    [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

    --------------------------------------------------------------------------------------

                   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
                                     ------

                        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

                                  ----------

                               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

                                      ----------

                            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:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        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.]

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