[Senate Hearing 116-304]
[From the U.S. Government Publishing Office]
S. Hrg. 116-304
ISSUES AND CHALLENGES AT THE
POWER MARKETING ADMINISTRATIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
WATER AND POWER
OF THE
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
TO
EXAMINE ISSUES AND CHALLENGES AT THE
POWER MARKETING ADMINISTRATIONS
__________
MAY 15, 2019
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the
Committee on Energy and Natural Resources
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-307 WASHINGTON : 2020
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming JOE MANCHIN III, West Virginia
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah MARIA CANTWELL, Washington
STEVE DAINES, Montana BERNARD SANDERS, Vermont
BILL CASSIDY, Louisiana DEBBIE STABENOW, Michigan
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
CINDY HYDE-SMITH, Mississippi MAZIE K. HIRONO, Hawaii
MARTHA McSALLY, Arizona ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee CATHERINE CORTEZ MASTO, Nevada
JOHN HOEVEN, North Dakota
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Subcommittee on Water and Power
MARTHA McSALLY, Chairman
JOHN BARRASSO CATHERINE CORTEZ MASTO
JAMES E. RISCH RON WYDEN
BILL CASSIDY MARIA CANTWELL
CORY GARDNER BERNARD SANDERS
LAMAR ALEXANDER
Brian Hughes, Staff Director
Kellie Donnelly, Chief Counsel
Lane Dickson, Senior Professional Staff Member
Sarah Venuto, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Luke Bassett, Democratic Professional Staff Member
Rebecca Bonner, Democratic Professional Staff Member
C O N T E N T S
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OPENING STATEMENTS
Page
McSally, Hon. Martha, Subcommittee Chairman and a U.S. Senator
from Arizona................................................... 1
Cortez Masto, Hon. Catherine, Subcommittee Ranking Member and a
U.S. Senator from Nevada....................................... 2
WITNESSES
Gabriel, Mark A., Administrator, Western Area Power
Administration................................................. 4
James, Daniel M., Deputy Administrator, Bonneville Power
Administration................................................. 17
Legg, Kenneth E., Administrator, Southeastern Power
Administration................................................. 26
Wech, Mike, Administrator, Southwestern Power Administration..... 33
Fuller, Nicki, Executive Director, Southwestern Power Resources
Associa-
tion........................................................... 41
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Cortez Masto, Hon. Catherine:
Opening Statement............................................ 2
Fuller, Nicki:
Opening Statement............................................ 41
Written Testimony............................................ 43
Gabriel, Mark A.:
Opening Statement............................................ 4
Written Testimony............................................ 6
Responses to Questions for the Record........................ 63
James, Daniel M.:
Opening Statement............................................ 17
Written Testimony............................................ 19
Responses to Questions for the Record........................ 66
Legg, Kenneth E.:
Opening Statement............................................ 26
Written Testimony............................................ 28
Responses to Questions for the Record........................ 72
McSally, Hon. Martha:
Opening Statement............................................ 1
Wech, Mike:
Opening Statement............................................ 33
Written Testimony............................................ 35
Response to Question for the Record.......................... 75
ISSUES AND CHALLENGES AT THE
POWER MARKETING ADMINISTRATIONS
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WEDNESDAY, MAY 15, 2019
U.S. Senate,
Subcommittee on Water and Power,
Committee on Energy and Natural Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:03 p.m. in
Room SD-366, Dirksen Senate Office Building, Hon. Martha
McSally, Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. MARTHA McSALLY,
U.S. SENATOR FROM ARIZONA
Senator McSally. The hearing of the Senate Energy and
Natural Resources' Subcommittee on Water and Power will come to
order.
The purpose of today's hearing is to look at the issues and
challenges at the Bonneville, Southeastern, Southwestern, and
Western Area Power Administrations, also known as BPA, SEPA,
SWPA, and WAPA, and in the future, that is what we will refer
to them as.
For 80 years, our federal power system has been providing
clean renewable hydropower generated at the Bureau of
Reclamation and Army Corps dams and delivered to our
communities throughout these four Power Marketing
Administrations (PMAs). Today, Reclamation, the Corps, and PMAs
generate and transmit over 35,000 megawatts of wholesale
electricity across 34,000 miles of transmission lines. This
represents 44 percent of all hydropower produced in the U.S.
and powers over 60 million homes, farms, and businesses in 33
states. The benefits this power brings to our communities are
made possible only through the partnerships between the PMAs
and their municipal, cooperative, and Tribal preference
customers.
In Arizona, we know this firsthand. The affordable
hydropower delivered by WAPA to our cooperative and municipal
utilities has helped keep power bills low and allowed for our
economies and populations to grow. But as with all long
relationships, there are often rough patches and disagreements.
I am sure this is true of all the PMAs, but we have certainly
had some unique issues arise in the Desert Southwest.
While we do not always see eye to eye with WAPA, we have
shown how to work through the differences, and things have
improved in recent years. Transparency is the key to this
improvement. When customers are allowed at the table for
decisions that will affect their rates and service, it keeps
the primary mission of delivering reliable, cost-based power in
focus for everyone. But to ensure these better times continue,
it will require consistent vigilance and effort by both WAPA
and the other PMAs, the customers, and Congress in our
oversight role.
There are also a number of broader issues and emerging
challenges that I look forward to discussing with the panel
today. Chief among them in my view is the long-term
competitiveness of the PMAs. The upward trend of PMA rates and
cheap power on the market have left wholesale contracts of some
customers underwater. This could get out of control real fast
if we don't take it seriously, and we all have a role in making
sure that doesn't happen.
The PMAs themselves, in conjunction with the customers,
must continue to take a hard look at costs and financial
stability and must not take their customers for granted.
Congress has an important role in this as well. We cannot
saddle the federal power system with new direct costs,
regulatory burdens, or ancillary missions, and we cannot let
federal agencies do this either. If we allow these agencies to
be treated like piggybanks or test beds, it will threaten the
long-term success of the PMA model.
I look forward to hearing from our panel about how we can
protect and improve on the use of federal hydropower and
transmission resources.
With that, I now turn to my Ranking Member, Senator Cortez
Masto.
STATEMENT OF HON. CATHERINE CORTEZ MASTO,
U.S. SENATOR FROM NEVADA
Senator Cortez Masto. Thank you. Thank you, Chairman
McSally, for calling this hearing on the Power Marketing
Administrations. In 33 states, PMAs manage a unique
relationship between the Federal Government and energy
customers, marketing the cost-based federal hydropower that
truly built the West. These organizations knit together many
communities in states like Nevada by providing the most basic
service: affordable, reliable, clean energy.
So I thank the panelists for traveling here today to
testify, and I extend a warm welcome to Administrator Gabriel,
whose Western Area Power Administration serves my home state,
as well as the other Administrators and Ms. Fuller, who
represent the vital perspective of the preference customers.
Thank you all for being here today.
I want to first highlight the agreement on both sides of
the aisle on maintaining public ownership of the Power
Marketing Administration transmission assets paid for and
maintained by customers. These assets are a valuable public
good, and it would be unwise and shortsighted to privatize or
sell them off to the highest bidder. These transmission lines
and the services they provide bring together the members of
this Committee just as they connect so many of the communities
and energy resources in the states we represent.
Despite several proposals put forward by the current
Administration, transmission assets and other infrastructure
managed by the PMAs need continued investment, maintenance, and
potentially even expansion. Rather than turn our backs and sell
off this vital infrastructure, I see an opportunity to build
successful programs like WAPA's Transmission Infrastructure
Program, or TIP, which has already financed two transmission
lines in Arizona and Montana with several more proposals under
consideration. Instead of standing by while the current
Administration's politics interfere with TIP's financing
authority, this Committee should strengthen and defend it and
even consider how its model could be applied in other states
and PMAs or for other uses.
