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Strengthening Our Future

Remarks Delivered By:
John W. Keys, III, Commissioner
Mid-West Electric Consumers Association Annual Meeting
Denver, Colorado
December 07, 2005


Introduction
I am pleased to be here with you again this year. One of the priorities I set when I came in as Commissioner in 2001 was to reinvigorate our relationships with our partners in water and power groups. I'm proud of the strong partnerships we have built together, and I love to get out here to talk with you.

We are all in an industry going through significant change, and we continue to adapt to changes as they occur.

We know your concerns about security costs and receipt financing. We have concerns too. I'll speak about those issues today and about some other Reclamation news.

I also want to take a moment here to remember a very special person. A few weeks ago Reclamation and water and power users everywhere lost a great friend, Dennis Underwood.

Dennis was a former Reclamation Commissioner, and he left a legacy of change within the Bureau and the West. As Commissioner, he led Reclamation into the modern age of water conservation, away from the role as a civil works organization toward the current role of water management. He was a hard worker, a good Commissioner, and a great friend to us all.

His leadership brought people together-strength through unity-and it's a legacy that we strive to live up to today.

It's how we do business at the Interior Department. When we're making decisions, we're guided by Secretary Norton's 4C's: Conservation through cooperation, communication, and consultation.

Our work with you is a direct result of that philosophy.

I'm proud of the work we do with power. When I came in as Commissioner, Reclamation set out a clear goal: to act on our core mission of delivering water and generating power, and doing what it takes to get that done.

With 58 powerplants, we are one of the largest and most reliable power producers in the West. Our forced outage rate is roughly half that of the industry as a whole.

Reclamation hydropower plays a critical role in the interconnected grid in our service areas. The blackout in the East the year before last and the hurricanes in the Southeast this year have underscored the importance of reliable electricity supplies.

Let me brag for just a minute. Last year, we completed for the Office of Management and Budget a PART review of our power program-PART stands for Performance and Rating Tool.

Reclamation's power system scored a 93 on that review. That's important because these PART scores are used in determining appropriations, allocations, and requests.

Organizational Developments
We're proud of our work, but we're still trying to get better. We're taking a hard look at ourselves, our organization, our operations.

Stephen Covey tells a story about a man sawing furiously but not making much progress. A passerby asks, "Why don't you sharpen that saw?" He answers, "I'm too busy sawing."

We are not going to be like that. The time to start dealing with problems is not when you're in the middle of them, and we will be ready.

As an example, look at the North Platte Area. This year, fiscal year 2006, we got $2.5 million to replace the microwave system for Wyoming ($1.5 million came from the power write-up). We got $6 million to replace the Casper Control Center SCADA system. Those two systems provide remote control and communications for 14 power plants in Wyoming and Montana.

When I talked about concentrating on our core mission-deliver water and generate power-I should add, and plan for the future. I'm interested in our effectiveness not just in the next few years, but in setting up the framework that will enable Reclamation to succeed many years into the future. We want to get the right people in the right positions to take on the problems that come at us.

To that end, we are studying a reorganization of Reclamation's Denver and Washington offices. I believe that the reorganization will improve the coordination of actions that need attention in Washington. The reorganization will enable me to be involved and informed generally while I focus on issues in the Department, OMB, Congress, and with you and other stakeholders.

A couple changes in the Department and Reclamation I want to mention - Lynn Scarlett has been confirmed as Deputy Secretary.

We in Reclamation are pleased that Mark Limbaugh is now the Assistant Secretary for Water and Science, overseeing Reclamation and USGS. Mark was our Deputy Commissioner for External and Intergovernmental Affairs. Our new Deputy Commissioner is David McCarthy. David had been serving as our Chief for Congressional and Legislative Affairs. We'll be filling that position soon.

One change at Reclamation you already know is about our Great Plains Regional Director, Mike Ryan. Mike was named Regional Director in June. He's served in Reclamation 22 years.

