DERR-2024-007710

NRD Trustee – Comment Response Summary – Response to Common Comment No. 12 12-1
SOUTHWESTERN JORDAN VALLEY GROUNDWATER CLEANUP PROJECT
STATE OF UTAH NATURAL RESOURCE DAMAGE TRUSTEE

COMMENT RESPONSE SUMMARY
AUGUST 31, 2004

A number of comments emphasized that Kennecott should bear all financial responsibility for the
cleanup. Similarly, some commenters questioned the manner in which the Trust Fund is to be
used under the Joint Proposal or disagreed with providing such funds to Kennecott. As described
below, Kennecott assumed the financial obligation for Natural Resource Damages, as set by the
Consent Decree, and funded the Trust Fund. The Consent Decree provides that the Trust Fund is
available to Kennecott and others for projects that will restore, replace or acquire the equivalent
of the damaged resource, provided various requirements are satisfied. The Joint Proposal is such
a project and the Trustee has determined that use of the Trust Fund, as outlined in the Joint
Proposal, is consistent with the requirements of the Consent Decree.

Responsibility Under the Consent Decree
In 1995, the Court approved a Consent Decree regarding the State’s Natural Resource Damage
claim against Kennecott for injury to water resources. The Consent Decree sets forth, among
other things, Kennecott’s obligation to extract contaminants from the low pH/heavy metals
plume, complete source control measures, and establish an Irrevocable Letter of Credit and cash
payment in a Trust Fund. Kennecott is extracting contaminants from the low pH/heavy metals
plume, source control measures are operational, and the Trust Fund was established.

As required by Section V.D.2 of the Consent Decree, in 1995 Kennecott provided the Trustee
with a $28 million Irrevocable Letter of Credit (ILC) representing the amount needed to restore,
replace or acquire the equivalent of the natural (groundwater) resource. Section V.D.2.a of the
Consent Decree requires that the amount of the ILC be increased annually at 7 percent.
Kennecott also provided the Trustee with $9 million in cash that was placed in the Trust Fund, in
consideration of the lost use of a portion of the water through the treatment process.

Under the Consent Decree, the ILC may be reduced if Kennecott provides municipal quality
water through treatment of contaminated water, to a purveyor of municipal and industrial water
and if other requirements of the Consent Decree, as set forth in Section V.D.2.b, are met. The
Consent Decree authorizes a partial reduction to the ILC when the treatment facilities are
complete and operational. This reduction represents capital expenditures; further reductions to
the ILC representing operation and maintenance costs also are contemplated in the Consent
Decree. The ILC portion of the Trust Fund not allocated for a Kennecott project may, at the
Trustee’s option, be converted to cash and used by the Trustee to restore, replace or acquire the
equivalent of the natural resource for the benefit of the public in the Affected Area. The Consent
Decree also provides that Kennecott has the right to convert the ILC to cash, which shall be used
by the Trustee to restore, replace or acquire the equivalent resource (groundwater) for the benefit
of the public in the Affected Area.

Response to Common Comment No. 12 – Kennecott Liability for Natural Resource
Damage and Use of Trust Fund for the Joint Proposal

NRD Trustee – Comment Response Summary – Response to Common Comment No. 12 12-2
Proposed Groundwater Cleanup Project
The project outlined in the Joint Proposal seeks to utilize one half of the ILC for the Kennecott
project, the Zone A Plant, pursuant to Section V.D.2 .b of the Consent Decree, and one half of the
ILC for the JVWCD project, the Zone B Facilities, pursuant to Section V.D.4 of the Consent
Decree. Each project will generally be constructed over the next six years, although different
construction periods are contemplated for the two plants. The conversion from the 7 percent
interest rate to the PTIF rate reflects the Trustee’s approval of the project outlined in the Joint
Proposal and Kennecott’s commitment to expend considerable additional sums of money to
construct the two projects.

The ILC portion of the Trust Fund allocated for the Kennecott project is designated the Zone A
ILC. Consistent with the Consent Decree, the Zone A ILC will be reduced in capital and
operation and maintenance phases. The 3-Party Agreement provides for a 60 percent reduction of
the Zone A ILC for capital expenditures upon reaching “Complete and Operational” status. At
that time, Kennecott contractually commits to deliver 3500 acre-feet per year of treated water for
the forty year Operational Period. The remaining 40 percent of the Zone A ILC, representing the
operation and maintenance component, is released in 15 percent increments annually over the
next four years with the remainder released in the fifth year.