We are in a period of rapid changes in the energy landscape
as we move away from fossil fuels and toward increased
renewables and electrification across America. This means the
nation's electric transmission needs will continue to grow.
One study from the National Renewable Energy Lab indicated
that expanding the grid to connect its eastern and western
sections would enable a more flexible system and reduce
greenhouse gas emissions. It is impossible to think about
infrastructure in the West without considering drought and
water availability, the lifeline of the PMAs. And the science
points to greater risk of more frequent and severe drought
along with reduced snowpack, a potentially devastating change
for western States like Nevada.
Timing is everything in hydropower. Changing precipitation
patterns pose a fundamental threat to low-cost power that is
key for economic prosperity in my home state, not to mention
impacts to the environment, human life and property, and other
sectors of the economy, like recreation.
I know this challenge is front and center in ongoing PMA
planning efforts. I look forward to hearing from our panelists
on this topic because it underscores the threat of climate
change for our communities out West. Inaction and poor planning
may lead to greater risks and higher costs across each of the
PMAs. When delivering basic services like water and power,
there is no room to deny the obvious: the climate is changing,
and we need to plan for this in the PMAs.
Finally, I recognize that electricity markets have been and
still are changing dramatically. Flattened demand for power,
low-cost natural gas, solar and wind, and distributed resources
are changing the resources available to and needed by
customers. This is a time of great opportunity, but climate
change also makes it one of incredible responsibility.
I want to make sure you have the support and access that
you need at the Department of Energy to be successful, and I
look to today's panel to illustrate paths forward to maintain a
reliable, affordable, and increasingly clean source of power in
the West and across the nation as a whole.
Thank you.
Senator McSally. Thanks, Senator Cortez Masto.
We will now turn to our witnesses. We have all four PMAs
represented at the hearing today, along with Nicki Fuller,
Executive Director of Southwestern Power Resources Association,
who is very active in the National Preference Customer
Committee, APPA, and the NRECA to represent preference
customers.
Thanks, everybody, for being here. I look forward to our
conversation and ask that you limit your verbal testimony to
five minutes. Your full remarks will be submitted for the
record.
With that, the Subcommittee recognizes Mr. Mark Gabriel,
the CEO and Administrator of the Western Area Power
Administration.
STATEMENT OF MARK A. GABRIEL, ADMINISTRATOR,
WESTERN AREA POWER ADMINISTRATION
Mr. Gabriel. Thank you, Madam Chairwoman and members of the
Subcommittee. I am Mark Gabriel, the Administrator of the
Western Area Power Administration, and I am pleased to speak
with you today regarding the status of WAPA as we continue to
invest in a connected energy future.
In 2018, WAPA delivered more than 27 billion kilowatt-hours
of at-cost hydroelectric power to customers. This power
supports the prosperity and viability of rural communities,
Native American Tribes, military bases, irrigation districts,
and other customers, who, in turn, serve 40 million Americans
in the West.
Last year, about 80 percent of our nearly 700 customers
experienced stabled or decreased rates, and WAPA's rates are
often among the lowest in the country. More than 94 percent of
our budget comes directly from customers, and the
appropriations we receive are paid back to Treasury with
interest. Since 2013, we have returned $1.8 billion to Treasury
to recover the original investment in dam and energy
infrastructure and repay appropriations.
WAPA employees were activated to support power restoration
in Hawaii, Guam, and the Northern Mariana Islands as part of
the Federal Emergency Management Agency's disaster response
teams. We responded to July's Carr Fire in Northern California,
and in an unprecedented situation, 15 transmission lines and 8
substations were out of service. Despite the challenges, we
continued supplying power to the area to keep as many people
energized as possible.
In 2018, cybersecurity tools identified more than 10,000
individual cases of suspicious activities on our system, and
WAPA's firewalls are pinged nearly 200,000 times daily by
suspicious or potentially damaging events.
We have completed more than 345 physical security
assessments since 2014, and we'll complete all asset risk
assessments in 2019. We are optimizing on interdependencies
between our cybersecurity, physical security, and asset
management programs. To better assign limited resources,
achieve more effective protection for extensive assets, and
contain costs, we look at grid security holistically so that
each effort compliments and strengthens the other. It is a
challenge, however, to expect a small subset of our customers
to pay for all of the national security needs for millions of
Americans in the West.
We've also been recognized for numerous innovative
achievements. Our transparency efforts garnered two awards, one
in corporate social responsibility by an international public
relations firm, and one Gears of Government Award, which
recognizes employees who deliver key outcomes for the American
people. We also received two other Gears of Government Awards
for helping delist a plant from the endangered species list and
using a food grade chemical derivative to deter invasive birds
from roosting in substations.
WAPA is exploring new technologies that can improve
efficiency, security, and effectiveness of the electric grid,
including unused fiber capacity and artificial intelligence.
Participating in these initiatives will help us keep pace with
the industry developments, modernize the grid, and invest in a
connected energy future.
WAPA is also evaluating its operational risk and
vulnerability to wildfires. Our thorough vegetation management
programs mitigate unnecessary risk, but more can be done. We
are reviewing these programs and taking steps with our state
and federal partners to ensure what we are doing to prevent
fires caused by power lines.
With $4.3 billion in assets, WAPA represents one of the top
10 largest transmission organizations in the nation. Annually,
we expend about $1.3 billion to deliver on our mission. We need
to make well-informed and realistic decisions about how to
invest in our infrastructure to support future needs.
In the next 10 years, we anticipate investing $1.6 billion
in our assets, and WAPA continues to work with customers to
flatten peaks and anticipate its spending and provide
attainable financial expectations.
The bulk of this investment will maintain and upgrade the
backbone transmission assets in our system, including more than
100,000 structures along 17,200 miles of transmission lines,
322 substations, and 291 high-voltage transformers. Our asset
management program is looking to more efficiently acquire those
transformers by cutting the lead time for procurement in half.
This effort will support life-cycle replacements and periodic
system additions and allow WAPA to more quickly recover from an
unexpected loss of power transformer, including a high-impact,
low-frequency event.
In today's increasingly complex and connected world,
success requires close collaboration and mutually beneficial
partnerships to preserve the value of WAPA. Through transparent
and respectful partnerships with our customers and others, we
can invest appropriately to ensure our ability to supply
premier power and transmission services at the lowest possible
cost consistent with sound business principles.
Thank you, Madam Chairwoman. I am pleased to answer any
questions that you or members of the Committee may have.
[The prepared statement of Mr. Gabriel follows:]
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Senator McSally. Thank you, Mr. Gabriel.
And now Mr. Dan James, the Deputy Administrator of the
Bonneville Power Administration. You are recognized for five
minutes.
STATEMENT OF DANIEL M. JAMES, DEPUTY ADMINISTRATOR, BONNEVILLE
POWER ADMINISTRATION
Mr. James. Chairman McSally and Ranking Member Cortez
Masto, I'm Dan James. I am Deputy Administrator of the
Bonneville Power Administration. And I'd ask that my full
testimony be submitted--included in the record.
Senator McSally. Without objection.
Mr. James. I also bring apologies from Elliot Mainzer, our
Administrator, who was not able to be here today.
BPA is the federal Power Marketing Administration serving
the Pacific Northwest. We market the power generated from 31
federal dams and the Columbia Generating Station nuclear plant.
We also own and operate three-quarters of the high-voltage
transmission in our region, including the interties that
connect the Northwest with Canada and California.
