Reclamation - Reliability in a Changing World

Remarks Delivered By:
John W. Keys, III, Commissioner

Mid-West Electric Consumers Association Annual Meeting
Denver, Colorado

December 10, 2003

I am delighted to be here with you today.

Reclamation appreciates the fine relationship we have with Mid-West and I want to recognize the efforts of your Executive Director Tom Graves, President Jack Hammond, and the Mid-West Board of Directors.

And I want to publicly thank the Army Corps of Engineers for stepping forward to offer their assistance to Reclamation dealing with a major problem that developed Thanksgiving week with the water supply system for the Standing Rock Sioux Reservation and specifically for the town of Ft. Yates, North Dakota.

I was struck by your theme, "Without a Drought, A River Runs Through It." I am a fisherman, and the movie A River Runs Through It is a personal favorite. I bet many of you don't know that there is a Reclamation connection to the movie. The train in the movie was owned and run by a retired Reclamation employee, Everett Rohrer.

Your theme is fitting though. Last year, only one of the seventeen states in which Reclamation operates - California - was not considered to be in a drought.

This situation, paired with an ever growing demand, makes our job that much more challenging. However, Reclamation is committed to be a reliable source for water and power in this changing world.

When I was asked to return to Reclamation as the 16 th Commissioner, the agency was in the midst of developing its Strategic Plan.

The Government Performance and Results Act requires all agencies to develop strategic plans to set five-year goals. Plans are to be revised every three years.

I thought it was very important when I jumped into the process to establish clearly what believe are the overarching priorities for the Bureau of Reclamation. They are -- ensuring the reliability of water under Reclamation contracts, and optimizing power generation, consistent with other project purposes.

We must also incorporate other considerations, such as recreation, fish and wildlife, environment, and Native American trust responsibilities, into our water and power operations.

As we manage for water and power, we must identify and plan for future consumptive and non-consumptive water supply needs by identifying unmet needs in the next 25 years.

I believe our mission and goals are very clear. That is what we do, and do well.

Water and power provided by Reclamation sustains a major portion of the infrastructure in the American west. Our 58 powerplants make us the 10 th largest producer of electricity in the West and our water is used to produce a large percentage of agricultural products in the West.

Our customers depend on the reliability and sustainability of our power and water. The reliability of Reclamation powerplants is exemplary. Our forced outage rate is roughly one-half that of the industry as a whole and, even in low water years, in most cases, we are able to meet our water delivery commitments.

Reclamation hydropower plays a critical role in the interconnected grid in our service areas. The recent blackout in the East underscored the importance of the availability of reliable electricity supplies.

In addition to providing electricity to wholesale consumers throughout the seventeen Western states, Reclamation hydropower also provides a significant portion of the system's ability to respond to fluctuations in voltage and load through the provision of services that adjust the system voltage as it fluctuates and matches the demand to the production of electricity.

During times of electric system emergencies, Reclamation hydropower provides much of the system's ability to avoid outages by providing reserve power that can be brought online instantaneously, by providing stand-by generation, and by providing equipment that keeps the power grid stable -- which all help compensate for fluctuating power flows, generation drops, and transmission line failures that occur during an emergency. During the past three years, Reclamation has regularly provided system support for emergencies.

The production of peak load energy from hydropower allows for making the best use of power from other less flexible electricity sources, including coal, nuclear, wind, and solar power.

Hydroelectric power is the best source of generation that can be brought online from a power source that is not online. Other energy sources can also provide non-spinning reserve, but hydropower's quick start capability takes just a few minutes, compared with as much as 30 minutes for other turbines and hours for steam generation.

Hydroelectric power also provides a federally-mandated source of safe shutdown power for nuclear powerplants in the West.

Two-thirds of Reclamation's powerplants have the ability to be started back up without outside power -- known as black start capability -- and 14 of our powerplants, about 12,562 megawatts or 85 percent of our capacity, play a key role in the NERC and Western Electricity Coordinating Council regional restoration plans to establish isolated areas of operating generation which can then be linked together to restore the interconnected grid.

Our hydropower can be brought back online quickly after an outage to provide needed electrical services to restore the grid and assist other regional utilities without relying on external power sources.

The American West is changing. I don't need to tell any of you that. We have explosive population growth occurring in arid areas.

Population in the United States has grown fastest in the West in the past decade. Numerous water management "hot spots" have been identified where existing water supplies are inadequate.

On the power side of the house, with the uncertainty in the regulatory environment causing a lack of investment in new powerplants and transmission, along with several years of extended and/or record drought, the situation is equally serious.

Reclamation is working with our water, power, and environmental stakeholders to meet those challenges.

One way we are doing that is through a new initiative - Water 2025.

Secretary of the Interior Gale Norton announced the Water 2025 initiative last June here in Denver . Some of you attended that meeting or one of the regional meetings on Water 2025 this summer. For those of you who weren't able to attend, I'd like to give you a brief overview.

Water 2025 has two purposes. First, it provides a basis for a public discussion on the realities that face the West so that decisions can be made at the right level in advance of a water supply crisis.

Second, Water 2025 sets forth a framework to identify the problems, solutions, and a plan of action to focus the conversation as the Department of the Interior works with the States, Tribes, local and state governments, and the private sector to meet water supply challenges.

Water 2025 is guided by six principles and focused on five realities that drive water crises. There are four key tools to help manage scarce water proactively.

