAP energy costs under the

baseline scenario, the SCR would reach a peak impac t of 8.8 percent in 2020, but the SCR plus

baghouses would have a peak impact on CAP energy co sts of 17.2 percent in that year. Under the

NGS closure scenario, CAP energy costs would increa se by about 58 percent, as compared with the

baseline costs. Increased CAP energy costs under NG S closure would result because the CAWCD

would be required to purchase power on the open mar ket at a much higher rate compared with its

cost for NGS power. 1



# Impacts on GRIC agriculture. 

# The GRIC currently has an active agricultural ente rprise,

irrigating about 35,600 acres. Their plans are to i ncrease irrigated acres to 77,000 acres by 2030.

Gross operating margins (gross revenues less farm o perating expenses), are relatively thin,

projected to be $113 per acre by the year 2030. As the GRIC increases irrigated agriculture, they

plan to utilize more CAP water, reaching 144,700 ac re-feet by the year 2050. Because of rising

CAP energy costs, the GRIC agricultural operating m argins will be adversely affected by the EPA

BART implementation scenarios; under the SCR plus b aghouse scenario, operating margins will

decline by 16.7 percent in 2030 and, under the NGS closure scenario, by 70.9 percent. These

declines in agricultural operating margins will lea d to cumulative employment losses of 1,218 and

cumulative personal income losses of more than $1B, during the period of impact under the NGS

closure scenario. Further, the investment in canals , pump stations and other facilities to support

GRIC agriculture, projected to be $645M when comple te before 2030, will be jeopardized by the

EPA BART implementation scenarios. For instance, un der the SCR plus baghouse scenario, almost

49,000 acres of the total 77,000 acres will become uneconomic for GRIC crops by 2050. Under the

NGS closure scenario, the total loss in acreage wou ld be 61,000 acres out of the 77,000 acres total,

by 2050. As these acres go out of production, the l ost investment previously made would amount to

$409M and $514M for the SCR plus baghouse and NGS c losure scenarios, respectively.

Impacts on the LCRBDF related to the GRIC. 

# NGS surplus power amounts to those

resources to which the BOR is entitled from the NGS plant, less the power required for CAP

pumping. Those power resources are then sold by WAP A and the profits from those sales are an

important revenue source for the LCRBDF. NGS surplu s power revenues will be determined by the

price WAPA is able to obtain from those sales which are, of course, uncertain over time. Although

prices have been low recently, a gradual return to a more normal price range is anticipated over

1 

# Interview with CAWCD personnel, October 2011.

# Harvey Economics

Page 4



# time. HE has assumed a price recovery from the curr ent level of $31 per MWH to $50 per MWH by

the year 2025, but this assumption does not affect the negative impact of the EPA BART scenarios

on that surplus power, since the cost of power woul d increase regardless of the power sales price

under those scenarios. The cumulative negative impa cts of the EPA BART implementation

scenarios on NGS net revenues are projected to be $ 212M under SCR plus baghouses and $2.6B

under the NGS closure scenario.

The losses to the LCRBDF revenues under the alterna tive BART implementation scenarios will

occur when the NGS net surplus exceeds the CAWCD re payment obligation less other minor

revenues. That is projected to occur in the year 20 18. Hence, the impacts to LCRBDF revenues

occur thereafter. On a cumulative basis through the year 2050, the SCR plus baghouse scenario

would result in a negative effect on LCRBDF revenue s of approximately $148.6M. Under NGS

closure, the loss in LCRBDF revenues would amount t o approximately $1.46B. S In the cascading

distributions under the LCRBDF, Indian CAP contract ors are in the first priority for payment of

part of their CAP water resources. Since the GRIC r epresent between 57 percent and 71 percent of

the Indian CAP contractors depending on the year, t hey stand to lose the most from these revenue

losses., The cumulative loss to the GRICs would be $92.1M under the SCR plus baghouses

scenario and $844M under the NGS closure scenario t hrough 2050.

Total losses. 

# Beyond the GRIC’s present and future utilization o f CAP waters for agriculture,

their intention is to eventually use a total of abo ut 231,800 acre-feet for all uses within the GRIC.

All these waters will be subject to higher CAP ener gy charges which will result in losses to the

GRIC. Under the SCR plus baghouse scenario, the cum ulative loss from higher CAP energy cost

alone through the year 2050 would amount to $53.4M and $248.1M under the NGS closure

scenario.