The ILC portion of the Trust Fund allocated to the JVWCD project is designated the Zone B ILC
and will be used by the Trustee to restore, replace or acquire the equivalent of the resource.
Under the 3-Party Agreement, the Zone B ILC will be reduced by 50 percent when Kennecott has
reimbursed JVWCD for Zone B construction costs equal to one-half of the Zone B ILC. At that
time, JVWCD contractually commits to deliver to the Affected Municipalities 1750 acre-feet per
year of water for forty years. Further reductions to the Zone B ILC will occur consistent with
increases in reimbursements made by Kennecott and increases in JVWCD’s commitments for
water delivery. The Zone B ILC will be reduced to zero when Kennecott has reimbursed
JVWCD for construction costs equal to the full amount of the Zone B ILC. At that time,
JVWCD’s contractual commitment to deliver water to the Affected Municipalities will be 3500
acre feet per year for forty years, whether or not the Zone B Facilities reach Complete and
Operational status.

Funding by JVWCD
Kennecott is reimbursing JVWCD for the costs to construct the Zone B Facilities in exchange for
the reduction to the Zone B ILC as discussed above. The Zone B Facilities will be owned and
operated by JVWCD. JVWCD also is requesting that the Trustee allow JVWCD to use the cash
portion of the Consent Decree Trust Fund to fund treatment of shallow groundwater or other
groundwater at the Zone B plant. Except for certain capital costs Kennecott is advancing,
Kennecott is not responsible for treatment and related costs for this shallow groundwater
contamination. The majority of the funds JVWCD is contributing to the project are for activities
undertaken to produce water with a lower TDS than required by the Consent Decree and
attributable to costs it would otherwise incur to obtain the water absent contamination. For
example, as established in Section V.D.2.b (i) of the Consent Decree, JVWCD is obligated to pay
Kennecott $49 (1995 dollars based on the ENR Index) for each acre foot of treated water
produced and delivered to JVWCD for avoided water supply operating, maintenance and
replacement costs. The funds JVWCD is providing are discussed in Section 9 of the Project
Agreement.

Under Section V.D.2.b (i) of the Consent Decree, if Kennecott desires to receive a reduction to
the ILC for any project it proposes, Kennecott must provide the treated water to a purveyor of
municipal and industrial water. Thus, the use of JVWCD facilities in the Joint Proposal is

NRD Trustee – Comment Response Summary – Response to Common Comment No. 12 12-3
required. Such use also is appropriate, since the facilities were constructed for the purpose of
conveying and delivering public water supplies to JVWCD’s member agencies and customers.

Ongoing Operations
As explained above, the Consent Decree outlines the manner in which the Trust Fund may be
used. Consistent with the Consent Decree, the Zone A ILC will be reduced in phases to assure
that the Zone A Plant is complete and operational. The Zone B ILC will be reduced only as
JVWCD commits to water deliveries, whether or not the Zone B Facilities are completed (if not
completed, JVWCD will be required to satisfy its commitment from other available sources).

Kennecott will own the Zone A Plant, and the Zone B Facilities will be owned by JVWCD. The
plants will be assets for which financial incentives will exist to operate and maintain them. In
addition, Kennecott will be contractually obligated under the terms of the Project Agreement and
3-Party Agreement to provide 3500 acre feet of treated water per year from Zone A for the
Operational Period of 40 years. JVWCD will be contractually obligated under the terms of the
Project Agreement and the 3-Party Agreement to deliver 3500 acre feet of treated water per year
from Zone B Facilities or from other sources available to JVWCD for 40 years. Project
Agreement, Sections 4 and 5; 3-Party Agreement, Section I.C. This is consistent with the terms
of the Consent Decree, Section V.D.2.b (iii) and d (iii). If either Kennecott or JVWCD fails to
satisfy its contractual commitments, under Section VII.B of the 3-Party Agreement the Trustee
has all remedies available at law and in equity, including the right to recover damages and to seek
specific performance.