March 19, 2007

Richard Fristik

Senior Environmental Protection Specialist

USDA Rural Development, Utilities Program

1400 Independence Avenue, SW

Mail Stop 1571, Room 2237

Washington, DC 20250-1571

Richard.fristik@wdc.usda.gov

Via U.S. Mail

Re: Comments of the Montana Environmental Information Center (MEIC) on the Highwood Generating Station Final Environmental Impact Statement

Dear Mr. Fristik,

On behalf of the Montana Environmental Information Center (MEIC), we respectfully submit the following comments on the Final Environmental Impact Statement (“FEIS”) for the Highwood Generating Facility. MEIC is a non-profit, member-based environmental organization founded in 1974 to “protect and restore Montana's natural environment.” For more than three decades, MEIC has worked to promote sound energy policy in Montana.

MEIC reiterates and incorporates by reference its August 30, 2006 comments on the Draft Environmental Impact Statement (DEIS), as the FEIS does not address previously identified deficiencies under the National Environmental Policy Act (“NEPA”), 42 U.S.C. §§ 4321, et seq. and the Montana Environmental Policy Act, Mont. Code Ann. 75-1-101 et seq. Like the DEIS, the FEIS fails to set forth a legitimate purpose and need for the Highwood coal plant, fails to consider a reasonable range of alternatives, fails to disclose the full extent of adverse impacts that would flow from construction and operation of the proposed Highwood coal plant, and fails to acknowledge or compensate for earlier scoping violations which have compromised the NEPA/MEPA process from the outset.

MEIC also emphasizes that new information regarding the Highwood proposal requires further analysis in a supplemental environmental impact statement (“SEIS”). Most notably, R.W. Beck has completed an independent economic analysis indicating that the Highwood coal plant will be far more expensive than anticipated and far less likely to provide affordably priced electricity to consumers. In addition, Southern Montana Electric Generation and Transmission Cooperative (“SME”) has recently announced plans for carbon capture and sequestration that could fundamentally alter the design, cost, and environmental impact of the proposed plant. Before the Rural Utilities Service (“RUS”) and the Montana Department of Environmental Quality (“DEQ”) can issue a final record of decision, the agencies must consider alternatives to the proposed project in light of this new information.

Additionally, before RUS can approve SME’s loan application, it must ensure SME’s compliance with loan eligibility and feasibility requirements. Based on limited information provided in the FEIS, SME has yet to show that it will primarily serve rural consumers or that it will offer reliably cheap rates. Indeed, SME has yet to show that it will be able to repay the hundreds of millions of dollars it plans to borrow from RUS. Absent reasonable assurances regarding SME’s financial footing and the benefits this plant would realistically afford to rural communities, RUS cannot assume that funding the Highwood coal plant would amount to a sound investment in rural communities.

Because these latter issues relating to RUS finding authority have not been raised in previous comments, MEIC addresses them first. Detailed comments regarding compliance with NEPA and MEPA follow.

I. RUS CANNOT LEGALLY FINANCE THE HIGHWOOD GENERATING STATION

RUS cannot legally fund the Highwood Generating Plant: (A) RUS has no authority to finance electricity generation for sale on the wholesale market; (B) RUS has no authority to finance a new coal plant when competitively priced power from existing sources is available to satisfy SME’s needs; (C) RUS cannot incur major loan obligations in the absence of reasonable assurances that SME’s proposal is financially viable; and (D) RUS cannot ignore clear direction in the President’s budget, which states that “[c]onstruction of new generation facilities should be financed through the commercial market.” See Budget of the United States Government, Fiscal Year 2008 - Appendix, Department of Agriculture, 146 (Feb. 2007) available at http://www.whitehouse.gov/omb/budget/fy2008/pdf/appendix/agr.pdf (last checked March 19, 2007) (excerpt attached as Exh. 1) (emphasis added).

A. The Highwood Generating Plant Will Not Primarily Serve Rural Consumers

RUS funding is available exclusively for projects that benefit rural communities. The Rural Electrification Act of 1936 (“RE Act”) gives RUS authority to make loans for “rural electrification and for the purpose of furnishing and improving electric and telephone service in rural areas.” 7 U.S.C. § 902(a) (emphasis added). Under the RE Act’s implementing regulations:

Loan funds may be approved for facilities that serve non-RE Act beneficiaries only if:

(1) The primary purpose of the loan is to furnish and improve service for RE act beneficiaries and;

(2) The use of loan funds to serve non-RE Act beneficiaries is necessary and incidental to the primary purpose of the loan.

7 C.F.R. § 17.104(b) (emphasis added); see also id. § 1710.2 (defining “RE Act beneficiary” to mean “a person, business, or other entity that is located in a rural area”).

Thus, in order to receive RUS loan funding, SME must demonstrate that its primary purpose is to generate power for rural customers ¾ even though the majority of baseload power from the Highwood plant will be up for sale on the wholesale market. Moreover, SME must demonstrate that selling power to Great Falls and as yet unknown purchasers is not only incidental but also necessary to serving its rural consumers. See 7 C.F.R. §17.104(b); see also § 1710.151(e) (requiring RUS to make evidentiary finding that funding for service to non-RE Act beneficiaries is “necessary and incidental to furnishing or improving service for RE Act beneficiaries); id. § 1710.208 (conditioning RUS loan approval on full disclosure of projected service to RE Act beneficiaries and non-RE Act beneficiaries respectively).

Because SME has failed to make either showing, RUS cannot fund the Highwood plant. SME has never demonstrated that building the Highwood plant, generating power for the City of Great Falls, and selling an even greater share of off-peak power to unidentified market buyers is “necessary and incidental” to serving its rural consumer base. Id. § 17.104(b)(2). Nor can it do so in the absence of legitimate load forecasting and rate projections.

As discussed below in comments regarding purpose and need, the proposal to build and operate the Highwood plant is premised on several flawed assumptions. Most notably, SME assumes that its customer base is going to rapidly expand despite U.S. census data forecasting very limited growth in SME’s service areas. Similarly, SME assumes “an additional large commercial load requirement” due to coalbed methane development in Montana. FEIS at 1-12. However, this assumption is apparently based on generalized information regarding natural gas development trends in the Rocky Mountains. The FEIS fails to mention that coalbed methane operators in the relevant Tongue River Electric Cooperative service area have already contracted with other utilities for power. See FEIS, Vol. II at L-134.

SME further assumes that it needs to generate enough power to meet peak demand for a few hours every year. However, SME fails to provide an estimate of what it would cost to generate enough electricity to meet baseload demand and purchase minimal amounts of peak power as is customary in the utility industry. See, e.g., FEIS at 1-20 (simply asserting that “SME’s best option is to build generation capacity capable of meeting peak member system requirements”).

Finally, SME assumes that the Highwood facility will provide reliably cheap electricity to SME customers, but, as discussed in further detail below, its rate projections fail to account for rising capital and operating costs, likely costs of carbon regulation, and the probability of deeply discounted off-peak power sales. So long as SME overstates the demand for power and understates the cost of power to be supplied by the proposed plant, it is impossible to assess whether proposed service to non-RE Act beneficiaries is truly necessary and incidental to providing affordable service to SME’s rural customers.

Accordingly, RUS has not made, and cannot make, the required finding that SME’s proposal meets the “necessary and incidental” eligibility criteria based on “satisfactory evidence.” Id. § 1710,151(e). Indeed, RUS cannot make the required threshold finding that SME’s load forecast “considered and identified all loads on its system of RE Act beneficiaries and non-RE Act beneficiaries.” Compare id. § 1710.208 with FEIS, Vol. II at L-133 (conceding that contracts are not in place for the sale of surplus off-peak power and failing to identify any prospective purchasers).

Instead, RUS is avoiding responsibility for ensuring compliance with loan eligibility criteria, stating in its response to comments that “RUS does not dictate to prospective borrowers the composition of its customer base.” FEIS, Vol. II at L-129. This defies the agency’s clear statutory mandate to provide and enhance service to a rural customer base. Before loaning SME hundreds of millions of dollars to serve a speculative customer base of non-RE Act beneficiaries, RUS must confirm that there is no other way to channel federal funding more directly to the rural communities that the agency was established to serve.

B. SME Has Failed To Show That Construction Of A New Coal Plant Is Necessary To Serve Rural Customers

Before RUS can finance a new coal-fired power plant with all of its attendant environmental impacts, the agency must also confirm that there are no existing sources of power that can meet the needs of SME’s rural customers. RUS is authorized to make loans for new generating facilities only “where the rates offered by other power sources would result in a higher cost of power to the consumers,” or “where no adequate and dependable source of power is available to meet the consumers’ needs.” 7 C.F.R.§ 1710.254(a). Thus, RUS regulations effectively set up a presumption against funding new power plants.

SME cannot overcome this presumption because there is adequate and dependable power available for purchase in Montana. SME argues that rates for purchase would be significantly higher than rates for Highwood-generated electricity. However, a cost comparison using realistic assumptions to predict the future price of power from Highwood reveals that purchase options are likely to provide electricity at comparable or better prices. For instance, the recently completed R.W. Beck study, predicts that Highwood power will cost consumers $50.90/MWhr in 2011, and this estimate does not even account for costs of compliance with likely carbon regulation. See R.W. Beck, Review of the Proposed Highwood Generating Facility, 16 (Feb. 2007) (“Beck”), available at http://www.ci.great-falls.mt.us/currhot/energy/RWBeckHighwoodReview.pdf (last checked March 19, 2007). In contrast, the FEIS reports that SME received numerous power purchase proposals from existing sources with purchase prices starting at $39.45/MWhr in 2008 (from Pennsylvania Power and Light). See id.; FEIS 2-4. While SME dismissed all of these power purchase scenarios as too expensive, all but one of them would provide cheaper electricity to SME’s members than the new power plant. See FEIS at 2-4. Unless SME can provide significant additional information explaining why its proposal makes economic sense, RUS cannot approve its loan application.

In this regard, MEIC has requested, pursuant to the Freedom of Information Act, that RUS provide all relevant documentation related to RUS financing of the Highwood Generating Station. Despite repeated attempts to obtain the requested documents in the five months since making the request, and notwithstanding the statutory requirement that RUS respond to document requests within 20 working days, 5 U.S.C. § 552(a)(6)(A)(i), RUS still has not provided any of the requested financial documentation, none of which is included in the FEIS. This information is essential to informed public participation. Accordingly, MEIC asks that RUS expeditiously release the requested documents and provide an opportunity for public comment on the new information prior to loan approval. Further, MEIC asks that all documents responsive to MEIC’s information request be included in the administrative record for this action.

C. SME Has Not Demonstrated Loan Feasibility

Even if financing the Highwood coal plant were consistent with the RE Act and its implementing regulations ¾ which it is not ¾ RUS could not approve the requested loan application without first confirming that the financial underpinnings of the proposal are sound. Governing regulations mandate that “RUS will make a loan only if there is reasonable assurance that the loan, together with all outstanding loans and other obligations of the borrower, will be repaid in full as scheduled.” 7 C.F.R. § 1710.112(a). Further, the “borrower must provide evidence satisfactory to the Administrator that the loan will be repaid in full as scheduled.” Id. (emphasis added). In evaluating “loan feasibility,” RUS must consider whether “[p]rojections of power requirements, rates, revenues, expenses, margins, and other factors for the present system and proposed additions are based on reasonable assumptions.” Id. § 1710.112(b)(1).

