PICK-SLOAN PROJECT 

OVERSIGHT HEARING 

BEFORE THE 

SUBCOMMITTEE ON WATER 

AND POWER RESOURCES 

OF THE 

COMMITTEE ON RESOURCES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

SECOND SESSION 

ON 

PICK-SLOAN PROJECT REPAYMENT ISSUES 

MAY 2, 1996-WASHINGTON, DC 

Serial No. 104-74 

Printed for the use of the Committee on Resources 

25-483cc 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1996 

For sale by the U.S. Govenunent Printing Office 

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 

ISBN 0-16-052957-3 ·-. 
COMMITTEE ON RESOURCES 

DON YOUNG, Alaska, Chairman 

W.J. (BILLY) TAUZIN, Louisiana 

JAMES V. HANSEN, Utah 

JIM SAXTON, New Jersey 

ELTONGALLEGLY,Califurlia 

JOHN J. DUNCAN, JR., Tennessee 

JOEL HEFLEY, Colorado 

JOHN T. DOOLITTLE, California 

WAYNE ALLARD, Colorado 

WAYNE T. GILCHREST, Maryland 

KEN CALVERT, California 

RICHARD W. POMBO, Califorrua 

PETER G. TORKILDSEN, Massachusetts 

J.D. HAYWORTH, Arizona 

FRANK A. CREMEANS, Ohio 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, Califorrua 

WALTER B. JONES, JR., North Carolina 

WILLIAM M. (MAC) THORNBERRY, Texas 

RICHARD (DOC) HASTINGS, Washington 

JACK METCALF, Washington 

JAMES B. LONGLEY, JR., Maine 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

GEORGE MILLER, Califorrua 

EDWARD J. MARKEY, Massachusetts 

NICK J. RAHALL II, West Virgilia 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

SAM GEJDENSON, Connecticut 

BILL RICHARDSON, New Mexico 

PETER A. DEFAZIO, Oregon 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

TIM JOHNSON, South Dakota 

NEIL ABERCROMBIE, Hawaii 

GERRY E. STUDDS, Massachusetts 

SOLOMON P. ORTIZ, Texas 

OWEN B. PICKETT, Virgilia 

FRANK PALLONE, JR., New Jersey 

CALVIN M. DOOLEY, Califorma 

CARLOS A. ROMERO-BARCELO, Puerto 

Rico 

MAURICE D. HINCHEY, New York 

ROBERT A. UNDERWOOD, Guam 

SAM FARR, Califorrua 

PATRICK J. KENNEDY, Rhode Island 

DANIEL VAL KISH, Chief of Staff 

DAVID DYE, Chief Counsel 

CHRISTINE KENNEDY, Chief Clerk JOHN LAWRENCE, Democratic Staff Director 

SUBCOMMITTEE ON WATER AND POWER RESOURCES 

JOHN T. DOOLITTLE, California, Chairman 

JAMES V. HANSEN, Utah PETER A. DEFAZIO, Oregon 

WAYNE ALLARD, Colorado GEORGE MILLER, California 

RICHARD W. POMBO, California BRUCE F. VENTO, Minnesota 

FRANK A. CREMEANS, Ohio SAM GEJDENSON, Connecticut 

WES COOLEY, Oregon OWEN B. PICKETT, Virginia 

HELEN CHENOWETH, Idaho CALVIN M. DOOLEY, California 

GEORGE P. RADANOVICH, California MAURICE D. HINCHEY, New York 

WILLIAM M. (MAC) THORNBERRY, Texas SAM FARR, Califorlia 

RICHARD (DOC) HASTINGS, Washington 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

ROBERT FABER, Staff Director/ Counsel 

VALERIE WEST, Professional Staff 

ELIZABETH BIRNBAUM, Democratic Counsel 

(II) 
CONTENTS 

Hearing held May 2, 1996 ...................................................................................... . 

Statement of Members: 

Doolittle, Hon. John T., a U.S. Representative from California; and Chairman, Subcommittee on Water and Power Resources ................................ . Franks, Hon. Bob, a U.S. Representative from New Jersey ....................... .. Johnson, Hon. Tim, a U.S. Representative from South Dakota ................. .. Meehan, Hon. Marty, a U.S. Representative from Massachusetts ............. .. 

Statement of Witnesses: Beneke, Patricia J., Assistant Secretary for Water and Science, U.S. 

Department of the Interior .......................................................................... . Prepared statement .................................................................................. . Donnelly, Thomas, Executive Vice President, National Water Resources 

D~:~.c~~~~ ~::es~~i!.n~~:~!~t~~d·~-;;d·w~t;;~ F~~d·~r·ih~·~ki~~· ·:: Prepared statement .................................................................................. . Rezendes, VictorS., Director, Energy, Resources and Science Issues, Re- sources Community and Economic Development Division, U.S. General 

Accounting Office ......................................................................................... . Prepared statement .................................................................................. . Shafer, James M., Administrator, Western Area Power Administration, 

U.S. Department of Energy ......................................................................... . Prepared statement .................................................................................. . Stessman, Neil, Regional Director, Bureau of Reclamatioin, U.S. Department of the Interior ..................................................................................... . Uggerud, Ward, Vice President for Operations, Otter Tail Power ............. .. Prepared statement ................................................................................. .. 

Additional material supplied: 

Ene~~eK~~x:;;~~ meter calibration ........................................................ .. North Dakota population not served by firm PMA power ................... .. Pick-Sloan Missouri Basin Program-Eastern Division firm sales, en- ergy, revenue, and capacity by State ................................................. .. 

Communications submitted: 

Mf9~3.~ ~~~~ A~~:ffoa~s:~~~e~~~~ .. ~ .. ~~.~~~~~~~- ~~~.~~ .. ~~.~:,~~ .. ~~ : Stessman, Neil (Interior): Letter of June 13, 1996, to Hon. John Doolittle. 

Uggerud, Ward (Otter Tail): Letter with attachment of May 9, 1996, 

to John T. Doolittle ..................................................................................... .. 

(III) 

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PICK-SLOAN PROJECT REPAYMENT ISSUES 

THURSDAY, MAY 2, 1996 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON WATER AND POWER RESOURCES, 

COMMITTEE ON RESOURCES, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:07 a.m., in room 

1334, Longworth House Office Building, Hon. John T. Doolittle 

(Chairman of the Subcommittee) presiding. 

STATEMENT OF HON. JOHN T. DOOLITTLE, A U.S. REPRESENTATIVE FROM CALIFORNIA; AND CHAIRMAN, SUBCOMMITTEE 

ON WATER AND POWER RESOURCES 

Mr. DOOLITTLE. The Subcommittee on Water and Power Resources will come to order. The Subcommittee is meeting today to 

hold an oversight hearing on the Pick-Sloan Project Repayment Issues. I want to welcome each of the witnesses testifying here today 

on issues relating to the repayment cost allocations for the PickSloan Missouri Basin Program. 

This is not a new issue, although it has received considerably 

more national attention since it was publicly brought to light last 

fall. It turns out that there are longstanding concerns that certain 

repayment costs are not being recouped because they have been allocated to irrigation features of the program that will never be 

built. Last December, I asked the General Accounting Office to examine the cost allocations of the Pick-Sloan Program, and I look 

forward to hearing their findings today. 

The Pick-Sloan Missouri Basin Program was originally authorized under the Flood Control Act of 1944. Prior to that, in 1939, 

Congress asked the Bureau of Reclamation to provide a plan of relief for the drought-plagued lands of the region. Four years later, 

motivated by devastating floods, the House Committee on Flood 

Control asked the Corps of Engineers to produce a plan for "flood 

control and other purposes" in the Missouri Basin. 

Reclamation and the Corps each prepared plans for management 

of the Missouri River Basin. However, because of the different missions of the two agencies, they took a different approach to 

basinwide management. When Congress authorized the resulting 

Missouri River Basin Program as part of the Flood Control Act of 

1944, it quickly grafted the two plans together. As a result, implementation of the program has been difficult. 

While the thrust ofthis hearing is Western Area Power Administration's power rates in the region, these power rates directly relate 

to the underlying cost repayment allocations. According to the 

(1) 
2 

GAO, approximately 25 percent of the repayment for the project 

was to come from the scores of irrigation projects that were proposed as part of the plan. Although the Federal Government proposed these irrigation 

projects to offset the loss of the hundreds of thousands of acres that 

were flooded by the water storage reservoirs, it has simply proven 

infeasible to construct most of these irrigation projects. 

Therefore, in the intervening 50 years, only about one-fourth of 

the acreage planned for irrigation has been developed. Consequently, irrigation remains a small beneficiary of the program, 

and most of the irrigation services never went "on line" to begin repaying "their" share of the Federal investment. 

However, the cost allocations for the Pick-Sloan Program are 

based on the "ultimate development" concept. In other words, cost 

repayment allocations were based on the benefits each class of 

beneficiaries could be expected to receive when all the individual 

projects were completed. Approximately $454 million of the Federal 

investment in the Pick-Sloan Program's hydropower facilities and 

water storage reservoirs is unrecoverable unless the project repayment allocations are revised. 

While the Bureau of Reclamation and the Western Area Power 

Administration cannot unilaterally reallocate power costs, I am 

concerned that the Bureau of Reclamation has failed to follow 

through on commitments the agency made in response to a 1993 

Inspector General's report on Pick-Sloan Program cost allocations. 

At that time, Reclamation agreed to submit several study proposals 

on this issue to the Congress by early 1995 but has not yet done 

so. 

There have been attempts to resolve this issue in the past. The 

Congress addressed this problem in part under the provisions of 

the Garrison Unit Reformulation Act of 1986, which deauthorized 

certain irrigation features of the Pick-Sloan Program, and allowed 

a reallocation of costs associated with these features. 

This resulted in $147 million being reallocated to power users for 

repayment. It is my understanding that, according to the WAPA officials, the power rate was not appreciably affected by this 

reallocation. In closing, let me reiterate that I look forward to the testimony 

of each of our witnesses. It is a complex issue. The Federal Government is out of pocket nearly half a billion dollars, and this sum is 

being added to at the rate of $30 million each year. It is important 

that we thoroughly examine the allocation of costs to ensure that 

the Federal investment in these Pick-Sloan facilities is recouped in 

an equitable manner. 

Mr. DOOLI'ITLE. Mr. Johnson, we welcome you, and at this point, 

you would be serving the role of the ranking member. Would you 

care to make a statement? 

STATEMENT OF BON. TIM JOHNSON, A U.S. REPRESENTATIVE 

FROM SOUTH DAKOTA 

Mr. JOHNSON. Well, thank you, Mr. Chairman, and I appreciate 

the courtesy on the part of the Chairman of permitting a member 

of the Committee but not a member of the Subcommittee to sit in 

on this hearing. I think the matters being taken up here are very 
3 

important. I look forward to the testimony of the witnesses. And 

I may submit a fuller statement for the record. Thank you, Mr. 

Chairman. 

Mr. DooLITTLE. Thank you. At this point, we will invite our first 

panel of witnesses to come forward, and if you would, remain 

standing for the oath. We have with us Victor Rezendes, Director 

of Energy, Resources and Science Issues, Resources, Community 

and Economic Development Division of the U.S. General Accounting Office; and Mr. James Shafer, Administrator of the Western 

Area Power Administration; and the Honorable Patricia J. Beneke, 

the Assistant Secretary for Water and Science, U.S. Department of 

the Interior. And, Ms. Beneke, you have someone accompanying 

you. Is that right? 

Ms. BENEKE. Yes, Mr. Chairman, Neil Stessman who is the Regional Director for the Great Plains Region, Bureau of Reclamation. 

Mr. DOOLITTLE. Great. Welcome, Mr. Stessman. 

[Witnesses sworn.] 

Mr. DOOLITTLE. Thank you. Let the record reflect that each answered in the affirmative. Please be seated. Ordinarily, we operate 

under the procedures of having the witnesses each take five minutes. I know you are all familiar with those lights. But I think in 

the sense the hearing really is centered around the GAO report, we 

are going to give Mr. Rezendes 10 minutes in which to make his 

presentation. 

STATEMENT OF VICTORS. REZENDES, DIRECTOR, ENERGY, 

RESOURCES AND SCIENCE ISSUES, RESOURCES, COMMUNITY AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE 

Mr. REZENDES. Thank you, Mr. Chairman. I will try to cover this 

in about 10 minutes. I was asked to give you some of the history 

and some of the information on cost and reimbursement. I will try 

to not make this a boring accounting presentation. 

I basically have two points I want to leave you with today. The 

first is that under the current repayment criteria, approximately $454 million of Federal investment in hydrofacilities and water 

storage reservoirs is unrecoverable because a portion of these completed facilities, which were intended for irrigation, are no longer 

considered feasible and will not be built. The second point I want 

to leave you with is changing that determination will require congressional action. 

Let me go back now to a little bit of the history of the Pick-Sloan 

Program. As you know, that was a combination of two basic programs. Originally, the Sloan Program, which was put together by 

William Sloan, the Assistant Regional Director for the Bureau, basically involved irrigation projects in the Upper Missouri River 

Basin. The second part was put together by Colonel Lewis Pick, 

who is from the Corps Program, and that basically involved flood 

control and navigation issues in the Lower Missouri River Basin. 

Obviously, to -accomplish these multiple objectives, there were 

compromises. For example, some people, in exchange for having 

their !and flooded permanently for such benefits as water and electricity production, hoped that they would get future irrigat~~m 
4 

projects. To date, we have spent roughly about $4.5 billion on this 

of which $2.6 billion is reimbursable through power revenues. 

Obviously, a program of that size can't all be built at the same 

time. These projects had to be phased in. Basically, deciding which 

ones were done first and which ones are still left to be done is the 

issue today. I believe Marc Reisner in his book, Cadillac Desert, 

captured it pretty well when he said that the Corps projects, which 

were basically the downriver flood control navigation, became the 

here-and-now projects, where the upper river irrigation projects became the then-and-later projects. And that is basically the issue we 

have today. 

Pick-Sloan, as it was originally envisioned in 1944, has not been 

constructed completely. There are still projects that are out there 

that will not be built. Under the original plan, about a third of the 

generating capacity for electricity was designed to pump water for 

irrigation in these projects. 

As things progressed, only about half of that electricity, roughly 

15 percent of the capacity of Pick-Sloan, was planned to be used 

to irrigate the land. And that is because, as you mentioned, Mr. 

Chairman, only 25 percent of the acreage originally planned for irrigation has come on-line. For those irrigation facilities that have 

come on-line, I do want to mention that is roughly about I believe 

$56 million that is scheduled for repayment and will be coming in. 

I want to concentrate now a little bit about those projects that 

are not being built. The Bureau now considers all but one of 104 

incomplete irrigation facilities to be infeasible and believes that 

these projects will not likely be constructed. 

They used criteria years ago when they looked at these, and although they haven't been updated officially, the time-consuming effort to do that, they believe, would not change their original estimate which is that these projects aren't economically feasible 

today. As a result, we have $454 million in these completed facilities that is basically deferred. The real question now is why is that 

a concern? 

To understand that, I want to briefly talk about what is reimbursable and not reimbursable under the program. Under what is 

not reimbursable is flood control and navigation. Costs relating to, 

however, electricity production, transmission, municipal water, and 

industrial supplies, and irrigation are, in fact, reimbursable. And 

this is the problem we have here. 

Roughly, we have built watersheds of a larger size than needed 

to produce electricity. We have excess electricity capacity to pump 

water to these irrigation projects that are not going to be built. 

That total investment, again, is $454 million. Since these water 

projects aren't coming on-line, we have no irrigators out there who 

will come forward and pay this. So the real question is what do we 

do with those costs? 

That is a congressional decision. As you know, there is currently 

legislation that precludes reallocation-the investment of these 

projects to another project-without congressional authorization. 

The 1977 DOE Reorganization Act precludes revision by the Bureau of cost allocations without prior congressional approval. In addition, the Water Resource Development Act, as you mentioned, in 

1986 requires them to proceed as if all projects will be completed. 
5 

You also mentioned, and I want to highlight just briefly, that 

there is precedence for moving these costs. The Garrison Diversion 

Unit Refonnulation Act of 1986 did just that. At that time, Congress tenninated the development of over 800,000 acres of irriga- tion and shifted the $147 million costs associated with that to repayment through power revenues. 

In our discussions with Western, we were told that basically it 

did not have an appreciable impact on the rate because, as you 

know, those rates are set to recover those costs over a 50-year period, which is a very long period of time. 

I want to get back now to the $454 million and talk about what 

effect that would have if that were shifted to electricity. I want to 

emphasize, and I can't emphasize this enough, that assessing these 

rate impacts is very speculative. And there are a number of factors 

that need to be considered, and I will go through those in a little 

bit. 

But assuming that we use the same criteria that we had previously, which is that we allocate these to power and those are 

spread over 50 years with interest, we were told by Western that 

they ran some calculations for us, and they estimate that if the 

total cost were passed through to the wholesale rate that that 

would increase the wholesale rate roughly 14.6 percent. 

I want to emphasize again though that there are a number of 

factors that could impact on that. Western is currently going 

through a restructuring. If there are cost savings that they could 

achieve through that restructuring, that could, obviously, impact 

any rate increase. There are also questions about whether, even if, 

in fact, the wholesale rate did go up whether that would translate 

into a comparable or equal rate or any rate impact at all at the retail level. 

Other things could happen. These rates could be phased in over 

time, and they could also be-as you know, if there was ever a general reassessment of the costs and benefits of the program, that 

could totally change the allocation of these costs. 

You also mentioned that in 1993 the IG had similar conclusions 

and recommended that the Department, in essence, request that 

Congress deobligate these projects and those costs be passed on to 

the electricity consumers. We will let the Department speak for 

that themselves, but currently, although they originally agreed 

with those recommendations and said they would have a list by 1995. They are still working on it and still assessing some of the 

options. 

I want to get back to one last point that I want to emphasize here. While it is certainly within the congressional prerogative to 

move these costs to power, I do want to mention one point which 

is basically that in 1944 when these projects were put together, 

there were agreements reached. 

As I mentioned, some people accepted flooding for benefits such 

as electricity or other things in the hopes of getting irrigation. If 

Congress deobligates these projects, there is an equity question 

that you may have to revisit in terms of those participants who 

aren't getting what they originally thought they were getting in the 

deal in 1944. With that, Mr. Chairman, I would be happy to answer any questions. 
6 

[Statement of Mr. Rezendes may be found at end of hearing.] 

Mr. DOOLI'ITLE. Thank you. We will recognize Mr. Shafer for his 

testimony. 

STATEMENT OF J.M. SHAFER, ADMINISTRATOR, WESTERN 

AREA POWER ADMINISTRATION, U.S. DEPARTMENT OF ENERGY 

Mr. SHAFER. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you today to discuss Western's role in the 

Pick-Sloan Missouri Basin Program. I have submitted my written 

testimony for the record so I will limit my comments to a few of 

the highlights. 

As mentioned, the Pick-Sloan Missouri Basin Program was authorized in Section 9 of the 1944 Flood Control Act as a multipurpose ultimate development project. Western's role in this multipurpose program was defined in the Department of Energy Organization Act of 1977. This Act authorized Western to market the power 

generated by the Federal resources at rates adequate to recover the 

costs assigned to the power function for repayment. 

In the Pick-Sloan Program that includes the power-related costs 

plus irrigation-related costs as determined by the U.S. Bureau of 

Reclamation that were deemed to be beyond the irrigators' ability 

to repay. The DOE Act also directed that no changes in the cost 

allocation or project evaluation standards could be made without 

congressional action. 

The ultimate development concept has been an element of the 

program that has been questioned and reviewed in eight investigation reports that I am aware of since 1968. And each of those investigation reports has reaffirmed Congress's intent that the ultimate 

development concept be used in suballocation of power costs. Legislation subsequent to the 1944 Flood Control Act has ratified the 

concept as well. 

Western's program and financial status is reported to Congress 

annually, and included in that report is a verification from an independent auditor confirming the compliance of the accounting processes in accordance with generally accepted accounting principles. 

All of the power that is generated by the Pick-Sloan Program 

that is in excess of the present pumping needs is marketed at costbased rates to assure repayment of Federal investment within the 

scheduled timeframe. Power identified as ultimately being used for 

irrigation purposes on projects as they are developed is marketed 

on a withdrawable basis at the same rate as all other power. 

The repayment of the Pick-Sloan Program investment assigned 

to the power function repayment is on track to be paid in the timeframe as defined by law. And at present, Western's power repayment study indicate that approximately 43 percent of the PickSloan power investment-excluding irrigation aid-has been repaid. The unpaid balance at the end of fiscal year 1995 carried an 

effective interest rate of approximately six and a half percent. That 

concludes my statement, and I will be pleased to answer any questions that you might have. 

[Statement of Mr. Shafer may be found at end of hearing.] 

Mr. DOOLI'ITLE. Thank you very much. The Chair recognizes Ms. 