A final table in the presentation represents a summ ary of the losses which the GRIC would face as a

result of the alternative EPA BART implementation s cenarios. Total monetary losses under the

SCR plus baghouse scenario would amount to almost $ 1.3B. Under the NGS closure scenario, a

distinct possibility, the losses to the GRIC would be more than $2.6B. Along with these losses

would be the losses to employment opportunities and the economic development prospects

associated with the availability of reasonably pric ed water.

HE is available to expand upon these findings and c onclusions in a presentation or a more elaborate

report as needed, and, as mentioned earlier, we con tinue to refine our work on these preliminary

findings.

Please let me know if you have any questions.

Yours truly,

Edward F. Harvey

Principal

EnclosuresHarvey EconomicsNovember 15, 2011DraftPage 1**PROJECTED IMPACTS OF EPA BART IMPLEMENTATION ON THE GRIC**A. Scenario DefinitionsB. CAP Energy CostsC. Impacts on GRIC AgricultureD. Impacts on the GRIC from BART Implementation Effects onthe Lower Colorado River Basin Development Fund (LCRBDF)E. Summary Impacts on GRIC CAP Water ValueHarvey EconomicsNovember 15, 2011DraftPage 2**A. Scenario Definitions**Harvey EconomicsNovember 15, 2011DraftPage 3Alternative EPA BART Implementation Scenarios for NGSBaseline–3 units, combined 2,200 MW capacity; SO2scrubbersLow Nox Burners (LNB)–Applied to the boilers of the 3 units and uses the separated overfire technology;full installation recently completed at NGSSNCR–Selective non-catalytic reduction; reduces NOx by injection of urea into flue gasin stacks for three unitsSCR–Selective catalytic reduction; reduces NOx by injectionof ammonia in plantexhaust of three unitsSCR plus Baghouse–If SCR is stipulated as BART, the NGS plant operatorbelieves the baghouses willneed to be added to each unit to collect additionalparticulate matter forcompliance with the PSD permit.NGS Closure–If any of the six current NGS owners elect not to pay the increased EPA BARTcosts and no substitute buyer is found, the NGS plantwill move toward closure,perhaps by December 31, 2017. With consideration of pending Navajo leasenegotiations and EPA MACT rules, NGS closure is a distinct possibility.Harvey EconomicsNovember 15, 2011DraftPage 4**Construction Plans and Costs of EPA BART Implementation Alternatives, in Millions** Notes: * Assumes Final EPA Rule by Summer of 2012.** Assumes capital costs financed for 20 years at3.7 percent, equal to SRP’s long-term borrowing costs as of Fall 2011.*** Decommissioning costs will be borne by the owners, but these will not affect the GRIC.Source: Sargent & Lundy, "SCR and Baghouse CapitalCost Estimate Report - Revision D", August, 2010;and SRP, October, 2010.ConstructionStart Date*ConstructionEnd DateCapitalCostAnnualizedCapital Cost **AnnualOperating CostsTotalAnnual CostsLNB2009 2011 $45.2 $3.2 $0.0 $3.2SNCRSept, 2012 Dec, 2013 $20.0 $1.4 $8.4 $9.8SCRJuly, 2014 July, 2017 $544.2 $38.9 $11.9 $50.9SCR + BaghouseJuly, 2014 July, 2017 $1,131.0 $80.9 $20.6 $101.5NGS Closure***N/A N/A $0 $0 $0 $0Harvey EconomicsNovember 15, 2011DraftPage 5**B. CAP ENERGY COSTS**Harvey EconomicsNovember 15, 2011DraftPage 6Overview of CAP Energy Costs1.CAWCD recoups the cost of pumping water from the Colorado River through itscanals via the