FINANCIAL PROGRESS Southwestern has continued to meet its financial repayment To date Southwestern has repaid $40 million of its $742 million investment with the majority of that coming in the last six years. The steady improvement in repayment has come about by reducing Thermal Energy Purchases through the renegotiation of contracts from high energy commitments to 1200 hours peaking sales, and a full commitment to achieving periodic rate adjustments. Our auditors, Coopers & Lybrand, Certified Public Accountants audited Southwestern and the Corps of Engineer's accounting and financial records for 1983 and have again issued a non-qualified accounting opinion. We are pleased that in three audit years, three clean opinions have been issued. MISSION The Southwestern Power Adminstration carries out the re- Energy pursuant to and Section 302 of the Department of Energy Organization Act. These acts authorize the transmission and sale of power and energy produced at 23 hydroelectric projects constructed by the Corps of Engineers with an installed capacity of 2,147,800 kilowatts. This power is marketed in the six states of Arkansas, Kansas, Louisiana, Missouri, Oklahoma, and Texas. Southwestern has 1660 miles of transmission facilities constructed to integrate the projects and market the power. Southwestern's headquarters is located in Tulsa, Oklahoma, with an engineering and operation center, and a maintenance unit in Springfield, Missouri, and maintenance units located in Muskogee and Ada, Oklahoma, and Jonesboro, Arkansas. MARKETING PLANS During FY 1984, Southwestern executed 12 new contracts involving 39 municipals and four rural Generation and Transmission cooperatives which in turn supply 52 distribution cooperatives. This completes the marketing of 263,000 kW's of capacity from the Harry S Truman and Clarence Cannon hydro projects in Missouri and power becoming available with the expiration of the AP&L/Reynolds contract. Southwestern is proud to announce that the Section 5 criteria of "wide spread use" has been achieved by these new contracts expanding sales into the states of Kansas and Louisiana. It is a credit to the Municipal, Cooperative and Investor Owned Utilities that they were able to contract for wheeling and utilization arrangements to receive this power on schedule. Negotiations are still underway to complete the long term sale of power to be sold in Texas. This power is now being marketed under an interim agreement. COMMITTEE INTEREST This committee will be pleased to learn that Southwestern is making good progress in the implementation of changes that will reduce the level of funding for thermal energy purchases without detriment to the program. To this end Southwestern has expanded energy banking arrangements and is converting contracts from full load to peaking as they expire. The expiration of the Reynolds contract will also reduce the need for purchasing thermal energy. EXPANDED ENERGY BANKING Southwestern has significantly expanded its ability to bank surplus hydro energy available during heavy inflow conditions. The maximum amount of banking energy to be exchanged was contractually increased from 350 million to 750 million kilowatt hours. This means that, in heavy rainfall conditions, Southwestern now can put surplus energy into these banks in lieu of selling it on the open market. During drought conditions this energy is drawn from the banks in lieu of purchases. The prime differential between selling excess hydro at 3.5 mills versus deferring purchases at 27 mills is a net gain of 23.5 mills per kilowatt hour or $17 million on the total banking quantity of 750 million kW hours. These banking arrangements are the most efficient and the only long term equivalent to a water storage system available to a hydro power operator. CONTRACT EXPIRATIONS In 1985 and 1987 contracts serving high energy, full load factor requirements totaling 213,300 kW will be expiring. These customers have been notified that upon expiration of their contracts this power will be resold to them as peaking or low energy commitment. These new contracts will save 3,000 hours of energy per kilowatt of capacity or a saving of approximately 640 million kilowatt hours per year. A saving of approximately 400 million hours will be achieved at the end of FY 1985 with the remainder following in FY 1988. Recognizing that these changes will take place in the next four years, the equivalent effect in today's dollars of deferred purchased thermal energy is $17 million of reduced exposure during a critical year. Collectively, the staff has responded to the committee's continued interest and while some of these actions take time, Southwestern is working on holding down funding for the Purchase Power and Wheeling activity. WATER AND CONSERVATION The value of Southwestern's hydro system lies in its use of capacity, but the annual production of energy cannot be overlooked as an oil conservation tool, and as a measure of the wise use of the nation's natural resources. The 5.2 billion kilowatt hour average annual hydro production is equivalent to 10 million barrels of oil with a total value of $290 million at today's prices. Wise development and use of our nation's resources has a real payback. NEW HYDRO POTENTIAL The Southwestern Power Administration has conducted studies and supported installations of power in 17 proposed Corps multipurpose projects with a combined total capacity of about 856,000 kW. The projects are in various stages of planning with two projects, Town Bluff Dam and Belton Dam, both in Texas, already authorized. LITIGATION Last year Southwestern informed this committee that a long standing contract dispute with the Associated Electric Cooperative, Inc. of Missouri had been renegotiated prospectively beginning in 1981 and that negotiations had been agreed upon to settle the retroactive period 1970 to 1981. We are pleased to announce that, in January 1984, the Court approved the terms of settlement thus ending 14 years of litigation. As mentioned at last year's hearings, Southwestern was sued for $12 million by the Reynolds Metals Company, under the allegation that during the recent years of the contract Southwestern had been marketing surplus hydro energy to preference customers rather than to Reynolds as required under their interpretation of the contract. In June 1983 Southwestern settled by agreeing to a judgment of $10.1 million. No significant developments have taken place regarding other litigation identified in the budget. SUMMARY Mr. Chairman, Southwestern's budget request represents a continuation of the present program, with no real increase in funding. This stable level also reflects the power marketing direction to reduce energy commitments thereby depending less on thermal energy purchases. Southwestern is continuing to practice sound financial management as demonstrated by frequent rate reviews and necessary increases; positive annual contributions to repayment; changes to the contracts reducing the need to purchase thermal energy to support the hydro system; and the maintenance of good financial records as demonstrated by three consecutive good CPA audit opinions. Mr. Chairman, it is a privilege to come before your committee as Acting Administrator and be associated with the employees and customers of Southwestern Power Administration. BIOGRAPHICAL SKETCH William H. Clagett was appointed Acting Administrator of the Southwestern Power Admnistration (SWPA) in Tulsa, Oklahoma, effective January 27, 1984. The appointment was made by Department of Energy Secretary Donald Hodel. During this interim appointment, Clagett retains his position as Deputy Administrator of the Western Area Power Administration in Golden, Colorado. He expects to devote nearly full time to his duties at SWPA. Clagett graduated from Oregon State University in 1962 with a bachelor of science degree in business and technology. He began his Federal career with the Bonneville Power Administration (BPA) in Portland, Oregon, in 1962. In 1966, he was assigned to the Area Office of BPA in Idaho Falls, Idaho, as an electrical engineer. He was named Area Manager at Idaho Falls in 1970. The following year, he was appointed Assistant Administrator of BPA in charge of its Washington, D. C. office. He remained with BPA until transferring to the Western Area Power Administration as Deputy Administrator on July 19, 1978. He presently is chairman of the Western Systems Coordinating Council and a member of the board of trustees of the North American Electric Reliability Council. Clagett is maintaining his home address in Littleton, Colorado. His immediate family are his wife, Brenda, and two children, Kimberly and William H. Clagett V, who are students at the University of Wyoming. Southwestern Power Administration is a regional agency of the U.S. Department of Energy with responsibility for marketing Federal hydroelectric power in Kansas, Missouri, Oklahoma, Arkansas, eastern Texas, and Louisiana. |