Beneke, the Assistant Secretary, for her testimony. 
7 

STATEMENT OF THE HONORABLE PATRICIA J. BENEKE, ASSISTANT SECRETARY FOR WATER AND SCIENCE, U.S. DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY NEIL 

STESSMAN, REGIONAL DIRECTOR, BUREAU OF RECLAMA· 

TION, U.S. DEPARTMENT OF THE INTERIOR 

Ms. BENEKE. Mr. Chairman, members of the Subcommittee, it is 

a pleasure to be here today. I appreciate the opportunity to discuss 

the status of irrigation projects authorized as part of the Pick-Sloan 

Missouri Basin Program, as well as the repayment relating to PickSloan facilities. 

The Flood Control Act of 1944 envisioned a comprehensive plan 

to manage the water and power resources of the Missouri River 

Basin. The original program was to include an extensive system of 

flood control, navigation improvement, irrigation, municipal and industrial water supply, and hydroelectric power generation facilities 

for the 10 Missouri River Basin states. 

At the time, this program was seen as a significant effort to boost 

the economy and population of the Great Plains which had suffered 

a decline during the Dust Bowl era of the 1930's and during World 

War II. It was hoped that the Pick-Sloan Program would provide 

economic stability and hydropower for a growing nation and contribute important flood control, navigation, and irrigation benefits. 

The 1944 Act was based on preliminary plans and estimates. 

Congress recognized that some elements of the program would 

change as further investigations were completed. In reality, we now 

know that the original plan overestimated irrigation and navigation development and underestimated hydropower and recreation. 

While Pick-Sloan has not been fully constructed, the program has 

provided significant benefits such as water supply, flood control, 

navigation, recreation, and hydropower. It has fallen short of its 

stated goals for irrigation. 

Overall, only about 11 percent of the irrigation anticipated in the 

Pick-Sloan plan, less than 600,000 acres, has actually been federally developed. This is due to a combination of factors such as a 

limited growing season, market conditions, and soil characteristics. 

In 1958, Reclamation and the Corps completed a report making 

cost allocations for multipurpose projects in Pick-Sloan. In 1964, 

the Congress adopted a law that required that all Federal facilities 

originally authorized to be built as part of the Pick-Sloan Program 

but which were not yet completed must be reauthorized by the 

Congress. Since June 30, 1964, nine facilities have been reauthorized, and construction activities have taken place on four of the 

projects. The others remain inactive. 

We do not expect that the entire Pick-Sloan Program will be realized given current economic and financial conditions. Nonetheless, 

costs continue to be allocated to program purposes based on the assumptions that full program development will occur. Reclamation 

is prohibited by law from reallocating the costs of the Pick-Sloan 

Program without authorization from Congress. 

In 1993, the Department of the Interior's Inspector General conducted an audit of the Pick-Sloan's cost allocations and repayment. 

The IG expressed concerns that the government's investment was 

not adequately protected under the cost allocations in Pick-Sloan. 
8 

In response to the IG, Reclamation is undertaking an in-depth 

review of program costs based on currently planned development, 

contemporary uses, and applying currently used project evaluation 

and economic analysis. We intend to keep the Subcommittee apprised of our findings and to seek guidance from the Congress and 

legislative authority as appropriate. This concludes my statement, 

and I would be happy to answer any questions. 

[Statement of Ms. Beneke may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you very much. Now, the Bureau of Reclamation promised this Committee that study that was due in February of 1995. When do you expect we will have that? 

Ms. BENEKE. Well, Mr. Chairman, we are continuing to work on 

the study. As soon as the IG completed its work on this matter, the 

Bureau engaged in the study. We committed at that time to taking 

an active role in analyzing this issue. We have been doing that. 

If I recall correctly, our commitment was to provide a study proposal for the fiscal year '96 budget. That did not happen for a variety of reasons. I guess one of the reasons that I have been advised 

that it didn't happen was that there was some sentiment that we 

should defer working on this while the PMA legislative proposals 

were pending up here, because that could potentially so change the 

complexion of our analysis that it would be prudent to hold off for 

a bit. So the Bureau did hold off, but now we are actively engaged, 

and we fully intend to keep you apprised of our progress. 

Mr. DOOLITTLE. Do you have in mind how many weeks will 

elapse before we receive this? 

Ms. BENEKE. I do not have a specific deadline to give you or date 

to give you here today. I have been around long enough to know 

better than to do that. But I am hopeful that we will be able to 

share some additional information with you soon. 

We have, of course, already provided preliminary information on 

irrigation projects that under our current analysis appear to be infeasible. That was provided to the Subcommittee. It was also provided to GAO. That was part of what we said that we would do in 

response to the IG report. 

Mr. DOOLITTLE. Do you concur that we would be talking weeks 

as opposed to months, though, for this report to come in? 

Ms. BENEKE. You know, I don't know the answer to that. It is, 

again, a very complex subject area. There are a lot of considerations to be made in the course of this analysis. One of those considerations is equity, as the witness from GAO mentioned. There 

are considerations with respect to impacts on power costs, but we 

are working on it and will continue to do so. And we will do our 

best to be responsive to the Subcommittee. 

Mr. DooLITTLE. Well, Madam Secretary, I would feel more comfortable if I heard a specific date since your agencies have been 

working on this since the Inspector General's report came out in 

1993. Let me say I think your recommendations would be very helpful 

to us and should precede whatever we do on PMA reform rather 

than be deferred while waiting for us. I think, frankly, the insight 

that would come from your recommendations would be helpful to 

us. 
9 

Ms. BENEKE. Well, let me say that, of course, this needs to be 

an interagency activity. We need to work closely with Western in 

this analysis and also closely with the Corps. I would be happy to 

confer with those other agencies and with the team that has been 

working on this at Interior and try to get back to you with a more 

specific timeframe. 

Mr. DooLI'ITLE. I would appreciate that. Maybe you can give us 

a status report. 

Ms. BENEKE. Yes. 

Mr. DOOLI'ITLE. I think this is an important submission to be 

made; it is a fairly high priority, and I would appreciate your getting back to us on it. 

Ms. BENEKE. We will do our best to do that, sir. 

Mr. DOOLI'ITLE. Thank you. Mr. Rezendes, thank you for your excellent report which has been very helpful to the Subcommittee. 

What actions do you think are going to be needed to recover the 

$454 million that the GAO referred to as "unrecoverable," plus the 

annual $30 million that will be added to that sum each year? 

Mr. REZENDES. In essence, if you want to recover that money, 

particularly through power rates, which is the most likely suspect 

here, Congress will have to act as they did in the Garrison Diversion Unit Act which is basically shifting those power costs over. 

You have a couple of options there. You could either deobligate 

the authorized projects, recognize that and shift the costs, or Congress could, as it has on other occasions, just shift the cost and not 

deobligate the projects. Or a third option is Congress could decide 

that those costs should not go to power and basically absorb them 

themselves. We have done all three, I guess, in the past in various 

forms and various other issues. 

Mr. DOOLI'ITLE. Mr. Shafer, your auditors, Peat Marwick, raised 

the issue of the meters not being calibrated. I guess these are the 

meters that you use to dispense power out to your customers. You 

have stipulated you agree with the idea that they should be calibrated on an annual basis. Let me ask you, how many meters are 

there, and are they all in that situation of not being calibrated on 

an annual basis? 

Mr. SHAFER. Mr. Chairman, we have a maintenance policy that 

we do routinely calibrate our revenue meters. I am not aware of 

the specifics that you are talking about as far as that report. We 

do routinely calibrate those meters. We have approximately 300 

customers in the Pick-Sloan Program region. I am not sure that is 

exactly the same number of meters but in that neighborhood I 

would say. 

Mr. DOOLI'ITLE. So approximately how many meters do you think 

there are? 

Mr. SHAFER. I am guessing in relation to the number of customers about 300 meters also. 

Mr. DOOLI'ITLE. OK. So each customer has its own meter, you 

mean? 

Mr. SHAFER. Conceivably, they could have, yes. It depends onthere are some that are metered through joint action agencies, but 

some do have their own. 

Mr. DOOLI'ITLE. I am looking at the KPMG Peat Marwick independent auditors report on the internal control structure, which is 
10 

dated September 30, 1995 and 1994. It says that under timely calibration of meters, 'We commented in the report on the internal 

control structure of fiscal year '94 that Western should enforce the 

requirement to calibrate all meters at least once a year. "Management concurred with the audit recommendation and 

stated that the Loveland Area Office would review the schedule for 

meter testing and recalibration to ensure requirements are enforced timely. Limited testing of 14 meter records at LAO showed 

that LAO had not calibrated four meters," and they list the meter 

numbers here, "since 1993. 

"LAO stated that operating and maintenance personnel lack sufficient time because of recent downsizing of the higher priority 

work to calibrate all meters annually. The lack of annual meter 

calibrations exposed Western to potential incorrect metering of 

electrical power charge to customers." 

Maybe I can ask in the next panel what a private company would 

do, but calibration is really how you tell if you are charging customers the correct amount, isn't it? Right? 

Mr. SHAFER. Absolutely. And I don't disagree that calibration 

should be there, and I will certainly follow up to see if that has 

been corrected. We do have a policy in place that we test our revenue meters on an annual basis. Mr. DOOLI'ITLE. We have two Peat Marwick reports here. Apparently this has been recommended for three years running, and still 

they are finding four out of 14-a little less than a third, but still 

a substantial percentage-of meters that aren't calibrated. So if 

this problem has gone on for three years running, why do you believe that it has been fixed? 

Mr. SHAFER. I guess what their report is saying is that they hadn't been tested-whether they would test bad or not would be 

a question. But I will certainly follow up to see it is being taken 

care of at this point. [The following was submitted:] 
11 

NORTH DAKOTA POPULATION NOT SERVED BY FIRM PMA POWER 

According to Electric Sales and Revenue 1994 (Energy Information Administra- tion, U.S. Department of Energy, November 1995), 38 electric Utilities Serve Residential consumers in the Sate of North Dakota. 

The following table breaks out these utilities by class of ownership and number 

of residential consumers: 

Class of ownership Nunobet of ut ilies 

Nounlllr crl 

midlntial 

consun.s 

Cooperatives ................................................................................................................. 24 92.263 (34%) 

Investor-Owned ............................................................................................................. 3 170,449 (63%) 

Publicly Owned ............................................................................................................. 11 8,864 (3%) 

------- Total .............................................................................................................. .. 38 272,574 

If it is assumed that all cooperatives and publicly owned utilities purchase firm 

PMA power, and none of the investor-owned utilities do, then 63 percent of North 

Dakota residential consumers did not have access to firm PMA power in 1994. 

Mr. DOOLITTLE. OK. Well, my time is up. Let me recognize the 

gentleman from South Dakota, Mr. Johnson. 

Mr. JOHNSON. Well, thank you, Mr. Chairman. There is no new 

news that a great deal of the irrigation projects envisioned by PickSloan have never come about, and that consumers of the region in 

lieu of the. development of their economies have had the utilization 

of the hydropower in the interim. I would ask Mr. Shafer, do any 

Pick-Sloan customers get free power as a result of the current 

suballocation? Could you elaborate on that for us please? 

Mr. SHAFER. Yes, I can. Thank you, Congressman Johnson. No. 

From our perspective, there is no free power. All the power that is 

marketed is sold at rates that we determine are adequate to recover the investment assigned to power for repayment. On a longterm basis, when we have surplus power during good water years 

in excess of what our firm contractual commitments are, that surplus power is sold on the surplus market at market rates at the 

time. 

Mr. JOHNSON. And are the Pick-Sloan repayment rates in violation of the law because they do not recover all costs? 

Mr. SHAFER. No. Our rate and repayment studies assure that all 

of the costs that are assigned to power for repayment are recovered, and that the timeframe is such that it will be paid off in the 

time specified by law. Mr. JOHNSON. And could you tell us what the weighted interest 

rate is for unpaid Piclt-Sloan power investment? 

Mr. SHAFER. At the end of fiscal year '95, the effective interest 

rate on the unpaid power investment was about six and a half percent. 

Mr. JOHNSON. I appreciate your response to that. Just quickly in 

my time here to Mr. Rezendes, on January 18 of this year, 40 of 

my colleagues and I sent the GAO a letter requesting an assessment of the impacts of higher electric rates on customers and local 

economies ofWAPA, SEPA, and Southwestern Power, plus the possible impacts on navigation, flood control, recreation, and other 

multipurpose functions if the present ownership and operations are 

changed. 
12 

We also requested recommendations of how the PMA's can improve efficiencies in output within the present ownership position. Could you tell us when the GAO will be able to respond to this request and when we can expect something in writing from the GAO? 

Mr. REZENDES. Yes. We were working with the staffs of the 40 

some Members who have requested the study. Right now, we are 

in what we call the methodology development and scope and objective phase. We have agreed to get back to your staffs and the other 

members by June to reach agreement on a methodology and a 

scope of what we plan to do with a specific timeframe. I don't have 

a specific timeframe yet. I know everyone is anxious to hear information on this issue. So I would say realistically we are talking 

about anywhere from nine months or so from today, maybe a year. Mr. JOHNSON. Well, thank you. We will await that with some anticipation. And with that, Mr. Chairman, I yield back my time. 

Mr. DOOLITTLE. Thank you. Mr. Pombo is recognized. 

Mr. POMBO. Thank you. Ms. Beneke, in your opening statement 

you said that the allocation of irrigation was obviously overstated 

when this was put together from the beginning, but that from 

power and recreation and other uses that it had been understated. If we were to reallocate the cost of all of this, how much would go 

to not just power but to the recreation and multiuse side of this? 

Ms. BENEKE. Well, it is difficult for me to give you any specific 

number without the Bureau going through the actual cost 

reallocation process. They have a very detailed analysis that is undertaken to allocate those costs. But it is safe to assume that, you 

know, a substantial share of the costs would be reallocated to the 

power side. 

And I think some of the costs may well also be reallocated to 

recreation uses because in 1944, when the Congress was putting 

the program together, they assumed a much larger share of the 

program would go toward irrigation. And history has proven that 

not to be the case. Power I think is more than double what was 

originally anticipated. And irrigation-we have developed about 11 

percent of what was originally anticipated in the program. 

Mr. POMBO. Historically, we have not required flood control to 

repay? 

Ms. BENEKE. Correct, as a matter of law. 

Mr. POMBO. And in recreation, we have also-the Federal Government has eaten that portion of it? 

Ms. BENEKE. Again, as a matter of law that generally is correct. Mr. POMBO. If we are looking at reallocating this, should we not 

also look at the flood control and recreation benefits of a project 

like this and what, if any, repayment should come from those uses 

of these projects? 

Ms. BENEKE. Well, that is certainly something that Congress 

would be free to do. It would be a great departure from longstanding policy and law, and I guess I am not really p:repared to comment on the policy implications of that today. 

Mr. POMBO. Now, we hear a lot about the power side of this and 

the irrigation side as to whether or not they are paying their fair 

share of the cost of these projects. But at the same time in many 

of these projects the recreational users use a lot of the resources 

of the Department of Interior, the Bureau of Reclamation. They do 
13 

on an ongoing basis cost a lot of money, and yet we don't even consider that, you know, when we figure this out as to what the real 

costs of carrying these projects are. 

Ms. BENEKE. Well, there are substantial recreation benefits derived from almost all of our multipurpose projects. I believe there 

is a chart attached to my statement that is part of the record that 

quantifies some of those recreation benefits of the projects. 

Mr. POMBO. Which chart is that? 

Ms. BENEKE. It is attached to my statement. 

Mr. POMBO. Is that this--

Ms. BENEKE. Yes. That may be the second chart. I think it is the 

second chart there. 

Mr. POMBO. Now, when you have a dollar figure for regional benefits, what does that mean exactly? 

Ms. BENEKE. I am going to let Mr. Stessman answer that because his staff was responsible for generating the figures. 

Mr. STESSMAN. Actually, these figures were developed by the 

Corps of Engineers in connection with a NEPA compliance activity. 

And what it reflects is the estimate of the recreation benefits from 

Pick-Sloan reservoirs by states for the year 1994. In other words, 

it is an annual estimated benefit for recreation. 

Mr. POMBO. Now, what do you mean by a benefit? Economic benefit to the area? 

Mr. STESSMAN. Yes. It means economic benefit. 

Mr. POMBO. So, for example, you have Montana here at $10 million. The recreational benefits in Montana generate an additional 

$10 million in income to all businesses in the State of Montana? 

Is that what you areMr. STESSMAN. I think that is a fairly accurate sort of layman 

term for it, which is about as good as I can do too. But it is theMr. POMBO. Well, I am a layman so that is--

Mr. STESSMAN. Sorry, Congressman. Economic benefit is the regionally experienced benefit that is received or reflected in Montana's economy from the recreational use of, in this case probably, 

Fort Peck Reservoir. 

Mr. PoMBo. Can you provide to us what this is based on-a more 

thorough report on how they came up with these numbers and 

what they actually mean? 

Mr. STESSMAN. Yes, we could. 

Mr. POMBO. I think that if we are going to go back into some of 

these agreements and begin to look at whether or not the costs 

were shared adequately, it would be also a good time to actually 

go in and see what benefits we are deriving from these projects as 

well. 

I know from the projects in California many of them are extensively used for recreational uses, and at the same time that is an 

extremely high cost to the taxpayer to subsidize those recreational 

benefits. And I think that a full picture must be looked at if we 

are actually going to go back in and begin to look at these agreements again. Thank you, Mr. Chairman. 

Mr. DoOLITTLE. Thank you. Mr. DeFazio is recognized. 

Mr. DEFAZIO. Thank you, Mr. Chairman. I am sorry I missed the 

testimony. I was in another hearing with Secretary Peiia. I guess 

sort of the crux of this is this so-called free power, and I just want 
14 

to get at this. My understanding is we have a proposal from Otter 

Tail to raise the rates to customers and increase revenues to the 

Federal Government in addition to taking a management fee. 

Now, my question is if we wanted to-as I understand it, it 

would require an Act of Congress to reallocate costs and recover 

further costs, is that correct, in terms of these irrigation projects? 

Ms. BENEKE. Yes. That is correct. 

Mr. DEFAZIO. OK So I don't know why we need Otter Tail if this 

is a great idea. Let me just put this forward. I mean, couldn't 

WAPA raise the rates and not charge us the $10 million administration fee by $100 million if we authorize that? 

Mr. SHAFER. Yes. Whatever the law would provide for us to do 

we certainly can. We would apply that--

Mr. DEFAZIO. If Congress decided it was desirable to recoup some 

of the, you know, additional costs that are now unrecoverable because not as much irrigation occurred as was anticipated-more 

hydropower development-we could do that? 

Mr. SHAFER. We certainly could. 

Mr. DEFAZIO. OK. And it wouldn't cost you $10 million to raise 

the rates to do that? 

Mr. SHAFER. No, sir. 

Mr. DEFAZIO. OK. I would like to ask the GAO-I have just had 

a chance to breeze through your report. I guess I am puzzled as 

to the · allegation of free power, and I want to ask you, because you 

are a little more impartial than WAPA-obviously, they won't tell 

me the truth here-where is the free power? What free power are 

we talking about? Are we talking about this unallocated cost which 

Congress has prohibited--

Mr. REZENDES. Right. 

Mr. DEFAZIO. [continuing]-from being recovered? Is that free 

power? 

Mr. REZENDES. Yes. 

Mr. DEFAZIO. Or are we talking about them actually giving away 

power to people? 

Mr. REZENDES. Yes. We have been asked that question before, 

and from our perspective, there is no free power. In essence, Congress established a process of allocating costs and recovering costs 

that were to be covered by electricity rates. And a message I want 

to leave here is that everybody is acting exactly as Congress told 

them to act. 

These costs are being deferred, and I think there was an impression when I hear the connotation "free power" that Western is, in 

fact, doing something outside the law or outside the realm of what 

they should be doing-something nefarious here. Really, everyone 

is acting exactly as the law provided them to act. 

However, that doesn't mean though that there aren't $454 million in deferred costs that are out there. And in the meantime, the 

benefits of that water are being used for production primarily of 

electricity, which, obviously, as that produces electricity, they sell 

that power. They sell it at the rates that they normally sell their 

other electricity for. So from the aspect of someone getting free 

electricity without paying a rate, no, that is not happening. 

Mr. DEFAZIO. And WAPA, other than its outside power purchases to firm up load, does it pay for any other Federal power in 
15 

any different manner, I mean, in terms of whatever obligations 

there are that the Federal Government is required to be paid or repaid? I would address that to either--

Mr. SHAFER. No. Our rates for the Federal power, of course, are 

cost based. The revenues needed to reimburse for the Federal investment determine our rates. Some of that cost includes purchased power costs that we have to acquire during the year to firm 

up some of our contracts. 

Mr. DEFAZIO. But basically, I mean, we could alter the terms of 

your other Federal projects or these Federal projects in such a way 

that it would require you to recapture more costs? 

Mr. SHAFER. Yes, you could. Congress could do that. 

Mr. DEFAZIO. But there is no issue of you getting some unique 

benefit from these projects because that power is free while you are 

paying for other power from other Federal projects in some different manner. You are not. It is whatever is required by law in 

terms of recapturing the Federal investment? 

Mr. SHAFER. That is correct. 

Mr. DEFAZIO. OK. So there is no inconsistency here? 