Here, SME has failed to provide the requisite “reasonable assurance” of loan feasibility because its financial projections are based on several unreasonable assumptions. As discussed above, SME has inflated estimates of its power requirements, and as the 2007 R.W. Beck study makes clear, SME has significantly underestimated both capital and operating costs. Further, SME has made no attempt to account for costs of likely carbon regulation. Until SME undertakes financial analysis that provides an accurate picture of the Highwood project’s economics, RUS cannot agree to loan SME hundreds of millions of dollars.

1. RUS Must Evaluate Loan Feasibility In Light Of Rising Capital Costs

Most obviously, RUS must evaluate loan feasibility in light of dramatically increased capital expenses. See id. (requiring RUS to review projections of expenses in evaluating loan feasibility). Rising costs directly affect the dollar amount of the RUS loan requested, as well as SME’s ability to repay the loan.

While SME has repeatedly stated that the Highwood coal plant will cost $515 million to build, SME’s own consultants now concede that the project’s capital costs are rising to an estimated $678 million. See Associated Press, Power plant cost may be much higher, Bozeman Daily Chronicle A7 (March 5, 2007) (attached as Exh. 2). Moreover, this $163 million price jump is likely an under-estimate. The 2007 R.W. Beck study’s projection is $720 million ($2,880 per kW), which represents a staggering 40% increase in capital costs alone.

2. RUS Must Evaluate Loan Feasibility In Light Of The 2007 R.W. Beck Study

RUS must evaluate loan feasibility in light of conclusions presented in the independent R.W. Beck study, which cautioned that many of SME’s assumptions regarding construction and operating expenses were erroneous or out of date.

Specifically, the Beck study reported that: 1) SME is underestimating initial capital costs; 2) SME is assuming an unrealistic operating capacity in the first two years of operation; 3) “SME’s fuel cost assumptions . . . do not reflect the historical [Powder River Basin] coal prices” and should be adjusted upward from $8.50 per ton of coal to $12 per ton — a 41% increase; and 4) estimated operating costs should be adjusted upward from $5.23 to $9.86 per MWH — an 89% increase. Id. at A-1 to A-2; see also id. at 16. According to Beck, these revised cost assumptions, along with other factors such as the potential for monopoly pricing on rail service, raise the forecasted price of Highwood electricity from $45.12 per MWH to $57.90 or higher in the year 2020. See id. at 16. Note also that these are busbar costs, not delivered costs.[1]

3. RUS Must Evaluate Loan Feasibility In Light Of Future Carbon Regulation.

RUS must also consider the financial implications of imminent greenhouse gas regulation, otherwise known as carbon risk. SME and RUS have made no attempt to account for carbon risk, despite fast-growing political and industry support for regulation of CO₂and other greenhouse gases, and despite warnings from Congressional leaders that new coal-fired power plants will be subject to such regulation, most likely in the form of a national cap-and-trade program. See Barbara Freese, Steve Clemmer, Union of Concerned Scientists, Gambling with Coal, 15-20 (Sept. 2006) (“UCS Study”), available at http://www.wvecouncil.org/issues/gambling_with_coal.pdf (discussing likely CO₂regulation and reporting that major power companies including five of the nations’ largest private power producers —Duke Power, Entergy, Exelon, Florida Power & Light, and Calpine— have called for mandatory limits on power plant CO₂emissions).

Political momentum for carbon regulation has passed a “tipping point” at all levels of government. For example, there are now 418 mayors who have signed onto Seattle Mayor Greg Nickels’ climate challenge, see http://www.seattle.gov/mayor/climate, representing over 60 million Americans. On February 28, 2007, the Montana Senate passed a resolution (on a vote of 30-20) urging Congress to adopt carbon regulations. And the most cursory examination of political trends in America today suggests that a federal “cap and trade” law will be enacted in the near future — likely well before Highwood’s scheduled startup date of 2011.

Stockholders, large banks and investment firms such as Bank of America, JP Morgan Chase, and Lehman Brothers, are all taking notice and voicing concern about the major economic costs of future climate regulation. See UCS Study at 21-23. As explained by the director of environmental affairs at Chase, “for the new power projects, we are beginning to quantify the financial costs of those greenhouse gas emissions and incorporating that into our financial analysis of the transaction.” Id. at 22.

Already, carbon risk is discouraging Wall Street investment in new coal-fired power plants. Just last month, private equity firms led by Kohlberg, Kravis, Roberts & Company and Texas Pacific Group negotiated a deal to buy out the Texas energy giant TXU. Falling stock prices due to TXU’s heavy investment in new coal-fired plants made the buy-out possible, and Kohlberg Kravis and Texas Pacific have already announced plans to radically scale back that investment in new TXU coal plants. See Andrew Ross Sorkin, A $45 Billion Buyout Deal With Many Shades of Green, New York Times (Feb. 26, 2007) (attached as Exh. 3). When leading investment firms advise against investment in new coal-fired plants, RUS should take warning.

Nevertheless, RUS attempts to side-step the issue in the EIS, asserting that all utilities in the region would be impacted by CO₂regulation , and that it is therefore unnecessary to assess how carbon regulation would impact SME in particular. See FEIS at L-243, L-244. This argument is incoherent. For purposes of evaluating loan feasibility ¾ i.e. whether SME will be able to repay its RUS loan on schedule ¾ it is irrelevant that other utilities will be impacted by carbon regulation too. The relevant question is how increased operating costs will affect SME’s balance sheets.

In any case, the assumption that all utilities will be impacted in the same way is wrong. Not all utilities sell power that is generated by greenhouse gas-emitting power plants. Hydropower provides electricity to much of Montana, and wind power is also becoming increasingly available. Moreover, a small utility such as SME, which proposes to rely nearly exclusively on coal-fired power, will likely be harder hit by CO₂regulation than larger, heavily capitalized utilities with more diversified power portfolios. For precisely this reason, it is incumbent on RUS to assess and quantify carbon risk in order to ensure that SME will be able to repay its loan without passing on unnecessarily high costs to its rural customers.

This kind of financial risk assessment of carbon costs is becoming increasingly widespread among utilities, and there are now several models available to project economic impacts from a national CO₂ cap-and-trade program. See UCS Study at 23-24. Notably, in Montana, Northwestern Energy has emphasized that it is “the mainstream practice of utility planners to factor a carbon analysis into their models.” Id. at 24.

A recent study published by Synapse Energy Economics surveyed the results of such modeling and in the table below, it compiled specific forecasts of compliance costs that utilities are currently incorporating into long term resource planning

CO2 Cost Estimates Used in Electricity Resource Plans

Company	CO2 emissions trading assumptions for various years ($2005)
PG&E*	$0-9/ton (start year 2006)
Avista 2003*	$3/ton (start year 2004)
Avista 2005	$7 and $25/ton (2010) $15 and $62/ton (2026 and 2023)
Portland General Electric*	$0-55/ton (start year 2003)
Xcel-PSCCo	$9/ton (start year 2010) escalating at 2.5%/year
Idaho Power*	$0-61/ton (start year 2008)
Pacificorp 2004	$0-55/ton
Northwest Energy 2005	$15 and $41/ton
Northwest Power and Conservation Council	$0-15/ton between 2008 and 2016 $0-31/ton after 2016

*Values for these utilities from Wiser, Ryan, and Bolinger, Mark. “Balancing Cost and Risk: The

Treatment of Renewable Energy in Western Utility Resource Plans.” Lawrence Berkeley National

Laboratories. August 2005. LBNL-58450. Table 7.

Other values: PacifiCorp, Integrated Resource Plan 2004, pages 62-63; and Idaho Power Company, 2004 Integrated Resource Plan Draft, July 2004, page 59; Avista Integrated Resource Plan 2005, Section 6.3;

Northwestern Energy Integrated Resource Plan 2005, Volume 1 p. 62; Northwest Power and Conservation

Council, Fifth Power Plan pp. 6-7. Xcel-PSCCo, Comprehensive Settlement submitted to the CO PUC in

dockets 04A-214E, 215E and 216E, December 3, 2004. Converted to $2005 using GDP implicit price

deflator.

Synapse Energy Economics, Climate Change and Power: Carbon Dioxide Emissions Costs and Electricity Research Planning, ES-vii (June 2006), available at http://www.synapse-energy.com/Downloads/SynapsePaper.2006-06.Climate-Change-and-Power.pdf (last checked on March 19, 2007). Based on a review of available cost forecasts, Synapse arrived at a range of cost projections for the cost of potential future carbon dioxide allowances over the next two decades, from a levelized value of $7.80 per ton on the low end to $30.50 per ton on the high end. See id. at 41. Forecasts used by utilities and the Northwest Council are within roughly the same range, and additional forecasts are available from the State of California and the Wall Street firm Bernstein Research. See UCS Study at 27-28.

Given the ready availability of financial forecasts, RUS can and should factor the future cost of future carbon regulation into its economic feasibility determination before considering approval of the Highwood Generating Station. The mid-case estimate from Synapse ($19.10/ton) would add, on a levelized basis, nearly $40 million dollars annually to Highwood’s operating costs (based on annual CO₂ emissions of 2.1 million tons); even the low case allowance scenario would add over $16 million annually, and the high case allowance scenario would add over $64 million annually. These are costs that RUS cannot afford to ignore.

While it is possible that SME could reduce its need for carbon allowances by retrofitting the Highwood plant to capture and sequester CO₂ emissions, this retrofit would also be very expensive. See id. at 33. A report just released by M.I.T. discusses available retrofits of existing power plants to achieve carbon capture capabilities. See M.I.T., The Future of Coal: Options for a Carbon Constrained World, 28 (2007), available at http://web.mit.edu/coal/ (last checked March 19, 2007); id. at App. 3.E. The report estimates that retrofitting a subcritical pulverized coal-fired power plant to enable CO2 capture, which would be similar in cost to retrofitting a CFB plant, may increase cost to ratepayers by approximately 3.3 ¢/kWh. Id. at 27. Further, such a retrofit would decrease net electrical output of the plant by up to 40 percent. Id. at 28. Similarly, the FEIS predicts that capture alone could add 2-4 cents/kWh to operating costs “and would probably also reduce the power output of the plant by roughly 25 percent.” Sequestration would further add to operating costs. Nonetheless, SME has recently made public commitments to capture and store carbon. RUS must consider these additional costs in determining whether the proposed project is “the most economical and effective means of meeting [SME’s] power requirements.” 7 C.F.R. § 1710.303(a).

4. RUS Must Evaluate Loan Feasibility In Light Of Permitting Uncertainty

RUS should decline to approve SME’s loan application unless and until SME receives all necessary state and local approvals. See § 1710.105(a) (providing that RUS may require all necessary approvals be obtained prior to loan approval). SME has not yet obtained several necessary permits and approvals, and may well have trouble doing so. This creates significant uncertainty that must figure into RUS’ loan feasibility analysis. Specifically, RUS needs to address the following issues:

• In order to supply water that is critical to operating the Highwood plant, the City of Great Falls must obtain a “change of use” permit to move the point of diversion for its reserved water rights. See Mont. Code Ann. § 85-2-402 (setting forth requirements for obtaining changes in appropriation rights including state water reservations). Under governing law, the Department of Natural Resources (“DNRC”) cannot approve the requested change unless Great Falls can prove by “a preponderance of the evidence” that the “proposed change in appropriation right will not adversely affect the use of the existing water rights of other persons.” Id. § 85-2-402(2)(a). Because Great Falls is proposing a change that involves more than 4,000 acre-feet of water a year and more than 5.5 cubic feet per second (“cfs”) of water, the DNRC is required to hold one or more hearings before approving or denying the requested change, see id. § 85-2-402(7), and it must also undertake thorough analysis of environmental impacts under MEPA. See id. § 75-1-201. As the DNRC has not yet held any hearings or initiated the MEPA process, Great Falls cannot expect to obtain a change of use permit any time soon.