  1. Conservation, efficiency and markets will help improve water management and use market-based approaches to head off water conflicts
  2. Collaborative approaches will be used to resolve conflicts when they do occur.
  3. Improved technologies will provide new sources of water.
  4. Work will need to be done to remove institutional barriers to improve water management processes.

The Secretary has gotten the ball rolling by providing a framework and forums in which people can talk about the water challenges we are facing in the West.

Interior is in this for the long haul, solving today's crises and preventing crises and conflict in the future.

Reclamation, the Power Marketing Administrations, and our fellow federal generators are participating in an industry undergoing significant change. We all must position ourselves to respond as changes occur.

We have a strong partnership with our customers. Both you -- our customers -- and all of us at Reclamation are interested in containing costs, increasing efficiency, and maintaining reliability. We will continue to work closely with you as we develop our operation and maintenance budgets and our replacements program for hydropower equipment to ensure that your concerns are addressed.

I also want to thank you for the upfront funding we have received from your members that are part of Western States Power Corporation.

As Commissioner of the Bureau of Reclamation, I firmly believe that access to receipt financing will further strengthen these processes. Let me explain why.

I believe there are far more attributes associated with off-budget financing. It will bring a surety to critical financial resources for operation and maintenance in a time when discretionary spending in the Federal budget is declining.

The use of receipts shelters operation and maintenance from the effects of budget reductions.

It retains Congressional oversight.

It should reinforce the partnership developed to date in this region between Reclamation and the preference power customers.

It also needs to have an appropriate mechanism to assure that the use of receipts is balanced between the generation of power - that is, the Army Corps of Engineers and Reclamation - and the transmission of power. That is a necessary balance I am asking you to support.

Since bills for the sale of federal power are received monthly, operation and maintenance expenses are, in reality, repaid one month after the operation and maintenance expense has occurred. Under receipts financing, the operation and maintenance cost would need to be funded in advance so as not to be anti-deficient.

The federal power customer would pay in advance for the first month of operation and maintenance, and then receipts would subsequently be used. You therefore would lose the ability to earn interest on the money from only one month's power bill.

I am troubled that some of you think Reclamation is not supporting hydropower since we are continuing to move our hydropower operation and maintenance off-budget. This hardly represents a lack of support for power.

In fact, I believe it reflects an even greater concern and commitment toward maintaining the system and providing more financial certainty. It allows us to remain very strongly committed to our power responsibilities and mission.

Access to receipts is not a new or unique concept in government. We have been moving in that direction across Reclamation for many years.

Many of you are aware that the Colorado River Storage Project has been an off-budget authorization since its inception.

When I was Regional Director in the Pacific Northwest Region in Boise , I moved forward with our Bonneville Power Administration partners to get direct financing of our hydropower operation and maintenance and replacement costs.

I know that you preference power customers sitting here in the room would want more of a direct role in the process and I understand and support that.

Reclamation has a base power operation and maintenance budget of about $200 million. About $160 million, or 80 percent of the total, is funded off-budget.

In FY 2004, Mid-Pacific Region's Power operation and maintenance budget will be 78 percent off-budget funded, Upper Colorado Region will be 90 percent off-budget funded, and Lower Colorado and Pacific Northwest regions will be totally off-budget through use of receipts.

I have challenged Maryanne and the Great Plains Region to make more progress in this direction.

Mid-West can be a strong partner in this effort. I ask for your support.

Whatever concerns you might have with the use of receipts, now is the time to air them. The door is open.

We commend you for your support of the Corps' recent efforts and I ask that you give serious consideration to seeking that same authority for Reclamation, as well as our friends at Western Area Power Administration. The customer participation processes already in place in the Great Plains Region are a solid foundation for that effort.

You here at Mid-West, along with our other customer groups, want and should continue to have a voice in how we are spending money and how we would use receipts.

In 1997, the Great Plains Region entered into an MOU with the Mid-West customers to share and discuss our power program workplan. That workplan is being revised to share more information than in the past.

I have also been working on a formal Reclamation policy to ensure this continues into the future. I believe you have that voice in our workplan review process and I know that Maryanne and the Great Plains Region intend to keep operating that way.

We also have a strong ongoing partnership with Western Area Power Administration. Great strides have been made, but there are many more opportunities to make partnering part of our day-to-day operations:

  • Coordination of reliability council actions
  • Provision of system support during daily operations
  • Working with Western to ensure that federal water and power interests are protected during the formation of Regional Transmission Organizations.
  • Coordination of legislation and policy strategy in response to the National Energy Task Force and the Energy Act now before the Senate.
Reclamation has also initiated a number of activities aimed at ensuring the long-term viability of our power facilities. These include:

  • Ensuring the security of our generation and transmission infrastructure
  • Participating in the Interagency Forum on Infrastructure Protection
  • Carrying out a strong Power Review of Operations and Maintenance Program and following up on the recommendations from those reviews
  • Developing business-based risk condition assessment for generation assets
  • Through succession planning and targeted hydropower training assuring that we have trained staff to operate our generation.

The Bureau of Reclamation is committed to providing water and power to the West in an environmentally and economically sound manner. We are fortunate to have a President in the White House who recognizes the tough issues surrounding the growing water demands for both people and the environment in today's American West.

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 power to a growing West.

Let me assure you, Reclamation is committed to working in partnership with our Power Marketing Administrations, water and power customers, and other stakeholders in meeting this challenge.

Thank you.

For More Information:

Reclamation's Power Program

Water 2025