CAP energy charge per AF delivered.2. Approximately 95 percent of CAP power comes fromthe NGS plant through the U.S.BOR power allocation.3. The variable costs of NGS power, almost all coal costs, are recouped through the CAPenergy charge.4. CAP energy charges, currently $53 per AF, have increased by an average of 4.73percent per year over the past 15 years. This increaseis already greater than thatanticipated in the analysis done in support of the AWSA, which was 3.7 percent for allcosts.5. The GRIC is responsible for paying CAP energy charges for agricultural and other usesof CAP water, except water leased to cities.Harvey EconomicsNovember 15, 2011DraftPage 7Increases in CAP Energy Cost per AF under Alternative EPA BART Implementation Scenarios andPercent Change from BaselineNote: Assumes 2.2 percent annual energy escalationprice based on DOE Projections: EIA, AE02011 National Energy Modeling System.Source: Harvey Economics, Fall 2011.YearCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChangeCostIncreasePercentChange2011 $0.22 0.4% $0.22 0.4% $0.22 0.4% $0.22 0.4% $0.22 0.4%2015 $0.33 0.6% $0.77 1.4% $4.75 8.5% $9.38 16.9% $0.33 0.6%2020 $0.33 0.5% $1.35 2.1% $5.57 8.8% $10.80 17.2% $36.69 58.3%2025 $0.33 0.5% $1.35 1.9% $5.57 7.9% $10.80 15.4% $40.88 58.2%2030 $0.22 0.3% $1.24 1.6% $5.46 7.0% $10.69 13.6% $45.43 57.9%2035 $0.00 0.0% $0.87 1.0% $1.23 1.4% $2.13 2.4% $50.42 57.5%2040 $0.00 0.0% $0.87 0.9% $1.23 1.3% $2.13 2.2% $56.22 57.5%2045 $0.00 0.0% $0.87 0.8% $1.23 1.1% $2.13 1.9% $62.69 57.5%2050 $0.00 0.0% $0.87 0.7% $1.23 1.0% $2.13 1.7% $69.91 57.5%NGS ClosureSCR plus Baghousesplus LNBSCRplus LNBSNCRplus LNBLNBHarvey EconomicsNovember 15, 2011DraftPage 8**C. IMPACTS ON GRIC AGRICULTURE**Harvey EconomicsNovember 15, 2011DraftPage 9Irrigated Acres, Baseline and Operating Margin for GRIC Agriculture, 2011 to 2050Note: * Baseline water costs include an increase inCAP water costs, but not increases due to BART implementation.Source: Franzoy Consulting, Inc. and Harvey Economics, 2011.YearCottonAlfalfaSmallGrainsVegetablesMelonsTotalIrrigated AcresGross MarginExcept Water CostsBaselineWater Costs*Operating Marginfor GRIC AgricultureOperating MarginPer Acre2011 20,131 3,919 9,691 463 1,425 35,630 $12,220,656 $4,068,861 $8,151,795 $2292015 24,882 4,844 11,978 572 1,762 44,038 $15,104,638 $5,781,943 $9,322,695 $2122020 30,918 6,019 14,884 711 2,189 54,722 $18,769,066 $8,802,772 $9,966,294 $1822025 36,230 7,054 17,442 834 2,565 64,123 $21,993,492 $11,813,511 $10,179,982 $1592030 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 $17,746,462 $8,663,584 $1132035 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 $18,953,258 $7,456,788 $972040 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 $20,533,602 $5,876,444 $762045 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 $22,339,372 $4,070,674 $532050 43,505 8,470 20,944 1,001 3,080 77,000 $26,410,046 $24,400,415 $2,009,631 $26Irrigated Acres by Crop TypeHarvey EconomicsNovember 15, 2011DraftPage 10Water Requirements and Water Sources for GRIC Agriculture, 2011 to 2050Note: * Includes delivery loss and 22% irrigationloss.