Indeed, Great Falls may never obtain the requested change of use. Great Falls proposes to move its point of diversion to the Salem site, just upstream from Morony Dam, which is owned and operated by PPL Montana. During most of the year, PPL’s senior water rights account for the entire flow in this stretch of river. Accordingly, PPL has objected to the City’s proposed change on grounds that it would adversely affect water rights for Morony Dam. See Objection To Application by PPL Montana (attached as Exh. 4). Assuming PPL pursues this objection, it will likely prevail. Specifically, PPL can rely on a 1997 DNRC report, the “Upper Missouri Water Availability Analysis,” which found that flows exceeding PPL’s hydrowpower rights of 8,280 cfs rarely occur during the eight months between August and March. See id; see also Montana Department of Natural Resources and Conservation, Upper Missouri Water Availability Analysis, 2-3, (Dec. 1997) (attached as Exh. 5). After several years of drought, flows above the Morony Dam are likely even lower than reported in the 1997 analysis. Under these circumstances, Great Falls will have extreme difficulty showing that its proposed diversion would not illegally “steal” water from PPL. Thus, RUS cannot assume that SME will have access to the water supply that is essential to the proposed Highwood plant’s operation.

• In order to obtain water and sewer service from the City of Great Falls, as contemplated in the FEIS, the Salem site must be annexed to the City. The draft EIS indicated that the Salem site would “almost certainly” be annexed to the City of Great Falls. However, this expectation in the DEIS has proven incorrect, and the Salem site remains under Cascade County jurisdiction. The DEIS reported that, under these circumstances, Highwood “would be ineligible to hook up to the City of Great Falls municipal water and sewer systems.” DEIS at 4-102. At the behest of SME, however, RUS modified this language in the FEIS to state exactly the opposite. See FEIS at L-287-88 (Comment of Tim Gregori/SME that DEIS makes “incorrect assumptions,” and RUS response that “[t]he text has been modified … to reflect this information.”). The FEIS now states that, “[e]ven if the site remained as county land, it would still be eligible to hook up to the City of Great Falls municipal water and sewer systems with the approval of the city.” FEIS at 4-107.

RUS apparently failed to independently verify the legal opinion it received from SME’s manager. In fact, it is wrong. According to the City of Great Falls city code, the City’s utility system service area includes only “premises annexed to the City and bounded by the incorporated City limits,” § 13.02.070, and property owners with parcels outside the city limits must consent to annexation in order to receive city water and sewer service, § 13.02.075. There is no exception in the city code that would allow SME to obtain city water and sewer services without first incorporating.

The consequences of SME’s failure to seek annexation of the Salem site are significant. As the DEIS explained:

The site would have to import bottled water for a potable drinking water source, drill a well, or install a treatment system in order to use diverted Missouri River water as the drinking water source for the plant. Additional land would have to be developed into septic fields in order to treat human wastes. The wastewater generated from plant operations would have to be discharged into the Missouri River, possibly traveling through an industrial wastewater treatment system first.

DEIS at 4-102. The DEIS conceded that “all these activities could create large impacts to water resources.” Id. The activities would also add substantial capital costs to the project.

· Neighboring landowners have filed a meritorious lawsuit challenging the county’s decision to “spot-zone” the Salem site for industrial use. County commissioners have announced that construction cannot go forward on the site absent a resolution of the suit in the county’s favor.

· SME has not yet obtained an air quality permit from the Montana DEQ. If and when the current draft permit is issued, it will be vulnerable to challenge for failure to comply with the Clean Air Act’s Best Available Control Technology (“BACT”) requirements and Montana’s requirements for preventing impairment of visibility in Class I areas.

· SME has not yet obtained FAA approval to construct its smokestack. The FAA requirements for notice and approval of potential air obstructions are contained in 14 C.F.R. Part 77. Construction of any object more than 200 feet in height above ground-level requires notice to FAA at the earlier of at least 30 days before construction commences, or 30 days before the date an application for a construction permit is filed. Id. §§ 77.13(a), 77.17(b). Detailed standards for determining whether the object will obstruct air navigation are contained in 14 C.F.R. §§ 77.24 – 77.28, and include obstructions affecting military airports. The FAA may conduct an aeronautical study of the effect of proposed construction or alteration on the effect on navigable airspace. Id. §§ 77.31, 77.33. Although it does not appear that FAA can “disapprove” a project on the basis of a finding of obstruction, FAA may recommend measures, such as height reduction or lighting, that would minimize or avoid the obstruction on the one hand, but on the other hand, significantly change the design of the Highwood coal plant and its environmental impacts accordingly. See http://www.airweb.faa.gov/Regulatory_and_Guidance_Library/rgAdvisoryCircular.nsf/0/22990146db0931f186256c2a00721867/$FILE/ac70-7460-2K.pdf

Any one of these outstanding issues could preclude construction of the project or, at the very least, significantly delay construction, raising overall costs. Until SME provides reliable assurance that these approvals are forthcoming, RUS cannot reasonably approve a loan to SME.

5. RUS Must Evaluate Loan Feasibility In Light Of Uncertainty Regarding The City of Great Falls’ Ability To Meet Its Financial Obligation Under The Preferred Alternative.

Finally, RUS must account for uncertainty regarding Great Falls’ ability to finance 25% of the project through Electric City Power. Under the RE Act’s governing regulations, SME is required to ensure “that the non-RUS financed system is financially sound and under capable management” before RUS can approve a loan. 7 C.F.R. § 1710.113. However, at present, SME cannot provide any such assurance regarding Great Falls’ financial condition.

The City has already lost more than $1 million on its sale of power to a handful of municipal and commercial customers. See Richard Ecke, City’s foray into forming utility generates buzz,” Great Falls Tribune (March 19, 2007) (attached as Exh. 6). The City has reportedly set its price of power substantially lower than the amount SME has charged the City in order to attract new customers. However, even with these below-market rates, the City has managed to negotiate power supply contracts representing only approximately 20 to 25 MW of load, all of which expire between 2008 and 2011. See Beck at 18.

Under the City’s agreement with SME, the City will be responsible for selling 65 MW of electricity generated by Highwood. Despite employing a new marketing strategy to sell the power, no new contracts have been signed or committed at this point. See id. To the extent that the City intends to meet its future load with residential customers, such a plan is speculative, at best. The City is not the default power supplier for Great Falls residential customers, and repeated legislative efforts to make it the default supplier have failed. Further, the City has not prepared a long-term financial plan, including forecasts of future revenues, expenditures, and debt service. See id. Until the City has documented its ability to pay its 25 % obligation, SME cannot furnish the requisite assurance that the City is a reliable business partner for RUS’ investment.

D. Financing A New Coal-Fired Plant Ignores Clear Direction Set Forth In The President’s FY 2008 Budget

Funding the Highwood plant is not only at odds with governing RUS regulations and sound investment practices, it also defies agency policy clearly set forth in the President’s proposed 2008 budget. As explained in the budget and supporting analysis:

Since 1992, RUS electric loans have been used primarily to finance transmission, distribution and upgrades to generation facilities. During this time, generation has been deregulated and has become a more commercial operation. With the increased needs for all aspects of electricity provision, and to ensure adequate funding for rural areas, RUS loans will continue to focus on transmission, distribution, and upgrading generation facilities. Construction of new generation facilities should be financed through the commercial market.

Exh. 1; see also Analytical Perspectives, Budget of the United States Government, Fiscal Year 2008, 78 (Feb. 2007), available at http://www.whitehouse.gov/omb/budget/fy2008/pdf/apers/crosscutting.pdf (last checked March 19, 2007) (including the same language quoted above).

This announced policy, and the underlying recognition that funding power plants is not the most effective way to provide needed assistance to rural areas, applies with special force here. The risks associated with a major federal investment in the Highwood coal plant, combined with SME’s failure to demonstrate that the plant will efficiently serve rural communities, concretely illustrates why financing new coal plants is disfavored by the administration. RUS should not commit hundreds of millions of dollars to the Highwood plant contrary to the clear direction set forth in the President’s budget.

II. RUS AND DEQ HAVE FAILED TO COMPLY WITH NEPA AND MEPA

Financing the Highwood coal plant based on flawed analysis in the FEIS would violate NEPA. Similarly, issuance of a state air quality permit based on impacts disclosed in the FEIS would violate MEPA.

NEPA is our “basic national charter for protection of the environment.” 40 C.F.R. § 1500.1. It requires agencies to prepare an EIS before undertaking “major Federal actions significantly affecting the quality of the human environment.” 42 U.S.C. § 4332(2)(C). “The purpose of an EIS is to apprise decisionmakers of the disruptive environmental effects that may flow from their decisions at a time when they retain a maximum range of options.” Conner v. Burford, 848 F.2d 1441, 1446 (9th Cir. 1988) (internal quotations and citations omitted). Thus, NEPA requires federal agencies to evaluate environmental consequences and “rigorously explore and objectively evaluate all reasonable alternatives” to a proposed action before making “any irreversible and irretrievable commitment of resources” — in this case alternatives to construction of a new coal-fired coal plant. 40 C.F.R. § 1502.14.

Like NEPA, MEPA requires state agencies to “include in each recommendation or report on proposals for projects, programs, and other major actions of state government significantly affecting the quality of the human environment a detailed statement on: (A) the environmental impact of the proposed action; (B) any adverse environmental effects that cannot be avoided if the proposal is implemented; (C) alternatives to the proposed action.” Mont. Code Ann.§ 75-1-201(1)(B)(iv). In assessing compliance with MEPA, the Montana Supreme Court looks to federal court NEPA decisions for guidance. See North Fork Preservation Ass'n v. Department of State Lands, 238 Mont. 451, 457 (Mont. 1989).

A. The FEIS Failed To Reasonably Define Purpose And Need

The definition of purpose and need in the FEIS is critically important because it determines the range of alternatives that may be considered “reasonable” — based on their ability to satisfy the stated purpose and need. Here, the FEIS has arbitrarily constrained the alternatives analysis by defining purpose and need without assessing the actual demands of SME’s customer base and without challenging SME’s assumption that any alternative must generate enough energy to meet peak demand at all times. This violates both NEPA and MEPA. See, e.g., Citizens Against Burlington, Inc. v. Busey, 938 F.2d 190, 198 (D.C. Cir. 1991) (explaining that an “agency may not define the objective of its action in terms so unreasonably narrow that only one alternative from among the environmentally benign ones in the agency’s power would accomplish the goals of the agency’s action”).

1. The FEIS Inflates SME Present Consumer Demand

There is a basic mismatch between the size of the proposed project and the genuine needs of the five electric cooperatives. According to official data from the U.S. Department of Energy’s (“DOE”) Energy Information Administration, in 2005 the five rural electric cooperatives that comprise SME had the following usage:

COOP NAME                       2005 Load (MWH)
Beartooth Electric Coop, Inc      52861
Fergus Electric Coop, Inc         109006
Mid-Yellowstone Elec Coop, Inc    22958
Tongue River Electric Coop Inc    81692
Yellowstone Valley Elec Co-op     205922
TOTAL                             472439
(divide by 8760 to get aMW)       53.9 aMW

US DOE/EIA Data: available at http://eia.doe.gov/cneaf/electricity/page/eia861.html
(file 2) (last checked March 19, 2007).

