Arkansas Valley Conduit Act Statement ofWilliam E. Rinne, Acting Commissioner,Bureau of ReclamationU.S. Department of the InteriorBefore theEnergy and Natural Resources CommitteeSubcommittee on Water and PowerU.S. SenateonS 1106Arkansas Valley Conduit Act September 21, 2006 Madam Chairwoman, I am William Rinne, Acting Commissioner of the Bureau of Reclamation. I appreciate the opportunity to provide the Department of the Interior's views on S. 1106, legislation to authorize the construction of the Arkansas Valley Conduit in the State of Colorado. The Administration cannot support S. 1106. The Conduit is an authorized feature of the 1962 Frying-Arkansas Project, but was never constructed. The Conduit would transport water from Pueblo Dam, a feature of the Fry-Ark Project, to communities along the Arkansas River, extending about 110 miles to near Lamar, Colorado. The Lower Arkansas River Basin is comprised of rural communities, with the largest town, Lamar, having an estimated population of 8,600. The population anticipated to be served by the Conduit is approximately 68,000. This proposed rural water project would tap into an existing reservoir and provide municipal, residential, and industrial water via 160 miles of pipeline to a series of small towns and surrounding rural areas; one option would also include a water treatment plant. Total project costs are roughly estimated at between $265 million and $340 million, depending on the particular project features. While the project is technically do-able, the project sponsors have not identified where they would get all the water identified as needed for the project, and the financial capabilities of the project sponsors is unclear. The Fryingpan Arkansas Project Act required that municipal water supply works either be constructed by communities themselves or, if infeasible, by the Secretary, with repayment of actual costs and interest within 50 years. During development of the original Project, Reclamation found the Conduit to be economically feasible, but the beneficiaries lacked the bonding capability to construct the works themselves. The beneficiaries of the Conduit found that it also was financially infeasible to repay Reclamation within 50 years if Reclamation were to construct the Conduit. Increased water treatment costs, due to the poor quality of locally available groundwater, and requirements of the Safe Drinking Water Act have renewed local interest in the need for alternative means of obtaining safe and clean water supplies. We understand that the beneficiaries are looking for Federal financing for the Conduit, given that some of the communities in the Arkansas River Valley may be facing considerable expense to comply with federally mandated water quality standards. S. 1106 is a re-draft of legislation previously introduced. The legislation addresses a number of Reclamation's concerns, including some that the previous Commissioner Mr. John Keys discussed in testimony before this Subcommittee on October 15, 2003. This includes clarification that the cost for operation, maintenance and replacement of the Conduit will not be borne by the Federal Government. The current bill, as introduced, again contains a Federal and a Non-Federal cost share. The legislation states that the Federal share of total costs of the planning, design, and construction of the Conduit shall be 80 percent. This is contrary to the original Fry-Arkansas authorizing legislation, general Reclamation law and current policy, in that generally municipal and industrial beneficiaries pay 100 percent, plus interest, of M&I project costs. The legislation as drafted is also inconsistent with the 35 percent local cost share set forth in the Administration's proposed rural water legislation that was transmitted to Congress on March 3, 2004. Therefore, the Administration does not support the bill. At the request of Otero County Water Works Committee, and with funding provided in fiscal years 2003 and 2004 appropriations bills, Reclamation prepared a Re-evaluation Statement on the feasibility and viability of the conduit. The Statement assesses if the construction of the conduit would be responsive to current needs and are consistent with the Principles and Guidelines; and the National Environmental Policy Act. The Re-evaluation statement contains updated implementation costs for construction and O&M, and provides an assessment of the Conduit sponsors' ability to pay. The final Statement incorporates comments received from direct beneficiaries and includes a revised draft cost estimate, which compares favorably with the cost estimate recently prepared by Black & Veatch, under a contract with Conduit proponents. In addition, Reclamation has a concern about the requirement in the current legislation requiring the Federal Government to pay the entire cost of fundamental design changes conducted at the request of any person other than the lead non-Federal entity. This language leaves open the possibility that design changes recommended by the direct beneficiaries become the sole financial responsibility of the Federal Government. This provision is not in the best interest of the taxpayer. Furthermore, we are concerned about the implications this has to restrict the ability of Reclamation's engineers to exercise their professional judgment in designing projects. The legislation as written could create undue pressure to avoid changes to the original project, even if those changes would be in the best public interest. In conclusion, Madam Chairwoman, the Administration cannot support a bill with a Federal cost share that is inconsistent with Fry-Ark legislation, general Reclamation law and current policy. There are also many uncertainties regarding project water supply and the financial capability of the project sponsors to go forward with project authorization. I would like to emphasize that the existing Fry-Ark Project authorization appropriately address the responsibility of the beneficiaries to pay for associated reimbursable costs. Finally, if authorized, this project would need to compete with other, ongoing rural water projects for scarce funds. Although we cannot support this bill, the Administration recognizes the water quality issues facing the Arkansas River Valley and we are open to working with the project sponsors and members of the Committee to explore other options. This concludes my statement. I would be pleased to answer any questions.