**Water resources do not equal water requirements because GRIC non-agricultural water requirements areincluded in these totals.Source: Franzoy consulting, Inc., 2011.YearCottonAlfalfaSmallGrainsVegetablesMelonsTotal WaterRequirements*CAPSRPGroundwaterReclaimedGila RiverTotal WaterResources**2011 93,408 35,313 28,105 764 3,078 216,826 37,351 25,900 14,575 14,000 125,000 216,8262015 115,451 43,646 34,738 945 3,805 267,996 38,053 25,900 59,542 19,500 125,000 267,9962020 143,460 54,235 43,165 1,174 4,728 333,012 59,315 25,900 95,797 27,000 125,000 333,0122025 168,106 63,553 50,580 1,375 5,540 390,222 79,285 25,900 125,537 34,500 125,000 390,2222030 201,863 76,315 60,738 1,652 6,653 468,583 135,269 25,900 140,414 42,000 125,000 468,5832035 201,863 76,315 60,738 1,652 6,653 468,583 135,669 25,900 137,414 44,600 125,000 468,5832040 201,863 76,315 60,738 1,652 6,653 468,583 138,669 25,900 134,414 44,600 125,000 468,5832045 201,863 76,315 60,738 1,652 6,653 468,583 141,669 25,900 131,414 44,600 125,000 468,5832050 201,863 76,315 60,738 1,652 6,653 468,583 144,669 25,900 128,414 44,600 125,000 468,583Water Requirements, by Crop Type (AF)Projected Water Sources (AF)Harvey EconomicsNovember 15, 2011DraftPage 11Differences from Baseline GRIC Agricultural OperatingMargins underAlternative EPA BART Implementation ScenariosNote: * Total includes all years from 2011 to 2050,not just those shown in the table.Source: Harvey Economics, Fall 2011.YearDifferencePercent ChangeDifferencePercent ChangeDifferencePercent ChangeDifferencePercent ChangeDifferencePercent Change2011 -$8,306 -0.10% -$8,306 -0.10% -$8,306 -0.10% -$8,306 -0.10% -$8,306 -0.10%2015 -$12,693 -0.14% -$29,288 -0.31% -$180,691 -1.94% -$356,954 -3.83% -$12,693 -0.14%2020 -$19,785 -0.20% -$79,896 -0.80% -$330,350 -3.31% -$640,517 -6.43% -$2,176,279 -21.84%2025 -$26,446 -0.26% -$106,794 -1.05% -$441,567 -4.34% -$856,157-8.41% -$3,240,835 -31.84%2030 -$30,081 -0.35% -$167,163 -1.93% -$738,326 -8.52% -$1,445,666 -16.69% -$6,145,629 -70.94%2035 $0 0.00% -$117,484 -1.58% -$167,080 -2.24% -$288,592 -3.87%-$6,839,832 -91.73%2040 $0 0.00% -$120,082 -2.04% -$170,774 -2.91% -$294,974 -5.02%-$7,796,002 -132.67%2045 $0 0.00% -$122,680 -3.01% -$174,469 -4.29% -$301,355 -7.40%-$8,881,679 -218.19%2050 $0 0.00% -$125,278 -6.23% -$178,163 -8.87% -$307,737 -15.31%-$10,114,010 -503.28%Total* -$417,248 N.A. -$3,972,263 N.A. -$10,982,252 N.A. -$20,797,971 N.A. -$202,337,258 N.A.LNB SNCR plus LNB SCR plus LNB SCR plus Baghouses plus LNB NGSClosureHarvey EconomicsNovember 15, 2011DraftPage 12Employment and Income Losses Attributable to GRIC Agricultural Impacts from EPA BART Implementation ScenariosNotes: Direct losses will be within GRIC. Total losses will include GRIC losses plus induced and indirect effects within the GRIC and Phoenix Area.Although cumulative employment losses are the samefor SCR and SCR plus baghouses, cumulative income losses are greater under SCR plus baghouses becausethey occurearlier.Source: Harvey Economics, Fall 2011.Direct Total Direct Total Direct Total Direct Total Direct TotalEmploymentCumulative LossBetween 2011 - 20500 0 79 168 455 970 455 970 571 1,218Personal IncomeCumulative LossBetween 2011 - 2050(millions)$0 $0 $9.3 $25.7 $252.9 $701.7 $263.7 $731.6 $367.0 $1,018.2LNB SNCR plus LNB SCR plus LNBSCR plusBaghouses plus LNB NGS ClosureHarvey EconomicsNovember 15, 2011DraftPage 13Investment in GRIC Agriculture Jeopardized by EPA BARTImplementation StrategiesSource: Harvey Economics, Fall 2011.GRIC FarmDevelopment PlanLNBSNCR plus LNBSCR plus LNBSCR