This afternoon I would like to briefly report on
Bonneville's financial condition and touch on several pending
issues.
BPA's financial position is sound. The agency is entirely
self-financed through its rates for power and transmission
services, and, of course, we receive no federal appropriations.
I want to note that in 2018, BPA completed its annual payment
to the U.S. Treasury of $862 million, and this repayment
represents 35 consecutive years of full and timely repayment to
U.S. taxpayers for their investments in the Northwest power and
transmission system. The completion of this annual repayment is
evidence of BPA's financial health and the ability to satisfy
its obligations.
Earlier this month, the nation's major independent credit
agencies reported their high ratings on non-federal debt backed
by BPA. These ratings represent independent review of BPA's
cost management and value. Looking forward, our financial
condition and long-term costs are of paramount importance. The
affordability of federal power is the cornerstone of the
economic vitality of many Northwest communities. Our current
long-term power contracts are up for renewal in 2028, and our
customers want to know if they can renew their contracts with
confidence in BPA's commercial viability.
To that end, BPA executed--is executing on its 2018 to '23
strategic plan, and we released that plan at the end of last
year with four goals in mind: first, to strengthen our
financial health; second, to modernize assets and system
operations; third, to provide competitive products and
services; and, fourth, to meet transmission customer needs
efficiently and responsibly. We are executing on each of those
goals.
Most immediately, through cost management, our proposed
power rate increases for 2020 and 2021 are less than the rate
of inflation. In addition to keeping our power rates low, we
have reached a rate settlement with our transmission customers
for transmission and ancillary services in the next rate
period. We also reached an agreement with more than 150
customers on a new transmission tariff, which outlines the
terms and conditions of our transmission services. This new
tariff and the new flexibility to regulate--to regularly update
our terms and conditions will allow us to improve our
commercial performance in the rapidly changing industry.
As the steward of robust but aging assets, we continue to
collaborate with our federal partners, the U.S. Army Corps of
Engineers and the Bureau of Reclamation. We are working with
those agencies on an asset investment plan to ensure the long-
term affordability and reliability of the hydropower system.
We are also pursuing discussions with these partners about
the growing demands on the multiple purposes of the hydropower
projects and the allocation of costs among those purposes. We
see, in some instances, that the formula for cost allocation
may not reflect the revised operating requirements and the
associated benefits.
The electric industry in the Pacific Northwest and
throughout the West is evolving rapidly. States are adopting
policies to support clean electric generation and to optimize a
change in resource mix. Bonneville is responding through our
grid modernization initiative. This includes a focus on
commercial and operational modernization. We're implementing
projects to improve efficiencies, reduce costs, and help us
leverage new market opportunities to increase revenues. We're
also working to determine how and under what conditions the EPA
can join the energy imbalance market.
This work supports our strategy, which is based on
operating a commercially successful business while meeting our
public responsibilities. Our environmental obligations are
central to our--to those responsibilities. Last year, we
reached an important agreement with Northwest States, Tribes,
and our federal partners to test flexible spring operations at
Columbia and Snake River dams. We also want to report that the
Columbia River Treaty negotiations are underway and that the
Columbia River system operation review is underway and is
proceeding officially with our federal partners.
And with that, Chairman McSally, I conclude my testimony,
and I'd be happy to answer questions at the end.
[The prepared statement of Mr. James follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator McSally. All right. Thank you, Mr. James.
We now have Mr. Kenneth Legg, Administrator of the
Southeastern Power Administration. You are welcome to testify
for five minutes.
STATEMENT OF KENNETH E. LEGG, ADMINISTRATOR, SOUTHEASTERN POWER
ADMINISTRATION
Mr. Legg. Madam Chair and members of the Subcommittee, I am
Kenneth Legg, Administrator of the Southeastern Power
Administration. I'm honored to appear before you this
afternoon.
With a staff of 44 full-time employees, Southeastern
markets approximately 3,400 megawatts of power produced at 22
multiple-purpose projects, operated and maintained by the U.S.
Army Corps of Engineers. Last year, Southeastern sold
approximately seven billion kilowatt-hours of energy to 485
wholesale customers with revenue totaling $307 million.
Regional program benefits reached over 12 million homes and
businesses.
Rates are formulated to recover costs of program operation
and maintenance, purchase power and transmission expenses, and
amortized capital investments. Southeastern delivers federal
hydroelectric power at the lowest possible cost consistent with
sound business principles to public bodies and cooperatives.
In December 2017 and early 2018, 11 of Southeastern's
Georgia, Alabama, and South Carolina system customers notified
us of their desire to terminate their federal power contracts,
representing about 85 megawatts of hydroelectric generation.
Southeastern solicited interest in receiving supplemental
allocations among our other customers in that marketing system.
We received positive responses from 63 customers across the
five-state region. Southeastern was able to make the necessary
transmission service changes, expediting most of the
terminations and beginning supplemental allocation deliveries
as early as January 1, 2019.
Late last week, we received formal notification from one
additional customer of their desire to terminate their power
contract of 13.4 megawatts. All power will be marketed with no
loss in revenue prior to contract termination of these former
customers.
The Water Resources Development Act of 2000 enabled
hydropower customers to provide the Corps funding to improve
generation infrastructure, reliability, and capability. Since
2004, Southeastern has transferred $518 million of power sales
revenues to accomplish hydroelectric power equipment
replacements and renewals. One of the memoranda of agreements
that support these equipment rehabilitations was recently
amended to facilitate work now being performed across all four
rate systems.
Southeastern maintains a cooperative working relationship
with its preference customers and with the Corps. Financial and
operational issues are discussed regularly among members of the
Southeastern Federal Power Alliance and Team Cumberland, which
were established in 1991 and 1992 respectively.
Over the past 2-1/2 years, fellow administrators and I have
met with Corps commanding generals to discuss topics critical
to the sustainability of our respective federal hydroelectric
power systems. Areas for potential cost reduction include
contracting strategies, cost accounting, water storage program
administration, and O&M staffing efficiencies. Last year, the
effort was expanded to also include the U.S. Bureau of
Reclamation.
In spite of efforts to keep program costs as low as we can
so that our rates will be competitive in today's power
marketplace, our rates continue to go higher. To a large
extent, this is the result of increased costs of repayment for
infrastructure rehabilitation that was long past due. We are
very aware of--that other renewables and energy produced with
low-price natural gas provide attractive alternatives to
hydropower, keeping our rates competitive, while meeting
repayment obligations will continue to be a critical issue for
Southeastern.
Thank you, Madam Chair and members of the subcommittee.
This concludes my presentation of Southeastern Power
Administration's programs, issues, and challenges. I look
forward to answering any questions you have.
[The prepared statement of Mr. Legg follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator McSally. Thank you, Mr. Legg.
We now have Mr. Mike Welch, Administrator of the
Southwestern Power Administration. You have five minutes to
testify.
STATEMENT OF MIKE WECH, ADMINISTRATOR, SOUTHWESTERN POWER
ADMINISTRATION
Mr. Wech. Madam Chairwoman and members of the Subcommittee,
I am Mike Wech, Administrator of Southwestern Power
Administration. Thank you for the opportunity to be here today.
For over 75 years, Southwestern has worked with Congress,
our customers, and other stakeholders to successfully market
and deliver federal hydropower at the lowest cost consistent
with sound business principles. As one of four Power Marketing
Administrations in the nation, Southwestern markets a little
over 2,000 megawatts of capacity from 24 multipurpose projects
owned by the U.S. Corps of Engineers.
On average, Southwestern markets 5.6 million megawatt-hours
of energy each year, bringing in about $200 million in revenue.