Based on this data, the co-ops need a total of 52 aMW, and they are already receiving 20 aMW from WAPA, leaving a shortfall of only 33.9 aMW. Thus, a 75% interest in a 250 MW plant would produce five times as much energy as SME currently needs. The FEIS concedes that the RUS should not be in the business of financing merchant plants, see FEIS at L-123, but fails to recognize that RUS will be doing precisely that if it finances the generation of roughly 150 aMW to be sold off-system.

The Beck study highlights SME’s expectation that “excess capacity will be sold into the wholesale market as long term firm contracts” and that “there will be times, during off peak periods, when SME will be able to sell short term energy, not otherwise needed to meet SME member requirements, into the hourly wholesale market.” Beck at 17. Already, SME has applied for 65 MW worth of firm, point-to-point transmission service to a substation in Idaho. Thus, from the outset, SME is seeking to sell 65 MW (a full 26% of the plant’s output) off system constantly, every second of every day, plus additional sales during off-peak hours.[2] See id.

Moreover, even during times of peak demand, the proposed Highwood Plant would generate more power than SME can use. With regard to peak energy uses, the DOE reports the following:

COOP NAME                       2005 Annual Peak (MW)
Beartooth Electric Coop, Inc      15
Fergus Electric Coop, Inc         30
Mid-Yellowstone Elec Coop, Inc    7
Tongue River Electric Coop Inc    20
Yellowstone Valley Elec Co-op     52
TOTAL                             124

US DOE/EIA Data: http://eia.doe.gov/cneaf/electricity/page/eia861.html (file 1) (last checked March 19, 2007).

Even assuming all these peaks were concurrent (which they were not), they still combine to reach a one-time annual peak level that is just 66% of the capacity provided by the co-op share of the proposed Highwood project (and only 60% of the co-ops’ share of power from Highwood and WAPA). In its August 30, 2006 comments, MEIC questioned the strategy of building a baseload plant to meet peak need. However, the strategy of building a baseload plant to meet a need substantially beyond peak is exceedingly unwise, especially given the poor load factor of the SME utilities (40-50% based on 2005 DOE/EIA information).

While these DOE numbers should have prompted RUS to question SME’s stated need to generate at least 180 MW of electricity, RUS has summarily dismissed them, stating that “[t]he load numbers quoted in this comment are significantly at variance with the current and projected load numbers contained in the RUS-required studies performed by SME.” FEIS at L-123. However, RUS makes no attempt either to discredit DOE’s reporting or to reconcile this variance between SME’s estimates and official government statistics. This alone suggests that RUS has failed to ensure that purpose and need is properly defined.

Federal agencies may not delegate their duty to ensure the accuracy of an EIS. See Utahns for Better Transp. v. U.S. Dept. of Transp., 305 F.3d 1152, 1165 (10th Cir. 2002) (NEPA “require[s] that the agency verify the accuracy of information supplied by an applicant”) (citing 40 C.F.R. § 1506.5(a) and 33 C.F.R. Part 325, App. B § 8(f)(2)). RUS’ ongoing reliance on unreliable information from SME[3] undermines meaningful consideration of alternatives. Therefore, “the FEIS is inadequate to meet the NEPA goals of informed decisionmaking and public comment.” Id. at 1166; see also Davis v. Mineta, 302 F.3d 1104, 1113 (10th Cir. 2002) (agency’s failure “to conduct a sufficient independent review” of the work by applicant’s consultant unlawfully imparted applicant’s bias into decisionmaking process).

2. The FEIS Inflates Future SME Customer Demand

RUS has also failed to challenge SME’s assumptions regarding expansion of its customer base. To explain the need for a plant this large, SME points to “load growth.” FEIS at L-133. However, as MEIC has commented already, SME assumes significantly higher growth rates in its service territories than projected by the U.S. Census Bureau. Again, however, RUS chooses to rely on SME’s numbers and dismiss official statistics from the Census Bureau. See FEIS at L-133 (asserting that the Census Bureau can “frequently over or understate actual population growth”).

While it is true that SME has seen increased demand over the last couple of years, that growth is primarily attributable to a few new contracts signed with industrial customers that were not traditionally served by the member co-ops. As such, SME’s figures reporting recent growth are not an accurate indicator of the sustainable natural growth that may be expected within those service territories. It is also reasonable to assume that these contracts were “the low-hanging fruit,” and that it will become increasingly difficult to line up additional customers.

3. The FEIS Inflates Future Customer Demand From The City of Great Falls

In addition, the FEIS makes unjustified assumptions regarding demand from the City of Great Falls. According to the 2007 RW Beck study, currently existing Electric City Power (“ECP”) contracts go out to 2011 at the latest. See Beck at 18. These customers should not, therefore, automatically be considered part of the long-term load to be served by the Highwood coal plant. As explained by Beck, “ECPI currently is serving 20 to 25 MW of key account loads. Going forward ECPI will need to increase its key account customer base . . . A significantly higher amount of power sales to key accounts will likely be required to support ECPI’s acquisition interest to 25% of the Project.” Id. at 20 (emphasis added).

A recent news article reporting on the Beck study confirmed that ECPI is indeed behind on its load acquisition schedule (with quotes from both the Chairman of the Public Service Commission and the City Manager). Hence, it was reported that ECP is now approaching “other government agencies and various large businesses around Montana.” See Richard Ecke, Plant costs more than expected, Great Falls Tribune (March 3, 2007) (attached as Exh. 7). This is clearly a case of “a power plant in search of a load.”

Moreover, the RUS persists in using inaccurate figures to characterize the population to be served by the plant. The FEIS states, “The estimated number of current SME customers is about 69,500. The 120,000 figure represents the potential number of customers that could be served by HGS if the City of Great Falls were to receive legislative authority to supply service to its residents. The FEIS has been modified to reflect this distinction.” FEIS at L-132. Yet in the executive summary, the FEIS states that SME identified Highwood “as the best course of action to meet the electric energy and related service needs of approximately 120,000 Montanans.” Id. at (ES-1) Thus, the FEIS has not been modified appropriately to reflect the facts.

It is crucial that RUS appreciate the very real possibility that the legislature will not grant ECP authority to serve as the default supply for Great Falls area customers. In the 2005 legislative session, after a vigorous lobbying effort on the part of SME and City officials, HB 642 failed in the House by a vote of 58-42. By the 2007 session, support for changing the default supply had evaporated almost completely. This year’s legislative initiative (HB 346) never even made it to the House floor, having been tabled in committee with an 11-1 vote. Another, more modest proposal by the City that would have allowed a greater amount of load to go to “choice” each year (HB 448) also died in committee by the same margin.

The Bill that is likely to pass this session is a bill that would move Montana decisively away from the model of deregulation and “customer choice” that forms the basis of Great Falls’ ambitions to serve residential customers. HB 25 would repeal much of what remains of the 1997 deregulation law and put an end to customer migration away from the default supply. It has already passed the House with a strong vote of 69-31.

Another bill, HB 739 would require a public vote on the city’s participation in the project, and it too has passed the House (with a vote of 79-21). Based on this record, it is extremely unlikely that the City of Great Falls will secure legislative changes designed to help them obtain new customers. In fact, the opposite situation — that ECP will encounter difficulty meeting their load obligation — is far more likely.

Because the RUS would fund only SME’s 75% share of the project, the FEIS suggests that it need not consider issues involving Great Falls’ stake in the project. See FEIS at L-128. But if Great Falls fails to line up sufficient load, fails to sell the bonds necessary to finance its share of the plant, fails to garner sufficient support in a public election or fails to successfully negotiate any number of other issues, the project as a whole will suffer. As the FEIS correctly observes elsewhere, “Any potential borrower must demonstrate in its loan application the financial viability of the proposal, including the participation of other entities.” Id. at L-107 (emphasis added).

B. The FEIS Fails To Consider Reasonable Alternatives To Building The Proposed Highwood Coal Plant

Because the FEIS fails to fairly define the purpose and need for this project, and further fails to consider the true costs of building and operating the Highwood coal plant, it summarily rejects environmentally preferable alternatives on grounds that they cannot satisfy SME’s requirements for affordable energy. This failure to undertake meaningful consideration of alternatives violates NEPA and MEPA. As NEPA’s implementing regulations make clear, consideration of alternatives “is the heart of the environmental impact statement … sharply defining the issues and providing a clear basis for choice among options by the decisionmaker and the public.” 40 C.F.R. § 1502.14. Here, the FEIS leaves RUS and the public with the false impression that there is no viable alternative to building yet another coal-fired power plant.

1. The FEIS Improperly Dismissed Alternatives Using Renewable Energy

First, without any detailed consideration, the FEIS dismissed alternatives that rely on renewable energy, including wind power, as impracticable. See FEIS at 2-7-2-20. According to the FEIS, it is impossible to generate 180 MW of wind power and other renewable energy either reliably or affordably. However, the FEIS never addresses the question whether SME could purchase or develop renewable energy to meet a far smaller baseload demand of 40 MW, for instance. See discussion supra at 13. Nor does the FEIS offer an accurate comparison between the realistic costs of electricity from Highwood and up-to-date costs of delivered wind power.

Notably, the FEIS suggests that comments regarding extremely affordable energy from the Judith Gap project were merely hearsay. However, as NorthWestern Energy made clear to the Montana Public Service Commission on February 6, 2007, the final cost of energy during Judith’s first year of operation was an extremely attractive $41.99 per megawatt-hour, including firming costs — cheaper than any estimate of costs for electricity from the Highwood plant. See NorthWestern Energy, Judith Gap Wind Energy Discussion (Feb. 2007) (attached as Exh. 8). As these figures illustrate, firming costs for wind in Montana are a tiny fraction of costs estimated in the FEIS. Compare FEIS at 2-13 & Table 2-13 with Exhibit 8; see also Northwest Wind Integration Plan (Feb 2007) (attached as Exh. 9). Given rising cost estimates for electricity for the Highwood plant, it is time for RUS to consider whether SME could rely more heavily, or even exlusively on wind power, which is increasingly available in Montana.

[4]

2. The FEIS Improperly Dismissed The Potential Role of Conservation and Efficiency Programs In Assessing Alternatives To A New Coal Plant

The FEIS further discounted the potential role that conservation and efficiency measures could play in reducing SME’s energy needs and making it more feasible to rely exclusively on on renewable energy. Currently, SME’s commitment to the Highwood proposal creates a disincentive to pursue conservation and efficiency. In order to justify investment in a plant of Highwood’s size, SME must assemble new load as quickly as possible.

Further, historically, the SME co-ops’ record on conservation is unimpressive. Fully 88% of the conservation spending reported in the FEIS consists of programs that are embedded in the co-ops’ (substantially below-market) wholesale power rates. In other words, these were not programs initiated by the co-ops or that the co-ops volunteered to participate in or pay for. While the FEIS suggests that the legislature has required new investments in conservation, the co-ops have successfully lobbied to rely on expenditures that were already a part of their wholesale energy purchases. If the universal system benefits program had not been established in 1997, the difference in efficiency spending for these five cooperatives (and most of the others) would have been minimal. The actual discretionary expenditures engaged in by these five co-ops in the year 2004 collectively amounted to just $106,450 — about 0.3% of the $32,965,000 in total sales reported to DOE/EIA that year.