plus Baghousesplus LNBNGS ClosureAcres 77,000 0 -8,470 -48,913 -48,913 -61,387Farm Investment(millions)$645 $0 -$71 -$409 -$409 -$514Potential Losses by 2050Harvey EconomicsNovember 15, 2011DraftPage 14**D. EPA BART IMPLEMENTATION EFFECTS ON THE LCRBDF AND IMPACTS ON THE GRIC** Harvey EconomicsNovember 15, 2011DraftPage 15Source: Harvey Economics, Fall 2011.Harvey EconomicsNovember 15, 2011DraftPage 16Overview of NGS Surplus Power Sales****Amount of electricity resource available for sale equals BOR productionshare less CAP pumping requirements.****Surplus power previously sold through exchange similar to spot market.*****Electricity sales price currently low by historicalstandards.****Total NGS surplus sales less costs of NGS productionequals surplus powerrevenue available for Lower Colorado River Basin Development Fund(LCRBDF).****Costs of NGS production driven by NGS capital and operating costs,including EPA BART implementation.* Certain NGS surplus will be sold to SRP and perhaps other utilities. Water Area Power Administration willmanage future sales.Harvey EconomicsNovember 15, 2011DraftPage 17Alternative EPA BART Scenario Impacts on Net NGS Surplus Power Revenues,Assuming Power Price Recovery to $50 per MWh by 2025Note: Totals include revenue losses occurring in all years between 2011 and 2050.Source: Harvey Economics, Fall 2011.YearBaselineLNBSNCRplus LNBSCRplus LNBSCR plus Baghousesplus LNBNGS Closure2012 $28,825,334 ($285,911) ($328,038) ($1,458,273) ($2,484,114) $02015 $37,335,455 ($285,911) ($659,711) ($4,070,039) ($8,040,349) $02020 $52,036,128 ($285,911) ($1,154,547) ($4,773,767) ($9,255,879) ($52,036,128)2025 $65,455,097 ($285,911) ($1,154,547) ($4,773,767) ($9,255,879) ($65,455,097)2030 $71,563,388 ($190,608) ($1,059,243) ($4,678,463) ($9,160,576) ($71,563,388)2035 $78,564,448 $0 ($742,255) ($1,055,592) ($1,823,295)($78,564,448)2040 $86,901,562 $0 ($742,255) ($1,055,592) ($1,823,295)($86,901,562)2045 $96,566,561 $0 ($742,255) ($1,055,592) ($1,823,295)($96,566,561)2050 $107,770,945$0($742,255)($1,055,592)($1,823,295)($107,770,945)Total $2,786,524,753 ($5,432,314) ($33,938,845) ($111,023,305) ($212,181,106) ($2,614,029,795)Harvey EconomicsNovember 15, 2011DraftPage 18Fixed OM&R Costs of Indian CAP WaterNotes: (1) The CAP OM&R charges are projected to increase at a rate of 2.98% per year, based on the average annual increase projected between 2013 and 2016.(2) The projected Indian CAP water delivery schedule is based on projections provided by the GRIC and assumed growth of 2%-3% per year for other tribes.These numbers assume 71,000 AF of water are leasedby the GRIC over time.Source: BOR and CAWCD, September, 2011; and HarveyEconomics, Fall 2011.YearProjected Indian CAP WaterDelivery Schedules (AF)Projected CAP FixedOM&R Charges per AFTotal Indian CAP FixedOM&R ObligationsGRIC % of TotalIndian CAP Water2011 320,668 $69 $22,126,085 71%2015 351,677 $81 $28,485,836 72%2020 356,585 $93 $33,285,896 68%2025 375,026 $108 $40,544,630 64%2030 396,405 $125 $49,634,653 61%2035 421,189 $145 $61,079,700 57%2040 424,000 $168 $71,213,110 57%2045 424,000 $195 $82,477,239 57%2050 424,000 $225 $95,523,073 57%Harvey EconomicsNovember 15, 2011DraftPage 19Relationship of NGS Surplus losses to LCRBDF Lossesand Losses for the GRICLCRBDF revenue losses under each EPA BART implementation scenario are basedon