This revenue comes directly from the rates we charge our
customers. It's used to repay the investment with interest in
the facilities we operate and the personnel we employ to run
our program. In short, Southwestern recovers every penny we
spend through the rates we charge our customers.
We serve 102 customers. They, in turn, serve another 10
million end users in Arkansas, Kansas, Louisiana, Missouri,
Texas, and Oklahoma. Within our region, our system of
reservoirs is almost entirely dependent upon rainfall. Water
storage is measured in months, not years. When drought occurs,
we must purchase power to replace the hydropower that cannot be
generated so that we can continue meeting the obligations to
our customers.
To fund our purchases, we have historically relied on
Congressional authority to use our receipts over the long-term
across good water years and bad. Purchase power and wheeling
balances have been available to Southwestern so that we can
achieve rate stability for our customers. This authority is
critical to operating our program according to sound business
principles.
Sound business principles also mean keeping costs down.
Historically, leasing our headquarters in Tulsa, Oklahoma, has
been a large expense. We've done the research that shows by
buying a facility instead of leasing, we will save our
customers $12 to $18 million. Once implemented, this would be
one of the biggest single cost savings in the agency's history,
resulting in significant downward pressure on our customers'
rates.
Another way to realize long-term cost savings is through
investment in the nation's infrastructure. Our well-established
customer funding program facilitates investment in the core
hydropower generating plants, and I'm happy to report that our
ratepayers have approved nearly $750 million to date to repair
and rehabilitate this critical infrastructure.
As for investment in the transmission system, Southwestern
has a long-term construction plan that prioritizes how we spend
our money while keeping costs down and we work with our
regional partners to make sure that our investment program
aligns with regional planning strategies.
We are also engaged with our regional and national utility
partners in making sure that electrical demand is met, even in
crisis situations. Southwestern plans and trains to respond to
bulk-power system interruptions and physical and cybersecurity
threats.
We also participate in regional power system restoration
exercises with the Southwest Power Pool and in national drills,
such as the North American Electric Reliability Corporation
GridEx program. This kind of training gives us the chance to
demonstrate how we would respond to and recover from simulated
coordinated threats and incidents and allows us to strengthen
crisis communication skills while evaluating the lessons
learned.
Southwestern's Fiscal Year 2020 request nets to an
appropriation of $10.4 million, which is just under 7 percent
of our $157 million total program need. The use of
Congressionally-approved alternative financing and offsetting
collection authorities to fund expenses and purchase power and
wheeling are essential to Southwestern accomplishing its
mission with these minimal appropriations.
Regardless of the funding source, all our costs are repaid
through power rates charged to our customers. Generally, the
more funding flexibility we have, the more efficiently we can
operate our business and provide a high-value product.
Madam Chairwoman, this concludes my testimony. I'd be happy
to address any questions that you or members of the
Subcommittee may have.
[The prepared statement of Mr. Wech follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator McSally. Thank you, Mr. Wech. Sorry for
mispronouncing your name. My staff had a note here, and if I
had looked at it, I would have said it correctly.
Mr. Wech. It's not a problem. The magical ``l'' appears all
the time.
Senator McSally. All right. Well, I appreciate it.
Last but not least, we have Ms. Nicki Fuller, the Executive
Director of Southwestern Power Resources Association. You have
five minutes to testify.
STATEMENT OF NICKI FULLER, EXECUTIVE DIRECTOR, SOUTHWESTERN
POWER RESOURCES ASSOCIATION
Ms. Fuller. Thank you.
Madam Chairwoman and members of the Subcommittee, my name
is Nicki Fuller and I am the Executive Director of the
Southwestern Power Resources Association, or SPRA. It is an
honor to be here today to share our customers' perspective of
the PMAs and the entire federal hydropower program.
SPRA is a not-for-profit association of rural electric
cooperatives and public power systems in Arkansas, Kansas,
Louisiana, Missouri, Oklahoma, and Texas that buy power from
the Southwestern Power Administration (SWPA). Collectively,
SPRA's members serve nearly 10 million citizens with clean,
renewable hydropower generated at Army Corps of Engineers-
operated dams and marketed by SWPA. Unlike other federal
programs, the federal hydropower program costs the taxpayers
absolutely nothing, yet benefits millions of citizens while
investing in the federal infrastructure assets.
We are proud of the work that we have done in our area with
SWPA and with the Corps to be good stewards of the federal
infrastructure and to ensure its viability. But to quote a
common disclaimer on TV commercials, past performance is not
indicative of future results. The PMAs and the federal
hydropower customers face challenges that must be addressed to
ensure the long-term economic viability of the program and its
many associated benefits.
First, we will turn to rates and competitiveness. Dramatic
market changes in recent years have increased pressure for PMA
rates to be cost competitive. Unfortunately, there is a growing
trend of loading PMA rates with exorbitant expenses unrelated
to generation costs. In BPA alone, costs for fish and wildlife
mitigation comprised roughly 30 percent of BPA's rates. BPA's
customers contribute up to $750 million per year for direct and
indirect fish expenditures. For the customers of the Central
Valley project in California, environmental costs have pushed
the price for federal hydropower over market four of the past
six years.
My members have been extremely grateful to SWPA. With even
with the upward pressure on rates, they've been able to hold
them steady for the past six years. This was due to some
extreme cost-cutting measures put into place by several SWPA
administrators over the past six years, but these measures were
only a Band-Aid. Greater action must be taken to ensure PMA
rates remain competitive now and in the future.
We commend the PMAs for their continued efforts with the
regenerating agencies both regionally and nationally to find
processes and operational efficiencies as major reinvestment in
federal hydropower takes place. Speeding up acquisitions,
reducing outage times, and improving cost assignment practices
will help keep federal hydropower competitive. Additionally, we
would ask Congress to help us ensure that no laws are passed
which would burden federal hydropower rates with even more
unrelated costs.
Finally, legislation recognizing federal hydropower for the
clean, renewable energy source that it is would add significant
value by allowing my members to receive renewable energy
credits and other renewable incentives which are properly due
for their SWPA allocations.
Next we will look at transparency and customer involvement.
Not only are the statutory and legal frameworks in which the
PMAs operate different, the customers themselves and the
relationship they have with their PMAs are diverse. At SPRA and
within SWPA's footprint, we consider ourselves extremely
fortunate. Quarterly, SWPA updates my board and me on all
issues of importance and asks for input on measures large and
small. This transparency is the key to our long and successful
relationship as business partners.
Not every customer group is able to say they feel as if
they have the transparency they desire or have an accurate
accounting for each dollar collected through their rates. Each
PMA needs to be cognizant of the needs of the not-for-profit
utility customers and ratepayers paying the bills. As utility
operators, we can provide insight and advice on issues faced by
the PMAs. I believe, with increased communication, each PMA
would find a trusted advisor in their customers to help
navigate the complex and evolving world of electricity markets
and distribution.
Finally, I'd be remiss for not mentioning the repeated
proposals calling for the sale in whole or in part of the PMAs,
which are seriously misguided and in needless distraction from
the real issues at hand. As I previously stated, taxpayers do
not subsidize or pay for any activity of any PMA, including
SWPA; therefore, there would be no savings to the Treasury with
this proposal. In fact, if federal hydropower customers did not
pay the power rates, the taxpayers would have to fund the joint
use costs for the dams currently included in the PMA power
rates. This proposal would cause increased power bills for
primarily rural end users across the country while not saving
the Treasury a single dollar.
Madam Chairwoman, this concludes my testimony. I look
forward to any questions you might have. Thank you.
