S. 2616

Statement of Estevan Lopez     
Commissioner, Bureau of Reclamation
U.S. Department of the Interior 
before the 
Subcommittee on Water and Power
Committee on Energy and Natural Resources
U.S. Senate
on
S. 2616 (Gardner) – Cost Sharing and Revenue 
Provisions relating to the Arkansas Valley Conduit

May 17, 2016

Chairman Lee and members of the Subcommittee, I am Estevan Lopez, Commissioner of the Bureau of Reclamation, in the Department of the Interior.  I appreciate the opportunity to testify on S. 2616. The Administration is still reviewing S. 2616 and does not have a position at this time.  The Department supports the goal of assisting non-federal sponsors with accessing non-federal capital for the construction of projects.  However, the bill raises some concerns discussed below.

The Arkansas Valley Conduit (AVC) was originally authorized in 1962.  However, the beneficiaries’ inability to repay construction of the project, along with competing water infrastructure needs across the West have made it difficult to fund large-scale projects like the AVC at the federal or local level.  Currently AVC area communities use groundwater to supply most of their drinking water, and that water has been determined to contain high levels of naturally occurring radium and uranium.  Twelve water providers have concentrations of these elements in the water supplies that exceed federal Safe Drinking Water Act mandatory standards.  As a result, the State has issued enforcement actions requiring these water providers to remove the contaminants or find a better quality water source.  In addition, water providers in the lower Arkansas River Basin generally have difficulty meeting non-mandatory secondary drinking water standards for salts, sulfate and iron.  

Given these circumstances, it is extremely important for these communities to find an alternative water supply that would meet existing and future municipal and industrial potable water demands for citizens in the six southeastern Colorado counties of the Lower Arkansas River Basin: Pueblo, Crowley, Otero, Bent, Prowers, and Kiowa.  AVC would serve approximately 53,000 residents (estimated to increase to 74,000 by the year 2070) with an estimated construction cost of $400 million (2011 dollars).  Feasibility level designs are being prepared with an anticipated completion date of September, 2016.

Replacing contaminated groundwater supplies with local surface water from the Arkansas River is problematic because the river downstream of the City of Pueblo contains high levels of selenium, sulfates, uranium, and salts.  The AVC, which is an authorized feature of Reclamation’s Fryingpan-Arkansas Project (Fry-Ark Project), would address these problems by providing high quality surface water via a least-cost regional system.

The existing Fry-Ark Project Act, as amended in 2009 by Public Law 111-11, authorizes appropriations for construction of the AVC; allows miscellaneous revenues to be used to construct AVC; and, upon completion, provides for miscellaneous revenues to be credited to the actual costs of AVC.  P.L. 111-11 also provides a cost sharing plan of 100% percent federal financing and 35 percent non-federal repayment, over a period of 50 years, starting after project completion.  In August 2013 a Final Environmental Impact Statement was completed and the Record of Decision was signed in February 2014.  Through FY 2016, approximately $21 million in federal appropriations has been provided for AVC.

Representatives of the Southeastern Colorado Water Conservancy District (District) and the Department and Bureau of Reclamation (Reclamation) began discussions in the summer of 2015 to develop an approach for funding AVC construction while reducing the need for federal appropriations.  With an objective of accomplishing sufficient final engineering and design work to allow award of the first construction contract during fiscal year (FY) 2019, the goal is to obtain funding from multiple sources to permit completion of construction in a timely fashion.

The District and the state of Colorado are contemplating a $100 million loan to finance part of the construction of this project.  S. 2616 authorizes and directs Reclamation to provide, without appropriation, miscellaneous revenues to the District so they can, in turn, use those funds to the extent needed, repay a loan or loans from the Colorado Water Conservation Board (CWCB).  Under current law, those miscellaneous revenues are controlled by Reclamation, and at the Secretary’s discretion, can be used to offset various project costs, finance further construction of the Fryingpan-Arkansas Project (potentially including the AVC), or deposited to the Reclamation fund to reduce the Federal deficit.

If S. 2616 were enacted:

• The District would remain obligated to repay 35 percent of the federal appropriations made for the AVC, with such repayment to come from the crediting of miscellaneous revenues to the AVC or from District sources if those miscellaneous revenues are insufficient.
• The miscellaneous revenues not needed to repay a loan or loans to the District from the CWCB or to meet the District’s obligation to repay 35 percent of federal appropriations would be available for Reclamation to credit to the repayment of the remaining 65 percent of the AVC’s construction costs paid for with federal appropriations.
• The costs of the Ruedi Dam and Reservoir, Fountain Valley Pipeline, and South Outlet Works at Pueblo Dam and Reservoir, plus interest, will be repaid before miscellaneous revenues could be used to pay for AVC costs during construction.

Under current law, all miscellaneous revenues generated by the Fry-Ark Project are currently devoted to repayment of the investment in the AVC.  

S. 2616 directs that miscellaneous revenues be provided to the District.  The District envisions that these revenues would be used to repay the monies it would borrow from the CWCB for about $100 million in non-federal financing for the construction of the AVC.  While we are still undertaking a detailed analysis of the full implications of such a reallocation of federal receipts, the reallocation of federal revenues to a non-federal entity for the benefit of that non-federal entity should be given careful consideration, including budgetary effects.  

This concludes my written statement. I would be pleased to answer questions at the appropriate time.