This demonstrated failure to promote conservation makes it all the more important for RUS and DEQ to undertake independent analysis of conservation savings that would reduce SME’s energy needs and broaden the range of reasonable alternatives. However, the FEIS offers only vague statements that potential reductions in energy usage might be “in the 10 percent range.” FEIS at 2-7. By comparison, NorthWestern Energy has completed a detailed analysis of conservation potential on its system, which revealed 99.4 aMW at a cost of just $20 per MWH (compared to an avoided cost of $45 per MWH). See NorthWestern Energy, Electric Default Supply Procurement Plan, Vol. 2, Ch. 2 at 5, 10, 11 (Dec. 2006), available at www.montanaenergyforum.com (last checked March 19, 2007). Again, recent analysis performed by NorthWestern significantly undermines outdated assumptions in the FEIS: renewable energy in combination with demand-side management is a viable alternative.

3. The FEIS Failed To Give Meaningful Consideration to IGCC Technology

Finally, while the FEIS incorporates more generalized information regarding IGCC technology, it makes no effort to quantify the costs and benefits of building an IGCC plant in place of the proposed CFB plant. Given increased understanding of global warming impacts and the financial implications of “carbon risk,” it is no longer reasonable for RUS and DEQ to avoid giving IGCC detailed consideration. Accordingly, MEIC reiterates its earlier comments and the comments of Clean Air Task Force on the current viability of IGCC technology. Further, given R. W. Beck’s corrected assumptions regarding the cost of constructing and operating the Highwood coal plant, and given SME’s expressed intent to pursue carbon capture and sequestration, the FEIS must revisit its conclusion that an IGCC plant would be significantly more expensive than a CFB plant — especially a plant with capacity to capture and sequester CO₂.

C. An SEIS is Required To Give Meaningful Consideration To Alternatives

As discussed above, RUS and DEQ must prepare an SEIS to consider alternatives in light of significant new information that has become available since the issuance of the FEIS. More specifically, an SEIS is required to update alternatives analysis based on the 2007 R.W. Beck Study, the Northwest Council Wind Integration Plan, MIT’s Report on “The Future of Coal,” recent disclosures by NorthWestern Energy regarding the cost of wind power from Judith Gap, recent analysis regarding NorthWestern Energy’s conservation potential, and recent press reports regading SME plans to pursue carbon capture and sequestration.

Under NEPA’s implementing regulations, agencies “Shall prepare supplements to either draft or final environmental impact statements if … [t]here are significant new circumstances or information relevant to environmental concerns and bearing on the proposed action or its impacts.” 40 C.F.R. § 1502.9 (emphasis added). Here, significant new information has become available that bears directly on the need for the proposed plant and the feasibility of less polluting alternatives.

Unless RUS and DEQ undertake further NEPA/MEPA analysis to consider this highly relevant information in an SEIS, both the agencies and the public will be denied any opportunity to make an informed comparison of available alternatives. Where as here, an FEIS is premised on “flawed” economic information that is “significant to its evaluation of alternatives” and “the public was similarly misled in its opportunity for comment,” the Ninth Circuit has made clear that agencies violate NEPA in failing to “present complete and accurate information to decision makers and to the public to allow an informed comparison of the alternatives considered in the EIS.” Natural Res. Defense Council v. U.S. Forest Serv., 421 F.3d 797, 813 (9th Cir. 2005)

D. The FEIS Fails To Adequately Disclose Environmental Impacts

Preparing an SEIS would also give RUS and DEQ an opportunity to remedy failures to fairly consider and disclose the Highwood coal plant’s environmental impacts and identify options to mitigate them.

1. The FEIS Fails To Adequately Disclose Visibility Impacts To Class I Areas

The FEIS fails to disclose that visibility impairment caused by pollution from the Highwood coal plant will likely violate provisions of the Clean Air Act and the Montana Code that are designed to prevent degradation of federal Class I areas. This violates NEPA’s implementing regulations, which require that an FEIS thoroughly consider and discuss impacts to air quality, see 40 C.F.R. § 1502.16, and further “state how alternatives considered in it and decisions based on it will or will not achieve the requirements of [NEPA] and other environmental laws and policies.” Id. § 1502.2(d) (emphasis added).

a. Statutory Background

In 1977, Congress added the “Prevention of Significant Deterioration” or “PSD” program to the Clean Air Act “to preserve, protect, and enhance the air quality in national parks [and] national wilderness areas.” 42 U.S.C. § 7470(2),(3). In particular, Congress “declare[d] as a national goal the prevention of any future, and the remedying of any existing, impairment of visibility in mandatory class I federal areas which impairment results from manmade air pollution.” Id. § 7491(a)(1).

In service of these goals, the PSD program requires federal agencies to work with state permitting agencies to protect air quality in national parks, wilderness areas and other federal Class I areas. See generally id. §§ 7470-92. Specifically, the Environmental Protection Agency (“EPA”) must transmit applications for PSD permits to build “major emitting facilities” such as the Highwood Generating Station to the “Federal Land Manager” (“FLM”) and the “Federal official” with authority over affected class I areas. Id. § 7475(d)(1),(d)(2)(A). Here, the FLMs are the National Park Service, which manages Glacier National Park, and the U.S. Forest Service (“FS”), which manages the Bob Marshall, Gates of the Mountains, Scapegoat, and UL Bend Wilderness Areas. The responsible federal officials are the Secretary of Interior and the Secretary of Agriculture.

The FLMs and responsible federal officials must review permit applications and “consider, in consultation with [EPA], whether a proposed major emitting facility will have an adverse impact” on air quality in federal Class I areas. Id. § 7475(d)(2)(B). As the statute makes clear, these federal officials “shall have an affirmative responsibility to protect the air quality related values (including visibility)” in Class I areas through prescribed consultation during the state permitting process. Id. Ultimately, “[i]n any case where the Federal Land Manager demonstrates to the satisfaction of the State that the emissions from” a proposed major emitting facility “will have an adverse impact on the air quality related-values (including visibility) of such” Class I areas, the Clean Air Act mandates that “a permit shall not be issued.” Id. § 7475(d)(2)(C)(ii).

States cannot issue air quality permits for major sources over the objections of FLMs unless they provide a reasoned explanation for rejecting the federal experts’ assessment of impacts. See 40 C.F.R. § 51.307(a)(3) (“Where the State finds that such an analysis does not demonstrate to the satisfaction of the State that an adverse impact will result, ... the State must, in the notice of public hearing, either explain its decision or give notice as to where the explanation can be obtained.”).

In Montana, permit applicants bear the burden of “demonstrat[ing] that the actual emissions … from the major source or modification (including fugitive emissions) will not cause or contribute to adverse impact on visibility within any federal Class I area.” Mont. Admin. R. 17.8.1106(1). Absent this required demonstration, “the department shall not issue a permit.” Id.; see also id. at 17.8.749 (requiring that all air quality permits comply with the requirements of the federal Clean Air Act). Further, the DEQ is legally required to “consider the comments of the federal land manager in its determination of whether adverse impact on visibility may result,” and “should the department determine that such impairment may result, a permit for the proposed source will not be granted.” Id. at 17.8.1109(2) (emphasis added). As the state Supreme Court has recently made clear, these regulatory requirements impose a duty on the state to make “its own independent determination” that “a proposed project’s emissions will not cause such adverse impacts” to air quality-related values in federal Class I areas. Montana Envtl. Info. Ctr. v. Montana Dep’t of Envtl. Quality, 326 Mont. 502, 515 (Mont. 2005).

Thus, under both federal and state law, any anticipated adverse impact to visibility in Class I areas creates a significant impediment to obtaining a permit to construct and operate a major emitting facility in Montana. See id. (remanding air quality permit for the proposed Roundup Power Plant to the Board of Environmental Review on grounds that the Board had failed to make an independent determination that the plant would not adversely affect visibility in Yellowstone National Park and several Wilderness Areas); see also National Parks Conservation Ass’n v. Manson, 414 F. 3d 1, 6 (D.C. Cir. 2005) (confirming that

The Montana DEQ is “bound to consider [any federal report of adverse visibility impacts] before proceeding with its permitting decision and, crucially, [is] required to justify its decision in writing if it disagree[s] with the federal report”).

b. Adverse Visibility Impacts From Highwood Power Plant Pollution

Given this statutory framework, adverse visibility impacts should preclude approval of SME’s air quality permit application. Based on analysis provided in the FEIS, neither the DEQ nor the responsible FLMs can make a reasoned determination that pollution from the proposed Highwood plant will not result in adverse impacts to visibility in nearby Class I areas, specifically Glacier National Park and the Bob Marshall, Gates of the Mountains, Scapegoat, and UL Bend Wilderness Areas.

The results of SME’s “preliminary” modeling revealed many days with > 5% change in light extinction in each of these Class I Areas and several additional days with > 10% change in all but the UL Bend Wilderness Area. See FEIS at 4-49, Table 4-10. These modeling results raise serious questions whether the Highwood plant can be permitted as currently proposed. Well-established protocols for quantifying adverse impacts to visibility ¾ the so-called “FLAG guidelines” adopted by the FLM’s Air Quality Related Values Working Group ¾ provide that modeling results showing a single source contribution to > 10% change in extinction will usually trigger an objection from FLMs, and any results showing a single source contribution to > 5% change in extinction trigger the need to for a cumulative effects analysis that consider the single source contribution in combination with pollution impacts from other existing and foreseeable sources. See http://www2.nature.nps.gov/air/Permits/flag/flagDoc/index. cfm; http://www2.nature.nps.gov/air/Permits/flag/flagDoc/index.cfm#exec1 (last checked March 19, 2007).

Under these guidelines, SME, at a minimum, should have undertaken further cumulative effects analysis using FLAG-approved methods. Instead, SME conducted a separate analysis using a so-called “refined methodology” known as Method 7 Prime, which allegedly accounts for natural weather conditions that obscure visibility regardless of pollution. See Memorandum from H. Gebhart, Air Resource Specialists, Inc., to T. Dzomba and L. Reilly, 4 (April 18, 2006) (attached as Exhibit 10). However, Method 7 Prime is not a method that has been approved by the FLM agencies charged with administering the PSD visibility program. See id. at 5; see also Memorandum to Dan Walsh from Don Codding (January 7, 2003) (attached as Exh. 11) (rejecting similar efforts to blame natural weather events for adverse impacts identified by FLAG modeling).

Moreover, Air Resource Specialists, Inc., the expert consultant retained by the FLMs to assess Highwood’s likely visibility impacts, stated “two serious concerns about how the applicant [SME] performed the Method 7 Prime analysis.” Exh. 10 at 5. First, the consultant stated that modeling data substitutions intended to account for “natural obscuration” of visibility “do not appear to have been done correctly.” Id. Second, it stated that SME failed to perform its “alternative calculations on all days and not just for select days.” Id. Accordingly, Air Resources Specialists recommended that “the FLM should not rely on the alternative (Method 7 Prime) and should base their assessment of visibility impacts on the FLAG (Method 2) procedures,” which “suggest that visibility impacts above 10% could occur at some Montana Class I areas on up to 2 days a year.” Id. Ultimately, Air Resources Specialists concluded that:

significant questions still need to be addressed before a final permit can be issued. At present, the application fails to adequately document that visibility impacts from the project will not occur at nearby Class I areas. The MDEQ analysis appears to rely on the applicant’s alternative visibility analysis based on Method 7 Prime. Whether or not the FLM agrees to rely on Method 7 Prime (which is not an approved visibility calculation method), the applicant’s modeling analysis does not appear to accurately reproduce Method 7 Prime. As such, the Method 7 Prime modeling results are not judged to be reliable or accurate.

Given that the standard FLAG methods predict visibility impairment (defined by more than 10% change in light extinction), some discussion with the applicant regarding “mitigation” appears appropriate.

Id.