[The prepared statement of Ms. Fuller follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator McSally. Thank you, Ms. Fuller.
We will now get on with questions, and I will start that
off. Many of you touched on it in your statements, as did I in
my opening statement, but the long-term competitiveness of PMA
power is something we really need to be focusing on. Again,
many of you started to get into it. SEPA has seen some
customers relinquishing power contracts, but similar pressures
exist, as you mentioned.
So the question is, can you talk a little bit more about
where PMA hydro in your region sits in the overall market and
efforts underway to ensure federal hydropower resources remain
competitive going forward?
And Ms. Fuller, obviously, I would appreciate any
additional thoughts on this issue based on the customer
perspective.
We will start with Mr. Gabriel.
Mr. Gabriel. Thank you. One of the focuses that we've had
certainly in the past six years that I've been Administrator is
making sure that we maintain our costs in line with what's
happening in the industry. Now you have to keep in mind that
WAPA really consists of 10 separate systems, each with its own
financing mechanism and each with its own operating behaviors.
The good news for us is that with the exception of the
California system, our market rates are--rates, rather, are
significantly below those in the market. In fact, very often we
are the price-maker in a market.
Now where we have challenges, as was mentioned a little bit
earlier, is in California, not due to the Bureau of Reclamation
or WAPA costs per se, but the Central Valley Project
Improvement Act, which, in certain years, can cause the cost of
our power to go out of market. Now it's an interesting
challenge because the cost of that is split between the water
users and the power users. And in very dry years, or,
ironically enough, in very wet years, the cost for the Central
Valley Project Improvement Act pushes us out of market. The
actual cost of our power is very reasonable or within the
market range.
I think it's also important to understand that the spot
market price is not the price for long-term power contracts,
and all of us deal on the longer-term basis. So really the
parallel needs to look at, what is a mid-term and long-term
contract by comparison?
Because, as I said, we're fortunate in Arizona, for
example, we are roughly 40 percent below anyone in that
marketplace. We continue to focus on three things. One is
continuous process improvement, which over the past four years
at WAPA has meant the elimination or avoidance of about $88
million in costs. We also focus clearly on asset management,
and it's done in partnership with our customers to understand
what we should fund and how we should fund it and what the
timeframe is. And third, and I will say it's fortunate, we've
had some very good water years. This one happens to be a good
water year. That helps. And if I also may add, in the case of
the Southwest Power Pool, where we join on the eastern side of
our system, that has turned out to be much better than we
initially anticipated. This year alone resulted in about $48
million of additional sales, which help maintain and reduce the
costs for our customers.
Senator McSally. Great. Thank you.
Mr. James?
Mr. James. Thank you, Chairman McSally. So----
Senator McSally. Can you put your microphone on again?
Mr. James. Oh, yes. Sorry. Thank you. Thank you.
We--the central tenet of our strategic plan is delivering
on our public responsibilities through a commercially
successful business; one has to go with the other. Key to that
is managing our costs. We, as I mentioned, are--have proposed a
rate increase below the rate of inflation for the upcoming rate
period. We are working very closely with our customers and
stakeholders and the Corps and the Bureau and Energy Northwest,
who operates the Columbia Generating Station, on asset
investment priorities that reflect implementation of our plan.
We--I mentioned our grid modernization effort, which is
meant to focus on the strategic priorities of our plan to
maximize the value of the output of the FCRPS and the Columbia
Generating Station. And really the central tenet of all of that
is maintaining affordable rates, system reliability, and
meeting our statute of--our statutory obligations. It's a
balancing act. But at the end of the day, we have to have
customers when our long-term contracts expire in 2028, and
demonstrating trust with them that we have the ability to
manage our costs for the long-term is key to delivering on the
tenets of our strategic plan.
Senator McSally. Great. Mr. Legg, you already mentioned
that you had 63 other customers increase their request, but do
you have concerns about the longer-term----
Mr. Legg. In terms of overall marketability and
sustainability, no, but we are working hard to try to reduce
our prices, as Mr. Gabriel mentioned. The product we sell, as
Power Marketing Administrations, is a guaranteed capacity with
associated energy. In Southeastern's case, it's peak energy,
and it's relatively limited. But what--so often the comparison
is made with the spot market energy prices, and we fall below
partly because of subsidies and other incentives for
renewables.
Senator McSally. Great. I am over my five minutes. I want
to lead by example here. We can come back to the last two
witnesses on this topic. I want to know.
Senator Cortez Masto.
Senator Cortez Masto. Thank you. I am going to take an
opportunity to defer and ask my questions after my colleague,
Senator Cantwell, and give her an opportunity. Thank you.
Senator Cantwell. Thank you. Thank you to Senator Cortez
Masto for that. I appreciate it.
I appreciate everybody's testimony today, and especially,
Ms. Fuller, thank you at the end for clarifying. I was just out
in the hall with a reporter who I had to explain again to them
that the system is paid for by the taxpayers, and so the notion
that people do not fully understand public power, they just
know that we have affordable electricity, and that is what we
have to continue.
I have said to many members of this Committee, anybody else
who wants to pursue other ideas of cost-based power for the
benefit of our nation, I am happy to pursue those because I
think it is a very distinguishing feature for what drives an
economy.
My colleague, Senator Risch, I know probably would love to
be here but is busy on other things. But he and I plan to send
a letter to the OMB, Director Mulvaney, on the fact that we do
not support his idea. Thank you for articulating why that is a
bad idea. I know if our colleague, Senator Alexander, was here,
he would probably restate his comments about what he thought
about this idea when it was previously proposed. I think he
just said it's loony, and I think that kind of just sums it up.
It is just a really loony idea. But behind the looniness is
also a very big economic impact.
Mr. James, the Northwest Public Power Conservation Council
put out that electricity rates could rise as high as 24 percent
if this kind of concept were pursued. Do you have any numbers
or analysis by BPA on selling off the Power Marketing
Administrations?
Mr. James. I don't, but we'd be happy to--we'd be happy to
respond to any--any question that you would ask in writing. I'd
be happy to get back to you there.
Senator Cantwell. Do you think that we would see a big
increase in price?
Mr. James. I know that it would--it would be disruptive. As
you know, we are prohibited by law from actually studying--
studying that. But there would be a lot of uncertainty. We
assume that there could be costs associated with contract--with
contract changes, breach of contract claims, and workforce
issues, among many others.
Senator Cantwell. Well, unless I am mistaken, it is pretty
basic. You have cost-based power, the cost that it takes to
produce the power, and that is an underpinning not only of
public power in the Northwest but of private power that gets
and buys some of that power.
Mr. James. They buy--they buy power from us. They also buy
transmission services from us.
Senator Cantwell. Exactly. So we have produced very
affordable, obviously, cost-based power.
On the other side of the equation, you would basically be
saying to people, let's turn this into a monetization, and the
highest bidder gets to sell their electricity on the grid. So
you are not going to get cost-based power, you are going to get
people bidding up the price of selling power on the grid. That
is only going to just keep rising the rates higher and higher
and higher. And I think our job, particularly in a global
economy where we are going to be competing on so many fronts,
particularly in the areas of manufacturing, is to figure out,
whether we are talking about natural gas or other sources of
electricity, how we continue to drive down our costs,
particularly on the energy side, with clean energy instead of
these ideas that somehow are magically going to pay down the
debt when in reality they are already paying back--BPA is
already paying back more and paying down the debt.
So I agree with Senator Alexander, it is loony, just loony.
Mr. James. I would say, Senator Cantwell, that one of the
reasons that we are making our grid mod--or grid modernization
investments is to stretch the value of the dollar that the
ratepayers are paying to maximize the output of the FCRPS and
to meet the region's clean energy needs.
