flow to the U.S. Treasury as payment to the Government will be foregone since the customer will assume the Government's obligation to pay the supplier for a portion of the power sold.

POWER RATES, REVENUES, AND REPAYMENT

Status of Project Power Rate Increases

In order to maintain sound financial footing, Western, since its establishment in 1977, has implemented 14 rate adjustments which are subject to FERC review. Rate adjustment activity was recently initiated for the Collbran Project and the Colorado River Storage Project (transmission rate).

Based on preliminary study analysis, rate adjustments are expected to be initiated in the near future for the Colorado River Storage Project, the Fryingpan-Arkansas Project, the Rio Grande Project, the AC portion of the Pacific NorthwestPacific Southwest Intertie Project in Arizona and Nevada, and the Washoe Project (Stampede Powerplant).

Rates for the Boulder Canyon, Central Arizona-Navajo, and Falcon-Amistad Projects are adjusted either annually or monthly in accordance with repayment formulas set by contract or regulations.

Power Revenue and Energy Sales

During FY 1985, Western marketed 47.6 billion kWh of available energy to wholesale power customers and received electric service revenues of $613.6 million. Our estimate for FY 1986 energy sales and revenues is 37.0 billion kWh and $571.9 million, respectively. For FY 1987, energy sales are estimated at 35.4 billion kWh and revenues are estimated at $589.2 million.

The change in energy sales from FY 1985 through FY 1987 is due to above-normal runoff in the Colorado River Basin in

FY 1985, which resulted in greater nonfirm energy for sale in FY 1985 than initially projected. The FY 1986 estimated energy sales are based on normal river basin runoffs for the year.

Power Repayment

As of September 30, 1985, the investment to be repaid by Western's power system revenues totaled approximately $4.1 billion, of which $2.3 billion remains to be repaid. Cumulative power receipts total $6.3 billion and have been applied as follows: $2.2 billion for operation and maintenance and other expenses; $1.0 billion for purchase power and wheeling; $1.3 billion for interest; and $1.8 billion for repayment of investment in facilities and assistance to irrigation.

The following table summarizes Western's repayment status by project:

STATUS OF REPAYMENT AS OF SEPTEMBER 30, 19851/

1/ Cumulative data on an accrual basis of accounting and on the best information available

at the time.

2/ Power investment to be repaid includes irrigation-assistance investment.

In the

These

It is proposed that all PMAS will be defederalized, with the PMAS being transferred from Federal control by FY 1991. interim, the Administration proposed in FY 1987 to modify PMA capital investment repayment practices legislatively. modifications require repayment of the unpaid balance of the original Federal investment at a level not less than would be required under a fixed, straight-line amortization schedule for each power investment financed by appropriations and placed in service. This requirement would not apply to irrigation

investments.

Repayments of principal, if necessary, can be deferred, subject to the same terms and conditions applicable to deferred interest payments (e.g., current interest rates are used because the deferral helps finance current operations). The impact of this repayment proposal is relatively modest compared to the proposal made in the budget request for FY 1986.

The following table is Western's current estimate of the increased revenue that will be generated in FY 1987-1991 as a result of the modified repayment practices.

Defederalization

Although funds are included in the budget for operating

Western in FY 1987, the Administration will actively seek to defederalize our utility system.

The Administration will pursue defederalization through an open and competitive process involving the Congress and interested groups. It will be guided by the following principles:

(1) seek a fair return to the Federal taxpayers from the defederalization of our assets; (2) recognize the benefits currently enjoyed by existing customers; (3) recognize and provide appropriate protections for the personnel benefits of Federal employees; and (4) encourage efficient use of the Western Area Power systems.

Before implementation of defederalization, the Administration will seek the views of, and promote interest among, concerned groups and individuals, including congressional delegations, State and local officials, current customers, the financial community, and public power and private sector energy interests.

This concludes my statement of Western's FY 1987 budget request and program status. I would be pleased to respond to any questions you may have.

MANITOBA HYDRO PROJECT

Chairman HATFIELD. Would you comment on the Manitoba hydroelectric project as to WAPA's involvement? My concern is our involvement in importing power when there are power surpluses throughout the West, particularly the Northwest region. Could you explain a little bit why we are involved, how much we are involved, and so forth? Mr. CLAGETT. I would be pleased to.

We are talking to Manitoba about 1,100 or 1,200 megawatts that might be imported into North Dakota some time after 1995. The expectation is that this would be after the surpluses are depleted. In that project, it is a long way from the Nelson River to the United States, so we are talking about $700 million worth of transmission construction cost, of which about one-third would be in the United States. The line is a considerable distance from the Northwest, so there would be minimal, if any, impact in the Northwest.

Chairman HATFIELD. With Federal involvement, obviously, financial involvement? There is no other way that those transmission lines would be constructed?

Mr. CLAGETT. Senator, I hesitate to say, because I really don't know. The next step that we have to look at is the financing of the transmission line. We are representing various utilities in the United States that are actually making the purchase. Manitoba requested that there be only one entity to represent the U.S. interest. We are the one entity that encompasses that area. There already is hydro there and, therefore, we understand it.

There was no other utility with sufficient resources to bring the effort together.

ADDITIONAL PREPARED QUESTIONS FOR THE RECORD

Chairman HATFIELD. I will submit some additional questions for your response.

[The questions and answers follow:]