While the Park Service essentially swept these conclusions “under the rug,” the Forest Service provided Air Resource Specialists’ memo to DEQ. See also Letter to Dave Klemp from Liana Reilly, 1 (May 1, 1006) (Attached as Exh. 12) (Park Service letter stating that there will be “two days greater than a 10% change in extinction in Glacier National Park” but also stating without explanation that the Park Service does not consider these impacts to be adverse). Yet despite the concerns raised by the Forest Service, a responsible FLM, the FEIS makes no attempt to disclose, much less address, the problem of adverse visibility impacts.

Even putting aside problems with Method 7 Prime and its application by SME, the FEIS fails to provide any reasoned explanation why reported impacts do not preclude the DEQ from permitting the Highwood plant as currently proposed. The cited “Final Visibility Results” identify 4 days with > 10% extinction change in the Bob Marshall, Gates of the Mountains, and Scapegoat Wilderness Areas. See FEIS at 4-48-4-49 & Table 4-11. These impacts qualify as “adverse” under the accepted standard for quantifying visibility impairment.

SME contends that anticipated visibility impairment will not occur during “peak visitation times” in the affected wilderness areas. FEIS at 4-50. But the test for determining whether visibility impacts are adverse is not whether there are crowds of people to witness the impairment. Many Class I areas, especially Wilderness areas, are remote by definition ¾ this often accounts for their excellent air quality. To suggest that degradation of visibility in these areas matters only at “peak” times when they are most heavily trafficked defies the plain intent of Congress to prevent any degradation of their natural integrity. See 42 U.S.C. § 7470(2),(3).

Because SME has failed to demonstrate that pollution from the Highwood coal plant will not result in adverse impacts to visibility in Glacier National Park and nearby wilderness areas, the preferred alternative does not comply with the Clean Air Act or governing state law. The FEIS’ failure to disclose this problem violates NEPA.

2. The FEIS Fails To Adequately Consider Impacts From Mercury Emissions

            The FEIS further fails to adequately disclose impacts from the Highwood Plant’s mercury emissions. While the FEIS apparently seeks to rely on the DEQ’s BACT analysis, Montana’s air quality permitting process does not relieve either RUS or DEQ of the obligation to disclose the environmental consequences of increased mercury pollution.

            In any case, DEQ’s BACT analysis is fundamentally flawed. Any BACT analysis must address the technological, environmental and economic capabilities, impacts and limitations of the source at issue. However, in its BACT analysis for the Highwood Plant, DEQ settled on an emissions limitation of 1.5 pounds of mercury per trillion Btu heat input without any analysis of alternatives. This limit is not reflective of mercury controls that are now technologically and economically feasible. It simply reflects provisions in a 2005 proposed administrative rule to regulate power plant mercury emissions in Montana. Those provisions were based on data compiled by EPA in 1999, and mercury control technology has advanced significantly since then.

            The Institute for Clean Air Companies has done extensive research on mercury control technology across the country. ICAC’s web site provides many useful studies indicating the effectiveness and availability of enhanced sorbent activated carbon injection systems (ACI). See http://www.icac.com/i4a/pages/index.cfm?pageid=3347 (last checked March 19, 2007). ACI is technologically and economically feasible and available, and many facilities across the country have already installed ACI or are currently in the installation process. See http://www.icac.com/files/public/Commercial_Hg_Equipment_01-19-2007.pdf. (last checked March 19, 2007). Because ACI could provide far better control of mercury than will be required under the draft permit emissions limit, at a minimum, DEQ’s BACT analysis should have disclosed the impacts that flow from DEQ’s failure to compel inclusion of ACI into the project design and to require its use upon startup at the plant. See ICAC, Availability of Mercury Measurement And Control Technology (June 2006) (attached as Exh. 16).

3. The FEIS Fails To Provide Reasoned Analysis of Wetlands Impacts

The FEIS also fails to provide adequate analysis of impacts to wetlands. As EPA noted in its comments, the DEIS indicated a direct loss of wetlands that would result in “adverse and somewhat significant” impacts, yet failed to suggest mitigation for the loss. FEIS at L-192. In response to EPA, the FEIS adds the word “nonjurisdictional” before each reference to wetlands and adds the letters “in” to the beginning of the word “significant” in the DEIS. Id. In this way, the FEIS entirely reverses position with respect to the existence of and impacts to jurisdictional wetlands in the project area.

The FEIS provides no explanation or justification for this reversal. And because the FEIS omits in its entirety Chapter 3 of the November 2005 “Fish, Wildlife and Vegetation Resources Inventory” prepared by WESTECH Environmental Services (FEIS Appendix E), which according to the document’s table of contents discusses the existence of jurisdictional wetlands in the project vicinity, it is impossible to determine the original basis for the DEIS’ finding of significant impacts to wetlands. However, it appears that this document has not been modified from the document bearing the same date that appeared in the DEIS (which also omitted Chapter 3).

DEQ and RUS cannot simply employ new terminology to recast as insignificant an impact that was originally deemed significant. This unexplained about-face provides no comfort to the public that the FEIS has actually disclosed adverse impacts as NEPA requires.

4. The FEIS Fails To Adequately Consider Waste Disposal Issues

The FEIS fails to devote any significant analysis to major issues involving disposal of fly ash and other wastes. Issues that the FEIS should have considered are as follows:

• Additional mitigation measures are necessary to protect groundwater and surface water. Appropriate mitigation would include the use of a double composite liner, a leachate detection system, and installation of a groundwater monitoring system. SME should not be able to show via any “demonstration” that it is excused from practical liner and groundwater monitoring requirements. Furthermore, groundwater monitoring should be conducted continuously during the operation of the facility and for 30 years post-closure.

• Characterization of the waste and its constituents is inadequate. Facilities cannot rely on short-term leach tests to determine whether coal combustion waste will leach harmful constituents in sufficient quantity to harm groundwater or surface water. EPA acknowledges that the results of such standardized leach tests (the TCLP and SPLC) on coal ash do not match the behavior of ash actually disposed in the field. See F. Sanchez, Keeny, R., Kosson, D.,

Delapp, R., Thorneloe, S., Characterization of Mercury-Enriched Coal Combustion Residues from Electric Utilities Using Enhanced Sorbents for Mercury Control, EPA/600/R-06/008 (Jan. 2006).

• The FEIS lists alleged beneficial uses of fly ash that are potentially harmful. For instance the use of ash as road bed or structural fill can bring ash into contact with water. These

applications have been known to contaminate both groundwater and surface water. While some beneficial reuse of ash is safe and advisable, such as the use of ash as a substitute for Portland cement, the DEQ should take a close look at all proposed beneficial uses to ensure there is no

chance of contaminant migration from the waste.

• The FEIS must consider best practices for disposal of coal combustion waste. See Proposal for the Federal Regulation of Coal Combustion Waste (Jan. 2007) (attached as Exh. 14).

• The FEIS fails to disclose that project area soils are unsuitable for landfill and other waste disposal purposes. The FEIS states that the soil at the site will be used for “cover material and topsoil to close the landfill cell,” and that on-site soils will be used to form the clay liner. FEIS at 4-10. However, information from the U.S. Department of Agriculture (“USDA”) concludes that soils in the project area are of “very limited” use for a wide variety of applications, including landfill use, landfill cover, and clay liners. See USDA, Natural Resources Conservation Service, National Cooperative Soil Survey, Material Source Ratings For Cascade County Area, Montana (March 2007) (excerpts attached as Exh. 15). The USDA rating of “Very Limited” means “that the soil has one or more features that are unfavorable for the specified use. The limitations generally cannot be overcome without major soil reclamation, special design, or expensive installation procedures. Poor performance and high maintenance can be expected.” Id. Indeed, based on USDA rating, soils at the proposed Highwood site are “very limited” for commercial buildings, trench and daily cover for the landfill, clay liner material, roads and streets, shallow excavations, lawns and landscaping, sprinkler irrigation and fence installation. See id. This is a major problem that the FEIS cannot ignore.

5. The FEIS Fails To Consider Impacts Related To Invasive Plants

Invasive plants and noxious weeds are an enormous and overwhelming problem in Montana, especially for organic farmers and ranchers and the larger agricultural community. See, e.g., 2005 Montana Weed Management Plan, available at http://agr.state.mt.us/weedpest/pdf/2005weedPlan.pdf. Nevertheless, the FEISoverlooks the likely spread of invasive species and noxious weeds due to ground disturbance and increased traffic around the project site.

6. The FEIS Fails To Adequately Consider Transportation and Traffic-Related Impacts

The FEIS ranks transportation impacts as “not significant.” However, the FEIS does not address infrastructure improvements that will be required to accomodate additional traffic. For example, the proposed rail spur would require a grade separation (overpass) which is a major road improvement. This alone requires thorough consideration in an EIS. See Montana Environmental Information Center v. Montana Department of Transportation, 298 Mont 1, 9 (Mont. 2000) (requiring SEIS consideration of changed traffic patterns and other impacts from proposed highway overpass construction).

Additionally, the access road surface is not paved. Increased vehicle traffic will cause deterioration in the road surface. This will require more frequent repairs and higher maintenance costs. The construction period will generate heavy traffic with heavy equipment using the road. This could cause serious damage to the sub-surface and require complete reconstruction. Dust and the spread of weeds will become an increasing problem for neighboring landowners, as will stormwater run-off and associated adverse impacts to agriculture. While the FEIS mentions these potential impacts, it makes no effort to determine how significant they will be.

7. The FEIS Fails To Adequately Consider Significant Cumulative Impacts

Finally, the FEIS fails to provide any meaningful analysis of cumulative impacts. NEPA regulations define “cumulative impact” as “the impact on the environment which results from the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions. … Cumulative impacts can result from individually minor but collectively significant actions taking place over a period of time.” 40 C.F.R. § 1508.27(b)(7). Construction of a 250 MW coal-fired power plant, combined with existing polluting facilities and proposals for numerous new, massive power plants in the state, is bound to lead to significant cumulative effects to air, water, and soil resources. The FEIS cursorily acknowledges some of these impacts, dismisses others, and fails to even mention some of the most significant impacts in its cumulative impact analysis. NEPA demands that cumulative impacts analysis “‘must be more than perfunctory; it must provide a useful analysis of the cumulative impacts of past, present, and future projects.’” Klamath-Siskiyou Wildlands Ctr. v. BLM, 337 F.3d 989, 994 (9th Cir. 2004) (quoting Ocean Advocates v. U.S. Army Corps of Eng’rs, 361 F.3d 1108, 1128 (9th Cir. 2004). The FEIS does not satisfy this standard.

a. Highwood Generating Station Will Contribute to Cumulatively Significant Emissions of Greenhouse Gases That Cause Global Climate Change

Global climate change is the paradigmatic cumulative impact. A single power plant may not be considered a significant contributor to climate change. Together, however, power plants are one of the primary causes of global warming. Climate change is caused by emissions greenhouse gases (GHGs), particularly carbon dioxide (CO₂), from primarily human sources. IPCC WGI Fourth Assessment Report, Climate Change 2007: The Physical Science Basis, Summary for Policymakers 2-3 (Feb. 5, 2007) (available at http://www.ipcc.ch/SPM2feb07.pdf). “[T]he primary source of the increased atmospheric concentration of carbon dioxide since the pre-industrial period results from fossil fuel use,” including from coal-fired power plants. Id. Power plants in the U.S. collectively emit approximately 2,474 millions tons of CO₂ per year.

