CAP and the Navajo Generating Station

Presentation to NGS Stakeholder Discussions

January 21, 2011

Central Arizona Project

• 336-mile aqueduct stretches from Lake Havasu to Tucson

• 14 pumping plants lift water nearly 3000 feet

• 8 siphons, 3 tunnels

• Lake Pleasant/New Waddell Dam

• Delivers 1.6 million acre-feet of Colorado River water annually to Maricopa, Pinal and Pima counties

Central Arizona Project• Federal project, title held by the United States• Constructed by U.S. Bureau of Reclamation

Construction began in 1973, first water delivered in 1985Delivers Colorado River water to replace use of mined

groundwater in Central and Southern ArizonaTotal cost $4+ billion

• Central Arizona Water Conservation District

Authorized by state legislation and formed by Maricopa, Pinal and Pima Counties in 1971

Operates CAP system and repays federal debt

Governed by 15-member Board of Directors elected from three-county service area

7%33%

25%

35%

M&I Agricultural I ndian Recharge

Total = 1,610,237 acre-feet

2009 Water Deliveries

CAP Customers

• Cities, towns and water companies include:City of PhoenixCity of TucsonCity of ScottsdaleCity of MesaTown of EloyArizona-American Water Company

• Agricultural districts include:Central Arizona Irrigation & Drainage DistrictMaricopa-Stanfield Irrigation & Drainage District

CAP Customers

• Native American communities include:Ak-Chin Indian CommunityYavapai-Apache TribeFort McDowell Indian CommunityGila River Indian CommunityPascua Yaqui TribeSalt River Pima-Maricopa Indian CommunitySan Carlos-Apache TribeTohono O’odham NationTonto-Apache Tribe

Power for CAP

95% of the energy used by CAP is produced at the Navajo Generating Station (NGS)

The Colorado River Basin Project Act authorized the US to participate in a coal-fired power plant to provide power for CAP pumping as an alternative to building additional dams in the Grand Canyon (the Udall Compromise)

CAP and NGS

• CAP uses about 2.8 million megawatt hours per year of NGS power to deliver CAP water to Indian and non-Indian water users in Central and Southern Arizona.

• The remaining 1.5 million megawatt hours per year of the CAP share of NGS power is sold, generating revenues that are credited to the Basin Development Fund and used: to meet CAWCD’s annual obligation to repay the costs of

construction of the CAP, and to fund the costs of Indian water rights settlements in

Arizona.

NOx Controls

• EPA is currently evaluating controls on nitrogen oxide (NOx) emissions from NGS under EPA’s Regional Haze rules to protect visibility in nearby “Class I” areas.

• Two types of controls are under consideration to reduce NOx emissions at NGS: low NOx burners with separated overfire air (LNB/SOFA),

which are being installed voluntarily right now, and selective catalytic reduction (SCR).

• A third option would require the use of polishing baghouses, in addition to SCRs, to control downstream particulate emissions.

Impacts on CAP Energy Charges

• The current estimate for the cost of LNB/SOFA is $45 million. CAP energy charges would increase by about $0.54 per

acre foot.• Salt River Project estimates that SCRs would cost $544

million, plus $11.9 million in added annual OM&R costs.CAP energy charges would increase by about $8.33 per

acre foot – a 17% increase.• SCRs and polishing baghouses would cost $1.131 billion, plus

$21 million in additional annual OM&R expense – double the cost of SCRs alone. CAP energy charges would increase by $16.30 per acre-

foot – a 33% increase over our 2010 rate of $49 per acre-foot.

Impact on Basin Development Fund Revenues

• Basin Development Fund revenues are credited first against CAWCD’s annual repayment obligation, then used to fund Indian water rights settlements, including fixed OM&R for water deliveries.

• Installation of SCRs would reduce Basin Development Fund revenues by about $149 million between 2016 and 2036 and $1.1 million per year thereafter.

• SCRs plus polishing baghouses would reduce revenues by about $289 million between 2016 and 2036 and $1.9 million per year thereafter.

• Under current conditions, revenues are expected to exceed the repayment obligation by 2015, so loss of these revenues would directly affect Tribes with water rights settlements.

SummaryCOST IMPACTS OF BART CONTROL OPTIONS

CONTROL TECHNOLOGY

INCREASED ENERGY CHARGES ($/AF)

LOST BASIN DEVELOPMENT FUND REVENUES

December 2009 Estimate

Current Estimate

December 2009 Estimate

Current Estimate

LNB/SOFA $0.51 $0.54 – –

SCRs $9.85 (20% increase)

$8.33 (17% increase)

$175 million(2016-2036)

+$1.2 million

per year thereafter

$148 million(2016-2036)

+$1.1 million per year thereafter

SCRs + Baghouses – $16.30 (33% increase)

– $289 million(2016-2036)

+$1.9 million per year thereafter

Impacts of Potential Plant Closure on CAP Energy Costs

• Plant closure is not an acceptable outcome of the BART rulemaking process or of any other near-term regulatory process.

• CAWCD would have to acquire a substitute source of pumping power at market rates.

• CAWCD estimates that, by 2017, CAP pumping energy costs would increase by 50 to 300 percent (rising from $65/acre foot to $95 to $180/acre foot).**

**From forecasts of electricity prices by Navigant (2007) and Black and Veatch (2009)

Increased Cost of Pumping Power

0

20

40

60

80

100

120

140

160

180

200

220

240

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Market Cost of Pumping EnergyDollars per AF

Then Year $ per AF

NO CARBON TAXNO SCRs

Medium Water Year

Navigant 2007 Market Forecast

Black-Veatch 2009 Market Forecast

Projected Cost of NGS

300% increase

50% increase

Impacts of Potential Plant Closure on Development Fund Revenues

• CAWCD would also have to replace $50 million or more in annual revenues that would have been applied against its repayment obligation each year, forcing substantial increases in CAWCD tax rates, water service capital charges, or both.

• Indian tribes would lose the benefit of additional Development Fund revenues that could total as much as $60 to $90 million a year between 2016 and 2023 alone.

Lost Development Fund Revenues

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

$150

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Net Proceeds from Sales of Navajo SurplusThen Year $ Millions

Black-Veatch 2009 Market Forecast

NO CARBON TAXNO SCRs

Navigant 2007 Market Forecast

CAP Repayment

Amount NOT going to water rights

settlements

New water service capital charges of

about $80 per acre-foot

QUESTIONS?