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Northern California Power Agency Federal Policy Conference

Remarks Delivered By:
John W. Keys, III, Commissioner
National Water Resources Association Annual Meeting
Tucson, Ariz.
April 26, 2004


Commissioner Connor Speaks to NWRA

It's a pleasure to join you this evening for the NCPA Federal Policy Conference here in Washington DC . I hope you are getting time to visit some of the great sites around the city.

I really enjoyed meeting with you last September in Squaw Creek at your annual meeting. I'd like to briefly bring you up to date on a few issues affecting Reclamation that I mentioned at Squaw Creek, including:

Subcontrol Area in the Central Valley Project
There certainly is tremendous value to the federal government operating its own generation and transmission facilities. Reclamation?s Mid-Pacific regional staff continues to work closely with Western Area Power Administration as they negotiate with CAISO and SMUD regarding the possibility of operating the CVP in either of those existing Control Areas.

I want to thank Jim Kesterberg ? local WAPA Regional Manager - for his hard work in this area. He has worked well with Kirk Rodgers, Reclamation?s Regional Director in Sacramento.

The goal is to have Reclamation's Subcontrol Area up and running no later than the first part of September 2004 so that we will have 3 months of overlap operation before the PG&E contract expires on December 31, 2004 . This final decision was based on five important factors: flexibility, certainty, durability, operating transparency, and cost-effectiveness.

These factors are critical to us - and WAPA understands almost better than anyone - the importance of having power at our pumps when its time to move water.

Power Customer Funded Programs
Across Reclamation, about 80% of our power O&M is handled with advance funds from customers, BPA, and WAPA. The Central Valley Project power customers continue to advance funds essential to O&M programs and modernization programs related to hydroelectric power.

Our goal is to get the Reclamation power program funding entirely "off budget" and the preference power customers funding close to 100 percent of their share. Reclamation has been able to rely less on Congressional appropriations every year thanks to the increasing contributions by these power customers.

The second new turbine runner at Shasta is being replaced this spring and is scheduled to be in-service this June . It will be the second unit at Shasta capable of producing 142-MW which is a 17-MW increase over the old turbine runner. All 5 Shasta turbines will be replaced.

Two turbines are on order for the New Melones powerplant, and two more will soon be on order for the Carr powerplant. The winding on Folsom Unit 3 has been re-wedged so that we hope to get another 7-8 years of life out of it before replacing it.

These customers also have established a "Rapid Return to Service" fund in case we have generator outages that result in water being spilled around the generators. We now have the funds to pay emergency overtime to get those generators back into service. I once saw a Corps of Engineers generator sit for 4 years awaiting appropriated dollars to fix it ? we can't let ourselves get in that situation in Northern California.

Our generators and major equipment are fairly old and we have much to do, but by getting this start on modernization as a result of the customers stepping up with funding, we are much further along in the process.

Powerplant Benchmarking
Reclamation has an internal benchmarking program that compares the performance of Reclamation powerplants to one another.

The Power Resources Office in Denver compares all Reclamation generators from different Regions to each other. However, in the Mid-Pacific Region, we are under contract with Haddon Jackson Association - - they compare its Operating Performance to those in Private Industry.

Benchmark costs such as O&M, investment, and power rates per KWh of production are measured and compared to private industry. The list of agencies in the private industry vary each year, but some of the Hydropower Operators that have participated include: Northern California Power Agency, Sacramento Municipal Utility District , New York Power Agency.

Every time I go into a plant, I ask them what their cost of production is ? it is very important to us. To measure this, we are in the second year of a three-year effort to measure and benchmark our operations costs to comparable plants and generators in the private sector.

Preliminary results show that at several of Reclamation's Mid-Pacific plants look very good on some benchmarks but may need improvement on others. We intend to complete the three-year process and make adjustments as necessary to try to remain among the leaders in the hydroelectric industry.

Trinity River Recent Areas of Emphasis
You may have heard that the 9 th Circuit Court of Appeals has granted the Hoopa Valley Tribe's request for an emergency stay of the District Court?s Order to maintain dry year flows - let me read it to you:

"Hoopa Valley Tribe's Emergency Motion for Stay Pending Appeal Re: Water Year 2004 is GRANTED to allow a water release appropriate for a ?normal? water year type."

The Court ruled this is a normal year. Normal year flows requested by the Hoopas would be 647 TAF.

We are reviewing the Court's Order, and my staff met this morning with members of the flow schedule technical group to prepare to amend the schedule approved by the Trinity Management Council on April 14. It is anticipated that the additional water volume will be used primarily to shape a peak release needed for several days in early May. We are still evaluating the impact of these additional releases on the Central Valley Project forecast and carryover.

I know you have all been anxiously waiting to review the draft Supplemental EIS/EIR. It was released just last Friday, April 23, for a 60 day public review. The comment period ends on June 22. A completed document is still expected by the end of 2004, with implementation in 2005.

The Flow Evaluation Alternative, which has variable flow schedules dependent on five water-year classes and which was selected as the Preferred Alternative in the 2000 Record of Decision, has been selected again as the Preferred Alternative. This alternative is based on recommendations in the Trinity River Flow Evaluation Study. The EIS/EIR will address power impacts. The four co-lead agencies include Reclamation, USFWS, Hoopa Valley Tribe and Trinity County . We also have worked closely with our very good partners, WAPA.

