### MEMORANDUM TO FILE

TO: Docket No. EPA-R09-OAR- 2013-0009; Approval of Air Quality Implementation Plans; Navajo Nation; Regional Haze Require ments for Navajo Generating Station; Proposed Rule

FROM: Anita Lee

Date: April 11, 2013

Subject: Submission of Materials from Marc h 11, 2013 Meeting with Maricopa Stanfield Irrigation District

On April 4, 2013, Paul Orme, General Counsel for MSIDD, provided the following materials, by email, to

EPA.

The meeting materials consist of 7 pages in a PDF File (not including this cover memo).

Pages 1 and 2 are a summary of EPA’s BART proposal for NGS and SRP’s initial response, dated February 7, 2013. This summary was not generated by EPA.

Page 3 is titled “CAP Perspectives on Proposed NGS Rule”, dated January 2013.

Pages 4

‐ 7 include text and cost estimates and are titled “Impacts of Navajo Generating Station Proposed Rule on Non

‐ Indian CAP Agricultural Water Users”, dated March 6, 2013.EPA’s BART Proposal for NGS

- 1

- February 7, 2013



### Summary of EPA's Bart Proposal fo r the Navajo Generating Station

EPA's Proposal

 On January 18 th

, the United States Environmental Protection Agency (EPA) issue d a proposed Best Available Retrofit Technology (BART) rule for th e Navajo Generating Station (NGS)

. The EPA's proposal is complex and has an accompanying Technical Support Document

. SRP and the other NGS owners are reviewing and analyzing the details of the proposal.

 EPA's proposal would require Selective Catalytic Reduction (SCR) to be installed and operational on all three units by 2018

. However, in recognition of the importance of NGS and the unique circumstances facing the plant, EPA also proposed a BART alternative.

 The BART alternative provides credit for early action taken by the NGS owners to voluntarily install Low

- NO X Burners and Separated Overfire Air (LNB/SOFA), and provides a more flexibl e timeframe for installing SCR.

 The BART alternative would require SCR to be installed and operational on one unit per year between 2021 and 2023

. EPA's calculations indicate that this a lternative achieves greater emission reductions than EPA's proposal between 2009 and 2044

. EPA refers to this option as "Alternative #1 ."

 EPA als o solicited comments on two additional BART alternatives that would further extend the ti mefram e for SCR to be installed and operational:

 Compliance on one unit per year between 2 023 and 2025 ("Alternative #2")

 Compliance on one unit per year between 2 024 and 2026 ("Alternative #3")

 Alternatives #2 and #3 would require the NGS owners to imp lement additional emission reductions to ensure that total emissions from 2009

- 2044 are less than EPA's BART proposal. EPA would issue a supplemental proposal for public comment.

 SRP has estimated that the cost of SCR would be $589 million

. If bagho uses are required to mitigate potential increases in particulate matter that could occur as a result of installing SCR, the total cost of the additional emission c ontrols could top $1

. 1 billion.

 The determination of whether baghouses are required woul d be made by EPA during the permitting process for the SCR which would not occur until two years prior to start of

c onstruction

.



### SRP's Initial Re s ponse

 SRP appreciates that EPA provided flexibility on the timing for SCR in recognition of the complex timing issues that this decision creates for the owners

. However, SRP is concerned that the proposal may not allow enough time to resolve the uncertainties f acing NGS before the owners will have to make a significant financial commitment.

 SRP also has initial concerns about whether compliance can be achieved with the stringent emission limit in EPA's proposal, particularly in a retrofit application

. A pre liminary review suggests that this limit is one of th e most stringent in the nation.EPA’s BART Proposal for NGS

- 2

- February 7, 2013  SRP also has a number of technical concerns with EPA's proposal. SRP is still reviewing and analyzing the details of the proposal and will be addressing those concerns in comments on the proposed rule.



### Timing Constraints

 The initial term of the plant site lease (and other critical agreements) begins to expire in 2019

. The NGS owners are renegotiating the terms of the lease amendment with the Navajo Nation

. However, even if consensus is reached on future lease terms, an amendment cannot be issued until comprehensive Federal environ mental reviews are completed.

 Those reviews will cover 20 Federal actions and require the complex coordination of 10 Federal ag encies and 15 Native American Tribes

. Once the r ev iew is completed, the Federal agencies will issue a Record of Decisio n (ROD) and the Secretary of Interior must decide whether to approve or disapprove the lease extension.

 Partial Federal ow n ership of NGS complicates the process because the U

. S

. Bureau of Reclamation (USBR) acts as both a project participant and permitting agency

. USBR may not authorize, fund or implement agreements to extend the o perations of NGS prior to compl eting the Federal enviro nmental review processes.