SME proposes to construct a 250 megawatt, coal-fired power plant that would contribute 2.1 million tons of CO₂ each year (2.8 million tons total greenhouse gas emissions), or .0333% of total annual CO₂ emissions in the United States. FEIS at 4-53. The FEIS states that these emissions “would represent a very small but tangible, incremental contribution to this cumulative global issue. Id. Nonetheless, the FEIS fails to meaningfully consider alternatives or mitigation options that could reduce Highwood’s contribution to global warming.

RUS conducted a similarly flawed analysis for a 660 MW coal-fired power plant proposed by Associated Electric Cooperative, Inc., in Missouri. That plant would contribute 6.8 million tons of CO2 each year, or 0.1% of total annual CO₂ emissions in the United States. See Draft Environmental Impact Statement, Associated Electric Cooperative, Inc. (AECI) Proposed Baseload Power Plant, 3-49 (January 2007) (available at http://www.usda.gov/rus/water/ees/eis.htm). The Missouri DEIS states that the “appropriate measure of the impact of the proposed project’s emissions is the ratio of those emissions to global emissions. On that basis, the proposed project would not have a significant impact on global warming.” DEIS 3-50. The DEIS complete ignores the cumulatively significant impact of CO₂ emissions, and fails to even mention the contemporaneously-funded projects, including the Highwood Generating Station.

If each new power plant’s NEPA analysis treated the cumulative impact analysis for CO₂ emissions in the same way as RUS has done for the Highwood and Missouri projects, then CO₂ emissions from power plants could never be deemed cumulatively significant. The largest single stationary source category of CO₂ emissions in the United States would simply go unchecked.

NEPA does not condone a “drop-in-the-bucket” approach to cumulative impacts analysis. The point of a cumulative impacts analysis is not to compare individual impacts to impacts of all other “past, present, and reasonably foreseeable future actions,” but to discuss their combined effect. In fact, the immense volume of CO₂ emissions from power plants should enhance the need for a thoughtful cumulative impacts analysis, rather than diminish it. “[T]he greater total magnitude of the environmental effects [of multiple projects] … may demonstrate by itself that the environmental impact will be significant.” Klamath-Siskiyou Wildlands Ctr. v. BLM, 337 F.3d 989, 994 (9th Cir. 2004).

The Ninth Circuit in Klamath-Siskiyou Wildlands Ctr. considered an analysis of cumulative impacts to salmon from sediment deposition in a creek. Although the project’s independent contribution of sediment was small, “the total impact from a set of actions may be greater than the sum of the parts.” 337 F.3d at 994. “[T]he addition of a small amount here, a small amount there, and still more at another point could add up to something with a much greater impact, until there comes a point where even a marginal increase will mean that no salmon survive.” Id. (emphasis in original).

Likewise here, a meaningful cumulative impacts analysis requires a discussion of whether even a marginal increase in CO₂ emissions could bring the planet to the ecological “tipping point.” Scientists have calculated the atmospheric greenhouse gas level “ceiling” that must not be exceeded if we are to avoid additional warming of more than 1° C (1.8° F) above year 2000 levels, which is the point at which “dangerous effects” of global warming are predicted to occur.[5] The EIS must discuss emissions from the proposed project in relation to that ceiling.

The D.C. Circuit has held that cumulative impacts analyses must first identify the geographic area in which a particular impact will be felt, and then identify “other actions—past, present, and proposed, and reasonably foreseeable—that have had or are expected to have impacts in the same area.” Grand Canyon Trust v. FAA, 290 F.3d 339 345 (D.C. Cir. 2002). Because the impact of climate change is “global,” it is appropriate to consider both existing and reasonably foreseeable future CO₂ emissions worldwide. See Natural Res. Defense Council v. Hodel, 865 F.2d 288, 297 (D.C. Cir. 1988) (EIS must “consider the cumulative impacts of simultaneous [oil and gas] development in the Pacific and Alaskan regions on species, particularly whales and salmon, that migrate through the different planning areas.”)

At a minimum, the EIS should discuss the emissions of other power plants that receive RUS funding. RUS not only has jurisdiction to require modifications and mitigation for the emissions from these plants, the agency directly facilitates their construction. Available information, summarized in the table below, indicates that RUS currently proposes to fund eight coal-fired power plants, ranging in size from 250 to 750 MW, in seven states. Although RUS has not disclosed projected CO₂ emissions from most of the proposed plants, it is clear that the collective impact of these plants to global CO₂ emissions is substantial.

Proposed Coal-Fired Power Plants Receiving RUS funding

(see http://www.usda.gov/rus/water/ees/eis.htm)

Plant	Location	Size/Type	CO2 emissions (tons/year)	Status
Associated Electric Coop, Inc.	Missouri	660 MW Supercritical PC	6,800,000	DEIS released 1/11/07
Basin Electric Power Cooperative, Inc.	Wyoming	385 MW PC		Scoping notice 11/9/05
Dairyland Power Cooperative, Inc.	Iowa	400 MW PC or CFB		Scoping notice 1/13/04
Seminole Electric Cooperative, Inc.	Florida	750 MW Supercritical PC		SEIS scoping notice, 10/11/05
Southern Montana Electric Cooperative, Inc.	Montana	250 MW CFB	2,100,000	FEIS notice, 2/9/07
Western Farmers Electric Cooperative/Brazos Electric Power Cooperative	Oklahoma	750 MW		Scoping notice 10/20/04
East Kentucky Power Cooperative	Kentucky	2 – 278 MW (556 MW total), CFB		SEIS notice 10/6/06

To satisfy NEPA, RUS must prepare a meaningful analysis of the proposed project’s contribution to significant cumulative global climate change impacts.

b. Cumulative Air Quality Impacts from Pollutant Emissions

The FEIS acknowledged other potential cumulative impacts due to massive emissions of air pollutants in only the most cursory fashion, stating:

“With air quality more than any other individual resource topic covered in this EIS, potential cumulative impacts from a large number of mobile and stationary sources across a wide geographic domain are the major issue. An HGS plant would contribute incrementally to a minor or moderate extent toward cumulative impacts related to regional haze, visibility impairment in Class I areas, mercury dispersion and bioaccumulation, and global climate change.”

FEIS at 5-19. The concession that overall emissions “could become significant,” id., is not accompanied by any discussion of the extent of these cumulative pollutant emissions or their consequences for the environment or public health.

Although the FEIS’ air quality analysis necessarily incorporates emissions from existing power plants in its baseline inventory, it nowhere quantifies cumulative emissions of the proposed project combined with future projects. The FEIS lists four proposed power plants. FEIS at 5-13. It fails to acknowledge, however, perhaps the most significant proposed project in terms of cumulative, localized impacts to air quality. Northwestern Energy has announced plans to build a 500 MW IGGC power plant on the so-called industrial park site, also in Great Falls. The FEIS was required to have looked at the combined impact of two plants emitting large quantities of harmful pollutants in the same air shed.

1. Visibility Analysis in Class I Areas

For example, the FEIS concedes, as it must, Highwood’s contribution to cumulative visibility impairment in Class I areas. FEIS at 5-19. However, it provides no analysis that supports its labeling of these impacts as “minor or moderate.” In fact as described above, Highwood’s contribution, combined with existing sources to visibility impairment in Class I areas, including the Bob Marshall, Gates of the Mountains, and Scapegoat Wilderness Areas, is significant. See FEIS, App. I (Supplemental PD, June 30, 2006) at 84; FEIS L-253 (comments of EPA). Annual emissions of thousands of additional tons of PM10, NO2 and SO2 due to five proposed massive power plants in Montana would surely exacerbate Highwood’s impacts by many times. Disclosure of these cumulative impacts is essential to informed decision-making. Furthermore, as EPA’s comments on the DEIS state, “SME should develop alternative/additional engineering designs to reduce these impacts.” FEIS L-253. The FEIS’ failure to do so violates NEPA.[6]

2. Cumulative Impacts of Mercury Emissions

The FEIS also dismisses cumulative air quality impacts due to mercury emissions. Coal-fired electric power is the single largest source of mercury pollution nationwide, and coal plants account for nearly all (92%) of mercury pollution in Montana. Much of this mercury is deposited locally, where it accumulates in the aquatic ecosystem. Based on present mercury concentrations in our rivers and lakes, the State of Montana has issued statewide health advisories in hopes of limiting fish consumption that is known to cause serious neurological and developmental problems in children.

The FEIS acknowledges that mercury emissions from coal plants create both a global problem (in terms of mercury vapor) as well as a local problem (in terms of deposition in water and soils). See FEIS at 5-11, 4-52. Although the FEIS quantifies the level of mercury emissions from existing and proposed power plants in Montana (693.2 pounds annually from Montana power plants alone) it fails to acknowledge the massive mercury emissions of all existing and proposed power plants in the U.S., particularly those funded by RUS, that contribute to the global problem.

Further, the FEIS improperly relies on a new administrative rule to guard against cumulative mercury deposition. Thus, the FEIS assumes that Montana’s so-called “mercury rule” will require plants to emit no more than 0.9 lbs/TBtu. See FEIS at 5-14. Unfortunately, however, Montana’s rule sets 0.9 lbs/TBtu as a target limit for mercury emissions. For a newly constructed plant such as the proposed Highwood plant, the rule allows an emission limit of up to 1.5 lbs/TBtu until 2018. After 2018 the Montana rule allows a limit of up to 1.2 lbs/TBtu. So the assumption that the Montana mercury rule limit is 0.9 lbs/TBtu is inaccurate and misleading.

In addition, much of Montana coal is lignite, which is subject to even less stringent standards. If the Highwood coal plant decides to utilize lignite coal, which is reasonably foreseeable based on comments made by Mr. Gregori in Montana newspapers, cumulative impacts from mercury emissions would be even greater.

3. Cumulative Impacts of Fine Particulate Matter (PM_2.5)

Finally, the failure to evaluate cumulative impacts due to PM_2.5 emissions is yet another serious NEPA violation. The FEIS discloses that modeled PM_2.5 emissions from Highwood, in combination with ambient concentrations, are projected to consume 95% of the 24-hour NAAQS and 62% of the annual NAAQS. FEIS at 4-42 (emphasis added). Therefore, increased ambient PM_2.5 concentrations of only 1.7 micrograms per cubic meter (μg/m3) would take the Great Falls region falls out of compliance with the health-based 24-hour PM_2.5 standard. Additional emissions from proposed projects, and particularly from Northwestern Energy’s proposed 500 MW facility in Great Falls, will certainly result in non-attainment if they are approved. Indeed, because Highwood will push the region so close to the 24-hour NAAQS standard, fugitive dust emissions from even a small construction project could render Great Falls a non-attainment zone for this extremely harmful pollutant.

The consequences of this late disclosure of PM_2.5 impacts are too important to be ignored. Innumerable studies since 1997, when the EPA first adopted NAAQS for PM_2.5, have documented the causal link between short-term inhalation of PM_2.5 and premature mortality, heart attacks, and respiratory diseases, including lung cancer and asthma. See Final Rule, National Ambient Air Quality Standards For Particulate Matter, 71 Fed. Reg. 61144, 61153 (Sept. 21, 2006) (available at http://epa.gov/pm/actions.html (last checked March 13, 2007)). The 24-hour standard of 35 µg/m³was determined by EPA to be the limit “requisite to protect public health.” Id. at 61145.

