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SOUTHWESTERN POWER ADMINISTRATION STATEMENT OF RONALD H. WILKERSON, ADMINISTRATOR

Chairman HATFIELD. Mr. Wilkerson, we will now hear from Southwestern, and we are happy to welcome you here today as Administrator of the Southwestern Power Administration. I am happy to know that you got your training and experience at Bonneville Power Administration.

Mr. WILKERSON. Thank you, Mr. Chairman, members of the committee. This is my second opportunity to testify before your committee. I am pleased to be here today. I will briefly summarize my prepared statement. Chairman HATFIELD. Your full statement will be placed in the record.

BUDGET REQUEST FOR 1987 Mr. WILKERSON. Southwestern Power Administration's proposed budget for fiscal year 1987 is $38.6 million, which is about 1.6 percent greater than our proposed budget for fiscal year 1986.

Our need for appropriated funds in fiscal year 1987, however, is substantially less, $25.3 million, due to an unusually large amount of carryover funds from fiscal year 1985, on the order of $13.3 million. The Southwestern Power Administration program for fiscal year 1987 contains no new starts.

For the second year in a row, Southwestern Power Administration has been fortunate enough to set records in 1985 for total revenue received and for repayment of long-term debt. We expected our total revenue last year to be about $98.6 million, but due to exceptional rainfall and prudent resource management our total revenue actually exceeded $120 million. We applied $39.7 million to repayment of principal on our long-term debt, which was more than double the amount that we had anticipated would be applied in that year.

REPAYMENT STATUS Cumulative debt repayment for Southwestern Power Administration now stands at $102 million, which is 12 percent of the repayable investment of $839 million.

We are continuing our efforts to reduce the need for appropriated funds to purchase energy. We are doing this in two ways: As our existing power sales contracts expire, we are replacing those with contracts with reduced obligations for Southwestern Power Administration to supply energy. Also, we are making arrangements for certain customers to pay suppliers directly for energy that was previously purchased by Southwestern on a reimbursement basis. In the absence of these two

successful efforts, our request for appropriations in fiscal year 1987 would have been $15 million greater.

Southwestern Power Administration has been actively cooperating and facilitating, in fact, the non-Federal funding arrangements for hydroelectric generating projects which are both economically feasible and environmentally acceptable. One such project, Town Bluff, was placed under contract in 1985. Several others are in various stages of discussion, negotiation, or development, including the W.D. Mayo project, which is sponsored by the Cherokee Nation of Oklahoma.

We are also beginning to use a cost-sharing approach to the financing needed for transmission system additions. Costs will be allocated to involved parties proportionally to the benefits that are anticipated, while recognizing the need for Southwestern Power Administration to make main system additions to maintain acceptable levels of reliability.

That completes my statement, Mr. Chairman, and I will be pleased to answer questions.

(The statement follows:)

STATEMENT OF RONALD H. WILKERSON, ADMINISTRATOR, SOUTHWESTERN

POWER ADMINISTRATION

Mr. Chairman and Members of the Committee:

It is a pleasure to present the Southwestern Power Administration's (SWPA) budget request for Fiscal Year 1987. A few s ummary statistics provide a broad outline of the SWPA's projected financial request.

Adjusted

FY 1986* FY 1987 Difference Total Budget

$37,954,000 $ 38,580,000 $+ 626,000 Available Prior Balances

(Carryover Funds) 5-8, 174,000 $-13, 243,000 S-4,469,000 Appropriations

$29, 180,000 $25,337,000 $-3,843,000 * FY 1986 appropriations have been reduced by $320,000 in administrative

areas.

The proposed $626,000 increase in the budget represents a rise of only 1.6 percent. More import ant ly, due to carryover funds, I am asking for a $3,843,000 decrease in the SWPA's annual appropriations. The $13,243,000

deferral of unused purchase power funds and operations and maintenance funds

resulted from a combination of factors. Generous rainfall in FY 1985 led to

favorable hydroelectric energy production thereby significantly reducing the need for power purchases. In addition, SWPA sold its Western Loop transmission facilities in FY 1985 producing a $2,000,000 savings in previously appropriated maintenance funds. The SWPA'S FY 1987 appropriation request will continue an efficient and effective program consistent with the National Energy Policy Plan.