Mike has an extensive background in the power business. He was manager at Shasta in California, a large power facility, and worked with water and power facilities of the Colorado-Big Thompson Project earlier in his career. Mike is doing a great job as RD. Our new Deputy RD is Gary Campbell, and we're glad to have him in there.

Another change that you probably don't know about-it was just announced yesterday-is our new Area Manager at the Eastern Colorado office. It's Fred Ore. Fred has more than 30 years with Reclamation. He has been serving as Director of Operations in the Washington D.C. Office. We'll miss him, but we know he'll still be doing a great job for Reclamation and for you.

We're working with the National Academies to study Reclamation's organization and operations. We want to see whether we are set up to be as effective as we can be or whether some changes are in order. This is an important undertaking, and one I fully support.

One other change that you will see soonwe are adding a Power Liaison in our Denver office to coordinate our work with the Army Corps of Engineers and the TVA on our power systems. The Power Liaison will concentrate on benchmarking, systems evaluation, overhaul procedures, and other similar activities. This position will complement our existing power office in Denver.

We want to make sure that we're prepared for the unexpected challenges. A great example is Hurricanes Katrina and Rita.

Response to Katrina and Rita
We're focused on our core mission, but that doesn't mean we ignore the extraordinary situation, and there's no better example than Reclamation's response to Hurricanes Katrina and Rita.

I was down there a couple times. I tell you, it's really devastated there. It will take a long time and a lot of work to recover.

Reclamation is coordinating Interior's response under the Public Works and Engineering Emergency Support Function. Reclamation's and Interior's assistance to FEMA and the Corps of Engineers is fully reimbursable and does not affect Reclamation's project operations.

Our work has been mostly on debris removal and management of temporary roofing-the "blue roofs".

The Department provided equipment and deployed about 1,500 people at the peak of the response work. About 400 from Interior are deployed now, and about 85 from Reclamation. We also have some folks in Florida for Wilma.

We sent our Emergency Unit for Water Purification to provide water to the Biloxi Regional Medical Center. At its peak production, it was putting out 260 gallons per minute. This development of this unit was an outgrowth of desalination research, one of the areas of Water 2025, which I'll speak about shortly.

The responders deserve a huge commendation for their work. Some of these folks are people who themselves were suffering the effects of the stormstheir homes destroyed, families to care for; yet they were there, helping others to get through.

Those storms ended, but their impact will be felt well into the future.

We are looking at immense clean-up and repair work. Budgets have already been stretched tight, and the recovery efforts will stretch them tighter.

That's something I want to emphasizethe reason for the changes that we are developing. Federal dollars are scarce, and at the same time, the public is expecting more and more from the federal government, including Reclamation. We have to be ready not only to do our jobs, but to take on the unexpected emergency. And we have to adapt to ever-changing circumstances.

As water management has evolved, Reclamation has transformed into a more comprehensive water management agency. Today, much of our focus is on improving the safety, security, and efficiency of the facilities we already have, as well as meeting environmental requirements and recreation needs.

We face challenges today in maintaining and improving the system that are in many ways as formidable as those challenges we surmounted during our construction heyday.

One challenge is the security of our facilities. We did an on-the-ground exercise at Grand Coulee in October as part of our on-going security preparation. The exercise taught us a lot about readiness for terrorism. We feel more prepared and, therefore, more secure against terrorism, than ever.

For 2006, we received an appropriation of $40 million for security, with Congressional direction to collect another $10 million from our project beneficiaries for guards and surveillance costs.

We know that the level of reimbursability of our increased security costs is a concern for you, but receipt financing can enable us to increase our effectiveness in operating and maintaining your powerplants. We are working on a report for Congress about the issue.

No part of the target hardening plant costs is reimbursablethe O & M portion, mostly guards, is where Congress directed us to collect.

There is no underfinancing this yearthat's important, because underfinancing doesn't give any slack, and the budget situation is really tough now.

Reclamation is reviewing the language that was recently developed for receipt financing of power OM&R by the customers, the Corps, and the Western Power Marketing Administration to see if we might adopt similar language.