Mr. SHAFER. That is correct. 

, ' 

Mr. DEFAZIO. Because, I read this, and it reads like something 

from, you know, the National Enquirer about aliens or something. 

I am shocked! Shocked! There is free power here. So I just wanted 

to make sure that I am not missing something really big because 

I don't want to end up on the front page of the Enquirer supporting 

you giving away free power when my constituents aren't getting it. 

So that is what I mean. Mr. Johnson's constituents are getting 

it, and, I would support free power in my own district but not in 

his district. OK I thank the gentleman. I look forward to further 

testimony from the next panel. 

Mr. DOOLITTLE. Mr. Rezendes, I don't think anyone up here, or 

at least on our side, has used the term "free power." But is it not 

indeed the case that the law and the policy on this have produced 

an untoward result? 

Mr. REZENDES. Correct. That is right. 

Mr. DooLITTLE. Because is it not indeed the case that there is 

a heavy subsidy to power users that was never intended as a result 

of not building out the irrigation projects that were contemplated 

when this original cost allocation was made in 1958? 

Mr. REZENDES. To the tune of $454 million. That is the thrust 

of my testimony, which is basically there were capacities built in 

the system for irrigation. Those costs were spent. That is money 

the Federal Government has already expended. The question is 

who is going to pay for that. 

And, as you know, there are two basic issues here. Since the irrigation projects are not going to be complete, it is either the American taxpayer through the various tax codes and how we collect 

revenues who will pay for this, or it could be passed on to the generation of power and have the region recover these costs. 

Mr. DOOLITTLE. And at present, who are paying for it? The taxpayers or the power users? 

Mr. REZENDES. The taxpayer has already paid for this. I mean, 

the moneys have been expended. Those $454 million are gone. The 

way it has basically happened, I guess the way to characterize this, 
16 

is we have paid the money already, and we have on our books sort 

of an accounts receivable, a hope of a future payment in the future 

sometime. And I guess the issue before this committee today is how 

realistic is that future accounts receivable? Is that money really 

going to come to pass? 

Mr. DoOLI'ITLE. Let me ask which states have the largest share 

of the program's generating capacity? 

Mr. REZENDES. Looking down my list here, the largest is certainly South Dakota. They have roughly about 1,800 megawatts of 

electricity. Next, Montana and North Dakota have roughly about 

550. Those three are the big ones. 

Mr. DoOLI'ITLE. OK. And, Mr. Shafer, in the Eastern Division 

where this power is generated in Montana and North and South 

Dakota, where is most of the firm power distributed? 

Mr. SHAFER. I would have to provide that for the record because 

I don't have that in front of me. But we do have that information 

broken out according to state. [The following was submitted:] 

AUDIT FINDING ON METER CALIBRATION 

The "Independent Auditors' Report on Internal Control Structure" prepared by 

KPMG Peat Marwick LLP, dated December 15, 1995, reported that limited testing 

of 14 meters' records of Western Area Power Administration's (Western's) Loveland 

Area Office found four meters that had not been calibrated since 1993, even though 

the stated policy in that Area Office is that all meters are to be calibrated at least 

once a/ear. 

As o May, 1996, those four meters have now been calibrated. A related policy issue Western is currently addressing is the appropriate time interval between meter calibrations. The Rocky Mountain Customer Service Region 

(formerly the Loveland Area Office) is conducting a cost/benefit study of meter calibration frequency. The results are expected by September, 1996. The Region will use the results of the study to make any necessary modifications to its current requirement for annual meter calibration. Preliminary results indicate that newer, solidstate meters maintain higher levels of accuracy than older, electromechanical me- ters; and this finding, if confinned, may be incorporated into the revised meter calibration policy. 

Mr. DOOLITTLE. It is my understanding, and maybe you can tell 

me if this rings true or not, that although most of this power is 

generated in Montana and North and South Dakota, it is, in fact, 

distributed to Minnesota, Iowa, and Nebraska? 

Mr. SHAFER. That could be. The marketing area is defined as the 

Pick-Sloan marketing area and inclusive of the states you named, 

there are six states in that marketing area. The distribution is 

really in accordance with the location of the customers that are eligible as defined by preference law. 

Mr. DooLITTLE. It is my understanding that in North Dakota, for 

example, more than 80 percent of the population receives its power 

from nonPMA sources. Is that correct? 

Mr. SHAFER. That could very well be. 

Mr. DOOLITTLE. Maybe for the record you can--

Mr. SHAFER. Yes. I can supply that. We do have that broken 

down. 

Mr. DOOLITTLE. [continuing]-darify that answer. But let us assume for the sake of argument right now that that is correct. 

Mr. SHAFER. OK 

[The following was submitted:] 
17 

PICK-SLOAN MISSOURI BASIN PROGRAM-EASTERN DIVISION FIRM SALES, ENERGY, REVENUE, AND CAPACITY 

BY STATE 

state FY 95 data Percent 

Iowa: 

Energy Sales-kWh(000) ..................................................................................................... . 1,181,976 14 

Power Revenues-$ ................................................................. .. .......................... . 16,357,291 12 

Capacity (kW) ........................................................................................................................... . 260.385 10 

Minnesota: 

Energy Sales-kWh(OOO) ................................................ : ...................................... . 2,064,953 24 

Power Revenues-$ ......... .......................... . ............................................................................. .. 28.242,790 21 

Capacity (kW) ..................................................................................................................... .. 413,957 17 

Montana: 

Energy Sales-kWh(000) ............................................................................................... .. 709,785 8 

Power Revenues-$ ............................................................................................ . 10.283,064 8 

Capacity (kW) ................................. ..... .................. . .............................................................. . 154,227 17 

Nebraska: 

Energy Sales-kWh(000) ......................................................................................................... . 1,798.396 21 

Power Revenues-$ .................................................................................................................... . 33,642,726 25 

Capacity (kW) ....................................................................................... .. 765,240 31 

North Dakota: 

Energy Sales-kWh(OOO) ......................................................................................................... . 1,083,879 12 

Power Revenues-$ ................................................................................................... . 10,445,374 15 

Capacity (kW) .......................................................................................................................... .. 441,047 18 

South Dakota: 

Energy Sales-kWh(000) ......................................................................................................... . 1,885,782 21 

Power Revenues-$ .................................................................................................................. . 26,308.211 19 

Capacity (kW) ........................................................................................................................... . 447,428 18 

Total: 

Energy Sales-kWh(OOO) ......................................................................................................... . 8.694,771 100 

Power Revenues-$ .................................................................................................................. . 135.279,456 100 

Capacity (kW) ........................................................................................................................ .. 2.482,284 100 

Mr. DOOLITTLE. So is it not indeed the case, that in North Dakota, they thought they were going to get these irrigation projects, 

and they didn't get them? But since 80 percent of their power is 

coming from nonPMA sources, aren't they carrying a huge burden 

as taxpayers paying for this subsidized power due to the 

misallocation? 

Mr. SHAFER. Without actually knowing numbers, I wouldn't 

know if they were carrying an unfair burden. I think it is important to note that there is about $300 million that is suballocated 

to power for repayment in this process that is zero interest bearing 

which I guess defines the perceived subsidy. 

Mr. DOOLITTLE. If that is an accurate figure, and more than 80 

percent of the population gets their power from nonPMA sources, 

that means they are not getting any of the benefit of this power, 

so the very people in the area are indeed burdened by this themselves? 

Mr. SHAFER. They certainly are burdened to the proportion that 

the other taxpayers are. 

Mr. DOOLITTLE. OK. Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. I guess I don't believe 

I have further questions for this panel. I would like to go back to 

the point I made originally which is WAPA is acting consistent 

under current Federal law in terms of the recapture of investment. 

If a majority of the Congress and the President agree that it 

would be desirable to recapture additional investment or the socalled windfall, then we can put that mandate onto WAPA. WAPA 
18 

could raise the rates accordingly and do that without charging a 10 

percent add-on for so-called administration. Is that correct'! 

Mr. SHAFER. That is correct. 

Mr. DEFAZIO. OK. I just wanted to get that clear so, basically, 

the ball is in our court here in terms of what principles we want 

to apply to the repayment of this particular investment or other investments made by the Federal Government in these areas. 

I mean, why does W AP A exist? I am wondering, why do we have 

Federal power in the West? What I thought was that there were 

a lot of rural areas that the lOU's didn't want to serve, and so in 

terms of rural electrification we decided since no one else would 

serve them, the government would. Was that sort of the basis of 

the history of this? 

Mr. SHAFER. I think that is a very good explanation, Congressman. The fact is that there were areas in rural America that did 

not have the privilege of having some of the benefits that the urbanized communities had. And there were not enough incentives 

from a profit perspective to interest private companies to go out 

and supply power to rural areas. 

So the Federal Government took that on as a societal responsibility and recognized that these projects that were being built for 

other reasons also had the benefit of hydropower that could certainly facilitate providing power benefits to rural America to bring 

them up to the living standards of other Americans. 

So the Federal Government took on that responsibility and needed an agency, which initially, of course, was the Bureau of Reclamation in marketing that power to administer that program. And 

we fulfill that role at this time. ~r. DEFAZIO. Have there been any defaults? Has the investment 

as made by the Federal Government, as required by Congress been 

amortized and recaptured? Have there been any defaults? I am not 

aware of any. 

Mr.<SHAFER. No. Right now our repayment studies are designed 

such that all the investment that has been made in accordance to 

law will be repaid in the timeframe specified by law. 

Mr. DEFAZIO. OK. So if there is any problem here or any changes 

to be made, they all again come back to the Congress? 

Mr. SHAFER. That is correct. 

Mr. DEFAZIO. OK. Just one other thing on this metering. I had 

my meter checked once, not because I thought that the local utility 

was losing money, but because I thought that the meter was running excessively. Would it be possible that by neglecting to check 

these meters you are overcharging your customers? 

Mr. SHAFER. That is a possibility. I have to say I think today's 

meters are extremely reliable. That doesn't mean we shouldn't 

check them on occasion. But, yes, it could go either direction. 

Mr. DEFAZIO. Again, I thought there was a fair amount of reliability, but if there is a variance caused by whatever, a power 

surge or something that knocks it off kilter or somebody whatever-! don't know what knocks a meter off kilter-it could be either way? 

Mr. SHAFER. It could slow the meter down. 

Mr. DEFAZIO. So probably if we did a randomized sort of study, 

we would maybe come out even? 
19 

Mr. SHAFER. That is correct. That is possible. 

Mr. DEFAZIO. OK I think it would be desirable to service and 

check the meters regularly so that you don't undercharge some and 

overcharge others. But I don't think there is any tremendous 

amount of revenue at question here. Would you agree? 

Mr. SHAFER. I would agree. 

Mr. DEFAZIO. OK Thank you. Mr. DooLITILE. We will get to the meters in the second panel as 

well, but let me just say, I suspect that businesses that are in the 

business for profit pay a great deal of attention to these things. 

And I think it is interesting that for three years it has been recommended that these meters be calibrated, and it hasn't been a 

high enough priority. Servicing the gates at Folsom Dam wasn't a 

high enough priority, and finally one ruptured, and we had a tremendous problem that is ongoing as a result of that. 

Mr. Shafer, with this misallocation that you know about, why 

haven't you been calling that to our attention and urging that the 

projects be deauthorized and the costs reallocated? I mean, you are 

the expert in charge of this. What is going on here? 

Mr. SHAFER. The misallocation you mean in the process as far 

as--

Mr. DOOLI'ITLE. The misallocation being that this whole PickSloan multipurpose project is predicated upon irrigation projects 

that you, in fact, know will never be built. 

Mr. SHAFER. OK Yes. My understanding, Congressman, is that 

this has been looked at several times. In fact, if my recollection is 

right, there have been eight reports or investigations into the repayment and the allocation of costs since 1968 where it has been 

discussed and attention has been brought to the issue. Mr. DOOLITTLE. Well, I am aware that over the years studies 

have been done of this and so forth-I think at least a couple of 

GAO reports and then an Inspector General's report. But you are 

really on the front end of all of this, dealing with the policies that 

Congress sets. I would like to encourage you to be reminding us of 

the need to change these assumptions when we know that they, in 

fact, are no longer valid. Otherwise, it is just an ongoing deficit 

that is being run up at the taxpayers' expense, isn't it? 

Mr. SHAFER. I guess that is true. I think it is noteworthy that, 

again, we carry out our responsibilities in accordance with the law. 

Mr. DOOLITTLE. And, I stipulate to that. There has been no allegation that what is happening here is unlawful. I think that is 

clear. But I think it is unwise. What do you think about that? 

Mr. SHAFER. Unwise tcr--

Mr. DOOLITTLE. It is unwise, when we have over $5 trillion of 

total national debt in an advanced post-modern society, that we 

have these kinds of black hole subsidies going on in 1996. Mr. SHAFER. Yes. And I think that maybe this is one of many 

that we need to take a look at, and I look forward to working with 

the Bureau of Reclamation in looking at this. I think the original 

intent of Congress has been validated throughout these studies, 

and that there are some issues that definitely need to be looked at 

in the reallocation process. 

It is not just a matter of assigning the cost that is not being recovered to power. I think there is an equity issue here that has to 
20 

be looked into, and Congress needs to be made aware of that so 

that they can use that in making their determination on how to address this issue. 

Mr. DOOLITTLE. Well, before we make a determination, we would 

like to see these studies come forward from you folks. You are the 

experts. I mean, this was done in the Inspector General's report in 

1993. This is three years later, and we still haven't seen these 

studies. So will you take it perhaps as more of an affirmative obligation to work with your counterparts in the Bureau there, both 

to please come forward, let us hear this year if we can of whatMr. SHAFER. We certainly stand ready to work with them very 

proactively. 

Mr. DOOLITTLE. That would be good. We do want equity. It is 

just that you, in the front lines, will have a better perspective to 

recommend equity than just expecting the Congress on its own to 

come up with a solution. The Inspector General called for the Bureau to make a report, and we would like to have that report. We 

want to do what is equitable. We want to do what is right and fair 

and take all of these things into account, but we can't do it nearly 

as effectively without the recommendation. Now, let me ask in my 

limited time of Ms. Beneke, will you involve Mr. Shafer in this 

process? 

Ms. BENEKE. Absolutely. We would be pleased to do that. In fact, 

we have already been consulting with Western on this subject, as 

well as with the Corps, I am advised, and will continue to do that 

and do our best to be responsive to the Subcommittee. 

Mr. DooLITTLE. Thank you. Mr. DeFazio is recognized for his 

questions. 

Mr. DEFAZIO. Thank you, Mr. Chairman. I would just like to supplement the Chairman's line of inquiry and say in any cases where 

we do engage in such studies that we look at all users, you know. 

And, for instance, if we were studying the bond-all system, I 

would expect we would study the irrigation uses and the tremendous subsidies which are extended there, both to the Federal Government, Bureau of Rec, and to the individual users. 

We would study navigation subsidies. We would study flood benefits on all users. And I would assume in any case where one studies this, we won't just use it to launch an attack on public power, 

but we will look at any and all subsidies that exist. 

For instance, I believe probably some-we could make a case 

some of the irrigation projects in California aren't being fully repaid to the Federal Government. So, I think that we just need to 

look at this in toto, and I am certain the Chairman would agree. 

So I thank you. 

Mr. DOOLITTLE. OK. We thank our witnesses. We will probably 

have some additional questions and ask you to answer those as 

timely as you can. With that, we will excuse the members of the 

first panel and ask the members of the second panel to come forward. If the second panel members will remain standing for the 

oath, we have Mr. Ward Uggerud, Vice President for Operations of 

Otter Tail Power; Mr. Bruce Driver, Special Counsel, Land and 

Water Fund of the Rockies. 

[Witnesses sworn.] 
21 

Mr. DOOLI'ITLE. Let the record show that each answered in the 

affirmative. Thank you very much. Please be seated. We are grateful to have you here as our witnesses, and you are familiar with 

the procedures. You heard it explained. Please try and confine your 

remarks to five minutes, and the lights will indicate. The yellow 

light goes on at the beginning of the fourth minute and the red 

light when the time is up. Mr. Uggerud, you are recognized for 

your testimony. 

STATEMENT OF WARD UGGERUD, VICE PRESIDENT FOR 

OPERATIONS, OTTER TAIL POWER 

Mr. UGGERUD. Thank you, Mr. Chairman and members of the 

committee, for inviting me here today, and I commend you for examining this important issue. My story today is one of astonishment. Last summer I received an invitation to a meeting of PMA 

customers to discuss strategies for opposing the privatization of the 

Federal Power Marketing Administrations. I was surprised I was 

invited there because Otter Tail strongly supports privatizing the 

PMA's. 

The meeting was attended by about 150 people and included representatives of the National Rural Electric Cooperative Association 

and the American Public Power Association. In fact, Glen English 

and Alan Richardson were the primary presenters at the meeting. 

Prior to this meeting, these groups had expressed absolute opposition to any type of privatization. Imagine my surprise then when 

I heard Richardson and English recommend switching strategies to 

offer to buy the PMA's for $2.6 billion, a fraction of their market 

value. Fortunately, this plan was rejected by Congress. 

The reason for this dramatic switch in strategies, however, was 

even more surprising. One participant, in explaining the urgency of 

making a quick purchase, suggested that a sale could put an end 

to the free power that the PMA customers received. Free power 

was their phrase, not mine. 

The amount of the free power and its source were revealed in a 

study presented at that meeting. Irrigation projects, which have 

never been built, are the source of the free power, and the group 

was told that a sale could end that giveaway. 

The study conducted by the PMA customers, which revealed and 

quantified this source of free power, is a part of the written material which I am submitting. At first I found the statement unbelievable, but after further investigation I found out it was true now 

that this abuse has been revealed and confirmed by the GAO. 

The PMA customers are trying to put a new spin on it. They say 

that since the irrigation projects weren't built they should have 

this free power. They also say they pay the government on time 

and with interest. That is also not true. Numerous studies and audits say otherwise and point to the PMA's as being a raid on the 

Federal Treasury. 

While water projects intended as a part of the Federal Power 

Program go unfunded, hundreds of towns continue to suffer because of floods and lack of water for irrigation, municipal, and industrial uses. The revenue lost in this free power giveaway would 

have been enough to complete many of those projects. 
22 

The PMA program was intended to help develop and sustain 

rural areas. Yet today, many PMA customers, the recipients of that 

free power, are shopping malls, country clubs, and posh resorts. If 

it were not for my accidental attendance at this meeting, this abuse 

of free power might never have been exposed. 

The preference power customers might have been successful in 

purchasing the PMA's at a price that would have, in effect, continued this free power forever. In fact, that was their strategy. That 

was what they said. I am submitting a copy of my written notes 

of the meeting which confirm that this was their strategy. 

The existence of free power has been obscured in archaic accounting standards and a campaign of misinformation by preference power customers. In fact, the financial records of W AP A, 

which are supposed to keep Congress and the U.S. taxpayers informed, make no mention of this free power. In spite of notice given 

by auditors year in and year out, nothing has changed in W AP A's 

accounting practices or rate treatment. 

The PMA customers claim that they pay their own way and that 

they are entitled to perpetual Federal power. Their own studies 

and their own comments prove otherwise. The PMA customers are 

concerned about losing their subsidies, and they are especially concerned about losing their free power. 

You only need to look at the record to see that the Federal Treasury is losing millions of dollars per year. Water projects go unfunded, and consequently rural and industrial development is sacrificed so that current PMA customers do not have to pay their true 

share of costs. 

Thanks to the General Accounting Office and a misplaced invitation, the. truth is out. And the truth is taxpayers are being defrauded while water projects go unfunded. I hope you are as astonished as I was. Thank you and I will be happy to answer your 

questions. [Statement of Mr. Uggerud may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you. Mr. Driver, you are recognized for 

your testimony. 

STATEMENT OF BRUCE C. DRIVER, SPECIAL COUNSEL, LAND 

AND WATER FUND OF THE ROCKIES 

Mr. DRIVER. Thank you, Mr. Chairman. Good morning, Mr. 

Chairman, as well as members of the Subcommittee. I am Bruce 

Driver. Today I am speaking for the Land and Water Fund of the 

Rockies, Midwest Office of the Izaak Walton League of America, 

the ·Natural Resources Defense Council, and, finally, the National 

Wildlife Federation. 

I have two topics to cover in my time with you today. First, I will 

talk a little bit about the Pick-Sloan Missouri Basin Project cost allocation issue. Then I want to spend a couple of minutes on a basic 

response to the Otter Tail Power Company's proposal to privatize 

the Eastern Division of the Pick-Sloan Missouri Basin Project. 

With regard to the cost allocation issue, in the time that we had 

to prepare my testimony, we were unable to come up with a basic 

position with regard to whether Congress ought or ought not to reallocate the costs. However, we are concerned that should Congress 

decide to reallocate costs that the dollars somehow will be hijacked 
23 

in the region for unsound water projects like the original Garrison 

Diversion Project instead of flowing back to taxpayers who deserve 

that money. Our concerns have been heightened by recent reports that there 

is going to be another run at some of these unsound water projects 

soon. In that regard, as I spell out in my testimony, the National 

Wildlife Federation reports that a Garrison Conservancy District 

proposal dated February 7, 1986, asks for $800 million in Federal 

water and power funds to "finance irrigation projects to build what 

farmers had expected from the Federal Government over the past 

51 years." 