Senator Cantwell. If anything, I would be moving faster,
and you and I and the Administrator at BPA have had this
conversation. I think the Power Marketing Administration
represents some great opportunities to look at next-generation
technology on storage, and to almost be an incubator, if you
will, on some scalable ideas of how we integrate with wind and
solar and other alternatives and how we have storage solutions
for the future. So we should not be throwing this great idea
that has paid benefits to our country for so many years out the
door; we should be doubling down on it. So thank you, and thank
you for the courtesy.
Mr. James. Thank you, Senator.
Senator McSally. All right. Now, Senator Cortez Masto.
Senator Cortez Masto. Thank you.
I appreciate you all being here again.
Let me just address to all of you the issue of climate
change. As we all know, the changing climate is impacting
communities differently across the country, but what is clear
is that for most communities, the impacts are not positive. In
the West, climate scientists are projecting more precipitation
as rain and less as snow. It turns out our snowpack is the best
form of energy storage there is and less of it has huge
implications on power production at federal hydro facilities.
So let me ask each one of you--and Mr. Gabriel, we will
start with you--can you please describe how you are looking at
the cost of changing precipitation patterns, what costs are
becoming apparent, and how are you planning to manage those
costs?
Mr. Gabriel. Thank you, Senator. We live in the world where
climate and weather every single day impacts both the flow of
power as well as the sanctity of our transmission system. So
there are several components for us. And keep in mind our
service territory is very large, so weather in one part and
climate in the other part can be very different. I always
describe our footprint as we go from Paris to Moscow and Athens
to Oslo, if you think about the geography of 1.4 million square
miles. And so it's very possible in one region to have heavy,
heavy snow, and the other region to not have enough snow. So
each one of our ten systems we look at differently. We have to
understand what happens on the Missouri system will be very
different than what's happening for us in California. So our
planning looks out both in terms of the short-term to
understand, what are we going to need to supplement the power?
That's why things like purchase power and wheeling are so
critical for our customers.
The two things that customers really need: one is
reasonable costs, and the other one is predictable costs. So we
have to balance both our understanding of what we're going to
be buying for power--should we not have it?--as well as our
ability to sell excess generation when we have it to create a
balance. So it's really an interesting--it's an interesting
dynamic, one that changes depending on which part of our system
we're operating at. The Missouri River System, for example, has
two years of water. We have far less when we get to the Lower
Colorado where we're operating on looking at it literally on a
month-by-month basis.
So for us, it's really a balance point between dealing--
taking the hand that we're dealt, also planning with our
customers for purchase power and wheeling, and then
understanding how the market dynamics are going to be changing
over the next decade or so, particularly as markets hit the
West.
Senator Cortez Masto. So let me ask you this, are you not
seeing any changes in weather patterns over the last couple of
years as compared to the previous ten years, particularly with
precipitation?
Mr. Gabriel. We're--again, this year is a perfect example.
We have very heavy snowpack in virtually all of our system,
right?
Senator Cortez Masto. Okay.
Mr. Gabriel. We're at 153 percent in Colorado. So that's
very different than we had three years ago.
Senator Cortez Masto. Right.
Mr. Gabriel. Two years ago in California, tremendous snow.
So it really varies, and predicting the weather and
understanding what that long-term climate impact is is
something that we look at on a very regular basis.
Senator Cortez Masto. So is it safe to say that you are
always going to be flexible when dealing with the weather
change, and climate change is not having an impact on what you
are seeing with respect to precipitation versus snow?
Mr. Gabriel. That's what--we have to be--yeah, flexibility
is critical. That's why the transmission infrastructure is so
critical.
Senator Cortez Masto. Okay.
Mr. Gabriel. As I said, as we move power from one spot to
the next, it really is very dependent. You can literally go
over one mountain range and have plenty of snow, and then go to
the other, and you don't. We have to operate on a--on a daily
basis with understanding the hand that we're dealt at that
moment.
Senator Cortez Masto. Yes, that is fair.
Mr. James, the same thing. Are you seeing any change in the
weather patterns as compared to previous, maybe ten years over
the last two years?
Mr. James. We are, Senator. We also are seeing different
basins and different--different amounts of moisture. And, of
course, we--we track that very carefully because at the end of
the day, we have loads and resources that always need to match.
So we need to balance the system over the course of the year,
you use storage that way. You use the--you maximize the
investments in the transmission system that way. We've
absolutely seen that over the last--last ten years, and we're
living with that kind of uncertainty all the time.
Senator Cortez Masto. Thank you.
Mr. Legg, the same?
Mr. Legg. In the case of Southeastern Power, we--we have no
snowpack, so we----
Senator Cortez Masto. Right.
Mr. Legg. ----we don't have that to rely on. We are very
dependent on inflows from--from rains. The Southeast has seen a
lot of rainfall this year. All of our reservoirs are full to
maybe a foot or so above normal in many cases.
Senator Cortez Masto. Is it unusual, or do you anticipate
similar rainfall next year?
Mr. Legg. Well, for the upcoming year, we're looking at
basically 50-percent chance of--above 50-percent chance below
normal. So a normal--we're getting what the--what the
meteorologists tell us we would normally get.
Senator Cortez Masto. So this is a normal weather pattern
for you.
Mr. Legg. It is not an--as far as our history of the past
ten years go----
Senator Cortez Masto. It is not.
Mr. Legg. ----we had many years of extended drought, and
the reservoirs in the Southeast are shallow compared to the
ones in the West. So in terms of amount of water stored in
those reservoirs, it's measured in terms of weeks, not in terms
of years. So, again, we're very dependent and we rely on
basically whatever flows into the reservoirs, the Corps of
Engineers will generate, and the output will be marketed by us.
Senator Cortez Masto. I appreciate that.
Mr. Wech, you get off lucky, I am out of time.
Thank you.
Senator McSally. Well, I will pick up with Mr. Wech and Ms.
Fuller, if you have any comments on my last question, just
related to competitiveness of hydropower in your market, steps
being taken additional to what you shared already, and any
concerns about the future competitiveness.
Mr. Wech. Thank you for your question. And in answer to it,
in short, you heard in my testimony we're--we're making
significant strides to try and be cost competitive. Last year,
we reduced our office space under the GSA lease to save over
$1.5 million toward the ratepayers. Right now, we're pursuing
the option to purchase a new headquarters facility and not
lease from the GSA at all. That's going to save $12 to $18
million, depending on the facility purchased against the net
present value of the lease that we have in place.
So we're looking at every avenue we can to try and be cost
competitive to save costs. We've--we've done a thorough
evaluation, actually a reevaluation, of our transformer and
conductor replacement strategies for power system equipment and
extending the life after doing significant testing and studies
to show that we can actually utilize that equipment for a
longer period of time; that saves the ratepayers.
And then to go back to your original question, Where are we
at in terms of cost competitiveness? We're very much like my
fellow Administrators. We have what I call a dual product. We
have the firm peaking energy product, which is made up of the
firm transmission assets that deliver the federal hydropower,
the capacity to back up the energy at the hydropower plants,
and then an ancillary service product.
But we also have a surplus energy product, we call it
supplemental energy. That's when we have excess water that
comes into the projects from heavy rain. And so that project--
excuse me--that product helps to supplement and blend with the
firm power rate. When you look at us compared to market, if you
just looked at our 1,200-hour firm energy contracts for
peaking, we're about $61 a megawatt-hour compared to market
rates of $35 on average in SPP and MISO. If you were to blend
our rate together with the surplus energy on average years that
we have, we're at about $33 a megawatt compared to the $35 for
market. But again, I would stress, back to Mr. Gabriel's
comment earlier, don't just look at the spot energy price, look
at the totality of the project and the products offered, which
are the capacity, the energy, the firm transmission, and the
ancillaries.
