[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
                                 ------                                

                    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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