MISSION Southwestern Power Administration (headquartered in Tulsa, Oklahoma) markets hydroelectric power generated at Federal dams, at cost-based rates, in a manner consistent with sound business principles, giving preference in the sale to public bodies and cooperatives. SWPA schedules the operation of the Corps of Engineers' generating facilities and operates SWPA's transmission facilities in a safe, reliable manner, consistent with good utility practice. SWPA facilitates the development of environmentally clean, renewable resources and energy conservation practices.

STAFFING

The requested FY 1987 staffing level is 186 FTE positions, the same as FY

1986.

FY 1987 BUDGET INFORMATION SWPA's total budget falls into three general categories: (1) Purchase Power and wheeling, (2) Operation and Maintenance, and (3) Construction.

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Operation and
Maintenance

10,874,000 11,802,000 +928,000 Construction

5,456,000 5,819,000 +363,000 Total Budget

$37.954.000 $38.580.000 $+626.000 I will summarize the major factors behind the proposed figures in each of these categories.

(1) Purchase Power and wheeling
When the Federal system fails to generate enough hydroelectric energy
to meet contractual obligations, as is the case during drought condi-
tions, SWPA must purchase energy from other sources. Certain SWPA
contracts also require routine purchase of energy on a reimbursable
basis regardless of rainfall. In addition to purchasing energy, the
agency pays for transmitting, or wheeling, power over facilities
owned by other utilities.
The proposed $20,959, 000 budget for purchase power and wheeling costs
is a reduction of $665,000 from FY 1986. The reduction is due, in
part, to a change in the method of estimating these costs. The
FY 1986 budget was based upon needs for five months of critical water
conditions, whereas the FY 1987 budget proposal will take care of
needs for an entire year under aver age water conditions. Although
the total amount has changed only slightly, the new approach better
represents the routine purchase needs and the drought purchase needs,
and is compatible with similar projections used in SWPA's repayment

studies. As explained later in my statement, this portion of the
budget will be reduced further over the next several years.
(2) Operation and Maintenance

Operation and Maintenance includes the power marketing program, opera

tion of the transmission system, maintenance of all physical facili-
ties, and general program management. The FY 1987 budget propos al in
this category represents an increase of $928,000, or 8.5 percent,
over the current year. Included are built-in increases of $192,000
for pay costs and benefits, a net increase of $647,000 in various
other expenses including rent and service contracts, and $89,000 due
to the administrative reduction reflected in the adjusted FY 1986

Operations and Maintenance amount.

(3) Construction

The proposed $5,819,000 budgeted for construction activities in the

coming year is an increase of $363,000 or 6.7 percent, over FY 1986.

Some construction of transmission facilities is necessary to make

the Government's system compatible as utilities interconnected to the

SWPA's main grid modify and upgrade their facilities. The need to accommodate increasing customer loads also adds modestly to the rise reflected in this proposal.

CURRENT FINANCIAL STATUS I am pleased to report to this Committee that SWPA is in good financial condition. All available power is under contract and is widely distributed among the six states. We experienced excellent rainfall during FY 1985 which, when coupled with sound rate levels, produced revenues in excess of $120,000,000. We also completed FY 1985 with a large amount of hydroelectric energy stored in our energy banking accounts. The combination of this stored energy and the heavy rainfall filling the system's reservoirs to maximum capacity during the first quarter of FY 1986 placed SWPA in an excellent position to meet winter peak loads and continue its recent financial success. SWPA met its repayment obligations for the fourth straight year, in addition to paying all operation, maintenance, interest, and administrative costs. The amount repaid on principal in FY 1985 was $39,700,000, bringing the agency's cumu

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