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QUESTIONS SUBMITTED BY CHAIRMAN HATFIELD

Southwestern Power Administration (SWPA)

Question: Describe Southwestern's efforts to develop new sources of Federal hydro power with private interests, and what is the potential for such development?

Answer: The Corps of Engineers has identified 20 projects in the SWPA area where development of hydroelectric generating facilities appears to be financially feasible. The proposed capacity for these projects total over 1 million kW. There appears to be much interest in non-Federal financing of such developments. FERC study permits have been granted to nonFederal interest on several of these projects and FERC construction licenses have been granted on some.

SWPA is prepared to facilitate the development of these resources and has made potential developers aware of this through meetings in our six state area of operations.

In many instances the project can be enhanced (more usable or dependable) when operated in conjunction with other hydroelectric projects in SWPA's system whether the project is constructed by the Corps of Engineers or by another party through a FERC license.

Question: Briefly, what projects are most mature, and what construction and financing arrangements are contemplated?

Answer: The most mature projects would include:

This

1. The W.D. Mayo project on the Arkansas River: project involves the addition of hydroelectric generating facilities with an installed capacity of 33,000 kW to an existing navigation structure and would be financed, designed, and constructed by the Cherokee Nation with approval of the Corps of Engineers. Upon completion, the title to the project would be transferred to the Corps of Engineers and they would then own, operate, and maintain the facilities. The SWPA would market the power generated and would repay the Cherokee Nation its costs plus a royalty for its services. In addition, SWPA would repay the Corps of Engineers for its operation, maintenance and replacement costs. This project is the subject of legislation and is included in HR 6 and S 1567 which are under consideration.

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2. The KAW reservoir project on the Arkansas River: This project involves the addition of a 34,000 kW hydroelectric generating facility to an existing Flood Control structure. facilities would be built under a FERC license and would be constructed, owned, operated, and maintained by the licensee. SWPA would enter into a power pooling arrangement with the license under which the project would be operated as part of the SWPA interconnected system and both the licensee and the

Government would share in the project enhancement resulting from such pooling operation.

3. The Fort Gibson Dam Project on the Grand River: This project involves the addition of two hydroelectric generating units totaling 22,500 kW to an existing multiple purpose hydroelectric facility. It is contemplated that the Grand River Dam Authority (GRDA) would finance the construction of the additional units. Further, GRDA would enter into a pooling arrangement with SWPA where GRDA would receive the generation from the additional units and operate the project in its system of reservoirs and GRDA and SWPA would share in the project enhancement from such operation.

4. The Denison Dam Project on the Red River: This project involves the addition of two hydroelectric generating units totaling 70,000 kW to an existing multiple purpose-hydroelectric facility. It is contemplated that preference customers would finance the construction of the additional units. The facility would be constructed, owned operated and maintained by the Corps of Engineers. SWPA would reimburse the financier its costs and would repay the Corps of Engineers for its costs of operation, maintenance, and replacement.

PURCHASE POWER

Question: The largest single item in your budget is the $21 million requested for Purchase Power and Wheeling. What is the basis and need to purchase so much electricity each year?

Answer: The $21 million Purchase Power and Wheeling budget item provides for the funding of etimated amounts of energy purchase necessary to meet the Government's commitments to our utility customers under various sales contracts. In this regard, the hydro energy marketed by Southwestern must be supplemented by energy purchases to enable us to fulfill our contractual obligations, particularly, under adverse, low water conditions. Further, we have other contractual arrangements to deliver power and energy to customers not directly connected to the transmission system and to pay resulting transmission wheeling expenses. None of our energy purchases are discretionary; however, water conditions affect whether additional hydroelectric energy can be generated to meet the obligation or whether energy purchases are required.

Our projection of needs for the FY 1987 Purchase Power and Wheeling budget is based on meeting our customers' contractual requirements under average year water conditions. Estimates of Purchased Energy needs for budgetary purposes are based on a variety of continually changing elements. Among these elements are: (1) unit prices for direct purchased energy (generally based on fuel costs; (2) quantities of energy needed to fulfill customer needs (both direct and borderline); and (3) unit prices and transmission rates for borderline purchases which are

affected by both fuel costs and rate increases proposed by companies providing supplemental energy.

Question: What portion is based on water levels and what portion is other contractual arrangements?

Answer: Of the $21 million, approximately $7 million is based on water conditions for system support and $14 million is based on contractual requirements.

Question: What is being done to hold Purchase and Wheeling cost to the lowest possible level?