Realty and contract actions continue for bridges and other floodplain structures. On March 15, 2004 , Reclamation awarded a $2,767,325 contract to Steelhead Constructors of Redding, California, to build the Biggers Road Bridge and Salt Flat Bridge across the Trinity River.

Award of the construction contract for the other two bridges, Bucktail and Poker Bar, is planned for later in the spring. All four bridges should be open for traffic by December 2004.

I understand the increased flow volume resulting from the 9 th Circuit?s ruling should not impact the construction schedule.

Planning, design, and permitting actions for channel restoration sites continues. As critical tasks associated with bridge and floodplain structure modifications are completed in 2004, greater emphasis will be placed on channel restoration site design and construction.

Given the current processes for environmental review, permit compliance, and realty actions, the remaining 23 channel restoration sites in Phase 1 are tentatively scheduled for completion by 2008. Design and permitting actions for five sites downstream of Canyon Creek are under way.

The largest site at Hocker Flat is on schedule for construction in early 2005.

I want to mention briefly the establishment of the Program?s Science Advisory Board. This is a group of nationally known scientists recently appointed to the Program?s Science Advisory Board (SAB). As their first official task, the SAB will participate in the May 12 program review workshop. The members are:

Reclamation established a site security program following the bombing of the Alfred P. Murrah Federal Building in Oklahoma City . These site security costs were considered a project cost and allocated as appropriate to reimbursable and non-reimbursable purposes.

I issued an interim policy guidance shortly after 9/11 that recognized the importance of immediate implementation of effective enhanced anti-terrorism measures and the significant costs associated with the effort.

For FY 2004 , enhanced anti-terrorism costs as a result of 9/11 were considered non-reimbursable. Between September 11, 2001 and September 30, 2004 , Reclamation has or will spend $124 million in anti-terrorism dollars, which include guard and surveillance activities:

But there are going to be some changes - treating the cost of guarding our facilities as project costs. It has long been Reclamation's policy, when it completes construction of a project, to transfer responsibility for the O&M of single-purpose facilities to the water-user entities responsible for the projects construction costs.

Beginning in FY 2005, annual costs associated with activities for guarding our facilities will be treated as project O&M costs subject to reimbursability based upon project cost allocations. Competition for funding has forced Reclamation to accelerate our schedule for treating guard costs as project costs to FY 2005 from a planned FY 2006. We recognize there are challenges ahead of us , such as : working with our stakeholders in analyzing security related O&M costs to determine the beneficiary?s reimbursable obligation in FY 2005 , consistent with our policy and project specific authorizations, and contracts.

Funding for capital investments, including emergency security upgrades, are still non-reimbursable. Maintenance of security capital investments is already treated as a project O&M cost.

Terrorist interest in our Nation's dams, powerplants and water supplies continue to be identified by intelligence sources. We are working closely with our stakeholders to share data and guidance in the areas of risk, vulnerabilities, and the responses necessary to ensure the delivery of water service to multiple water users.

In FY 2005 we have requested $43.2 million for site security. These funds are requested to continue Reclamation?s ongoing site security efforts including overall program management, antiterrorism activities, and security improvements that make our facilities safe and secure in accomplishing our mission of delivering water and power to the West.

Of the Anti-Terrorism Security Program funds proposed for 2005, approximately $18 million is for "guards and surveillance," which we are proposing in 2005 to be reimbursable as a project O&M cost consistent with cost allocations by project. Only $12 million is reimbursable.

Water 2025: Preventing Crises & Conflict in the West
Before I finish, there's good news I?d like to share with you. Last September I described Interior Secretary Norton's new initiative: Water 2025: Preventing Crises & Conflict in the West. Water 2025 will focus attention on several realities we face in the West such as explosive population growth, water shortages that are occurring more & more frequently, over-allocated watersheds and aging facilities.

In FY 2004, Congress appropriated $8.4 million for the program. $4.0 million was allocated to the Secretary?s Challenge Grant Program. We had an overwhelming response to the Grant Program. We received over 100 proposals totaling almost $100 million in projects that reflect the Water 2025 goals and objectives. Of that, over $25 million is the federal share request.

That response underscores the desire of water users to work collaboratively to address the water resources issues in the West. We are currently evaluating the proposals and will announce the final selection later this summer.

President Bush asked Congress for $21 million in FY 2005 for the Water 2025 program.

As I wrap up here, I want to thank you again for giving me the opportunity to address you this evening.

I am honored to be serving in an Administration that seeks action and progress ? We are about Progress Not Process! President Bush is committed to addressing Western water issues in a balanced and practical way. This approach will help Reclamation continue to deliver reliable supplies of water and generate power for a growing West. He is a President who is not afraid of standing up for what is right, what is equitable, and what makes sense for the American people.

We met with the President recently to find out what he expects from his top executives in the Administration in this important year, and do you know what he said? He said he expects us to do our jobs!

And look at Interior Secretary Norton and Assistant Secretary Raley both understand western water. The team we have in this Administration is the finest I have ever experienced in my 37 years in the federal service. We are committed to doing what is right on water issues throughout the Western United States.

Again, thank you for inviting me to your conference. Now, I believe there is some time to answer questions some of you may have.