We commend Mid-West for your support of the Corps' recent efforts. I have talked with you several times about doing the same for Reclamation. Please give serious consideration to this. Currently, more than 80 percent of Reclamation's OM&R is paid directly by the power users instead of from appropriations. We have to find better ways to do business, and this is one of them. The customer participation processes in the Great Plains Region are a solid foundation for that effort.

In other regions where customers participate in funding O&M, we have in place agreements that are very similar to the one we have with youto ensure that all of us clearly understand the level of receipt financing and the accompanying accountability required.

Reclamation believes that your concerns about receipt financing can be resolved by continuing to strengthen our partnership with you and Western as we jointly develop our annual workplans.

The processes in place, which are supported by a formal Directive and Standard, will transcend any organizational changes.

These processes ensure that accountability for expenditure is high for all power O&M work. Reclamation understands this is a central issue for you in Mid-West, as well as our other power customers. Reclamation is committed to finding a path to receipt financing that works for you, our customers.

Energy Policy Act of 2005
The passage of the Energy Policy Act of 2005 has brought new opportunities and challenges to Reclamation and our power marketing administration partners.

The bill required us to produce two reports. The first is an inventory of every study we had ever done since 1939 that did not result in construction authorization; it identifies which ones had hydropower components. The report was due within 90 days-on November 8, and we delivered it November 7. The Family Farm Alliance and NWRA offered some suggestions, and we took them. The report is available on Reclamation's website.

The second report, the 18-month study, will focus on opportunities for increased hydropower at federal facilities-dams, canal drops, and so on. This will be completed by February 2007. Deborah Linke, the manager of our Power Resources Office, has the lead on this project.

Reclamation is working with the Corps, other bureaus of the Interior Department, and the Department of Energy. We had a meeting last week here in Denver to coordinate what each of us is responsible for in this study.

Pressure on Resources
We continue to brace for nature's challenges, especially drought. We've had some good precipitation in this area recently. But tree ring studies and our own records of past droughts indicate that there can be good years within a drought period.

The foresight of past generations, creating an effective system of dams and reservoirs, has kept us out of crisis. But we need to look at other means besides storage to meet unmet needs.

Drought, as much of a problem as it has been, is not the only cause of water shortages. Droughts come and go in the West. One of our greatest fears is that, when droughts break, existing supplies will not be enough to meet demand, even in the normal years. The Water 2025 program provides a framework to develop the innovations that help us to conserve and stretch our water supplies.

Water 2025
We are in the second season of our Water 2025 Challenge Grants. In fiscal years 2004 and 2005, Reclamation awarded Challenge Grants for 62 projects that will provide almost $60 million in water system improvements. There's a $3 return on every dollar the federal government has invested.

We also added in fiscal year 2005 the Challenge Grant program for states. We're providing $1 million in cost-shares to six states, including Kansas and Montana.

Looking to the immediate future, we have some homework to do with Water 2025. We've been working with OMB and have settled on some long-term, measurable goals for the program. Our next step is to win enactment in Congress of permanent grant authority. Then we can sort out what kind of program Congress will ultimately approve for the balance of 2006 and on into 2007. We'll need help from you and our other stakeholders as we work on this.

Conclusion
I often say that the only thing permanent is change. And we've got to be ready for change. We need to think of new ways to do business. And one new way of doing business goes back to the old idea of working in partnership.

The people who work at Reclamation have always been dedicated to getting the job done. We'll do whatever it takes, and that is the reason why we are looking at ourselves, seeing how we can get better. We recognize the good work of our partners and know that what we do together has a lot more power than what either of us can do alone.

Reclamation will continue to work with you to generate reliable, cost-effective hydropower. We appreciate the strong working relationship with Mid-West, and I'm looking forward to what we'll continue to accomplish together in the years to come.

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For More Information:

Reclamation's Power Program

Section 1840 of the Energy Policy Act of 2005 Report