The proposal, the National Wildlife Federation indicates, requests even more; an additional $400 million in Federal buy-out 

appropriations from Congress for a total of $1.2 billion. With the 

Chair's permission, I would like to be able to supplement the record 

with some additional background documentation with regard to 

this new proposal that we have been hearing about. 

With regard to the Otter Tail Power Company proposal, I have 

taken a hard look at it, and the people of the groups that I am representing today don't like it very much. In short, our key problem 

with it is that it proposes that one stakeholder among many of the 

Otter Tail Power Company take the lead in trying to privatize the 

Eastern Division resources. 

That means that Otter Tail would be in a position to go out and 

raise the rates of potential competitors of Otter Tail over the next 

five years. That is a little bit like the fox in the henhouse because 

Otter Tail is beginning to have to compete with WAPA preference 

power utility customers right now. Within a few short years, they 

may actually be competing on a retail basis. If I were involved in 

the power business out there, I would love to have the opportunity 

to raise the rates of my competitors over the next five years. Also, the Missouri Basin facilities that are used to generate 

power to be marketed by W AP A right now are actually multipleuse facilities. They provide water for navigation. They provide 

water for fish. They provide water to the tribes. There are lots of 

key stakeholders who need to be involved in any potential privatization. 

It doesn't seem right to us that one electric utility~nly one of 

many stakeholders in the region-gets to take the lead on this over 

the next five years. It is probably better that privatization be done 

by all of the stakeholders perhaps in a forum convened by the key Federal agencies. 

Finally, there are a lot of key issues that the Otter Tail Power 

Company proposal does not address such as whether Otter Tail 

would or would not honor WAPA's integrated resource planning 

regulations, its rules with regard to contract extension. 

All the Eastern Division contracts expire in the year 2000. Is 

Otter Tail asking for authority to ignore that particular regulation? 

I can't tell. I don't know. There is an awful lot that has not been 

spelled out. The basic fee arrangement is also pretty high too. I can 

see that the red light is on, and I will stop now. Thank you. 

[Statement of Mr. Driver may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you. Mr. Uggerud, you are the Vice President for Operations of Otter Tail. Tell us about these meters. I 
24 

gather you make your money off the sale of power, so it must be 

fairly important that they be accurate. Obviously, if they are inaccurate, that could either be to your advantage or disadvantage. 

What is your experience with how often these meters are calibrated 

or should be calibrated? 

Mr. UGGERUD. With regard to revenue meters, it is our requirement that on meters at the transfer level, at the bulk power level, 

which these are, that those have to be inspected at least annually. 

And I would agree with previous comments that meters can be recording either high or low, but I don't believe that from Otter Tail 

Power Company's J>erspective that is the issue-the possibility that 

it might net out. The issue is if it is a sound business practice to 

do so. 

Mr. DOOLITTLE. Are you required by your public utilities commission to calibrate them every year? Is that simply something you do 

on your own? 

Mr. UGGERUD. That is something that we do on our own. But as 

a general practice, many of our business practices are subject to 

audit and review by the Public Service Commissions. And though 

that one might not generate particular attention each and every 

year, I can assure you that in a given year that it drew attention 

that we would attend to it. 

Mr. DOOLITTLE. OK. But, clearly, it is a sound business practice 

which is why I think the auditors of WAPA asked for it to be done. 

You have indicated that you have used the term free power although you didn't invent the term. The term was invented by the 

public power people, I presume. 

By the way, for the record, I want to note that PMA customers 

were invited to testify today but were unable to be here. So we 

don't have the direct benefit of their opinions of these things. You 

indicated that you believe W AP A is delivering free power, and 

WAPA has testified that it is not, that it is acting according to law. 

Why do you believe that they are marketing free power? 

Mr. UGGERUD. Well, because the power that is being sold, 17 percent or 16 percent-that range-of the costs are not being allocated 

to the product that is being sold. So by their own admission and 

by the PMA customers own admission, you have got a product that 

is being sold, and roughly 16-17 percent of the costs are not being 

assigned to the product. So a portion of every kilowatt hour that 

is being sold has got a free component in it. 

Mr. DOOLITTLE. OK. One of the concerns that has been raised is 

that those power customers that would be affected by correcting 

the current misallocation of program repayment obligations are the 

same entities that have been affected by the failure to complete the 

proposed water projects. From your experience in the region, is this 

indeed the case? 

Mr. UGGERUD. Well, the PMA customers have tried to make that 

a big part of their argument, but that is far from the truth. As was 

previously indicated in the previous panel, in North Dakota 80 percent of the customers do not receive Federal preference power. Yet, 

North Dakota and South Dakota were two of the states where the 

primary irrigation projects were intended to be. 

There has also been mention that these projects were intended 

to go to rural customers and that there still are rural benefits. One 
25 

of Otter Tail's big points in this issue, Mr. Chairman, has been that 

there is no entitlement test whatsoever for Federal preference 

power. There is no rural test. There is no means test. There is no enti- tlement test of any kind. Much of that power-in fact, 75 percent 

of it is going outside of the states of North Dakota and South Dakota to downstream states that receive the benefits of flood controls 

and the navigation and the recreation. And yet the states where 

the benefits were intended to be irrigation have not gotten that. 

There are many very expensive residential complexes that are 

being developed that get free power, while there are poor people in 

neighborhoods right next door that do not. There is no entitlement. 

There is no means test. 

Mr. DOOLITTLE. OK. Thank you. Mr. DeFazio is recognized. 

Mr. DEFAZIO. Thank you, Mr. Chairman. Mr. Uggerud, I think 

part of what is going on here is clearly you represent an IOU, and 

we are involved in the age-old battle over public power, public preference, and the perceived benefits and that. And I understand that 

struggle, and that is fine. 

But, I guess the question, having heard the earlier testimonycan you honestly say they may have used the word free power, but 

you understand that, in fact, there is no free power here. The question is how much of the Federal investment to recapture. Isn't that 

true? I mean, there is no free power. Mr. UGGERUD. I think that I prefer the term free power. In fact, 

they said things at the meeting like this--

Mr. DEFAZIO. Well, you prefer it, but, I mean, you heard the 

GAO and you heard my questions and you realize that, in fact, it 

isn't that this power coming from these Federal projects is unique 

in any way. 

It is given to WAPA unlike any other power from any other Federal project that goes to any other PMA so your problem is really 

with PMA's and their access to Federal power generally and all 

Federal power than it is with this particular project. Because you 

could certainly go to other PMA's and other projects and find out 

that they are not totally recapturing the cost because of mandates 

put on them by Congress. 

Mr. UGGERUD. Well, 15 percent of the costs are not being assigned. That is free power. They called it a steal. You can put the 

term on it that you want. Mr. DEFAZIO. Sure. Well, I am a little concerned by-again, and 

I don't think we are well served by hyperbole here. On page nine 

of your testimony, you talk about criminal implications. Would you 

care to elaborate on what the criminal things are that are occur- ring here? What is criminal other than we have public power? 

Mr. UGGERUD. Well, I think that there are certain regulations 

with regard to what groups of business enterprises can get together 

and discuss. And certainly--

Mr. DEFAZIO. Do you have any allegations of improprieties, violations of existing Federal laws? If so, I think it would behoove you 

and your counsel to provide those allegations to the United States 

Attorney General. 

Mr. UGGERUD. I think that that has been done. 
26 

Mr. DEFAZIO. OK. Well, we will look forward to the case. You 

know, on page five of your testimony, you talk about-! am really 

puzzled there. If you could refer to that at the top, you talk about 

the collapse of the economy in 1929. 

I assume you are referring to the Insull empire and some other 

abuses done by private entities. And then you say that the PMA's 

aren't required to have these disclosures. Well, the PMA's, as I understand it, are governed by Congress since they are Federal entities and are given certain requirements by the Congress. And in 

the Chairman's wisdom or other Members of Congress's wisdom, 

we can expand those requirements. 

But I am really puzzled as to what the relationship between the 

collapse of the Insull empire and the abuses of the private sector 

that occurred and brought about the requirements of the Security 

Exchange Commission and others-how that relates to public 

power? 

Mr. UGGERUD. Well, I think we have heard in the previous panel 

that you had recommendations that were made back in 1993 with 

reports promised in January of 1995 that have not been forthcoming. It seems to me that the control--

Mr. DEFAZIO. Are we in some jeopardy of financial collapse or defrauding investors? That is what those laws were written to do. I 

mean--

Mr. UGGERUD. We are defrauding taxpayers. 

Mr. DEFAZIO. Well, again, it is within the authority of this committee to change the repayment requirements, and only the Congress and the President can do that. And, we are airing that issue, 

and we can certainly decide to go further in terms of repayment requirements. Tell me, in your management, have you assessed $10 million of 

efficiencies? Basically, other than your jacking up the rates, how 

would you get your $10 million fee? WAPA said if we order it, they 

can jack up the rates $100 million and repay that to the Federal 

Treasury. 

But, are we getting your services for free? Are there $10 million 

of efficiencies and savings out there that you would get for us and 

that wouldn't go to your investors because, of course, part of all 

your earnings go to your investors? 

Mr. UGGERUD. Well, first of all, Mr. DeFazio, there were $100 

million that we were returning to the Federal Treasury. 

Mr. DEFAZIO. Right, and we can make WAPA do that by making 

them jack up the rates. OK. So what do we get for the $10 million 

and how do you pay for it? 

Mr. UGGERUD. How do we pay for the $10 million? The $10 million would be recovered as a part of the basic rate structure, and 

we have offered more than to just manage the PMA's. If you will 

take a detailed look at the proposal, we have offered to study in 

depth all of the PMA's, to take a look at what the customers are, 

take a look at the entitlements and the means test issues, and 

promise a thorough and detailed report to Congress at the end of 

five years. 

Mr. DEFAZIO. Totally unbiased? 

Mr. UGGERUD. Totally unbiased. 

Mr. DEFAZIO. Totally unbiased. 
27 

Mr. UGGERUD. In fact, if you would like us to develop the outline 

of the requirements and have, some independent accounting agency 

administer the test, we would be willing to do that. Nothing had 

been forthcoming with regard to changes in the status quo, and we 

thought it might be useful in this discussion if Otter Tail would 

come forward with a straightforward proposal, which doesn't take 

a rocket scientist-the rates are purely amortized-the remaining 

debt-the 30 years at eight percent. 

That is how we get the rates. That is not jacking the rates up. 

That is applying sound business practices, and we thought it might 

be useful for the discussion for someone to come forward with an 

alternate proposal!\ 

Mr. DEFAZIO. Well, I appreciate your public-spirited gesture, and 

we will certainly give it all due consideration. 

Mr. UGGERUD. Thank you. 

Mr. DEFAZIO. I think the Chairman is particularly interested. 

Thank you. 

Mr. DooLITTLE. Mrs. Chenoweth is recognized. 

Mrs. CHENOWETH. Thank you, Mr. Chairman. I just have a couple of questions. Mr. Uggerud, I appreciate your testimony. 

Mr. UGGERUD. Thank you. 

Mrs. CHENOWETH. And I appreciate your bringing this to the attention of the Congress, and I think it is certainly a worthy problem that we should investigate and look at. Under FERC Section 

211 authority reciprocity, is there any avenue that the FERC can 

govern in this case at all? 

Mr. UGGERUD. I don't believe so. In fact, I think that Chair 

Mohler has terhaps testified, if not to this committee; to another 

committee o Congress. I have seen comments from Chair Mohler 

where she has said that really the Federal Energy Regulatory 

Commission is put in a position where they can only rubber stamp 

the rates as recommended by the PMA administrators. And I think 

that I have seen some things myself that indicate that their authority is to approve the rates but not to examine them. 

Mrs. CHENOWETH. I see. Mr. Driver, I see that you represent not 

only the Izaak Walton League, but the Natural Resource Defense 

Council and the National Wildlife Federation. What is the National 

Wildlife Federation's stated position on the development of additional irrigation projects? 

Mr. DRIVER. To be candid, I don't know actually what its stated 

position is. Its interest in this matter is, as I said earlier, to prevent money that if Congress decides to reallocate costs to power 

use, that money ought to come back to the Federal Treasury and 

not go to what the National Wildlife Federation believes are unsound water projects. 

Mrs. CHENOWETH. Thank you. Thank you, Mr. Chairman. 

Mr. DooLITTLE. Thank you. Mr. Uggerud, Congress established 

a complex form of regulation over private electric utility companies 

because of their status as monopoly service providers. And, in addition, states have public utility commissions that oversee the private 

power industry. 

You have looked into the cost allocation problem, and you have 

experience with the private power sector. In your experience, would 

this type of cost allocation problem be allowed to continue for this 
28 

long under FERC and the local PUC regulations that we have 

heard discussed here relative to the misallocation, the subject of 

this hearing? 

Mr. UGGERUD. No, it would not, and there are two things that 

would prevent it. First of all, the commissions would prevent it. Secondly, our company would have gone broke and gone out of 

business long ago if we would have tried to do it that way. 

Mr. Shafer indicated that the full costs are being allocated according to the law. 

A couple of things that I would like to correct with regard to his 

answer at least from my observation. He indicated that the repayment schedule is resulting in an on-time repayment, but there was 

also testimony and comment made that that was supposed to be a 

50-year period. 

Now, the Pick-Sloan Project is 47 years old, and Mr. Shafer's testimony is that roughly two-thirds of that remains unpaid at the 

end of 47 years. I do not think that that is on time within the requirements of the Federal Flood Control Act of 1944. 

Further, he indicated that the weighted average interest rate at 

the end of 1995 was roughly six percent. But Otter Tail's calculations show that over the 4 7 years of that project that the interest 

rate actually returned to the Federal Government has been 1.6 percent. 

So I suggest that our commissions would have been deeply concerned about that practice. I think our outside auditors would have 

been deeply concerned about that. I think our board of directors 

would have been concerned about it, and I don't think our company 

would still be in business today if that is how we had operated. Mr. DOOLITTLE. So is it your belief that no private company could 

ever operate in this fashion? 

Mr. UGGERUD. Absolutely. And I think that in the Flood Control 

Act of 1944 there were concerns about how this would be operated. 

I think there is a paragraph in the authorizing legislation that says 

that sound business practices should be used to recover the repayments on time and with appropriate interest. 

Mr. DOOLITTLE. Mr. Driver, you have been familiar with this 

problem. What do we do? What is your idea of how to address this 

misallocation problem? 

Mr. DRIVER. You mean with regard to the cost reallocation? 

Mr. DOOLITTLE. Yes, sir. Or did you consider that to be a problem? 

Mr. DRIVER. I have to be careful here because I am actually 

speaking for four different groups, and we have not come up with 

a unified position with regard to what to do with this issue. But 

I can state the following: it is an important issue. Congress ought 

to be considering it, and at least one of the groups that I speak for 

I think would tend to favor Congress actually changing the 

power-the cost allocation rules in order to allow the Federal 

Treasury to recoup funds that are not now being recouped. 

Mr. DOOLITTLE. Well, which group would that be? 

Mr. DRIVER. Well, that would-! want to be careful here too because I am not exactly sure what their position is, but the National 

Wildlife Federation has always believed that it is inappropriate 

policy for the taxpayer to be overtly subsidizing power, and that 
29 

taxpayers may indeed be entitled to a little bit more revenue from 

power users. 

Mr. DooLI'M'LE. OK Well, I think this has been a useful hearing. 

It is one of three that we will be having on this general subject 

matter. I would like to thank our witnesses on this panel for the 

trouble you have gone to to be here. We will have some other questions no doubt to ask you as well, and would ask you to please respond in a timely fashion when that happens. With that, the hear- ing_j~ adjourned. 

[Whereupon, at 11:40 a.m., the Subcommittee was adjourned; 

and the following was submitted for the record:] 

GAO 

For ........ Dolioay 

Expected It 

to ..... EDT 

~1..): 1-

United States General A«ounUnB Olnce 

Testimony 

Before·the Subcommittee on Water and Power Resources. 

Committee on Resources, House of Representatives 

FEDERAL POWER 

Recovery of Federal 

Investment in Hydropower 

Facilities in the 

Pick-Sloan Program 

Statement by Victor S. Rezendes. 

Director, Energy, Resources. and Science Issues, 

Resources. Community, and Economic 

Development Division 
30 

Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to discuss the results of our work on the Department 

of Energy's (DOE) power marketing administrations. Our foc\15 today is on the 

requirements mtder the Pick-Sloan Program for the Western Area Power Administration 

(Western) to repay the federal investment in the program's hydropower facilities. At your 

request, we rt\iewed tht effect of policies Wider which repayment of a portion of the 

federal investment is deferred. Specifically, we are presenting information on ( 1) the 

amomtt of this im·estment that mar not be recovered Wider the current repayment criteria 

and (2) potential actions for recovering the investment. 

You also asked us to report on two related issues concerning the maintenance of 

federal hydropower facilities at the Department of Energy's Southeastern Power 

Administration and the accQmtting and ratemaking practices of the power marketing 

administrations. We \\ill be reporting on these issues separately over the coming several 

months. 

In summary, Mr. Chairman, our principal points about the Pick.Sloan Program are as 

follows: 

- Under the current repayment criteria, approximately $454 million of the federal 

investment in the Pick-Sloan Program's hydropower facilities and water storage 
31 

reservoirs is unrecoverable because a portion of these comple~ facilities were 

intended for use with. irrigation facilities that have not been completed and are no 

longer considered feasible. In addition, as the overall federal invesunent in the 

other aspects of the completed hydropower facilities increases because of 

changes such as renovations and replacements, the amount of the federal 

invesunent that is unrecoverable will increase. 

Changing tht' terms of repaymt'nt to recover any of the $454 invesunent would 

require congressional action. Consistent with pre\ious congressional action 

concerning the program, the Congress could direct Western to recover the 

invesunent through power revenues and to take action to minimize any impact on 

power rates. Estimating the potential impact on the rates of recovering the 

invesunent through power revenues is speculative and could vary significantly 

depending on, among other things. the terms of repayment and the amount 

Western passes on to its customers. Assuming that Western passes the entire 

amount on to its power customers, the wholesale power rate could increase by as 

much as 14.6 percent. Recognizing that the program incorporates agreements 

reached decades ago, any changes between the program's power and irrigation 

purposes may also necessitate reviewing other aspects of the agreementsspecifically, the agreements involving areas that accepted permanent flooding 

from dams in anticipation of the construction of irrigation projects that are now 

not likely to be constructed. 

2 
32 

BACKGROUt\D 

The Pick-Sloan Missouri Basin Progran1 was authorized by the F1ood Control Act of 

1944 as a comprehensive plan to manage the water and hydropower resources of the 

Missouri River Basin.' The act was a combination of two plans: (1) the Sloan Plan, 

developed by the Department of the Interior's Bureau of Reclamation (Bureau) and 

designed primarily to irrigate lands in the Upper Missouri River Basin and (2) the Pick 

Plan. developed by the Department of the Army's Corps of Engineers (Corps) and 

designed primarily to control floods and prO\ide for navigation on the Lower Missouri 

River Basin. 

The program encompasses an extensi\·p network of multipurpose projects that 

provide for, among other things, flood control, navigation, irrigation, municipal and 

industrial water supply, and power generation. (Fig. 1 shows the location of the 

progran1's hydropower generating facilities and the overall program area.) To accomplish 

these multiple purposes, the plan required compromise among the program's participants. 

For example, in exchange for having their land permanently flooded by dams to produce 

such benefits as electricity and flood control, some participants anticipated the 

construction of irrigation projects. The program is administered by three federal 

agencies: (1) the Bureau, which operates seven multipurpose projects and is responsible 

'The Pick-Sloan Missouri Basin Program encompasses those parts of Colorado, Iowa, 

Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, and 

Wyoming from which water drains into the Missouri Rh·er. 

3 
33 

for the water supply functions of the program's projects, (2) the Corps, which operates 

six multipurpose projects and administers the flood control and n&\'igation aspects of the 

program's projects, and (3) Western, which markets the hydropower generated at the 

program's generating facilities and constructs, operates, and maintains the program's 

power transmission system. 

2 

'Our report Fedeql E!cctrl£ Pgnr: Opcratipc apd tlpapcial Swus of DQE's Pgnr 

MarJsctinc AdJpjn!atrat!gns (GAOIRCEDIADID-96-9FS, Oct. 13, 1995) provides ..tditional 

Information on Western and the other power marketing administrations. 

4 
34 

Fieure 1: Missouri River Basin Sho"in& Location of Pick-Sloan Program Hydrooower 

Generating faci1ities 

~ ---"----,~ 

Fl. ..... --f=~r~,...;;;,;f,~ 

··--·-

Source: GAO's illustration based on information from the Bureau and Western. 

5 
35 

The federal investment in the Pick-Sloan Program has nonreimbursable and 

reimbursable components. The nonreimbursable component consists of the capital costs 

of constructing. among other things, the program's flood control and navigation facilities. 