Compounding the inadequacy of the PM_2.5impacts in FEIS is the fact that no such analysis for PM2.5 was included in the DEIS, so that neither the public nor regulatory agencies have yet had an opportunity to meaningfully comment on this impact. RUS must prepare a supplemental analysis that fully evaluates cumulative PM_2.5 emissions, describes their impact, and suggests measures that can reduce or avoid this impact.

c. The FEIS Fails To Consider Cumulative Impacts To Soils

Several individuals commenting on the DEIS suggested that emissions of criteria air pollutants could contaminate soils and affect the ability of local organic farmers to obtain organic certification. The FEIS fails to adequately address this issue.

The FEIS states that, because criteria air pollutant emissions “are either insignificant or below the NAAQS and MAAQS, the plant is predicted to have a minor impact on the soil and vegetation in the area surrounding the plant.” FEIS at 4-44. This prediction is unjustified. First, Montana’s PSD permitting regulations require a separate evaluation of a project’s impacts to soil and vegetation. This requirement would be meaningless if a project proponent could discharge it simply by analyzing compliance with air quality standards.

Second, RUS’ “understanding … that the operation of the proposed plant should not have an effect on the organic status of the farms,” FEIS at L-182, does not replace actual analysis that NEPA requires. RUS must meaningfully analyze the project’s anticipated effects on the quality of organic food produced on neighboring agricultural lands.

Third, the FEIS does not recognize soil and crop contamination from air emissions as a potential cumulative impact at all. As the FEIS notes, numerous other power plants have been proposed in Montana. Yet the FEIS does not even mention the most significant proposed project from the standpoint of cumulative impacts to soils. Northwestern Energy has announced plans to build a 500 MW IGGC power plant on the so-called industrial park site, also in Great Falls. The FEIS was required to consider the combined impact of two plants emitting large quantities of harmful pollutants in the same airshed. In addition to the cumulative air quality impacts of these plants, as discussed above, their emissions will potentially result in major adverse impacts to soil quality and vegetation with the primarily agricultural lands surrounding the proposed Highwood site.

d. The FEIS Failed To Consider Cumulative Impacts On Melting Glaciers In Nearby Glacier National Park

The FEIS further fails to consider cumulative impacts on melting glaciers in Glacier National Park. The FEIS notes that “Air Quality Related Values (AQRVs) in federal mandatory Class I areas are required to be assessed for PSD projects.” FEIS 3-31; see 42 U.S.C. § 7475. In addition to visibility, AQRVs include scenic, cultural, physical, geologic, biological, ecological, and recreational resources. Although the FEIS discusses impact to visibility and acid deposition, it fails to evaluate cumulative impacts to other AQRVs in Class I areas, including Glacier National Park.

Cumulative greenhouse gas emissions from this project combined with existing and future projects will contribute to the melting of thousands of years old glaciers in Glacier National Park. Glaciers in the Park are a scenic, ecological and recreational resource. Because NEPA imposes a duty to discuss the project’s compliance with other environmental laws, including the Clean Air Act, the impact of project emissions on melting glaciers must be evaluated in the FEIS.

By 1980, Glacier National Park had lost nearly two-thirds of the estimated 150 glaciers that existed in the park in 1850 to rising temperatures. Hall, M.H.P., and D.B. Fagre, Modeled climate-induced glacier change in Glacier National Park, 1850-2100. BioScience 53 (2):131-140, at 131 (2003) (attached as Exh. 16). Over the same period, the geographic extent of glaciers in the park shrank by roughly 73 percent. Id. Scientists have modeled further glacial retreat, with atmospheric CO₂ levels as a crucial variable, and estimate that all of the glaciers in Glacier National Park could entirely disappear by 2030. Id. at 137-38. This result not only predicts disappearance of the spectacular features for which Glacier National Park was named, it also portends ecosystem-wide change. For example:

the reduced snowpacks that lead to glacier recession also allow high-elevation trees to become established above the current treeline and in subalpine meadows. These tree invasions will reduce the diversity of herbaceous plants in open areas. Disappearance of glaciers will change cold air drainages, reduce moisture in glaciated basins during late summer, and increase stream temperatures, thus affecting temperature-sensitive aquatic invertebrates. Glacial retreat provides new areas for plant colonization and alters sediment transport in streams. Glacial retreat also reflects other climate-related ecosystem changes, such as changing soil moisture, altered fire frequency, forest growth, and distribution changes in vegetation.

Id. at 139 (citations omitted).

As discussed above, cumulative greenhouse gas emissions due to Highwood, combined with existing and reasonably foreseeable future power plants in this state and globally, will have a measurable impact on climate change and in turn, on melting glaciers in Glacier National Park. At the very least, the FEIS was required to discuss the cumulative impact of RUS-funded plants on the future of the iconic glaciers.

E. The FEIS Is Fatally Flawed For Failure To Identify Impacts To The National Historic Landmark During The Scoping Process

The FEIS cannot help but acknowledge that the Highwood coal plant will seriously compromise the Lewis and Clark Portage site, a National Historic Landmark. Under these circumstances, where significant adverse effects are undisputed, it is incumbent on the agencies overseeing the FEIS process to alert the public to these impacts early in the scoping process. This is the only way to ensure that less intrusive alternatives are identified before the agency commits to a course of action that forecloses adequate mitigation options.

NEPA and MEPA impose on RUS the duty to engage in “scoping,” which is the “process for determining the scope of issues to be addressed and for identifying the significant issues related to a proposed action,” 40 C.F.R. § 1501.7, as well as for providing notice to the public that an agency is commencing environmental review of an action. Kootenai Tribe of Idaho v. Veneman, 313 F.3d 1094, 1116 (9th Cir. 2002). [7] “[T]his notice requirement ensures that interested parties are aware of and therefore are able to participate meaningfully in the entire EIS process, from start to finish.” Id.

The scoping notices for the Highwood Generating Station failed to serve this purpose. Not only did they fail to disclose that the National Historic Landmark would be impacted, they were affirmatively misleading. Rather than describing proposed alternative sites, they directed readers to SME’s alternative site analysis prepared on the RUS website. However, that alternative site analysis mis-identified the location of the so-called “Salem” site and even rejected the current site location because it would put the project in the middle of the landmark area. See Scoping Document for the Preparation of an EIS for Southern Montana Generation and Transmission Cooperative’s Highwood Generating Station Unit # 1 (April 2005), available at http://www.deq.mt.gov/eis/SME_Scoping/SME_scoping_Doc.pdf; Notice of intent to hold a public scoping meeting and prepare and environmental impacts statements, 69 Fed. Reg. 57,260, 57,261 (Sept. 24, 2004); Site Selection Study, 2-2 (Oct. 2004), available at http://www.usda.gov/rus/water/ees/pdf/sme_siteselection.pdf (wrongly identifying the Salem site’s location as Section 36, Township 21 North, Range 5 East); see also id. at 2-1 (stating that potential siting north of this location, where the Salem site is currently located, had been “dropped” as an alternative because “the project would be located on property of significant historical activity — the beginning of the trail for the portage route taken by Lewis and Clark”).

This failure to properly apprise the public of potential threats is clearly illegal. In a strikingly similar case, the Tenth Circuit held that misidentification of a project site in a scoping notice violated NEPA. In National Parks and Conservation Association v. F.A.A., the FAA issued a “scoping packet” that identified three possible sites for a proposed airport, none of which were within the “U-95 Scenic Corridor.” 998 F.2d 1523, 1530 (10th Cir. 1993). The first time the U-95 Scenic Corridor site was identified as the preferred alternative — indeed, the first time it was identified at all — was in the draft EIS for the project. Id. The Court observed that “under the specific requirements of NEPA and [the Federal Land Policy and Management Act (“FLPMA”)], the BLM was required to provide petitioners and the public with clear notice of its actions so that the statutory participation could take place.”[8] Id. at 1531. Therefore, notwithstanding the identification in the scoping notice of “U-95 scenic corridor restrictions” as a potentially significant environmental issue, the court found that “the notice given was far from adequate.” Id. Because there was no way to know if adequate notice would have changed the agencies’ course of action, the court set aside the agency approvals.

Likewise here, by failing to give adequate notice of the selected location of the propose power plant, RUS and DEQ have not satisfied NEPA’s requirement to provide notice of scoping that enables “interested parties … to participate meaningfully in the entire EIS process, from start to finish.” Kootenai Tribe of Idaho, 313 F.3d at 1116.

III. CONCLUSIONS

For all of the reasons set forth above, MEIC respectfully requests that RUS and DEQ prepare an SEIS in order to remedy glaring deficiencies in the FEIS analysis and to revisit analysis of alternatives and environmental impacts in light significant new information.

Sincerely,

Pat Judge

Anne Hedges

Montana Environmental Information Center

Abigail Dillen

Jenny Harbine

Earthjustice

[1] In order to make a reasoned determination regarding loan feasibility, RUS must require SME to perform a more sophisticated analysis that yields more than a single rate per unit price, but rather considers potential price variations based on variable assumptions. RW Beck made a similar argument in recommending a “high, low and base case scenario” for coal prices. Beck at 11.

[2] Beck notes that such off-system sales may prove difficult, especially during high rivers flows (and hydroelectric output) and that the price SME could demand would be very uncertain. See Beck at 12. Beck further reported that “[t]he transmission service reservation has not yet been granted and a System Impact Study, if required, has not been undertaken as of this date.” Id. This information is highly relevant to the economic viability of the project and should be considered in supplemental analysis, as discussed below.

[3]As discussed elsewhere, this problem extends to RUS reliance on SME’s projections regarding load growth, capital and operating costs, and rate projections.

[4] The FEIS implies that it is somehow too late to consider alternatives that rely principally on renewable energy, stating that “[s]everal factors, including timing, affect this alternative’s ability to meet the long term purpose and need … The various studies required to locate the wind and solar facilities would most likely take one year.” FEIS at 2-48. However, the fact that SME has, until now, chosen to focus exclusively on building a 250 MW coal plant does not excuse SME from its legal obligation to consider viable alternatives using renewable energy. Indeed, SME has been obliged to consider such alternatives for several years now as part of the RUS funding process, as well as the NEPA/MEPA process.

[5] See Green Mountain Chrysler-Plymouth-Dodge-Jeep et al. v. Thomas W. Torti, Secretary of Vermont Agency of Natural Resources, et al., Case No. 2:05-CV-302 and 2:05-CV-304, Declaration of James E. Hansen (D. Vt., submitted Aug. 14, 2006) (available at http://www.giss.nasa.gov/~dcain/recent_papers_proofs/ vermont_14aug20061_textwfigs.pdf); J. Hansen, et al., Dangerous human-made interference with climate: A GISS modelE study (Oct. 13, 2006) (available at http://arxiv.org/abs/physics/0610115).

[6] The cumulative impacts analysis of Class I visibility impacts is also fundamentally flawed for the same reasons the independent impacts analysis of this issue.

[7] Montana has adopted scoping provisions nearly identical to NEPA’s. See ARM § 17.4.615.

[8] In addition to NEPA’s scoping notice requirements, the court was considering a notice provision governing actions under FLPMA, that is substantially the same as NEPA’s and MEPA’s notice provision.  Compare 43 C.F.R. § 1610.4-1 (1991) (“At the outset of the planning process, the public, other Federal agencies, State and local governments and Indian tribes shall be given an opportunity to suggest concerns, needs, and resource use, development, and protection opportunities for consideration in the preparation of the resource management plan.”) with 40 C.F.R. § 1501.7(a) (“There shall be an early and open process for determining the scope of issues to be addressed and for identifying the significant issues related to a proposed action. … As part of the scoping process the lead agency shall:  (1) Invite the participation of affected Federal, State, and local agencies, any affected Indian tribe, the proponent of the action, and other interested persons.”); and ARM § 17.4.615 (same).