Senator McSally. Great. Thanks.
Ms. Fuller, anything to add from a customer perspective?
Ms. Fuller. Sure. Just from the customer perspective, I
think Mike hits it correctly, that, you know, SWPA has done a
lot of cost-cutting measures, and we're very grateful. To not
see a rate increase for six years is really something
unprecedented in our region. So we're very lucky to have that.
But I do think competitiveness is an issue that we need to
continue to be looking at. Not only do we have to be concerned
about non-generation-related expenses like I spoke about in my
testimony, you know, we have to make sure that--that the trend
of adding those things to the rates doesn't continue. The end
users at the end of the line shouldn't be responsible for
shouldering those expenses.
But we also have to look to non-monetary ways to make
federal hydropower more valuable. We've been working with SWPA
specifically on timing issues so that we could schedule our
federal hydropower consistent with timing in the three markets
that we straddle. You know, those sorts of creative ways of
thinking about the way that we handle federal hydro will really
help increase the competitiveness.
One last thing I'll add just that would help our members is
if we do have that distinction of being an actual renewable
energy source, that would--it would be a huge way that our
members could maintain a non-monetary value but increase the
competitiveness of federal hydropower at the same time.
Senator McSally. Great. Thanks.
Mr. Gabriel, as you know, the WAPA Transparency Act has
been introduced the past several Congresses. Since its original
introduction, WAPA has launched The Source, which contains much
of the information required by the bill. Last year, the Senate
made changes to the bill to clarify its scope is separate from
what WAPA has already done. The question is twofold. First, is
there additional information customers are asking be included
in The Source? And second, could WAPA implement the
Transparency Act passed by this Committee last year without
having to backtrack on the progress that has already been made?
Mr. Gabriel. The good news is I'm particularly proud of The
Source, and it's been recognized by both Gears of Government
Award as well as the Independent Public Relations Firm for
Corporate Social Responsibility. We actually kicked off The
Source prior to any of the language being necessary and worked
very closely with staff to make sure that we hit all the marks
that were set in the proposed legislation. From my perspective,
we--we actually, in a way, almost have too much information on
there. You can find just about anything about the organization.
Our customers have been very pleased with it.
We've actually found an additional value, which is we use
it ourselves when we're doing our analytics to better
understand how WAPA is operating and also to communicate the
value of WAPA. In fact, my testimony and all these comments
will be posted simultaneous to this discussion because we want
to operate under no secrets, have everything out there for our
customers and any of our stakeholders to look at. So I am
particularly proud of what we have achieved with it, and I
believe it's--it's more than meeting the intent of the--what
the Committee passed last year.
Senator McSally. Are there any other pieces of data that
would be required by legislation in your view?
Mr. Gabriel. Not--not to my understanding. You know, we go
back ten years' worth of data, and, of course, our universe has
changed for all of us in the past 10 years pretty dramatically.
Senator McSally. Right. Thanks.
Senator Cortez Masto.
Senator Cortez Masto. Let me change the subject a little to
cybersecurity. We touched on it a little in your testimonies.
This Committee understands that cybersecurity is one of the
biggest ongoing challenges facing the energy sector. Congress
recognized the urgency, and in 2015 codified DOE as the sector-
specific agency for energy cybersecurity. The DOE subsequently
launched a new office focused on this growing threat just last
year, the Office of Cybersecurity, Energy Security, and
Emergency Response (CESER), but the challenges obviously
continue. Recently, press reports disclosed that a large
investor-owned utility was fined $10 million by the North
American Electric Reliability Corporation in the largest
cybersecurity-related penalty in history for security
violations between 2015 and 2018.
And, Mr. Gabriel, you have been quoted as saying that in an
average day, WAPA's firewalls are pinging nearly 200,000 times
by suspicious or potentially damaging events.
So let me open it up. I am curious. And maybe we can start
with Mr. Wech. But can you explain to us the unique
cybersecurity challenges that you face and that you may
experience that may be a little bit different than the other
parts of the energy sector and what you are doing to address
that?
Mr. Wech. I guess I would characterize the electric
industry as one for--since its inception, has been one of
cooperation and collaboration. And because we are all
interconnected in terms of the bulk-power system, we've been
able to freely share operational data and information. However,
in today's environment, in today's world, that's now become
very difficult because the same partners that we have across
the table here that we want to share data with, we have--we
many times don't know if it's friend or foe until such time as
it's too late.
And so the key challenge for us has been having critical
infrastructure operational systems that need to be protected
while still being able to share data with our interconnected
utility partners, and then as the worldwide threat continues to
escalate, cybersecurity is at the forefront of Southwestern's
efforts as we try to protect our systems and our infrastructure
across our six states in which we market energy to--to avoid
any mishaps. And----
Senator Cortez Masto. And is there anything----
Mr. Wech. I'm sorry.
Senator Cortez Masto. No, please go ahead.
Mr. Wech. Our collaboration with the CESER office, for
example, is--is one that--that is--is at the forefront right
now. We are continually looking at the latest technologies,
we're continuing to have those folks from that office and other
offices within DOE provide recommendations for improvement,
internal audits, reviews. And then in addition, of course, we
have the industry standards that we need to meet, which are
North American Electric Reliability coordination, critical
infrastructure, protection standards for cyber, and then, of
course, on the federal side, we have the FISMA standards.
Senator Cortez Masto. Is there anything anybody is doing
differently than what Mr. Wech just talked about, or is it
pretty consistent, you are all coordinating with CESER trying
to figure out what is the best system, how that you can protect
your systems and address the security piece of it,
cybersecurity? Is that true? Anything unique? Different?
Mr. James. Well, Senator, the only thing I would add to
that is that while we are working closely with each other and
with industry organizations, for instance, we maintain a close
working relationship with DOE counterintelligence, and we
participate in the joint Government Electric Sector
Coordinating Council meetings as well with other industry
groups to focus and anticipate mitigating cybersecurity risks.
But for us, and I would bet that this is happening across
the PMAs, this really begins with training our employees as
well at the most granular level. We do phishing tests, we do
lessons learned on those. We work--we do trainings every year
to really train our entire workforce because they're all part
of protecting the grid.
Senator Cortez Masto. Yes. Are there any barriers that you
are dealing with that we can help at a federal level to
overcome?
Mr. Gabriel. Well, there are a couple of things that we
see. It's very easy for all of us with high-level security
clearance to get information in real time. The industry has--
it's difficult to get clearance for many of the other utilities
that we connect to, so anything that could be done to speed
that process is helpful, number one. And number two, I do get
concerned that we're not trading information quickly enough,
and part of that is the politics of the utility industry and
part of it is the process challenge. We have got a commodity
that moves at the speed of light, and very often we're not
responding quickly enough as an industry overall. It's not a
PMA issue as much as it is an overall electric and gas industry
issue.
And that's the other component that I would add. As we
become more and more reliant across the western United States
in particular on natural gas, we're looking in the next year or
so that 43 percent of the generation across the West will have
some connection to natural gas, and there's a limited number of
natural gas pipelines; therefore, potential multiservice
attacks or something that we're all trying to wrestle with as
an industry.
Senator Cortez Masto. Thank you.
Thank you.
Senator McSally. I am going to do another round if you
don't mind.
Senator Cortez Masto. Sure.
Senator McSally. Okay.
Senator Cortez Masto. You are the Chair.