 Given the number of stakeholders involved, USBR's role in the process, the complexity of the project and the extensive public input that is expected, Federal reviews will likely take 5 years or longer and will most l ikely be subject to litigation.

 The NGS owners are concerned that EPA's proposal will not allow sufficient time to get through the Federal environmental review processes and anticipated litigation, secure the necessary air permits, and complete the design and construction of additional controls

. The owners cannot justify procurement and construction of controls until the risks of litigation begin to diminish and they are reasonably certain the plant can continue to operate.



### How to Engage

 There is a 90

- day com m ent period associated with the proposed rule that ends o n May 6 th

. EPA will hold multiple public hearings on the proposed rule

. Details on the dates and locations of the hearings will be published 30 days prio r to the date of the hearings

.

 Attend public hearings and submit comments on the proposed rule

. Express support for alternatives that provide as much time flexibility as possible for installing additional controls, in recogn ition of the importance of NGS.



### Additional Information

 Additional information can be found at SRP's website: www.NGSPower.com

# -;**p** PERSPECTIVES ON PROPOSED NGS RULE

January 

### 2013



### • EPA has released its proposed rule that takes some account of the vital role of the Navajo Generating Station (NGS) in CAP's ability to deliver Colorado River water.

The proposed rule will require new emissions controls to reduce haze-forming nitrogen oxides (NOx) at NGS.

• CAP is disappointed that the EPA did not recognize that NOx reduction technology installed between 2009 and 2011 meets EPA's current regional haze requirements.

• The new EPA rule sets a standard for NOx emissions of 0.055Ibs/miliion BTUs, but provides the owners with an extended time-line (10 years) in recognition of the voluntary installation of Low-NOx burners and tribal issues.

• The only technology currently available that can meet this standard is Selective Catalytic Reduction (SCR) at a cost of at least $500 million.

• The cost would more than double, to $1.1 billion, if new bag house filters are required to

remove the particulates formed by the SCR process.

• The National Renewable Energy Laboratory (Department of Energy) agreed that the evidence was inconclusive that these more expensive NOx controls would yield any perceptible improvement in visibility at the Grand Canyon and other areas of concern.

• CAP customers will experience increased costs but how much the costs will increase has yet to be determined.

• The decision shows the EPA has not ignored the concerns expressed by CAP and its customers, Arizona's Congressional delegation, and others impacted by the rule.

• A 90-day comment period on the proposed emissions rule will begin when the proposed rule is published in the Federal Register.

• CAP will work with the regulatory community, our state and Congressional leadership and

our other partners to find effective and cost-efficient solutions to the complex challenges presented by the proposed rule.

• CAP will also work with the EPA. the Departments of Interior and Energy under the terms of their January 4,2013 Joint Federal Agency Statement Regarding NGS.

• NGS provides more than 90 percent of the power CAP uses to deliver Colorado River water to central and southem Arizona.

• NGS also provides power to APS, SRP, Los Angeles Department of Water and Power, Nevada Energy and Tucson Electric Power.



### www.CenlraIArizonaProject.comMarch 6 , 2013 1 IMPACTS OF NAVAJO GENERATING STATION PROPOSED RULE ON

NON

- INDIAN CAP AGRICULTURAL WATER USERS

Thus far our review includes the 108 page P roposed Rule, the 1 42 page Technical Support D ocument ("TSD") and the 82 pag e Report from Energy Strategies, LLC, whom EPA contracted with for an "Affordability Ana lysis of BART Options for NGS” . T here is very little mention of Central Arizona Project ( CAP ) N on

- Indian Ag riculture (NIA) water users in the Proposed Rule and the Technical Support Document.

We feel that alm ost all of our input has been ignored including that from the Stakeholder process, from our original official comments, from meetings with and submissions to NREL, from Congressional Oversight Committee testimony

, including a letter from the Family Farm Al liance, and from in

- person meetings with high EPA officials last year in Wash ington, DC.

There is one highly troubling paragraph in the TSD on page 81. It provides in part:

"EPA understands NIA users of CAP water are concerned about potential impacts of increasing costs of CAP water. Over the short term, EPA also understands that irrespective of a BART determination on NGS, variable OM&R water rates for CAP water have generally increased annually and are projected to continue to increase in the future . IT IS UNCLEAR TO EPA HOW LONG NIA USERS EXPECT TO CONTINUE USING CAP WATER, AND WHETHER THE EXISTING NIA USERS INTEND AND ARE ALLOWED TO RETURN TO GROUNDWATER WHEN THE TRANSITION FROM NIA USE OF CAP WATER TO INDIAN AGRI CULTURE USE OF CAP WATER OCCURS, OR IF CAWCD AND THE FARMERS EXPECT NIA USERS TO CEASE OPERATIONS WHEN CAP WATER IS NO LONGER AVAILABLE FOR NIA USE." (Emphasis added).

