Arizona Water Policy Update
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Editors’ Notes — May 2013, Issue 71
The Colorado River's low flows and Lake Mead's photogenic bathtub rings are again making headlines — but the most vulnerable component of Arizona's water supply system today is its power supply.
The latest projections for spring–summer runoff into Lake Powell (a good measure of hydrologic conditions in the Colorado River Basin), indicate that 2013 flows will be among the lowest on record. Reclamation projects that storage for the entire Colorado River system will be less than 50 percent of capacity at the end of the year. Low water conditions of this magnitude would normally eclipse other factors that affect the availability of this water supply. However, energy is required to move water to users — and the main source of power for the CAP now faces unprecedented uncertainties.
The Navajo Generating Station, a 2250 MW coal-fired plant, provides nearly all the power required to operate the CAP. The plant's future depends on the willingness of its partners / owners to invest in its continued operation. However, two partners recently announced their intent to terminate their NGS contracts. One is the Los Angeles Department of Water & Power. Earlier this year, the LADWP decided to terminate contracts on all coal-based power supplies and struck a preliminary deal to sell its NGS share to SRP by 2015. Then, last month, another partner, Nevada Energy, publicized that it too plans to divest its ownership in coal-fired plants. This leaves four remaining Arizona partners: Reclamation (on behalf of CAP), SRP, APS, and TEP.
The defections are, in part, a response to new regulations for coal-fired power plants. Earlier this year, the EPA published its proposed rule for NOx controls at NGS. This long-awaited rule will cost an estimated minimum of $600M to implement — a cost that presumably must be shouldered by NGS owners, who may be reluctant to increase investments in coal given the current (and likely future) regulatory environment.
Other uncertainties threaten NGS. The plant's operator, SRP, must execute a new land / infrastructure lease with the Navajo Nation. The current lease, enacted in 1969, is set to expire in 2019. Water contracts between SRP and Reclamation must also be renegotiated; the current contract that supplies water to the power plant expires in 2014. Furthermore, coal supply contracts involving Peabody, the Hopi Tribe, and the Navajo Nation need to be renewed. And finally, the Navajo Nation and Hopi Tribe both have unsettled claims to Arizona's 50,000 AF of water from the Upper Colorado River Basin, some of which is currently used to operate the plant.
Despite these uncertainties, Arizona's NGS partners may be willing to invest in this critical facility for the future because of its importance to the state; indeed, leaders at CAP, SRP, and the Navajo Nation have publicly expressed their support for the plant. In any case, regardless of whether NGS shuts down or continues to operate, it will have a major impact on the price and availability of Colorado River water supplies in Arizona in the near future.