Answer: Southwestern utilizes extensive energy banking arrangements to minimize direct purchases of energy. We are also continuing to convert expiring contracts from high energy commitments to lower energy commitments, thus reducing the Purchase Power and Wheeling Budget levels. In FY 1987 the effect of this conversion is a reduction of about $7 million in average year budget requirements. We have also pursued conversion of certain other contractual arrangements which require us to purchase energy from the Oklahoma Companies to meet customer loads, and receive reimbursement of such costs from the customers. While such an arrangement produces no net costs for the Government, we must request appropriated funds. A concerted effort is being made to provide for direct payment by the customers to the Oklahoma Companies to reduce budgeted funds. In FY 1987 this conversion will result in a decrease of about $8 million. The total reductions from these two actions is $15 million in FY 1987. Southwestern will continue efforts to derive new ways of reducing budget requirements.

HARRY S. TRUMAN HYDRO PROJECT

Question: Bring the Committee up-to-date on the operational status of Harry S. Truman hydro project. What is being done to make the plant fully operable given the environmental

constraints?

Answer: We are continuing to work closely with the Corps of Engineers in an effort to make the hydroelectric plant fully operational. The pump back feature will not be used until such time that provisions can be incorporated to eliminate the possibility of massive fish kills. In the interim, additional storage for power use would be helpful. However, the Corps cannot find economic justification for providing additional storage even though SWPA customers have indicated a willingness to pay for that storage. The need to generate with all six units on a regular basis is important. The Corps in cooperation with the state and downstream interests is conducting a long term study to determine the impacts of generating with first 5 and then 6 units. The idea is to proceed very cautiously so as to minimize downstream impacts.

Question: How is the Federal hydro investment being recovered?

Answer: The investment allocated to the power purpose at the Harry S. Truman project is recovered through the rates charged by SWPA for the sale of power and energy from its total system of projects. The rate making practices of the Power Marketing Administrations provide that the investment in new facilities under construction, such as Harry S. Truman, be amortized beginning with the date they are placed in service. Consequently, all costs associated with the project are being recovered under current rates. However, under the Corps of Engineers limited operation criteria, we are able to market much less capacity than planned and this condition requires sales from other system projects to provide additional revenues to recover the investment at the Harry S. Truman project.

TRANSMISSION STUDIES

Question: The Committee understands that SWPA has been involved in a transmission study in Kansas. What is the purpose and status of the study?

Answer: SWPA has been a participant in two related transmission studies involving the State of Kansas. These studies were the Kansas Joint Transmission Study and the Western/Southwestern Intertie Study. In the spring of 1984 the Western Area Power Administration (Western) was requested by the Kansas Congressional Delegation to explore alternatives for delivery of Federal preference power to the load centers in Kansas at the most reasonable cost. During the same period of time, Western and Southwestern Power Administration (Southwestern) were expressing an interest in exploring alternatives as to allow beneficial transfers of energy between both agencies. As a result of the Kansas Congressional Delegation's request and the expressed interest in exploring beneficial exchanges, Western and Southwestern initiated the two studies.

The purpose of the Kansas Joint Transmission Study was to determine the transmission facilities required to accommodate delivery of Federal preference power by Western into Kansas and to determine the transmission facilities required to accommodate resource exchanges between the two agencies. This study involved the two agencies and 13 utility systems. The study was completed in February of this year.

The purpose of the Western/Southwestern Intertie Study was to investigate the possibility of capacity and energy exchanges between Western and Southwestern. This study involved only Western and Southwestern. The study was completed in February of this year.

Question: Have any results or conclusions been made? If so, please explain.

Answer: The Kansas Joint Transmission Study concluded that the existing bulk transmission system owned by the various utility systems could accommodate the Federal Power and Energy transfers simulated in the study provided certain improvements were made to the subtransmission systems. The

Western/Southwestern Intertie Study concluded that, using a banking concept, resource exchanges between the two agencies would allow each agency to market additional capacity from their systems.

An economic analysis of the conclusions reached by the two studies was just completed. This analysis identified two resource exchange levels with benefit to cost ratios greater than one. These resource exchange levels were 100 MW and 200 MW. The analysis recommended that Western and Southwestern now identify a mutually agreeable exchange program with equitable cost-sharing arrangements.

Question: What is the estimated cost to carry out these conclusions, and what is the optimum schedule for undertaking this work?

Answer: Transmission costs associated with the two levels of resource exchange with benefit to cost ratios greater than one were 5.3 million dollars for the 100 MW level of exchange and 11.7 million dollars for the 200 MW level of exchange. schedule has been developed at this time for undertaking this work.

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Question: In your judgment, given the ongoing effort to deFederalize the PMA's, is this something that should proceed on a fast track?

Answer: The ongoing effort to de-Federalize the PMA's should not be a factor in establishing a schedule to carry out study conclusions. These conclusions should be implemented using sound planning practices giving appropriate recognition to the scope and complexity of the required work.

REPAYMENT REFORM

Question: What impact will the proposed change in your repayment process have on your power rates?

Answer: Based on Total Gross Revenue projected in the

FY 1987 Budget the anticipated increase in rates as a result of the Repayment Reform Proposal follows:

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