This statement is problematic for several reasons. The Proposed Rule and TSD acknowledge that the CAP e nergy cost will in crease by $8.40 (CAP estimates closer to $ 10 ) per acre foot for the SCRs alone (and twice that if baghouses are required). EPA acknowledges this is at least a 14

- 15% increase for a gricultural water uses (both Indian and N on

- Indian), the highest proportion ate increas e on any CAP water user. Annual increases to date for NIA water users have been i n the $1

- $ 3 per acre foot range , so an increase along the lines projected by EPA is unprecedented.

Secondly, and most troubling, the Proposal seeks to minimize the financial impacts on NIA

users by suggesting that NIA water use is for the short term

, and therefore, of no real consequence in their analysis. To really “ drill down ” on this statement you need to see the Energy St r ategies Report on Rates which focuses on NIA water users at the very end of the Report (pp.73

- 82). This study appears to have used incredibly faulty assumptions and EPA’s consultants never spoke directly with any of the large NIA CAP water users.

These assumptions included the following:

1. Generally NIA's water supply is only 25% from the CAP;

2. NIA's CAP rights are the most "junior" in the CAP;

3. While under the 2004 Settlement Act, NIA has a right to a 400k Pool through 2017, a 300 ,000 Pool through 2024, and a 225 ,000 Pool through 2030, th e actual available water supply due to Colorado River build

- out and projected shortages is only 75 ,000 acre feet in 2018, and rapidly drops to 0 by 2024 before coming back up slightly in 2025

- 2029.March 6 , 2013 2

In order to justify point #3, we believe the hired consu ltant used the worst

- case Colorado Water Supply projections of the 14 considered by the Water Resources Development Commission (WRDC) in 2011. Most of the other scenarios showed t he full CAP Ag Pool being fully available and, in fact, that is the belief o f CAP staff members who administer the NIA excess water contracts and water orders. The reason we believe this is so disingenuous is that it allows marginaliz ation of the impact of the resulting high water cost on NIA due to the NGS Rule, by saying there i s very little water to apply these costs to for NIA in the 2018

- 2030 time frame so the resulting economic burden i s insignificant.

Point #1 was also taken from the WRDC study and seems to b e an analysis of all the farming in the three

- county area, includ ing those farms which do n o t have access to CAP water. For the districts we represent (which currently use 1/3 of all CAP annual deliveries), CAP use is between 66

- 90% of their annual supply if you count in

- lieu deliveries, and between 35

- 50% if you only count the Ag Pool. Again, this point was used to minimize the impact of much higher water costs due to the NGS Propos e d Rule and the statement is even made that this is a "hedge" against much higher CAP water co s ts.

As to point #2, while the original NI A priority for long term CAP contracts was the junior priority for such contracts, the NIA excess Settlement Pool is the highest priority of all excess uses (one step down from long term uses) and is expected to be fully available unless there are EXTREME shortage conditions on the River. The last point of contention on the above statement from the TSD is the allegation that NIA users may not be able to return to groundwater once they can no longer receive CAP water. We believe t his is a political stateme nt made to undercut the powerful argument that the Proposed Order will force NIA back onto groundwater pumping in direct contradiction of the public policy behind the enactment of the CAP Enabling Legislation which was to ensure the reduction of groundwate r pumping in Arizona, proportionate to the availability of CAP water. As you know, groundwater pumping in the Active Management Areas ( AMAs ) is a matter of state law. We have been representing Central Arizona Irrigation & Drainage District ( CAIDD ) and Mar icopa

- Stanfield Irrigation & Drainage District ( MSIDD ) for over 30 years and are not aware of any state law prohibiting the farmers in those districts from pumping (through the irrigation districts) their full entitlements of groundwater once CAP water is no longer available to them. These districts do have certain contractual agreements with the Federal government to restrict pumping near Indian reservations

, but those agre e ments allow the districts to pump between 240 ,000

- 250,000 acre feet each (twice as much as they are doing now) if no comparably priced CAP water is available to them. Again, this statement is unsupported and self

- serving and we are seeking to find its genesis.

The three districts we represent use cumulatively about 450,000

– 500,000 ac re feet of CAP water each year. An additional $10 an acre foot would cost them $4.5 million a year ; or $9 million

, if baghouses are required and if all those costs are passed on to them. We anticipate that many CAP farmers will not be able to get crop fi nancing with these types of increases in future water prices. The Proposed Rule imposes seriously harmful economic consequences on the CAP agricultural sector, in return for highly disputed and uncertain air visibility benefits.