Water and Coal Issues

Water

Since Mohave's inception in 1971, water from the N-Aquifer has been used to slurry the coal the 273 miles from the mine to the Mohave facility. Approximately, 4,400 acre-feet per year of water is extracted from the N-Aquifer for this purpose. The Hopi Tribe opposes the further pumping of the N-Aquifer after 2005, and has taken this position since before Edison filed this application. This opposition is based, in part, on the value the Hopi, and others, place on the special religious and cultural importance of this water source and their concerns about the impact the withdrawal of the water for the slurry purposes has on certain surface springs and washes in the Black Mesa area.

Beginning in 2001, Edison and the other Mohave co-owners restarted past efforts to develop an alternative water source to the N-Aquifer for the mine and the coal slurry pipeline. Because of the arid nature of the geography close to the coal mine, as well as the sensitive nature of the water associated with the Grand Canyon, the parties have had a difficult time identifying, much less obtaining, rights to another viable water supply. Some alternatives that were studied included a "pump-back" option involving obtaining Colorado River water from near the Mohave plant site; participation in a multi-purpose water pipeline from Lake Powell; a "mine-only" water pipeline from Lake Powell, possibly combined with relocating the slurry preparation plant further north; relocating the current N-Aquifer well-field to an area northwest of Peabody's leasehold; obtaining effluent water from Flagstaff or other communities; and obtaining river water from the Marble Canyon area in the lower basin of the Colorado River.⁴ After exhausting those possibilities after years of analysis and negotiation, the parties determined that the only potentially viable alternative is the C-Aquifer. This determination was not reached until almost a year after Edison filed this application.

Once the parties informed the Commission of the potential of the C-Aquifer, they also advised the Commission that a hydrologic feasibility study and an environmental study must be done by the Bureau of Reclamation (BOR), at a cost of approximately $6 million, before it can be determined if the C-Aquifer is a suitable alternative. The major stakeholders negotiated for some time to reach an agreement on the funding for the C-Aquifer study. To facilitate these negotiations, the Commission scheduled a voluntary mediation for the Mohave co-owners, Peabody, and the Hopi and Navajo for October 10, 2003.

By the date of the mediation, the stakeholders had reached their own agreement to resolve the critical and complex issues that surround the development and operation of the C-Aquifer. Edison and the other co-owners agreed to fund the BOR study and negotiated a Memorandum of Understanding (MOU) to be signed by all stakeholders before funding was allocated and commenced. Unfortunately, the parties took until March 4, 2004, before all necessary signatures were obtained on the MOU.⁵ Despite the best efforts of the Commission and the mediation judge, it still took almost five months for the parties to reach final resolution of many complex issues related to both the C-Aquifer and tangential issues as well.⁶ Once the MOU contained all required signatures, Edison and the other co-owners funded the BOR study and the hydrological feasibility study is underway. Concurrent with the BOR study, multi-party negotiations are continuing to develop and establish all of the various agreements and arrangements necessary to build the C-Aquifer pipeline and well-field and implement usage of this new water supply for future Plant operation.

The C-Aquifer supply study will assess from a hydrological, geological, engineering, water-quality, and cost standpoint the viability of: (1) constructing the C-Aquifer Project (Project); (2) withdrawing 6,000 acre-feet per year (afy) of C-Aquifer via the Project during the extended term of Mohave; and (3) using the 6,000 afy of the C-Aquifer for coal-slurrying and other mine purposes to replace the N-Aquifer as the primary source of water. If the supply study proves positive, the Environmental Review, in accordance with the National Environmental Protection Act (NEPA) will review the environmental impacts of the activities enumerated above. The complete scope of work for the C-Aquifer supply and environmental studies is set forth in an attachment to the MOU.

Even if the C-Aquifer studies are positive, parties still have to consider and resolve many other complex issues including, but not limited to:

1. The amount of water found to be available during the supply study portion of the C-Aquifer study;

2. The status and nature of the Hopi and Navajo demands to upsize the proposed C-Aquifer pipeline and allocate some of the available supply of C-Aquifer water to Indian domestic and municipal use;

3. The scope and severity of any environmental limitations on the use of C-Aquifer water that are identified during the environmental study portion of the C-Aquifer study and incorporated into applicable permits;

4. The terms and conditions Edison is able to negotiate with the Hopi and Navajo relating to the use of the N-Aquifer, or another water source, as a temporary emergency back-up supply;

5. The definition and costs for all necessary rights of way and other property rights for the new water wells, pipelines and other related facilities; and

6. Clarification of issues connected with ownership and operation of the wells and pipeline.

Although the items enumerated above are of concern to all the parties, and involve unknown costs or timelines necessary for resolution of the issues, the stakeholders have expressed confidence that these issues can be satisfactorily resolved once the water supply is secure.

There is another potentially troubling water issue and that is a source of water for cooling purposes at the Mohave facility itself. In addition to the water that is extracted from the slurry mixture, Mohave also uses water from the Colorado River at the plant for cooling and other purposes. Mohave's contract for this water terminates in 2026 and there is no provision or assurance that the contract will be extended. While it may be premature to be concerned about a water source not needed until 20 years from now, the parties are in agreement that without a substitute cooling water source, the Mohave facility will not be able to continue in operation post 2026. This potential situation does affect the cost estimates for Mohave since it reduces the plant life projections from the normal 30 years to approximately 17-20 years.

Coal

The Black Mesa mine is Mohave's only source of coal, and Mohave is the only purchaser of coal from the Mine, through Peabody. The coal-slurry pipeline is currently the only means of transporting the coal from the Mine to Mohave, and Mohave is specifically designed to burn slurried coal. The coal supply agreement between Peabody and the Mohave co-owners terminates at the end of 2005, and there is an option, but no obligation, to extend the term of the coal supply agreement up to 15 years.

Stakeholders have been negotiating the quantity, quality and price of coal post 2005. While there are complicated issues yet to be resolved, the parties have decided to address the post-2005 coal quality and quantity through a decision to implement coal-washing at the mine. This, however, does not completely settle the coal issues. Presently, there are two federal lawsuits brought by the Hopi Tribe and the Navajo Nation against Peabody, pending in Washington D.C. and Arizona, in which the plaintiffs are seeking to invalidate the coal leases under which Peabody mines coal on the Hopi and Navajo lands. Because of these suits, Peabody can not warrant that it can supply coal to Mohave.

In addition, Peabody has a permit pending for a permanent program permit to mine coal from the Black Mesa Mine that identifies the N-Aquifer as the source of water for the mine and slurry operation. The permit has been stalled for fifteen years due to a protest by the Hopi Tribe to the continued use of the N-Aquifer for the mine and slurry purposes. Environmental work is required as part of this permanent permit, and no work has been initiated on this work pending resolution of the alternative water supply issue.

The parties have conceded that a coal washing facility will be a necessary component to continued use of coal from the Black Mesa Mine. A coal washing facility portends additional pollution and emission problems that will also have to be resolved.

In summary, although the coal issues do not appear to be as daunting to resolve as finding an alternative water source, without satisfactory settlement of the outstanding coal issues, Mohave does not continue as a coal-fired plant.