The reimbursable component consists of the capital costs of constructing the program's 

power generation and transmission, irrigation, and municipal and industrial water supply 

facilities. The reimbursable federal investment is further divided into investments repaid 

with interest (for power facilities and municipal and industrial water supply facilities) and 

investments repaid without interest (for irrigation facilities). 3 Irrigation fees, power 

revenues, and other revenues are used to repay the federal innstment in constructing 

irrigation facilities. Irrigation fees repay the portion of the investment in irrigation 

facilities that the Secretary of the Interior determines to be V<'ithin the irrigators' ability to 

pay. In general, power revenues are used to recoup both power costs and that portion of 

the investment determined to exceed the irrigators' ability to pay.• 

"The portion of the federal investment in an irrigation facility in the Pick-Sloan Program 

that is repaid through power revenues is generally repaid, \\'ithout interest, within 50 

years of the facility"s being placed in service folloV<'ing a "development period, • where 

applicable, of up to 10 years. The federal investment in a power facility is generally 

repaid, with interest, within 50 years of the facility's being placed in service. 

4

Repayment of the capital costs expended for the construction of irrigation facilities 

through power revenues is referred to as irrigation assistance. About $643 million of the 

costs of irrigation construction in the Pick-Sloan Program had been incurred and were 

scheduled to be repaid through power revenues as of September 30, 1994-the most recent 

data available at the time of our analysis. In addition, completion of future irrigation 

facilities could result in the expenditure of over $5 billion in additional irrigation 

assistance, according to Western's repayment information. 

6 
36 

The Pick-Sloan Program accounted for about 33 percent of the operating revenues 

generated during fiscal year 1994 by the 14 separate programs from which Western 

markets and transmits power. In annual revenues from the sale and transmission of 

electric power, Pick-Sloan is Western's second largest program. The total federal 

investment in the program as of September 30, 1994, was about $4.5 billion. About $2.6 

billion of the federal investment in the program is reimbursable through power revenues, 

and about $898 million of that amount had been repaid through September 30, 1994. 

INFE :\SIBILIW OF SOME IRRIGATION PRO.JECTS 

MAKES REPAXMENT OF SOME COSTS UNLIKELY 

Because certain of the Pick-Sloan Program's irrigation facilities will not be 

completed as planned, a portion of the federal investment is unrecoverable. As originally 

authorized in 1944. portions of the program's power facilities and water storage reservoirs 

WE'rE' intE'ndE'd for use 111ith irrigation facilitiE's. The federal investment for these portions 

was thus considered an investment in irrigation, and repayment was to be made without 

interest and deferred until the irrigation facilities were completed. As a result of this 

deferral, power customers would not be obliged to repay the investment in facilities that 

were ultimately intended for irrigation. 

Under the original plan, about 33 percent of the program's generating capacity was 

to be used to irrigate about 5.3 million acres. As the program progressed, only about 15 

'i 
37 

percent of the program's power capacity would be needed for irrigation because the 

acreage planned for irrigation was reduced to about 3.2 million acres.' As of September 

30, 1994, the federal investment in power facilities was $286 million, or about 16 percent 

of the approximately $1.9 billion total for that purpose. 1n addition, a portion of the 

program's water storage reservoirs were intended for use with existing and planned 

irrigation facilities. As of Septl'mber 30, 1994. the capital cost associated with this portion 

of tht> reSl'n·oirs totalt>d about $224 million. Although tht> program) powpr facilities and 

storage reSl'n·oirs ha\"e been largely complt'tl'd as planned, most of tht> planned irrigation 

facilities have not been constructt'd. As of September 30, 1994, only about 25 percent of 

the acreagt> plannt'd for irrigation had been developed. 

Some of the program's power facilities and resen•oirs are now being used in 

col'\iunction 111ith those irrigation facilities that have been completed. 6 As a result, the 

associated federal investment is now schedult'd for repayment. Power facilities 

representing about $i million of the federal investment are now being used to provide 

irrigation pumping service to about 212.000 acres, and 111•ater storage reservoirs 

representing about ~9 million of tht' federal investment are now being used to provide 

~ot all Irrigation facilities require the use of pumping equipment or water storage 

raervoirs. Because of their proximity to the Missouri River or ita tributaries, 80rne 

Irrigation fadlities can operate without llling pumping equipment or relying on the 

program's reservoirs. Depending on their location, other facilities may require the use of 

pumpinl equipment andlor water from the program's reservoirs. 

'ApproximatelY 772,000 acres have been developed, requiring about 14 mepwana in 

generating capacity. 1n addition, according to Western officials, approximately 1 

megawatts of generating capacity are a\"ailable to 1\ative Aml'rican tribes for Irrigation. 

8 
38 

irrigation water to about 182,000 acres. These investments are scheduled for repayment 

between 2042 and 2047, according to Bureau officials. These officials also stated thAt the 

remaining portions of the program's power facilities and reservoirs, which are intended 

for use V~ith future irrigation facilities, are currently use<! to generate electricity for sale to 

power customers. 

The Bureau now considers all but one of the program's incomplete irrigation 

facilities to be infeasible and belif'ves that these projects will likely not be constructed.' 

According to Bureau officials, the costs of developing the remaining acreage planned for 

irrigation outweigh the benefits that would accrue from irrigating that acreage. They said 

that although their conclusions are based on preliminary estimates, a more expensive and 

time-consuming analysis would probably not change their conclusions. As a result, the 

remaining federal investment-$454 million-is deferred. 

In addition, the amount of the federal investment that is considered unrecoverable 

\\ill increase over time. As mentioned earlier, the portion of the power facilities planned 

for use with irrigation facilities represents about 15 percent of the program's overall 

power capacity. As the overall federal investment in power increases, the amount of the 

investment associated with irrigation increases correspondingly. For example. while the 

total federal investment in power facilities increased from about $1.6 billion at the end of 

'According to Bureau officials, the portion of the Glendo irrigation unit located in 

Wyoming is largely complete and may be used when certain emironmental issues are 

resoh·ed. 

9 
39 

fiscal year 1987 to about $1.9 billion at the end of ftscal year 199-J, the corresponding !&-

percent portion of this investment that was associated \\ith irrigation increased from 

about $249 million to about $286 million. 

CQNGRF.SSJONAL ACDON WQW.p BE 

NEEPED TO RECQYER COSTS 

Legislation currently precludes reallocation of the investment by the Bureau and 

Western from one purpose of thE' program to another \\ithout congressional authorization. 

The DOE Organization Act of 1977 precludes revision by the Bureau of the cost 

allocations and project evaluation standards \\ithout prior congressional approval. The 

Water Resources Development Act of 1986 directed that the program proceed to its 

ultimate development. According to Western officials, these acts preclude changes in the 

program's repayment criteria. 

The Congress reallocated a portion of the federal investment in power facilities and 

storage reservoirs intended for irrigation when it passed the Garrison Diversion Unit 

Reformulation Act of 1986. The act implemented recommendations in the Garrison 

Diversion Unit Commission's Final Renort, submitted to the Congress and to the Secretary 

of the Interior on December 20, 1984. The Commission was created by the Congress to 

review North Dakota's needs for water development and to propose modification to the 

Garrison Diversion Unit. Among other things, the act terminated the development of 

10 
40 

about 876,000 of the acreage planned for irrigation under the program. Also as a result of 

the act, Western scheduled repayment of the existing federal invesunent in the power 

facilities and storage reservoirs intended for use in irrigating this acreage. Thus, about 

$14i million in federal invesunent was reallocated for recovery through power revenues. 

The act directed that Western (1) attempt to minimize any rate increase and (2) phase in 

any such increase over a 10-year period. According to Western officials, because the 

investment is to be repaid 0\'er 50 years. the power rate was not appreciably affected by 

this reallocation of the federal investment. 

The impact of recovering the $454 million invesunent through power revenues could 

vary significantly depending on many factors, including the amount Western passes on to 

its power customers. Consistent \\ith the way investments in power are typically repaid 

(within 50 years and with interest), recovering the full amount through power revenues 

could result in an increase in Western's wholesale power rate of as much as 14.6 percent, 

according to Western's calculations• Western officials said the following about this 

scenario: 

- The potential rate increase of 14.6 percent assumes that the entire amount of the 

increased financial requirement would be passed through to existing power 

8

1n preparing the estimate, Western officials assumed a composite 4-percent interest rate. 

The wholesale power rate could thus increase by 0.212 cents per kilowatt hour, a 14.6 

percent increase over the 1.454 cents per kilowatt hour rate in effect as of September 30, 

1994. This potential effect on the rate includes the annual principal payment to recover 

the $454 million and an annual interest payment. 

11 
41 

customers, without any offsetting reductions in the operating expenses of 

Western, the Corps, or the Bureau (any offsetting reductions could lessen the 

need for a rate increase). Western officials noted that such expenses could 

decrease as a result of Western's ongoing restructuring efforts. 

- Since Pick-Sloan's power customers purchase power wholesale and resell it to 

retail customers, it is difficult to estimate accurately to what extent, if any, the 

retail customers would be affected by a rate increase at the wholesale level. 

- Changes in the terms of repayment, such as phasing in a rate increase as was 

done in 1986, would lessen the effect of the increase. 

- The estimated rate increase assumes repayment of the $454 million through 

power revenues 111ithout an overall assessment of the program. lolly general 

assessment of the program could lead to changes in the current cost allocations 

and rates. 

Factors outside of Western's control, such u the amount of water available for 

power generation, c:ould affect any potential impact on the rates. 

The amount of the federal investment In storage reservoirs that would be 

redirected for repayment through power revenues is uncenain because 80IIIe of 

12 
42 

this investment could be assigned to other program purposes, thereby lessening 

any effect on the- rates. 

The Department of the Interior's Inspector General reported in 1993 on the 

unrecoverable federal investment in the Pick-Sloan Program attributable to infeasible 

irrigation projects.• Recognizing that the mlijority of the program's irrigation facilities 

were infeasible and thus would likely neve-r be completed. the report was critical of the 

Bureau's continuing assumption that the project would ultimate-ly be developed as 

planne-d. The Inspector General recommended, among other things, that the Bureau 

request that the Congress deauthorize-that is. terminate from the program-the infeasible 

acreage and reallocate the federal investment in the associated irrigation facilities for 

repayment through power rt>venues. 

The Bureau concurrt>d \\ith thl' Inspector General's recommendations and agreed to 

a target date of February 1995 for submitting information to the Congress in response to 

these recommendations. The Bureau pro\ided us \\ith a draft copy of the list of the 

infeasible irrigation facilities that it de\·eloped in response to the Inspector General's 

report, but as of April 18, 1996, the Bureau had not yet submitted this information to the 

Congress.•• According to Bureau officials, the Bureau is continuing to analyze the 

0Audit Report on the Pick-Sloan Mjssouri Basjn Program Cos! Allocation Bureau of 

Rc<;lamatjon, Department of the Interior, Office of Inspector General, W-IN-BOR.Q07-92, 

Sept. 30, 1993. 

"11u~ Information in app. 1\' is taken from the Bureau's draft list. 

13 
43 

potential alternatives for recovering the portion of the federal investment that is currently 

unrecoverable. For example, tht' Bureau is assessing the impact of reallocating the 

investment on the basis of the current use of the program's facilities rather than on the 

program's planned long-term development. 

The Inspector General's 1993 report also identified another impact of recovering the 

$454 million through power revenues. Based on 1992 data, the Inspector General 

calculated, using a 7.25 percent interest rate, that carrying the unrecoverable federal 

im·estment as an inYestment in irrigation facilities results in an interest cost to the 

Treasury of about $30 million annually bt'cause the investment is carried without interest. 

Repaying the unrecoverable federal investment through power revenues would necessitate 

an annual interest charge. Western officials noted that such an interest payment would 

likely be less than that calculated by the Inspector General because Western would 

expect to ust' a lower interest rate (likt'ly 4 percent) that is based on the weighted 

averagP of thP interest rates associated with the program's outstanding debt. 

We provided a draft of this statement to and discussed its contents with the Bureau's 

Regional Director of the Great Plains Region; the Bureau's Washington Director, Policy 

and External Affairs; Western's Acting Area Manager for the Pick-Sloan Program; and the 

Deputy Assistant Administrator from the Department of Energy's Power Marketing Liaison 

14 
Office. They clarified several points about the estimate of the potential impact on the 

power rate of recovering a portion of the federal investment through power revenues. 

These officials also suggested several technical revisions to our statement, which we 

incorporated as appropriate. We conducted our review between December 1995 and April 

1996 in accordance with generally accepted government auditing standards. 

This concludes our prepared statement. It also concludes our work on this issue. 

Appendix I shows the operating characteristics of the Pick-Sloan Program's hydropower 

generating facilities; appendix n shows the allocation of the reimbursable and 

nonreimbursable federal investment among the program's purposes, appendix m shows 

the status of the federal investment reimbursable through power revenues, appendix IV 

shows the status of the program's irrigation facilities. We \\ill be glad to answer any 

questions you may have. 

15 
45 

APPENDIX I APPENDIX I 

OPERATING CHARACTERISTICS OF HYDROPOWER GENERATING FACILJTIES 

IN THE PICK-SLOAN PROGRAM. AS OF SEP'J'EMBER 30 1994 

Number of Flacel par of 

generating Nameplale lnltl81 

Operating agency Facility• unita capacity (MW)" operation 

Eastern Division' 

Bureau Canyon Ferry 3 60 1954 

Bureau Yellowtail" 4 288 1968 

Corps Big Bend 8 538 1985 

Corps Fort Peck 5 218 1943 

Corps Fort Randall 8 387 1954 

Corps Garrison 5 546 1956 

Corps Gavins Point 3 122 1956 

Corps Oahe 7 786 1982 

Subtotal 43 2,945 

Western Division' 

Bureau Boysen 2 15 1952 

Bureau Fremont Canyon 2 66 1981 

Bureau Glendo 2 38 1959 

Bureau Kortes 3 36 1950 

Bureau Pilot Butte 2 2 1925 

Subtotal 11 157 

Totlll 54 3,102 

"Not shown here are the generating facilities of the Bureau's Colorado-Big Thompson, Kendrick, 

Shoshone, and North Platte projects, which have been lntegreted with Pick-8ioan's Western 

Division for marketing and operating purposes. 

~ nameplate capacity refers to the full-load, continuous rating under specified conditions, 

usually indicated on a plate attached physically to the equipment. Because stream flow largely 

16 
46 

APPENDIX I APPENDIX I 

dictates the amount of water available for generation, the average megawatts available for power 

generation from a hydropower generating facility may be well below the nameplate capacity. 

These numbers are rounded to the nearest megawatt (MW). A megawatt is 1 million watts. 

•for operational purposes, the Pick-Sloan Program is divided into two divisions. The Eastem 

Division markets power from eight hydropower generating facilities. The Western Division, which 

was operationally and contractually integrated in 1989 with Western's Fryingpan-Arkansas project, 

markets power from five hydropower generating facilities. For financial reporting, the FryingpanArkansas project and Pick-Sloan's Western Division are separate. The power rates and financial 

statements for the Pick-Sloan Program reflect the costs and repayment requirements for both the 

Eastem and Western Divisions. 

"The Eastern and Western Divisions each market a portion of the power generated at the 

Yellowtail Dam in Montana. 

17 
47 

APPENDIX II APPENDIXD 

ALLOCATION OF REIMBURSABLE AND NONBEIMBRUSASLE FEDERAL 

INVESTMENT BY PROGRAM PUBPOSE AS OF SEPIEMBER 30 1994 

Dollars in thousands 

Program purpoae Federallnvntment 

Reimbursable investment 

Power $1 ,870.236" 

Irrigation 1,497,969" 

Municipal and industrial water supply 256,398 

Subtotal 3,624,803 

Nonreimbursable Investment 

Flood control and navigation 529,839 

Recreation 70,158 

Fish and wildlife 80.298 

Highway improvement 13,388 

Safety of dams zS,263 

Cultural resources 1,297 

Other 115,647 

Subtotal 833,890 

Tote! 14,458,413 

"This amount differs from the corresponding figure shown in app. Ill. Western and Bureau 

officials attribute the differences between the figures to variations in the mamer In which the 

agencies report interest during construction and construction wo!1( in progress. 

'This amount reflects the cumulative federal investment in constructing irrigation facilitiu. As 

shown in appendix Ill, the portion of these costs that is currenlly scheduled by Western tor 

recovery through power revenues is $643 million. 

Source: Based on information provided by the Bureau. 

18 
APPENDIX Ill APPENDIX ill 

STATUS OF FEDERAL-INVESTMENT ftEIMBlJRSABLE THROUGH POWEB 

REVENUES AS OF SJ::PTEMBER so. 1994 

Dollars in thousands 

Relmburaable federal Amount 

lnveatment 

Power $1,936,000" 

Nonpower (irrigation assistance) 643,000" 

Total reimbursable investment 2,579,000 

Investment repaid 898,000 

Unpaid Investment 11,111,000 

-rhis amount differs from the corresponding figures shown in app. II. Western and Bureau 

alfic:ials attribute the differences between the figures to variations in the manner in which the 

agencies report interest during construction and construction work in progress. 

~is amount is the portion of the overell federel inveatment in irrigation facilities that Is 

reccMirable through power revenues. 

Source: Based on Western's 1994 Annual Beoon, Statistical Appendix. 

19 
49 

APPENDIX IV APPENDIX IV 

STATUS OF IRRIGATION PROJECTS IN THE PICK-SLOAN PROGRAM 

AS OF SEPJ'EMBER 30. 1994 

The following four tables provide information on the status of the Pick-Sloan 

Program's existing, planned, and reauthorized irrigation facilities as provided by the 

Bureau in its draft list. Table IV.l summarizes all these facilities. Tables IV.2, IV.3, 

and IV.4 provide details on existing, planned, and reauthorized units, respectively. 

The benefit-cost ratios that appear in these tables reflect the Bureau's calculation of 

the feasibility of developing the irrigation facilities. The ratio for an individual 

facility results from dividing the benefits expected to be derived from developing a 

facility by the expected cost of constructing and operating that facility. The Bureau 

considers a ratio exceeding 1.0 to indicate feasibility and a ratio of less than 1.0 to 

reflect infeasibility. We did not assess the accuracy of the information in the tables 

or in the notes, which were also provided by the Bureau. 

Table IV 1· Summary of Irrigation Facilities 

Number o Acres to be lrrigation·related Total irrigation 

Status or irrigatior Acres to b partial! Capacit) trrigation·nolatec reservoi rwlatec 

acilily facilities fully irrigated irrigated (kW power investmen tnveatmen inveatmen 

Plannad 95 838.400 243,629 122,269 $84,210.328 $74,894,665 S159,104,gg3 

ReauthoriZed 9 940,840 263,100 281 ,331 194.361 .079 100.321 .296 $294,682,375 

$ublotal 104 1,771,240 1506,721 403,100 1271,571,407 S175,215,N1 S453,717,HI 

Existing 30 623.800 148,171 14.423 7,301.915 49.101,827 $56,403,742 

otal 134 2,403,040 154,900 411,023 1215,173,322 1224,317,711 S510,1t1,110 

•fuMy irrigated aeras are those irrigated using only federet irrigation water. 

"Partially irrigated acres are those irrigated using federal water to supplement other sources. 

20 
50 

APPENDIX IV. APPENDIX IV 

Table IV 2· Existing Irrigation FacUilje$ 

IrrigationFull) Partial~ "'::' ..... ::-::- Nlallcl 

Ytar un~ 

.. -:::: ~xioling facility ~tatt r-:::: lnlga18C lrriga~ 

~ powe 

acres acre a• inveatmen lnveatmen1 da=: 

St. Francia (ArmeQ' ~0 1151 f.OOO 1,1188 $1,31ie,115 0.55. Jan. IIIII 

l'ln'- ~s 111117 5,400 1.02, Dec.1111Sl 

Ctdar Blul!" ~s 111113 e.200 1.82, Oct. 111111 

~Elder ~s 1870 21,000 1.26, Aug.1151 

~UW1n1 

~s t957 11,500 0.90. Jun. 11152 

~-r ~ 111110 8,500 12.00, Dec. 1MCI 

row Creek' ~ 1855 5.000 2.000 1,377,460 SIIU82 1.86, Allg. 185CI 

ost Btnch ~ 18e5 2UOO 28.000 222.882 U7, Mar. 111541 

Hele""Valley ~ 1859 14,100 3,500 1S.,823 1.50. Dec. 1~ 

ower Marilla ~ 1878 127,000 M35 1.10, July 1171 

Savage "'T 185CI 2.200 386 202,000 NIA 

Dickinson ND liS. 400 1.20, Oc1. IN 

Oil Clark ND 18S. 1,100 485 334,034 171 ,133 1.10, May 1N& 

Heart Bu1te ND 1952 e.1oo 1,601 1,10U57 NlAinowollh NE 18e5 34,000 160 110,117 2.34, Jan. 111&4 

arweU NE 1166 52.500 600 413.238 2.03. Sep. 185! 

renchman. 

