Richard Ruelas: Good evening, and welcome to "Arizona Horizon," I'm Richard Ruelas in for Ted Simons. Salt River Project and partners who operate the Navajo Generating Station say they plan to close one of three generators to address a demand from the EPA concerning haze at the Grand Canyon. The operators also say they will stop burning conventional coal by 2044. Here to talk about that is SRP Senior Director of Environmental Management Policy and Compliance, Kelly Barr, and Central Arizona Project General Manager David Modeer. Thanks both of you for joining us this evening. It's a complicated topic, but we'll try to get through as much as we can. In January it seemed as if the EPA had a plan ready to go, where there was talk of taking this plant up in Page that has three power generators and figuring out how to reduce haze over the Grand Canyon. They issued some sort of guideline saying -- what did they mandate SRP to do?
Kelly Barr: Thank you, Richard. In February they issued a proposed rule which would mandate that initially the installation of SCR, which is pollution control equipment, on all these units in 2018. They included an alternative that gave us credit for early installation of burners at the plant and extend the deadline 21 to 22 and 23. It wasn't quite enough time to address the myriad of issues.
Richard Ruelas: The original proposal I think would have cost somewhere between $500 million to a billion dollars to install these essentially catalytic converters on a car onto these plants.
Kelly Barr: A good analogy.
Ricahrd Ruelas: You came up in July with a proposal, and that includes shutting down one of the plants possibly.
Kelly Barr: It accommodates the planned departure of two of the owners, the lost Department of Water and Power and MV Energy. They have talked about a desire to exit the plant. A diverse group has agreed if they exit as expected, we would close one unit. But in exchange for that early closure we would install the SCRs in 2030. That gives us a great deal of regulatory certainty and pushes off a substantial capital investment about years 12 down the road.
Richard Ruelas: And that reduces haze by having one down rather than three going?
Kelly Barr: Right.
Richard Ruelas: The power generated by that plant, is that pretty much exactly what L.A. and Nevada --
Kelly Barr: Exactly. That's one of the nice things, they share 731 megaWatts and the unit is 735 megaWatts. It's a nice solution. It keeps the Arizona interests whole. APS and other units will keep the power they are using today from the remaining two units.
Richard Ruelas: This major customer, Central Arizona Project, was built pretty much to make sure CAP has enough power to pump water to all of our homes, correct?
David Modeer: The original concept of it was to provide power to CAP and also address the energy needs of Arizona and tribal issues, trust responsibilities that the federal government has. When the original concept was conceived, hydropower was building dams on the Colorado, and that was not politically acceptable. This was a solution that the secretary of the interior at that time, Stewart Udall, everybody signed off on it, environmental groups and the state of Arizona and CAP, in the early stages of construction. And we would have it for a long time, a good source of reliable low-cost energy.
Richard Ruelas: Had that original plan -- had the government's original requirements stayed, what would it have done to CAP and water rates had you not hammered this out recently?
David Modeer: Concern for us and with the original proposal from EPA was that there were so many uncertainties, as Kelly alluded to, that there was a strong likelihood that the owners would not have been willing to put in the investment needed, within the time frame that EPA was requiring. Therefore the risk of that plant entirely closing was very real. And that would be an absolute disaster for the Central Arizona Project, for our water users in terms of cost. We would have to go find additional power and all of the other benefits that have inured over the years from our power out of NGS would have gone away. A lot of the water settlement agreements which depend on that power for delivery of waters to tribes in central and southern Arizona would have evaporated and the cost would have been significant. The impact to Arizona water policy would have been serious, and certainly the tribes and their ability to use water for their business needs, agriculture, in other words, would have been significantly impacted.
Richard Ruelas: Is there any other way to provide power to the pumps at Central Arizona Project?
David Modeer: There are other ways to provide power. But they come at a lot more costly rate for us. There certainly is power available on the open market that you could buy at a much higher cost than is produced out of NGS. We have rights to what is called excess power. That excess power was given to us in the very beginning in order to market that power and use the revenues generated from that to contribute to the repayment obligation that Arizona has to the federal government for the construction of a Central Arizona Project. Loss of that, which is anywhere over the years has been to $25 million to 38 our annual obligation of $55 million would have to come from our water uses if that was lost.
Richard Ruelas: Higher rates.
David Modeer: Significantly higher rates.
Richard Ruelas: Anything, solar, wind, is anything feasible to get --
David Modeer: Not at this stage. With we are a base load power generator, we operate 24 hours a day, seven days a week and use significant amounts of power. Particularly when we take it right off the river at Lake Havasu, it's a substantial power draw.
Richard Ruelas: You need to get water going uphill.
David Modeer: We had to get it going uphill right away.
Richard Ruelas: What are the obstacles for this to go forward? Has the EPA signed off on this? What happens now?
Kelly Barr: No, they haven't, but we are very hopeful that they will. We've put the proposal together, filed it with the EPA on Friday. The EPA is now looking at the proposal. If they decide to propose it as a supplemental proposal they will reissue it and folks will go in a public comment process on that. We believe the public comment sessions will close by October 4th, including written comments and the public hearings.
Richard Ruelas: You have some environmental groups who have worked with you on this deal, some who have backed away. What kind of reaction do you expect from the public, or have you heard any reaction from the public as this has become known?
Kelly Barr: Certainly folks would want us to continue to operate all three units, and folks who would like us to close down all three units. This is a compromise, and not everybody got -- people didn't get exactly what they wanted. That's how this will work. I'm sure there will be some environmental groups that say we didn't go far enough. But I know many people on the other side are feeling some pain. Compromise. Everybody had to give something up in order to make this work.
Richard Ruelas: And is CAP going to be okay with that unit closing down, that still provides you enough power in 2020?
David Modeer: We are kept whole. The total amount of power allocated to it when it was built remains the same. The important thing that Kelly just alluded to, it was compromise. There were people around the table who are going to have significant issues because of this. The Navajo Nation will lose revenue with it, but they felt the same way we did. Keeping this plant open and operating at the level this agreement allows for is far better than the risk of it closing entirely.
Richard Ruelas: Excellent. It's a complicated issue and I think we probably brought people up to speed. Thank you for joining us and delving into this issue.
David Modeer: Nice to be here.
Kelly Barr: Thank you so much for the opportunity.