comparisons with revenue generated under the Baseline scenario.Annual CAWCD payments offset any reductions in NGS surplus power salesrevenue, up to the amount of the annual CAP repayment by CAWCD.Therefore, revenue losses to the LCRBDF only occur when baseline revenues areprojected to be greater than the annual CAP repayment.Lost revenue to the LCRBDF mean losses first to the Indian CAP contractorsbecause of their order in the two “cascades”. As by farthe largest Indian CAPcontractor, GRIC stands to lose the most.The portion of total revenue losses attributed to theGRIC is based on thepercentage of GRIC CAP water subject to fixed OM&R costs relative to totalIndian CAP water subject to fixed OM&R.Harvey EconomicsNovember 15, 2011DraftPage 20LCRBDF Revenue Losses under Alternative EPA BART Implementation ScenariosNotes: Totals include revenue losses occurring in all years between 2011 and 2050.Source: Harvey Economics, Fall 2011.YearLNBSNCRplus LNBSCRplus LNBSCR plus Baghousesplus LNBNGS Closure2011 $0 $0 $0 $0 $02015 $0 $0 $0 $0 $02020 $285,911 $1,154,547 $4,773,767 $5,925,065 $5,925,0652025 $285,911 $1,154,547 $4,773,767 $9,255,879 $15,622,1272030 $190,608 $1,059,243 $4,678,463 $9,160,576 $27,595,8802035 $0 $742,255 $1,055,592 $1,823,295 $41,402,5742040 $0 $742,255 $1,055,592 $1,823,295 $50,447,0742045 $0 $742,255 $1,055,592 $1,823,295 $95,400,0012050 $0$742,255$1,055,592$1,823,295$107,770,945Total $3,430,935 $28,952,416 $82,123,951 $148,628,975 $1,460,492,659Harvey EconomicsNovember 15, 2011DraftPage 21Lost LCRBDF Revenues Available to the GRIC Resulting from LCRBDF Revenue Losses under AlternativeEPA BART Implementation ScenariosNotes: Totals include revenue losses occurring in all years between 2011 and 2050.Source: Harvey Economics, Fall 2011.YearLNBSNCR plus LNBSCR plus LNBSCR Plus Baghousesplus LNBNGS Closure2011 $0 $0 $0 $0 $02015 $0 $0 $0 $0 $02020 $193,075 $779,660 $3,223,702 $4,001,168 $4,001,1682025 $183,580 $741,321 $3,065,180 $5,943,092 $10,030,7842030 $115,786 $643,447 $2,841,976 $5,564,678 $16,763,3772035 $0 $424,358 $603,498 $1,042,405 $23,670,4692040 $0 $421,545 $599,497 $1,035,494 $28,650,1312045 $0 $421,545 $599,497 $1,035,494 $54,180,0012050 $0$421,545$599,497$1,035,494$61,205,763Total $2,212,989 $17,587,242 $51,013,204 $92,104,987 $844,353,181Harvey EconomicsNovember 15, 2011DraftPage 22LCRBDF Obligations after Indian CAP Fixed OM&RNotes: (1) The GRIC OM&R Trust Fund obligation wasfulfilled in 2010.(2) Outlays for the LCRBDF Fund began in 2010 andwill be completed by 2029 if the funds are available.(3) Totals include expenditures occurring in all years between 2010 and 2029.Source: Harvey Economics, Fall 2011.Other Total AnnualYearGRIC OM&R Trust FundGRIC SCIPP-MIPObligationsObligationsCumulative Obligations2011 $0 $25,000,000 $11,863,312 $33,180,069 $70,043,381 $159,802,3372015 $0 $25,000,000 $16,195,943 $54,998,644 $96,194,587 $559,054,7232020 $0 $20,014,756 $22,441,649 $49,445,020 $91,901,425 $1,071,381,8122025 $0 $0 $34,268,965 $16,666,000 $50,934,965 $1,365,433,6772030 $0 $0 $0 $0 $0 $1,557,971,9632035 $0 $0 $0 $0 $0 $1,557,971,9632040 $0 $0 $0 $0 $0 $1,557,971,9632045 $0 $0 $0 $0 $0 $1,557,971,9632050 $0 $0 $0 $0 $0 $1,557,971,963TOTAL $0 $270,014,756 $487,629,484 $800,327,723 $1,557,971,963GRIC Related ObligationsHarvey EconomicsNovember 15, 2011DraftPage 23Present and