Cambridge ~E 1852 S..700 8,600 1.12, Oct. 111111 

Glendo NE 1858 23,500 1.40, Dec. 11152 

Sarvent NE 1857 13,700 1.S7, Mar. 11152 

Bootwick NEIKS 1853 86.200 .. o .. 0,787 46.436,500 [2.01 , Dec. 1858 

ngostYra so 1853 12,100 1.22, Apf. 1858 

Btlle Fourche' so 1914 

l'lapid Valley fSD 1N8 8.100 1.86, Dec. 11152 

iSh-hm ISO 1976 8,000 1.23, Jan. 111&4 

~oyhO!e ISO.WV 1976 57,200 1.06, Oc1. 1Ng 

IGrondo ~ 1958 4.371 Nl-

~novar-Biuft ~ 1857 7,000 2.002 1,37S,837 t,371,as. 1.44, Nov. 1853 

Owl Crook ~ 1857 13,100 1,126 775,510 417,U3 1.04, Jun. 185CI 

Rivollon rrv 1125 ... 300 

~ollh Loup NE 1888 52.600 1.30. Fob. 1871 

otat 823,100 148,171 14,823 S7,301,t11 S4t,101,827 

•Futy Irrigated ecros art thole inlga18d ualng only 1-ral Irrigation water. 

'Partialfy irrigated acres are those Wrigated using federal water to &u~tmtnt other sources. 

21 
51 

APPENDIX IV APPENDIX IV 

'In 1967, the benefrt-c:ost ratiO lor this facility (0.55) indicated that the irrigation development was infeasible, and the 

irrigation ator~~ge in the Bonny Reservoir was aold to the state of Colorado for recreation purpoMs. The project 

was authoriZed lor completion on the basis of aM of Hs benefits. 

"The Reclamation Projacts Act daaulhoriZad funding lor irrigation at cadar Bluff because of a lack ol water. The 

irrigation district was relieved of its obligation, and the 111ate of Kansas paid 1he coots of irrigation storege on a 

diocounted present-value beoio. The available water il used by the 111ate lor ...,..ation, fish and -· and 

supplemental municipal water supply . 

.,.he Kirwin u.,~ Oe••,!te Ple!'l Rep-~~ (Ju!'le 1952' s.,owed a bene!i!·cost rati:- c' 0.9. Corres~:,.,dence i~ 

September 1852 from 1he Acting Commiloionar -the Regional DnCIOr, Lowar Missouri Region, requall1ad lhat 

lnlllnglble (indirect) benefits be included In the juo11fication. Subsequent correspondence from the Regional Director 

p-d the requall1ad banafrts that ware included to justify the construction. 

'The tacrtity il part of tne Tnree Forks Divillon, which has a total pumpong demand of 3,1119 kilowatts. 

'N/A c not applicable. 

"Since Boysen storage is designated for water service, irrtgation assistance reflects the currently unassigned 

ltOI'IIge coats for the re1ervoir. 

"This facility has been integrated as part of the Bureau's Rehabilitation and Betterment Program. 

22 
52 

APPENDIX lV APPENDIX IV 

Table IV 3· Planned Irrigation Facj!ijits 

aarfaciilj 

~-to IN ~raatobt 

lrrigalior> frrigalior> bat= ~··~ ralatac ....... muMCe full) partie~ Capacilj 

flaMed facility ~tate Irrigated' Irrigated' (leW; iwulman - ..= ~ 

"'orth Republican P()h.IE 2,400 2,700 0.11 

~ilson ~s 25,000 0.10 

~ ~ 8,000 0.10 

~anlef eld MT 1,200 94 $64.741 12.603.100 0.05 

'**•n Flat 1,100 3,473.300 OJI1 

~cnar zo. I.T at~ 58 39,946 72,056 0.33 

~"'"" MT 1,000 70 48211 80.070 0.48 

pameron Bench MT 4,000 3,100 0.07 

Phaatnut Valley MT 4.100 0.05 

P•- MT 1,000 134 82280 0.01 

p_...arBox MT 1.100 105 73,005 OJI1 

P- MT 1200 Ill 47,522 2.103.100 0.05 

Diamond Ranch MT 900 11.053 oa Dunmora MT 11.400 24.740.100 0.10 

Elm Coulee MT 2.000 445 306,415 0.11 

armarC,..k MT 1,&00 117 121,783 144,112 oa ~lin 58,100 3.064 2,1102111 0.71 

!Oia•DOW Bench r.n 58.400 15.300 10.537.5&8 5.350,15& 0..17 

alay 2.400 703 414.177 0.18 

~-· 42.100 1,000 13.300 8,110,101 o.oe Harlllcrabllla 2.200 273 1A.023 1te,154 0.41 

Hobson Un~ 1.000 0.02 

~--· 1,100 52 35,114 ... iJeffe~S«~ T 47,400 15200 o.oe 

~ 4,000 OJI1 

~ ~ 12.100 13.100 0.01 

~ ~ a.- 711 -.131 o.oa ,..._LakaNortll ~ 14,700 7,440 5,124,151 1.324.D21 0.11 

~LakaBoulh ~ 24.700 10,130 1.171,135 2.224 721 0.15 

~I)Ne- ton" 12.100 21.720 11,710,31211 ........ G.17 

~· ... MT 7200 73t 501,171 141.1101 D.22 

r-an ton" 3.800 ... "'-·· MT z.- 245 1A,73t 252,1te G.2l 

~ MT 1,700 242 116.173 153.111 0..14 

RockC- ton" 1.000 200 G.OI 

R-FOif< ton" 3.00CI 0.01 

23 
53 

APPENDIX IV APPENDIX IV 

Saco DMde MT 3.•oo 1,110( 1,23e,71 0.10 

SewnMile·Sifting 

Bull MT 6,500 1141 M8,015 0.08 

Sewns-rs MT 3.200 ,,.Ill 1,008,823 0.13 

Slloellring MT 1,200 101 75,072 108,0M 0.27 

Sholvun 

~ clewloped) M'T 

Sidney ~T 1.000 266 183.202 0.12 

Slipek M'T 2.1100 1.211 - .052 0.12 

Sun· Teton ~T 53,200 3,700 1,422 979,374 0.01 

~II Bench M'T 1.700 0.12 

Whitenau ~T 6.70G 3,9()( 0.07 

~ M'T uoo 7,818,100 0.01 

-Bluff ~T 1,300 118 81.270 117.081 0.35 

~rei< NO 8,500 514 354,007 765.5115 0.11 

~roncho t'4D 15,400 0.08 

BumtC'"k ~0 1,300 M ... 0711 117.011 0.12 

~ncock Flats "'0 5,400 1.202 827,853 <1811,371 0.12 

H.,...head Flats Untt "'0 6.500 1,4114 1,028,1183 585,455 0.07 

Manley Untt "'0 1.200 47 32,370 108,0M 0.21 

""liOn UM "'D 7,400 591 407,0311 866.511 0.31 

~r-Senger UM ~D 8.300 2.101 1,452,532 747.511 0.14 

.-wooc~sunn ~D 2.800 801 .13,927 252.111S 0.11 

~a,.Buneunn "'D uoo 114 M ,741 171,133 0.01 

illiston Unit t'4D 8.500 1,889 1,183.265 765.595 0.33 

~Un~ t'4D 4,500 866 472,489 405.315 0.08 

~oganaport UM t'4D 1,600 172 118,462 1«.112 0.01 

~ton Division ~E 16.900 1.900 3M 250.898 0.05 

p-rsRapido 

pMiion ~E 211,800 117 66,807 0.05 

~BiueUn" "'E 20.000 0.03 

~;,.ge Flets 

~~- ~e 5,800 O.cM 

~lie Foun:he ~D 5,000 290 199,732 0.06 

~razy Ho ... ~D 500 32 22,039 45.035 0.11 

~-- ~D 5,400 1,848 1.272.n3 <1811,371 0.08 

or1 Thompaon ~D 7.500 1,841 1.217,152 175,525 0.111 

'",. •• Rope ~D 4,300 1,366 1140,805 387.301 0.01 

~- ~D 4,800 472 325,081 «1.343 0.11 

~Nation ~D 1,700 503 346.431 153.1111 0.08 

~oec- ~D 4,400 1,M9 1,135,716 3118.308 0.08 

~- ~D 1,100 551 378.4110 162.126 O.G3 

24 
APPENDIX IV APPENDIX IV 

Pine Ridge so 12,700 U95 1,167,3117 

~u so 2,200 586 3119,1121 118,154 

- so 2,00(, 100 118,873 110,140 

- so 1,100 511 311,1146 •.rm ~ ~ 4,700 

~ row 1,700 426 283,399 374,1)54 

llaylen' row Buflalo tM' 3,000 7,100 

Crazy Womln ""' 5,700 1,400 210 1112,114C 

....chC,..k ""' 100 2,500 

~lendo' ~ 9.729 - 1,417,11115 

~Flirt wv_ 1.000 343 238,234 211,211 

~udson Bench wv 5.70C 513,3119 

~ wv 23,100 5,1100 2.529 1,741 ,718 

!-iii!_Ymd wv 34.000 

~"-' wv 511,500 4,280 2,954,652 

iney wv 4,000 16.000 56 38,569 

Sheridan WY 38.100 

Shoshoni ~. 16,100 2,210 1.522.0113 3,578,1146 

...... ~ row 26.100 1,100 1,2311,714 

~ row 2,100 7,100 224 154,276 

..... 138,400 243,1211 122.2111 14,210,321 174,114,111 

"The on-line -• --• pending a finding oiiNalllily and- or, In tie cua ol_...._ but suspended l.cilities, a deltrmination ot the l.cMily's status or 1he disposition ot 1he facility's construction 

_.;.tons. 

"Fully irlgaltd aaws a"' 1hose ilrigaltd uaing only ledatal irlgaton waltr. 

'Pertially ilrigaltd ..,.. ara - ilrigaltd uaing ltderal waltr 10 supplement - aouroas. 

<under t1e laltot '*"· 1he laclli1y-"" a lly<traulic turbine trom t1e v.-.w o.m lnsltad of.-.: pur..- lor irlgation purl1)ing. 

"Unn12 lo .-..... 

'Since lloyaan st&nge is daaignaltd lor waltr Hrvice, tie ilrigaton --- tie CU!Nntly ~ 

... COils lor .. - · 

~ a&lignnwnt lor..- waltr out of Glendo. The Hie ol Glendo waltr lo baing irr'f*led by .,- --.,....,_,.,., 

25 

0.112 

O.GI 

0.21 

0.115 

0.112 

0.15 

0.00 

O.lllil 

0.10 

0117 

1.75 

0.17 

0.18 

O.GI 

1.118 

0.23 

0.21 

0.20 

0.31 

0.12 

0,04 
55 

APPENDIX IV APPENDIX IV 

Table IY 4 · Reauthorized !rrigatjon Eacmtjes 

Yoa 

facltil) 

Acres to Acres to be Iniga:: a. ..... _ wa Irrigation rala 

placed lr belu~ pa~ 

~ rala-.1_. _....,. _.,.. ...... Reautllortzod facilily' ~tate aarW:e ifrigaftd' inigaftd' investme" 

-- d anafytil 

--Hamad' ~D 15,000 e,oeo Sol,173,704 $1,351,0!0 1.70,Jall.1111 

Garnson 01vers10n: •u 115,74- 72,2i8 50,753,288 20,357,702 0.70, Iii< 

LaU Anclas-W_.. ~D 45,000 23,800 18,400,847 4,053,150 ~.51" 1-02, ,_ 

Sholhono Extension ~y 36,600 37,300 522 200,MO 2.GI, Juna ,. 

Nanows co 225.800 1.82. Jan. 1M 

Kanopolis' I(S 16,500 a,n4,014 1.50, o.c:. 1i71 

Nobrasko-Mid State !'IE UO,OOO 18,800 11 .570.664 1.40, Jan. tMO 

O'Neil !'IE n ,ooo 4,515 3,108,1118 1.53, • . 1171 

Oahe so 4i5,000 157,236 1 01,2i3,15C 44,584,1150 1.70,Ja11. 1MI 

otal 140,140 2U,100 211,»1 1114,181,011 1100,121,2141 

'TheM fac;Jitiel were individuatty rwauthoriZed by acts of Congress. 

'The date a facility will be placed in "rvice is indeterminate pending a finding of .. aalbility and rwauthoriZation or, tn 

1M caaa of reauthorized but su-ndad facilities. a daftrmination of file faciiiCy's stalus or 1M dispooltion d lie 

fadity'a conttruction appropriations. 

'Fully ifrigatad acres are 111011 irrigaftd using only fodaral irrigation wafer. 

'Partially irrigated acres are 1hOaa irrigaiOd using -ral wator 10 oupplamont ofller sourc ... 

'Applying lie cu,.mbonofif-eosl me1hodology and new economic paremetara would randar 11e rea- un11a 

infeasible today. The benafif-cosl ratios tor tho raaufhonzod facRiflos shown In fable IV.4 ware calculated ullng 

previous bonlfif-cost mefhodologios. Theaa mafhodologios resulted in retioo that tended to be higher than -

calculated using cu,.nt mofhOdolcgios bocauso tho previous motnodiologios (1) counted specialty crops, which are 

more lucratlvo as a-: (2)-- prices, which are higher in ..at-llan 1M cunni-:- (3) 

"'-POraiOd bOitl -.:t-indirect-. - cunent malhadolcgios uaa only -.:t-. (-- llaYO a high mulliplior ol1.7 or 1.8). In 1M uny 1t70S, lie w .. r "--~ <•- under 1M w- Aesources Planning Act o11M5) recom-d 11e uaa d a- mel>odolog~ that would heva-In 

.atios indicating infeasibility had ~ baon ~to 1ho Piclt·Sioan ...-ad irrigation f-•· Spaclficaly, 1hs 

new metllodology (1)- only- banefb: (2)- more reoan1 prioao- on u.s. Department d 

Agriculture estimates: (3) oxcludad spocillly crops: (4) incorporated recant, higher Interest rates (7 or e porcom 

now .. ...,.1M2 ot 3 porcom- during 1M 1g5Qs and 1-): and (5) cliocounfad for lnflatioxt. These,_ 

"principles and standards" became affoctivo in 1i7i. They were replaosd by less rigid "principles and ~~Uidainos" 

(wlllch - """"' • .........,.; lor ooampla, "" lncluaion o1 spociolly crops as -~ The au-u hea ""' 

--... --_ ........ ----_ ... .__ ... tmgetioxt equlpmon1 heS anady occumod at-,_,~---- in 11e noeastor"" -.J 

--unb}- -1M Congresa spodficafly -to....-... -·· Thio-in - irrigatioxt ,_,requires a......,.--dIll -totomlinate or..-c~-"" -In 

wllich flleaa sunk COlli will be handlod. 

26 
56 

APPENDIX IV APPENDIX IV No-_,._"' 'The I!IP'opriation was deautllorized 

__ 

by P.L 100.516, - autllorized h Mini-Woconi RuNI Wator Supply Project. 

.. ~·~. but local-----.orizjng ... 

lrrigdon -loprnenlu •-,... deWiaplng •,..,..--aupp~r-- .,-to- ... - "' ... - Americln - ,_.,....,. American popuiUona in ........ Till power lloclliOn ,... ... 

~ ... - - lor ... munlclpll - - .,-. -lunding ,...lrrlpllon ... clleulhallled. Till inigltion llcillly ... to Nmain •• a planned~ of.,. Pick·Sioln ProgNm. Approxlmltely $1.1 m.., In 

ledeNI --...In lrrigdooHelatod ~11M....,-- on 1hil ~ u oiSipllmMr 30, 1 ... 

This lnvellmenl io curranlly Cllegorized •• c:ons~-in-p-oa. 

"The IC190gl ,...,., Golmoon Diversion Unit was ,..,._., ,.., I .000.007 IICNIID 130.1140 11CN1 by P.L . .. 2114 

-ID 115,740- by P.L 102-675. AJ ... - ...... -in 1-.1-~-... --

- olh poajec:l- NIUIIn ec:onomic ~-ol ... - of--of---

........ Till-.... """""""*· ___..to ... -lion"' ... pnojec:l'l -· ·- - _.,. projeclwas _ ___, lnlea--.,. -1-ralion and--

uc .. ded 1he inigltor 1 lbillly to pay. A leam appointed l>y 1he Sacretar; of lhe Interior recommended a hah to 

"""''" de .. lopmenl of.,. project. Approximalely 1132.8 - In _,.1 --in ioigaliOh·-

__ equlpmerot hod been ....._ expended ..on .!his lacili!y es of September 30. 18114. This lnwellment is currerotly Cllegorlzed 

"The lec:lly ... - by .......... ·~. Unil Act"' 111112 (P.l102·575). Till--,... 

1hil Uflil ... beaed on poal-1878 ~·· Till a..raau employed "CU~Dnized pt0Cedul9s' in calc:ulating h 

ralio !hal - .,. - of e epec:idy crap (lloleloel) 11 a - · Till Plonnilg AepoM)raft E-lmpecl Sle-(1 .. 5)-.. a---·-.; -pmcjp!H and...-.... 

idandenls. of 0.56. Under lhe customized procedul91 .,., lnducled apecially crapa, iveiiOCk -nailication, and 

alernallwe price--· ... benefil-coat -·-at 1.02. On 1hil billa .... Congrall -- ... project. 

~ $3.7-in -ral- in~ equipment has t>nn expended on 1hil lec:*y 11 ol Septamoer 30, 18114. This lnwellmerot io CUfNIIIy Clle9<>riZed 11 _..,_.._ 

~; ... ~~Signed COil il,... a~_,..,_ 

'App~ $3.0 -in -ral lnwellmenl in lrrigdoorNIIiled equipment lilid I>Hn expended on llillec:lly 

11 of Seplember 30. 18114. This lnwellmenl io curranly -s~DriZed 11 --in-p"''l"'oa. 

'Approximately 57.1 million in -Niinwellmenl in inigltiorHelliled equip""'"' hod t>nn expended on 1hil ~ 

uof ~30.18114. This.__ilcurranly~u-..._... 

27 
57 

STATEMENT OF 

MR. J. M. SHAFER, 

ADMINISTRATOR 

WESTERN AREA POWER ADMINISTRATION 

U. S. DEPARTMENT OF ENERGY 

BEFORE THE 

SUBCOMMITTEE ON WATER AND POWER RESOURCES 

COMMITTEE ON RESOURCES 

UNITED STATES HOUSE ·OF REPRESENTATIVES 

MAY 2, 1996 
58 

Mr. Chairman, thank you for inviting me to testify before your 

subc:0111111itte~ today on the Western Area 'POwer Adm;nistration.'s 

(Western's) role in the sUballocation of Pick-Sloan. Missouri 

Bas~n Program power investment, from the Department of Bnergy'e · 

(DOE's) perspec~ive. My remarks on the applicable authorities . 

and 11\ethods of operation of the Pick-Sloan are limited to DOE' ·s 

interpretation of the appropriate authorities.' . I will begin by 

providing the SUbcommittee some background on Weetern. 

Western markets and transmits Vedera1ly produced ·power throughout 

a 1.3 miliion-square-mile geographic area in 15 centrai and 

wes.tern states to nearly 600 wholesale customers. Western 

operates and maintains 16,760 miles of t ·ransmission line, · 257. 

substations, and other associate~ power facilities. Electric 

power marketed by Western is generated at 56 plants operated 

primarily by the Bureau of Reclamation and the U. S. Army Corps 

of Engineers. · 

The Pick-Sloan Missouri Basin Program ·is a comprehensive river· 

basin development project located in the upper basin of· the 

Missouri River. Authorized by section 9 of tbe Flood Control · 

Act of 1944, Pick-Sloan was conceived as ·a multi-state project · 

consisting ·of dams on the Missouri and its tributaries as well as 

approximately five million acres of irrigation development. The 

Pick-Sloan was authorized by Congress as an ultimate development 

project, ' which means that cost allocations and suballocations are 

based on conditions expected to exist ·at the time that future 

Pick-SlQan construction is ultimately completed. 

All capital investments associated with Pick-Sloan have been 

allocated by tne Bureau of Reclamation and U.S. Army Corps of 

Engineers among the va:dous project purposes:. navigation, 

irrigation, power, flood control, recreation, municipal and 

industrial water, and fish and. wildlife . . w~stern has no 

authority· to allocate' or reallocate the1Je costs. · Congress has· 

directed that Pick-Sloan investments .allocated to flood control, 

navigation, fish and wildlife, and recreation be nonreimbursable. 

Unless provided otherwise by law, power investment is repaid with 

interest through Western's rates. Transm.ission investment by 

Western is included in ,power investment. 

Congress recognized that project beneficiaries would be· unable to 

repay the total Federal inveatment in authorized irrigation 

facilities. · As a result, power customers are to repay a~thorized 

irrigation investment that is deemed by the Bureau of Reclamation 
59 

to be beyond the ability of irr'igators to repay.. Pursuant to 

law, irrigation assistance does not bear interest. 