Senator McSally. Okay. I just want to be courteous.
A number of the PMAs' regions have considered looking at
joining organized markets. For those who are studying that,
what is the status of those efforts? For those who are already
participating, what are your pros and cons? And are preference
customers included in the decisions about market participation?
And for Mr. Gabriel specifically, in 2017, WAPA announced
it was recommending the Loveland area projects and Colorado
River storage projects join the Southwest Power Pool, but then
there has been a step back. So what changed and where do things
stand and were preference customers included in those
considerations?
Mr. Gabriel. Everything we do is all about transparency,
and obviously having things--having these discussions with our
customers is key to our decision-making.
In October 2015, the Upper Great Plains region, which is
the Missouri River System that we manage, joined the Southwest
Power Pool. That was after ten years of consideration,
analysis, and trying to understand what the implications were
of the market. That has turned out to be a very good decision
for the customers in the Upper Great Plains. As I mentioned,
earlier this past year, we had an additional $48 million of
revenue, which helped lower and maintain some of the costs. The
other added benefit in terms of the market for us, is that,
surprisingly, the hydro units are being dispatched very quickly
into the market on a flat line as opposed to chasing wind
variations, so that's been a good thing.
In the bulk of the country that we serve, we had looked at
joining the Southwest Power Pool, seven utilities, including
two of the WAPA regions that you mentioned as well as public
power entities and some IOUs, were looking at moving into SPP.
Things were looking pretty good up till about a year ago, and
then one of the investor-owned utilities decided that they
would not join. So some of the economics around joining that
market fell away.
That said, we do believe that ultimately the West will have
markets. In California, for our California system, we are
getting engaged with the California ISO, particularly in what
is known as the energy imbalance market. Our team today is
looking at an energy imbalance service opportunity, and that's
where at the edge of the market, when you've got something
extra, so to speak, it would go into a marketplace. We do this
in lockstep with our customers. In fact, in Phoenix during--
about a month ago, we brought together over 100 customers to
talk about what's next given the failed effort in joining what
was known as the Mountain West Transmission Group.
We do believe ultimately there will be markets in the West.
That's both the--to the benefit of the transmission system
which we've all invested in, but also given the vagaries of
power supply, with coal plants going offline, nuclear plants
changing, more renewables, a market allows a better spread of
the--of the energy that's out there, and also, quite frankly,
adds some liquidity to the organizations and can improve
operations.
Senator McSally. Thank you.
Anyone else have an issue on that topic? I have one more
topic to ask.
[No response.]
Okay, great. I want to talk about fiber optics
infrastructure. I know there is an assessment of fiber optics
happening at WAPA. I am not clear, though, on what the purpose
of that is.
Can you explain, Mr. Gabriel, what the impetus for WAPA
studying the deployment of fiber optics on your rights-of-way
is? Will your customers be involved in those efforts and
protected from paying for capacity that may ultimately benefit
others? And for any of the other PMAs, what are you doing in
terms of fiber optics? And is this a DOE-led initiative? Or
what's going on?
Mr. Gabriel. During the last year, the White House put
forth the prospect of having the fiber optics that were owned
by the PMAs put out into the market for leasing. We decided,
working with DOE, that first we needed to understand exactly
what that meant. WAPA has got 17,231 miles of transmission and
roughly 5,200 miles of fiber optics which are absolutely
critical to grid operations. In fact, if we could, we'd have
fiber optics across all the 17,000 miles. It is something
that's very valuable on the utility operations side.
What we wanted to do is to make sure, however, that before
the--we were asked to lease out the fiber optics, that we
understood what the implications are. WAPA certainly does not
want to be in the fiber optic business per se or the telecom
side, and we also feel very strongly that it's important to
protect the investments that our customers have made in those
fiber optics.
So we are--we have promised by the end of December to
deliver a report that looks at the implications of leasing
fiber optics both to our customers as well as potentially to
others, because I think it's important to understand for rural
broadband, we reach many areas where there are no broadband
opportunities. We've got several customers who have asked us,
``Can we use the WAPA system in order to at least do a backup
supply for fiber?''
So I want to be clear here. We're studying it. We want to
understand it. There's implications. First and foremost, we're
an electric utility, that's what we worry about. We also want
to make sure that we have fiber for our own communications and
utility operations.
Senator McSally. Great. Thanks. I know I am over my time.
Ms. Fuller, do you have anything to add on that from a
customer perspective?
Ms. Fuller. Sure. I'll just say, you know, the way the
customers feel is that any initiative should be directly
related to the PMAs' statutory mission of delivering federal
hydropower and marketing it. And if it's not related, then
Congress needs to expand the PMAs' mission to do so and provide
funds to do so. While we think that these types of new ideas
are absolutely worthwhile, I don't believe that customers
should be the ones that have to subsidize it.
Senator McSally. Thanks. Yes, mission creep has been a
challenge and a concern for sure, so we need to be in close
communication related to any of these ideas and efforts.
Senator Cortez Masto.
Senator Cortez Masto. Yes, thank you. Just one final
follow-up. In general, in the West, we are seeing more fires,
right? Wildfires are now, unfortunately, becoming the norm. So
I am curious, and maybe this is a question for Mr. James and
Mr. Gabriel, how do you factor in fire risks into the
transmission planning and cost allocation when we are seeing
more of these wildfires and we are talking trying to not only
prevent the start of fires but also to protect the
infrastructure for them? Is that something new that you have
been having to deal with over the last couple of years?
And maybe, Mr. James or Mr. Gabriel? However you want to do
it. You choose.
Mr. Gabriel. We certainly factor in the challenge of
wildfires and wildfire mitigation in all of our costing. Every
year, we've got a very aggressive vegetation management
program. But more than what I'll describe as basic vegetation
management, we've been working very closely with the other
state and federal agencies because, as you're probably well
aware, going in and cutting trees in a forest raises just as
many issues as cutting trees in a neighborhood. So, therefore,
we've got to really work the partnerships with the Forest
Service, for example, and the Park Service, so that we can get
in and make sure that we have the rights-of-way properly
maintained.
It is an ongoing challenge for us, candidly, and we need to
keep working with those partners, we need to keep investing in
vegetation management. And as you can tell, it's--it's sort of
the twin--it's the twin to the great water years, is that you
get more vegetation, and, therefore, we have to anticipate the
fact that it's going to be there's going to be more rain,
there's going to be more vegetation, and, therefore, we have to
spend a little bit more on vegetation management.
Senator Cortez Masto. Thank you.
Anybody else have anything to add?
Mr. James. Sure. I would say that we have had a couple of
examples in the last year or two where we've had outstanding
coordination with the other federal agencies, as well as the
local first responders in terms of grid reliability and
protection. So there is a--there is a lessons learned there
each time. We also are watching what's happening throughout the
West and developing mitigation plans. Vegetation management, of
course, is key to our business and key to system reliability.
And so we definitely make that a primary focus.
But I would say coordination across federal agencies and
with the local governments and state governments is key.
Senator Cortez Masto. Thank you.
Thank you, Madam Chair.
Senator McSally. All right. I want to thank all the
witnesses for sharing your time and expertise today.
For information of the members, questions may be submitted
for the record before close of business on Thursday. The record
will remain open for two weeks. We ask that you respond as
promptly as possible, and your responses will be made a part of
the record.
I did forget to mention, on the issue Senator Cantwell
brought up, there is a letter going to the OMB Director that I
got on as well objecting to the selling off of the PMAs.
With that, the Subcommittee stands adjourned.
[Whereupon, at 4:12 p.m., the hearing was adjourned.]
APPENDIX MATERIAL SUBMITTED
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