Projected Utilization of GRIC’s CAP Allotment, in AFNote: Leased water assumed to increase according tothe anticipated schedule of leases after 2011.Source: Harvey Economics, Fall 2011.YearOn Reservation Irrigationand Other Tribal UsesLeasesExchangesTotal2011 221,700 41,000 7,697 270,3972015 242,795 60,000 9,005 311,8002020 231,795 71,000 9,005 311,8002025 231,795 71,000 9,005 311,8002030 231,795 71,000 9,005 311,8002035 231,795 71,000 9,005 311,8002040 231,795 71,000 9,005 311,8002045 231,795 71,000 9,005 311,8002050 231,795 71,000 9,005 311,800Harvey EconomicsNovember 15, 2011DraftPage 24Increased Costs of GRIC CAP Water Energy Charges and CAP OM&R Deficits Attributableto EPA BART Implementation AlternativesNotes: Calculations assume a recovery in NGS surplus electricity price to $50 per MWh energy price by2025.Source: Harvey Economics, Fall 2011.YearEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotal2011 $49,078 $0 $49,078 $49,078 $0 $49,078 $49,078 $0 $49,0782015 $80,987 $0 $80,987 $186,870 $0 $186,870 $1,152,883 $0 $1,152,8832020 $77,318 $193,075 $270,393 $312,221 $779,660 $1,091,881 $1,290,958 $3,223,702 $4,514,6602025 $77,318 $183,580 $260,899 $312,221 $741,321 $1,053,542 $1,290,958 $3,065,180 $4,356,1372030 $51,546 $115,786 $167,332 $286,448 $643,447 $929,896$1,265,185 $2,841,976 $4,107,1612035 $0 $0 $0 $200,726 $424,358 $625,084 $285,461 $603,498 $888,9592040 $0 $0 $0 $200,726 $421,545 $622,271 $285,461 $599,497 $884,9582045 $0 $0 $0 $200,726 $421,545 $622,271 $285,461 $599,497 $884,9582050 $0 $0 $0 $200,726 $421,545 $622,271 $285,461 $599,497 $884,958Total $1,562,678 $2,212,989 $3,775,667 $7,295,479 $17,587,242 $24,882,721 $27,673,595 $51,013,204 $78,686,799LNBSNCR plus LNB SCR plus LNBYearEnergyChargesLost FundDollarsTotalEnergyChargesLost FundDollarsTotal2011 $49,078 $0 $49,078 $49,078 $0 $49,0782015 $2,277,516 $0 $2,277,516 $80,987 $0 $80,9872020 $2,503,044 $4,001,168 $6,504,212 $8,504,567 $4,001,168 $12,505,7362025 $2,503,044 $5,943,092 $8,446,136 $9,474,844 $10,030,784 $19,505,6282030 $2,477,272 $5,564,678 $8,041,949 $10,531,061 $16,763,377 $27,294,4382035 $493,069 $1,042,405 $1,535,474 $11,686,081 $23,670,469 $35,356,5502040 $493,069 $1,035,494 $1,528,563 $13,031,566 $28,650,131 $41,681,6962045 $493,069 $1,035,494 $1,528,563 $14,531,963 $54,180,001 $68,711,9642050 $493,069 $1,035,494 $1,528,563 $16,205,110 $61,205,763 $77,410,873Total $53,364,545 $92,104,987 $145,469,532 $248,123,010$844,353,181 $1,092,476,192SCR Plus Bag Houses plus LNB NGS ClosureHarvey EconomicsNovember 15, 2011DraftPage 25**E. SUMMARY OF EPA BART IMPLEMENTATION IMPACTS ON THE GRIC** Harvey EconomicsNovember 15, 2011DraftPage 26Summary of Losses Facing the GRIC from EPA BART Implementation Scenariosthough 2050, in MillionsNote: Employment and Income losses include directand indirect workers.Source: Harvey Economics, Fall 2011.GRIC Financial LossesLNBSNCRplus LNBSCRplus LNBSCR plus Baghousesplus LNBNGS ClosureLost Value of Agricultural Investment $0.0 $70.9 $409.4 $409.4 $513.8Higher CAP Energy Costs(including agricultural operating margins)$1.6 $7.3 $27.7 $53.4 $248.1Lost Monies from the LCRBDFto Pay CAP Fixed OM&R Charges$2.2 $17.6 $51.0 $92.1 $844.4Personal Income Reduction $0.0 $25.7 $701.7 $731.6 $1,018.2Total Monetary Losses $3.8 $121.5 $1,189.8 $1,286.5 $2,624.5Employment Losses0 168 970 970 1,218