A unique feature of Pick-Sloan is the suballocation of investment 

allocated to power. When the ._ Pick-Elloan Program was authorized, 

Congress envisioned a _need for reservation of pumping power 

associated with authorized irrigation projects to deiiver water 

to farmers. · PQWer investment used to pump irrigation water was 

to be repaid without . interest over the same time period allowed 

for ·repayment ·of the benefitting irrigation -facilities. 

Since their authorization in 1944, the construction of 

hydroelectric power plants has progressed far more quickly than 

construction of Pick-Sloan irrigation features. For example, it 

is ·my understanding from the Bureau of Reclamation that the 

actual Pick-Sloan hydropower capacity completed is more than 

double the 1944 estimate,· while only 11 percent of originally 

planned irrigation acreage has been completed. Notwithstanding 

the uneven pace of development, consistent with the concept of 

ultimate development, that portion of the power investment 

eventually" envisioned for pumping o.f irrigation water continues 

to be suballocated to irrigation. The effect of this 

suballocation is that 15 . 8t of existing power investment bears no 

interest and its principal .will not be repaid until the same 

future time period as the benefitting irrigation features. · 

Delaying repayment of the suballocated power investment makes 

today's power rate lower than it would otherwise be. Power 

associated with the 15.8t suballocate~ to irrigation is DQt given 

away for •free•. It is sold at the current firm power rate for 

Pick-Sloan power. 

The suballocation of power investment to irrigation was an 

integral component in the originai authorization of the PickSloan Missouri Basin Program in the Flood Control ·Act of 1944. 

Congress has on several occasions confirmed the ultimate 

development approach in repayment, most recently in section 1122 

of the Water Resources Development Act of 1986 . . I am advised by 

legal counsel that action by Congress is necessary to alter the 

ultimate development approach taken by Western for the Pick-Sloan 

Missouri Basin Program. Therefore, neither Western nor the 

generating· agencies have the authority to modify th~ 

suballocation approach administratively: 

The suballocation of power investment has been examined in 

various audit reports over time. Since 1968, the U.S. General· 

Accounting Qffice and the Interior Department's Inspector General 
60 

Office,have reported .a total of eight times regarding Pick-Sloan 

cost allocation and repayment. These reports note that Congress 

would need to authorize a departure from the current 

suballocation practice. 

Mr. Chai:nnan, this concludes my remarks. If you or members of 

the Subcommittee have any questions, I would be pleased to answer 

them. 
61 

Honorable Patricia J. Beneke 

Assistant Secretary for Water and Scienc.e 

Department of the Interior 

before the 

House Subcommittee on Water and Power Resources 

May 2, 1996 

Thank you for the invitation to appear before the Subcommittee. I appreciate 

the opportunity to discuss the ;status of irrigation projects authorized as part of 

the Pick-Sloan Missouri Basin Program, as·well as repayment of Pick-Sloan 

fa~ilities. 

IDSTORICAL BACKGROUND 

To begin, I would like to provide a short historical background. 

The Flood Control Act of 1944 authorized what was then called the Missouri 

River Basin Proj~t as a comprehensive plan to manage the water and ~wer 

resources of'the Missouri River Basin. In 1970; the Congress changed the 

project's name to the Pick-stoan Missouri Basin Program. ·The Program 

included the Pick Plan, developed by the U.S. Army Corps of Enaineen 

primarily to con(rol floods in the Lower MiP!C)Uri River Basin, and the Sloan 

plan, developed by the Bu~u of Reclamation primarily to . irripte lands in the 

Upper Missouri River Bllii~J. 

Tbe Program envisioned a con~prebensive system of flood con~l. naviption 

improvement, irrigation, municipal and industrial w*r supply, and 

hYctroelectric poWer generation facilities for 10 states- Montana, Wyomina, 

.Colorado; Kansas,·Nebraska, 1\lorth Dakota, South. Dakota, Minnesota, Iowa 

and Missouri. ·As planned, Pick.Sioan would have included 213 sin&Je and 

multi-purpOse. projects providinlpver ~l million kilowatts of hydroelectric 

pqW_er capac:ity,. and irriptiols ~r to more than five million acres of 

fanplarid, among other feawres. 
62 

The idea for the program was conceived at a time wheQ there was a significant 

effort underway to encourage people to return to the Great Plains. The 

population had declined significantly during the dust. bowl era of the 1930's and 

during World War II when people left the area to assist in the war effort. 

Also. intermittent years of flooding along the Missouri River and its tributaries 

was a major concern. In the Spring of 1943, a record flood on the Missouri 

River caused devastating damage from South Dakota through Missouri. It was 

thought that the Pick-Sloan program would provide economic stability and 

hydropower for a growing nation at the same time as it would contribute 

important flood control, navigation and irrigation benefits. 

Three Federal agencies are involved in managing the Program today. The 

Army Corps of Engineers operates six. multipurpose projects on the main stem 

of the Missouri' River along with a number of S!llaller projects on the 

tributaries. The Corps administers the flood control and navigation aspects of 

Program projects. Reclamation has a large number of multipurpose projeets 

primarily on the tributaries to the Missol!ri River. Both Corps and Reclamation 

projects provide hydropower. Reclamation was initially given the responsibility 

of operating the transmission lines and hydropower marketing, but when the 

Department of Energy was formed in 1977, this responsibility was transferred 

to the Western Area Power Administration. · 

The original authorization was based on plans and estimates that were of a 

preliminary nature. The authorization recognized that some elements would 

change as further investigations were completed and the plan was approved, 

"subject to such modifications and changes as may be indicated, from time to 

time, as the plan is effectuated." Indeed, the original plan overestimated 

irrigation and navigation development and underestimated hydropower and 

recreation. Following enactment, while the plans were ·being refined, new 

analytical tools for ~conomic, financial, hydrologic and soils analyses were 

being developed and applied. As a result, by 1958 the original irrigation 

clevelopment had gone fr()m a 'proposed 5.3 million acres of new and 

supplemental irrigation to 3.8 million) and hydropower from 1.1 ·million 

kilowatts to 2.4 million kilowatts. All of these changes and developmentS were 

reflected in the Corps' and Bureau's 1958 Economic Analysis and cost 

allocations. 

2 
63 

The current economic and environmental modeling that is used for project 

evaluation to determine where Federal investments are made has evolved 

significantly since the time when Pick-Sloan was authorized and the original 

cost allocations were determined. Currently, we use economic and 

environmental n'lodeling, such as the Economic and Environmental Principles 

and Guidelines for Water and Related Limd Resources Implementation Studies 

and other public planning processes such as that in the Naiional Environmental 

Policy Act, to determine if projects merit Federal investment. These methods 

were not in use when Pick-Sloan was authorized. Not only has the method of 

evaluation changed, but also local andnafional needs and values have changed 

significantly since 1944. Given the way the Executive Branch and Congress 

has looked at potential Federal projects in recent yeaJ:s, Pick-Sloan probably 

would be quite different from what was enacted in 1944, if authorized tOday. 

Although .the Pick-Sloan program has not been carried out as initially· 

envisioned; the Program has provided significant benefits, such as water supply, 

flood control, recreation, hydropower, and navigation. Most of the 

hydropower, flood control, and navigation facilities have been built, and in fact 

actual developed power capacity is more thim double what was originally 

planned. Since the program was first authorized in 1944;the .. Program dams 

and levies have .reduced flood damages significantly. . Annual hydropower sales 

average $200 million per year and navigation benefits are estimated tp average 

about $17.7 million per year. Irrigated lands produce crops with an annual 

gross value of $158 million. The attached chart shows by state the annual 

recreation benefits provided in 1994 as a .result of the mainstem ·dams and 

reservoirs constructed in the· Pick-Sloan program. 

IRRIGATION 

While much of the originally planned project·development has occurred, the 

program has fallen far short of its • stated goals . for irrigation.' Overall, only 

about 11 percent. of the irrigation anticipated in the Pick-Sloan plan - less than 

600,000 acres- has actually been Federally developed of the planned 5.3 

million irrigated . acres. · 

3 
64 

The attach~d tab!~ shows by state the amount of acres planned to be developed 

for irrigation, and th~ number of acres actually developed under th~: Pick-Sloan 

Missouri Basin Program. 

A combination of factors explain why Pick-Sloan has not met its original 

expectation for irrigation. A limited growing season alqng with market 

conditions and soil characteristics, including drainage problems, have all played 

a role. For th~se and other reasons, some irrigation projects we(e not 

economic to build. 

COST ALLOCATION 

In accordance with Reclamation law, costs for purposes that are deemed 

reimbursable are repaid by the beneficiaries and nonreimbursable costs are paid 

for by the taxpayers. For example, certain costs allocated for irrigation are to 

be repaid by ·those agricultural users, and costs for construction and 

maill.U!nance of the facilities attributed to hydropowe_r are allocated to be repaid 

by the poweJ customers. Costs repaid by irrigation, including pumping power 

costs, are reimbursable without interest, and power costs are reimbursable with 

interest. Costs associated with tlood control, recreation and environmental 

enhancement are generally non-reimbursable and are therefore borne by the 

taxpayers. 

In 1958, Reclamation and the Army Corps of Engineers completed a report 

showing the cost allocations for the multipurpose projects in Pick-Sloan. 

Known as the Ultimate Development Plan, the reportwas based on the 

assumption that all program components would be fully developed as envisioned 

in 1958. This methodology distributed or allocated costs based on the benefits 

anticipated for each purpose identified · in the Ultimate Development Plan. 

Subsequently, in ·J963, in respOnse to concerns about the .financial health of the 

Pick-Sloan program, the Interior Department provided Congress with the 

Report on Financial Position, Missouri River Basin Project. The 1963 report 

presented a financial plan to maintain the financial integrity of the Pick-Sloan 

program. The report re-affirmed the Ultimate Development Plan concept that 

storage and pumping power facilities were built largely for the ultimate benefit 

of the irrigation projects that had not yet been built, but were expected to be 

built in the future. In reality, the cost assumptions in the Ultimate 

4 
65 

Development Plan have not panned out as planned: 

In 1964. Congress adopted Public Law 88-442, the Missouri River Basin 

Appropriation Act, which required reauthorization of indivi\iual Program 

projects that were not under construction as of June 30, 1964. This mean~ .that 

all facilities that were originally authorized. to be built as part ofthe Pic!t-Sioan 

program, butwhich were not yet completed by this date, had to be reauJ)lorized 

by Congress before construction· activities could commence. Since June 30, 

1964, nine facilities have been reauthorized, and construction activities have 

taken place on four of the .projects. The others remain inactive. . 

We do not expect that the entire Pick~Sioa~ Program *ill be real~. Nonetheless. costs continue to be allocated. to Program ·purposes based on the 

assumption that full Programdevelopment will occur ~ ReClamation is 

prohibited by law, including the 1977 Department of Energy ReorganiZation 

Act, from reallociiting the costs of the Pick-Sloan Program without · 

authorization from Congress. Given cuirent economic a.nd financial eoooitions, 

it. is difficult to justify further irrigation. However, because .under current law 

Reclamation is bound by the cost allocation of the Ultimate Development Plan, 

costs associated with irrigation"related pumping power and' reservoir storaae 

continue to be allocated to future irrigation development. As it .result these 

costs are deferred at zero interest until they are assianed to a unit under 

c,onstruction. The tota! deferred cost is currently $382 million; consisting of 

$127 million . in reservoir storage and $255 million of pumping p(Jwer costs. 

The deferrigg ofthese c0sts results in $14 million annually lost to die· Treasury, 

exclusive of interest: ' · · 

At this point, Mr. Chairman, of the original $6.6 bitlion investment, $2.5 

billion .is considered reimbursable by irrigation, $2.3 bill~on is rehnbursable 'by 

power, and $. 9 ·billion is reimbursable by municipal and industrial users. To · ' 

date, $601 million or 27 .percent of. their obligation has been repaid by power 

!lsers, $63 million or 2.5 percent of their obligation has been repaid by · 

irrigators, and $20 million or 2.2 .percent of their obligation has been repaid by 

municipal and ind!lstrial water users. · · · 

5 
66 

In 1993, the Department of the Interior's Inspector General (IG) conducted an 

audit of Pick-Sloan's cost allocations and repayment. In that review, the IG 

expressed concerns that "the present method of allocating costs did not 

adequately protect the government's investment." In response, Reclamation is 

unde-rtaking an in-depth review of Program costs based on currently planned · 

development, contemporary uses, and applying currently used project evalua~ion 

and economic analysis. We believe that as part of our efforts to balance the 

Federal budget, we are obligated to report to the Congress on the financial and 

economic impacts of changes in the Pick-Sloan Program. We intend to keep 

the Subcommittee apprisCd of our findings and will seek guidance and 

legislative authority .needed to take the next step forward. 

This concludes my prepared testimony. ·1 would be happy to answer any 

questions you may have. 

6 
67 

Attachment I 

Pick-Sloan Missouri Basin Prograin -

· · .Development -

Irrigation 

Full Service Acres 

State Planned [)eveloped Percent 

Montana 967,,130 46,000 4.8 

Wyoming 281 ,560 7,400 2.6 

!North 1,266,440 9,000 0.7 

Dakota ; ... South 961,210 15,200 1.6 

Dakota \ 

~olorado 101,280 .. 0 0.0 

Nebrash '" . 989,445 229,500 23.2 

Kansas ( 193;335 12,600 . . 37.6 

Total 4,760,400 379,700 8.0 

· Supplemental Service Acres 

· State Pta oped Developed Percent 

Montana 346,800 28,000 8.1 

Wyoming 167,400 25,2()0 15;1 

North 0 · 0 - I>akota •. 

South 11,300 8,900 78.8 

Dakota . ! 

..... otorado. · 1,719 0 0.0 

Nebmska 1"9,930 45,500 228.3 

Kansas. .155 0 0.0 

. Total 547,304 107,600 19.7 

7 
68 

1994 Recreation. Benefits of the Pick Sloan Missouri Basin Program• 

State Regional Benefits 

North Dakota $68,000,000. 

~outh Dakota $124,000,000 

Montana $10,000,000 

·Kansas . $2,700,000 

Iowa $14,iOO,OOO 

Nebraska · $54,000,000 

Total $272,800,000 

'Soan:.: Mu...uri llj-M-M.-1. U.S. Army Cutp~ of Eilc-.., July 1994. 

8 
69 

W1U1TEN TESTIMONY OF WARD UGGERUD 

VICE PRFSJDENT FOR OPERATJ:ONS, 01TER TAIL POWER COMPANY 

HOUSE RESOURCFS SUBCOMMITTEE ON WATER AND POWER RESOURCFS 

MAY2,19M 

My name is Ward Uggerud and I am Vice President for Operations at Otter Tail Power 

Company. Otter Tail is an investor-owned utility headquartered in Fergus Falls, Minnesota. 

We serve over 123,000 customers in the states of Minnesota, North Dakota and South Dakota. 

1be pwpose of my testimony is to provide the subcommittee with information and 

analysis concerning the Power Markaing Administratioll (PMAs) in genenl and the Pick-Sloan 

Eastern Division of the Western Area Power Administration (WAPA) in particular. 

While I bad been aware that PMAs were providing below-market, subsidized power to 

preferalc:e customers, it was not until last summer that I was made aware of the greatest fraud: 

the PMAs were giving away 1m JIODI" to ptefeaaace customers at the expense of the American 

taxpayas. 

This fact was revealed during a secret meeting of pteferalce customers that took place 

in Sioux Falls, South Dakota, on July 17, 1995, to whicb I was inadvertently invited. 

I know that you will be as astonished as I was when you bear the details of this meeting. 

But first, allow me to provide some beckpouncl·infonnalion to put this story in context. 

A. lprkmgpd 

Proposals to sell the nation's PMAs have been around since the Reagan Administration. 

1be privatization of the PMAs makes economic sense and would provide substantial savings to 

the American taxpayas. 

PMAs no longer carry out their historic: mission of providing power to poor naral and 

farm areas that could not receive power duough the IIIIJ'ka. Today, PMA power goes -

without regard to need or entitlement - to any customers who, because of allocations made 

dec:ades aao, bappeD to be served by a rural electric cooperative or mllllicipal operation. 

Nothing in terms of geopapby or income leYd distinpishes the customers who receive 

preferenc:e power from those who do not. 1be truth is that PMA ptefereru:e power goes to a 

broldly diversified mix of residential, commercial and industrial customers who ue complelely 

homogeneous with surrQIIIIding customers served by utilities who do not receive it. 

ways: 

As was cliscussed last year, PMAs ue heavily subsidized by the taxpayu in a variety of 

PM.\1 m:e sullsldlzed wltll below-11181'1ret IDtenst nte loaDs aad cllsproportioaa 

....... ,...... sdledules. 
70 

PMAs pick md cboose wbicb loam to repay, and when, leaviu& any shortfaO with 

the Ameril:u. tupayer to omet. 

PMAs and their preference customers are subsidized with prefereotial tax treatment. 

PMA rates are artitidally low because they do not recover aD costs of operation. 

Thus, it is the taxpayel' who pays the price for the discounted power that PMA preference 

customen receive. 

As you might expect, thel'e was significant, well orchestrated opposition to privatization 

efforts from PMA preference customen who have become used to their taxpayel' subsidy. They 

continue to insist - despite all evidence to the contrary - that the PMAs: 

a. are well managed; 

b. recover all their costs; 

c. provide power only to truly needy and deserving customen; and, 

d. are a positive return to the U.S. treasury. 

Finally, they continue to assert that privatization groups just want to raise rates for their own 

financial benefit. 

So you can imagine my surprise when I received an invitation to the Mid-West Electric 

Consume~"& Association PMA Forum to discuss strategies to deal with privatization proposals for 

thePMAs. 

B. lbe Meeting 

The meeting took place in Sioux Falls, South Dakota on July 17, 1995. The primary 

speakers at the meeting Wel'e Alan Richardson of the Ammcan Public Power Association 

(APPA), Glen English of the National Rural Electric Cooperative Association (NRECA) and Jeff 

Nelson of the East River Power Cooperative. During the meeting I took copious notes, which 

are attached to my testimony as Exhibit A. 

The focus of the meeting was the House-Senate Budget Resolution Conference Report, 

which proposed the sale of a few of the PMAs. 

Alan Richardson began his comments by stressing that the collective and adamant 

opposition by PMA customers to any sale of PMA assets seemed to be working for now. He 

also stressed that there was considerable Senate opposition to any sale. 

Richardson stated that the driving issue was the need for Congress to find revenue 

sources to help balance the budget and reduce the deficit, and that APPA and NRECA had to 

deal with the question of how to maintain political clout in this atmosphere. He said that most 

2 
71 

obtc:rvcn believe that the status quo of maintaining govemmeut control of federal power projects 

cannot continue IJid that options that give existing customers some additional control of the 

projects should be explored. 

Glen English echoed Ricllardson's comments and staled that several options should be 

considered, incluclin& opposing the sale of PMAs, having existing customers either lase or buy 

PMAs or arguing that some PMAs should be sold while others should not. English thought it 

woulcl be harder to prevent the sale of PMAs in every succeeding year. 

English also acknowledged the laX problem associaled with PMAs, namely, that they do 

not pay any because of federal sovereignty. Because of this, he stated that a lase of PMA 

facilities may be the best option for preferenc:e customers. Under a lase, it may be possible 

to remain exempt from paying future taxes and there may be other benefits owing to government 

ownership that could be maintained. 

Jeff Nelson followed English IJid passed out a study dooe by the East River Cooperative 

Power on the financial aspects of selling the Pick-Sloan portion of WAPA. Nelson began by 

staling that the Pick-Sloan power rates were the lowest in WAPA. 

Then Nelson dropped the "free power" (his words, not mine) bomb . Nelson said that 

$204 million of Pick-sloan's costs were not being recovered because irrigation projects are not 

being built and the portion of generation construction costs allocated to these future irrigation 

projects is not being clwged to existing power customers. Since these costs are not being 

recovered, the clc!c!:ricUy JDPduction to be IISC!d for tbgz future jrriprioo projects js bejng used 

now at oo cost to gjsting PMA customers! (Exhibit A, p.6) 

At first I thought that Nelson may have misspoke. But ~ he said it again later in the 

meeting. In raponse to a question about irrigation revenue, Nelson said the biggest issue was 

how to deal with the costs that are presently allocated to future irrigation projects which will 

never be built. He went on to say that PMA customers were getting the ~ of that 

generation DOW and may not be able to get this portion for free if the PMAs are sold. (Exhibit 

A, p.ll) 

Following Nelson's presentation, a question and answer period ensued. If Congress and 

the American taxpayer are oot surprised enough by the disclosure of the free power issue, the 

following statements by the preference customers indicate that they are willing to do and say 

anything to perpetuate their fraud on the public: 

In discussing a proposal to buy the PMAs, Richardson stated that if you can buy the 

PMAs for $2.6 billion (the budget reduction figure), that is 50 percent of their net 

present value and it would be "a steal. • (Exhibit A, p.lO) 

3 
72 

English followed up on this point by saying that a deal for $2.6 billion and a guarantee 

of no rate increases is a deal to get it for "less than it's worth" and "that's what we 

want." (Exhibit A, p.IO) 

Richardson went on to say that $2.6 billion is a difficult price to support politically, but 

"(i)t's a damn good deal if you can get it through. • (Exhibit A, p.l4) 

Another preference customer said that the best deal would be to buy the assets for $2.6 

billion and sell them back to the investor-owned utilities for $9-14 billion. (Exhibit A, 

p.l7) 

Echoing the statements of others at the meeting, another executive said that his group 

believes that rates can go down if the PMAs are sold because the PMAs can be more 

efficiently operated than they presently are. (Exhibit A, p. 9) 

By the end of the meeting there was general agreement that the "just say no" approach 

to PMA sales was not sustainable and that the group was still searching for a new, unifying 

position. 

The Sioux Falls meeting confirmed what many already believed: that PMA customers 

were receiving subsidized power. More importantly, it revealed for the first time that the power 

was not only being subsidized, it was being sent to preference customers free of charge. The 

meeting also revealed a potential shift of strategy for preference customers - from fighting to 

maintain the free power status quo to pursuing a sweetheart deal for the purchase of PMA assets. 

Either way, the preference customers remain committed to ripping-off the taxpayers. 

As a result of the meeting, considerable local and national press has been aimed at this 

issue. Articles in The Wall Street Journal (Exhibit B) and The Fargo Forum (Exhibit C) 

confirmed the major aspects of what was discussed at the meeting. 

Perhaps most importantly, reports of the meeting led this subcommittee to ask the 

General Accounting Office (GAO) to investigate the PMAs and the free power issue. The GAO 

has confirmed the free power scam and quantified its depth in Pick-Sloan -- oyer a half a billion 

ll!illm. 

C. The Djsclosure Issue 

While the admission by public power executives that they are receiving free power is 

significant, it is doubly disconcerting because any information about the transaction is missing 

from WAPA's financial statements. In other words, this is a phantom transaction that would 

not otherwise be known if not for it inadvertent disclosure at the meeting in Sioux Falls. The 

over half billion dollars is not captured on the documents that are supposed to keep all 

Americans aware of their investment -- The W AP A Annual Report and accompanying Statistical 

Appendix. 

4 
73 

It is interesting to DOte that tbe PMAs are DOt subject to the same disclosure S1andards 

as a normal business. Thus, the two statutes that were enacted to correct the abuses that led to 

the stock llliii'ket crash of 1929 and the financial collapse of the U.S. economy and Great 

J)epiasion of the 1930's, do not apply to the PMAs. Ironically, the 1933 Securities Act and 

the 1934 Securities and Exchange Act were directed at protecting small, local investors by 

establishing a program of full and fair disclosure. Under this program, "bright sunshine" would 

be the pzescription for curing the ills of waste and abuse wrought by those who were benefitting 

from such activities. 

Absent full disclosure by tbe PMAs, many small communities who are supposed to be 

the beneficiaries of the PMAs did not even know they were being 1aken for ride - like the 

investors who lost it all in 1929. 

D. KMPG Peat Marwic;k lndependegt Auditor's Report for WAPA 

The importance of full disclosure is highlighted by what is disclosed on WAPA's 

Independent Auditors Report conducted by the public accounting finn KMPG Peat Marwick. 

While KMPG Peat Marwick has provided unqualified opinions on WAPA's financial 

statements for fiscal years 1993 through 1995, their reports on WAPA's internal control 

structure and on compliance with laws and regulations expose a variety of questionable practices 

that could have a material effect on WAPA's financial statements in the future. 

The 1993 through 1995 audits showed that at various times WAPA had: 

Delivered power to customers who were no longer under contract with WAPA; and, 

Failed to test and calibrate all meters yearly, in accordance with W APA policy, possibly 

resulting in the incorrect metering of electrical power charged to customers. 

KMPG Peat Marwick first reported these problems in 1993 and 1994, respectively. As 

of KMPG Peat Mirwick's 1995 audit, the problems still existed. It seems elementary that a 

power company should only provide services subject to an existing contract and that the meters 

that measure the amount of power provided should be accurate. 

Continued failure by W AP A to fully address the reportable conditions could lead to an 

adverse independent auditors report. For a publicly traded company, an adverse report spells 

disaster. The Securities and Exchange Commission (SEC) would halt trading on the company's 

securities and tbe company's directors could be subject to a shareholder liability suit. 

For WAPA an adverse report would obviously not have the same effect, but it would 

cenainly undermine management credibility and call into question the viability of W AP A to 

manage federal assets. Of course, Otter Tail firmly believes that exposure of the free 

5 
74 

powencam and the stated intent of some public powec executives to seek a subSiantially belowmarket deal for PMA assets already indicates that the time is right for privatization. 

E. The Pl'tfA's AR JJpmnWed Mogopolies that are Pllnginr Mopopoly 

Prartirrc ig the Markctpleq 

Would the issue of free power have escaped public scrutiny for as long as it did 

if the PMA assets had been owned by private regulated entities? The answer is emphatically no. 

Since the inception of modem electric utility regulation, the states and the Federal 

govemmeot and Congress have known that the generation, transmission and distribution of 

electricitY was a monopoly practice. As a result, private electric utilities are the most heavily 

regulated industry in the United States. Private electric utilities are subject to regulation over 

its corporate structure and business activities by the SEC tbrougb the Public Utility Holding 

Company Act of 1935. They are also regulated as to the rates, tams and conditions of 

wholesale sales and transmission access by Federal ~ Act as adminislered by the Federal 

Energy Regulatory Commission. Private electric utilities are also regulated as to the rates 

cbarged to retail customen in the states in which they provide service by II* public utility 

commissions. Finally, private electric ulilities are subject to the information, diJclosure and 

accountiq JeqUirements of federal securities laws. Such requilemeDts provide that the 

disclc:lsure of material information be fairly presented so that the american public can easily 

discern the activities of the business. 

Multi-tiered regulation as applied to private utilities was diiected at e1iminatin& the abuses 

inherent in the monopoly of generating, tnnsmittin& and distributiq power. T'bose abuses 

included: pricing power so low IS to limit competition; diJclosiD& only ~elected information 

uiOCiated with respect to operatiolls so as to mislead the public at large; IPd oblainin& se:vices 

from CUllin corporate deplrtments at costs that are not in line with the market. 

Ironically, the PMA's are HQI subject to the vast majority of these laws. Indeed, the 

ODlx law that tangentially ipplies is the Federal Powu Act (FPA). However, under the FPA 

PMA's are not regulated IS to the rates, tams and conditions of wholesale sales like a private 

utility nor are they subject to transmission regulation to the same extent IS private utilities. 

1. Rate; RgnJarioo 

In 1978, the Seaelary of Encrgy issued Ddeption Order 0204-33 ~the ratemakiDa 

authority she poaested under the various 11at111a delcribed above in the PMA administrators 

IPd proviclina for limited FERC review.

1 Subleque~~t to initill Deleption Order 0204-33, the 

Secretary e:xplllded and clarified what the PMA administrators would be required to perform aDd 

I 43 fed. Reg. 60,636 (Dec. 28, 1978). 

6 
75 

wbat PERC's actual review process would be in Deleplion Order 0204-108.2 Under 

Dclcplion Order 0204-108, each PMA administrator has the authority to develop power and 

tnm•minion rata for their respeccn.e PMAs. These rata are required to be certified by the 

PMA administrator as coosislent widl "applicable Jaw" and at the "lowest possible rate to 

customers consistent with sound business prineiplea. • Interim rata prior to the final PERC 

review are established by the Deputy Sccrelary of DOE. 1be Bonneville Powa- Administration 

is governed by a diffaalt slandanl.' 

1.3 noted, Delegatioo Order 0204-108 also empowemi FERC to confirm, approve and 

place in effect rata developed by each PMA administrator. However, PERC's review of the 

rata is extremely limited and cannot IqJlace the PMA administrator's actions. 

PERC may not loot "behind the. numbers" in cletennining the extent to which the PMA 

administrator is in compliance with the above criteria. As FERC Chair Moler stated this past 

year in testimony provided to the House Raoun:es Committee on PMAs, "[s]ignificantly, the 

Commission can ooly approve, disapprove or. remand a PMA's proposed rata. Unlike our 

regulation of public utility rata, the Commission cannot modify a PMA's proposed rata ... 

Indeed, Delegation Order 0204-108 nota, "[t]he Commission shall not review policy judgments 

and interprelalions of Jaws and JegUiations made by power generating agencies. • 

2 48 Fed. Reg. 55,664 (Dec. 14, 1983). 

3 PERC has particular statutory authority over Bonneville's rata. Pursuant to the Pacific 

Northwest Fleetric Power Planning and Consc:rvation Act ("Northwest Power Act"), the 

Commission must eonfinn and approve, on an interim and final basis, Bonneville's rata. Under 

section 7(a)(2) of the Northwest Power Act, the Commission evaluates Bonneville's rates for 

sales within the Pl!cifie Northwest region to ensure the rates: (a) are sufficient to repay the 

Federal investment in the Federal Columbia River Powa- System over a JaSODable number of 

years after first meeting Bonneville's adler costs; (b) are based on Bonneville's total system 

costs; and (c) insofar as transmission rata· are c:oncemed, equitably allocate the costs of the 

Federal transmission system between all users of the system, Federal and non-Federal. 

FERC also has significant authority relative to Bonneville's sales outside of the region. 

Under section 7(1c) of the Northwest Power Act, the Commission evaluates Bonneville's rates 

for sales outside the Pacific Northwest region to ensure the rata are established: (a) having 

regard to the recovery of the cost of generatioo and transmission of such energy; (b) so as to 

encourage the most widespread use of Bonneville power; (e) to provide the lowest possible rates 

consistent with sound business principles; and (d) in a manner which protectS the interests of the 

United States in amortizing its investments in the projects within a JaSODable period. 

• Statement of the Honorable Elizabedl Moler, Chair of the Federal Energy Regulatory 

Commission before the House Resources Committee on the Potential Transfer of the Power 

Marketing Administrations Out of Federal Ownership, May 18, 1995, Serial No. 104-28, p. 91. 

7 
76 

In sum, rate regulalion applied to public utilities undec sections 205 and 206 of the 

Federal Power Act is DOt applicable ID the PMAs. The 20S and 206 Slandanl, which requires 

that a utilities' rates be just, reasonable and nonclisc:riminatory, has no bearing on the 

establisbmeot of PMA rates. Because PMA power and ttansmissioa rates ~ not subject 1D 

evaluation under the 205 and 206 SIIDdard, the PMA administrators, oftentimes in conjunction 

with the pefeaeoce CIISIDIIIas, ~ able ID establish gross assumptions for rq~ayment and cost 

recovery, thereby grossly undercharJing for this power. Because FERC cannot look behind the 

numbers, and must take the assumptions they ~provided from DOE as fact, the PMAs ~able 

to evade rate reculation. 

2. PMA Trapvnjpjm Faciljtim am Npt Brr!lefr4 IJkr; Other Priyatc 

lllilitia 

Similady, FERC does not have the same jurisdiction OYa' PMA transmission facilities 

that it does with respect 1D private utilities. In this respect, on April24, 1996 FERC issued its 

final rule requiring jurisdU:ti.onal utilities to provide opeo access, thadJy eliminating potential 

transmission monopoly abuses. The rule requires that all public utilities subject to FERC 

jurisdU:ti.on offu transmission services that ~ comparable to the services they provide 

tbemJe1ves when they use their own transmission systems ID make wholesale sales or putdlala 

of decttic eaeqy. FERC issued the Mep-NOPR in orda' ID effectuate a competitive wholcsalc 

power IIIUka. As Chairman Moler noted in testimony last year before the House Resources 

Committee: 

We believe that opeo access is necessary to 

elimina1e existing utility pnctices that ~ unduly 

discriminatory and to have competitive bulk power 

markets in which all wbolcsalc ICI1ers can reach all 

wholesale buyers. We concluded that ordering 

transmission lelVice on a cue-by-case basis under 

section 211 of the Federal Power Act, by itself, is 

not sufficient to remedy undue discrimination. This 

is because section 211 service is not a substitute for 

opeo access, i.e., service on request. Many 

competitive opportunities will be lost if customers 

have 10 go through the procedural requirements of 

a cue-by-case request. 

Uildc:r existing law, FERC does not have the authority to order open access transmission 

by non-public utilities, e.g., the PMAs, municipal e1ec:tric systems and electric cooperatives. 

Accordingly, PMA transmission facilities along with those owned by municipal electric systems 

8 
77 

and electric cooperatives are not subject to PERC's comparability standard, and are effectively 

beyoad tbe reach of tbe agency's claquJatioa effurts.'' 

Tbe impact of !his problem has been evidellced today by the discloswe of the free power 

issue. It is also evidences by virtue of the fact that WAPA has begun soliciting new rclail 

customers in tbe Piclt Sloan region. Thele customers are currently customen of privale utilities. 

It's clear from W APA's solicication that private utilities cannot compe1e with an unregulated 

monopoly wbo can price electricity far below tbe market. 

Tbe IIIICOIItroverfed Slalemalts of public power and rwal co-op company executives 

reportina by tbe media .00 now tbe OAO all confirm tbe undeniable fact that tbe PMAs are 

&ivin& away free power to paefereuce c:ustomcn and tbe American taxpayer is paying for iL 

Tbe diJclosuJe of this outrqeOUs fact has been obfuscated by those wbo seek to 

perpdUIIe this wasce llld abuse on tbe U.s. cowmmmt llld upon unsuspecting local erttities that 

may odawise need this money for a variety of natural raourte management issues. Tbe full 

emat of this abU&, which may have yet to be determined criminal implications, is not 

alto&fltber known. Hopefully, pendinJ OAO reports on the other PMAs will provide more 

information. 

What is known is that consumption of free power by certain erttities is hurtin& local 

communities with viable natural reiOUl'Ce issues that could be addressed with proper funding. 

By providiD& free power to 1 select few, rew:oues that could be benefi.UiJI& stale and local wate1: 

raoun:e support is being sypboned off for the exclusive benefit of otben who seek to maintain 

tbe SlatUI quo. 

The best way to put an eod to tbe free power ICIII1 is to put and end to tbe PMAs. The 

PMAs oo loagec opaare axording to thdr historic:al chartec or in tbe best intecests of the 

Dl!ion. PriVIiization offen 1 politive fiscal result for tbe American taxpayer, and current 

cuseomec lerVkles will continue undec new, privale ownership. 

'Tile PMA's are subject to PERC's I 211 authority, and reciprocity provision. However, 

u noced lbove PERC does not believe thall 211 is adequale to resolve monopoly lbuse. As 

to reciprocity, tbis requirement is only triggeced if the PMA 's were to seek access ovec aDOthec 

private utilities transmission system. 

9 
78 

PMA Forum 

Sioux Falls, Soutb Dakota 

July 17, 1995 

Primary speakers at the forum were: 

Alan Richardson - APP A 

Glen English - NRECA 

Jeff Nelson - East River Power Cooperative 

Exhibit A. 

A special PMA Hotline bas been set up for PMA customers to provide up-to-date 

information on the status of this issue. The number to call for this information is: 

303-296-lW. 

Introductory Comment: 

The Conference Report which requires a $2.6 billion budget reduction provides the basic 

framework under which a resolution of the PMA issue must be developed. 

Comments by Alan Richardson- APPA 

1. One of the questions that should be posed to Congress is why should 

revenue producing assets be sold. 

2. The House Resources Committee, chaired by Rep Doolittle (Ca.) has 

introduced legislation which has two separate mechanisms contained in it 

A. It has been proposed that the assets of the SEP A should be sold at 

auction to receive a market determined price. 

B. The Central Valley Project in California, however, is proposed to be 

sold at a price reflecting the remaining value of the debt to existing 

customers. This proposed treatment of the Central Valley Project 

by Chairman Doolittle gives an indication that there is sympathy for 

giving preferential treatment to existing customers. If further 

suggests that Congressmen are continuing to show preference for 

their own constituencies. 

3. The Senate bearings which were held last week went well and there was 

little introduced which gave cause for concern as to bow the sale will be 

handled. 

4. Senator Murkowski, chair of the Senate Energy Committee, bas proposed 

an option which would add a S mill surcharge to existing rates which would 

raise an additional $2.6 billion in annual revenue. The current sentiment 

in the Senate is to not sell the PMAs. 
79 

5. The collective and adamant opposition expressed by PMA customers 

against the sale has been working. The Baucus - Pressler Amendment is 

an indication that the Senate bas beard the arguments of opponents to the 

sale and is currently inclined to not sell the PMAs. 

6. 1VA is currently fully funded by customers except for $140,000,000 which 

is appropriated for irrigation components of the 1V A project. 

7. Scott Klug offered an amendment to strip that $140,000,000 from the 

appropriations bill. A vote on the Klug proposal was defeated 184 to 284 

which gives further indication that Congress is willing to consider continued 

preferential treatment to existing PMA customers. 

8. The driving issue is the need for Congress to find revenue sources to help 

balance the budget and reduce the deficit. 

9. One of the important questions to deal with is how do we propose t6hold 

onto the political clout that we presently have. 

10. Dollars will become more and more important as Congress tries to deal 

with the deficits and balanced budget requirements and this will malce 

continued fav9rable treatment for PMA customers more difficult .. 

ll. The PMAs may become more important targets later as financial 

considerations become more predominant and the options for additional 

revenue become stickier. 

12. Most people believe that the status quo of maintaining government 

ownership of the federal power projects can't continue in the long term. 

13. PMA customers want more local control of the PMAs. 

14. We should look for options that give existing customers some additional 

control of the projects. 

2 
80 

Comments by Glen English • NRECA 

1. The original observation in Washington that the sale of the PMAs was a 

done deal. Democratic president had proposed the sale to a Republican 

Congress and the Republican party has advocated the sale for years under 

previous Republican administrations. 

2. Originally the biggest concern was how to prevent an auction to the highest 

bidder in an auction process and how to keep the PMAs for existing 

customers. 

3. This issue is one that has come up once a decade. 

4. Now we believe that we have reached the point where there is little of 

auctioning the PMAs to lOU's at market prices. The present feeling by 

most in Congress is that the PMAs should be sold to existing customers 

and net present value. 

5. Opportunities have been created in this debate which have therefore 

opened new doors. 

6. It is like a dog, however, that chases a car. What do you do when you 

catch it? 

7. The options that now exist include: 

a. Oppose the sale of the PMAs 

b. Have existing customers purchase the PMAs 

c. Have existing customers lease the PMAs 

d. Argue that some PMAs should be sold while some should 

not. 

8. The Senate is friendly to the PMAs. 

9. The House may be intimidated by Senate votes which have expressed 

opposition to the sale of the PMAs. 

10. Senator Murkowsk:i says the PMAs will be sold, but maybe not this year. 

11. We could maybe succeed in blocking the sale this year. The question is · 

can you fight this fight every year? 

12. It will become harder to prevent sale in every succeeding year. 

13. The PMAs may need to provide a greater sum of money the next time this 

issue comes up. 

3 
81 

14. IOU offers will become more attractive to Congress in the future as 

Congress looks for more and more ways to bring in more and more money. 

15. Abolishing the DOE will hurt the proponents of maintaining the PMAs as 

is. 

16. Approximately 1!3 of the DOE employees work directly with the PMAs. 

There are substantial savings available to Congress in eliminating these 

employees from the federal payroll. Loss of these DOE employees will 

reduce number of people in the government opposed to sale and 

elimination of these jobs will reduce the number of people arguing our 

case in front of Congress. 

17. Even if Congress doesn't move to sell the PMAs, it may ask to raise 

electric rates and derive more revenue from the sale of electricity. 

18. Arguing to oppose the sale of the PMAs at this time won't end the 

struggle. 

19. Proposals to divide up the PMAs and sell them on a project by project 

basis would be disastrous. Unity and support for a common proposal 

among all customers must be maintained. 

20. The strategy must be to keep PMAs intact. 

21. Water management is at risk if PMAs are bought by preference customers 

as the decisions for water management will then be made by entities who 

have less of an interest in the electric operations of the PMA facilities. 

22. The key strategy is to convince Congress that there shouldn't be any rate 

increases associated with the sale of the PMAs. 

23, The question of taxes will be a problem. Presently the PMAs pay no taxes 

because of federal sovereignty. If the PMAs are sold, this sovereignty will 

be lost and taxes will likely have to be paid. 

24. A lease of the PMA facilities may be the most attractive option. Under a 

lease, it may be possible to remain exempt from paying future taxes and 

their may be other benefits owing to government ownership that may be 

maintained. 

25. A lease now may not prevent a sale in the future. 

26. Leasing the PMAs may make funding for maintenance a problem. 

4 
82 

27. It is possible that some PMAs may be sold. 

28. Congress realizes WARA is unique because of the complexity of its 

contracts that are in place as compared to those at other PMAs. 

29. We should ask, does WARA become more vulnerable if other PMAs are 

sold? 

30. We must look for the options that are the most acceptable and attractive. 

31. The decision on what to do must be made quickly and there will be no 

turning back once the decision is made. 

32. Congress will decide what to do on this issue after Labor Day. We must 

work hard in August to develop a recommended proposal. 

33. We must find a champion in Congress to proJ>ose our recommended 

option. 

34. We must accept the fact the you can always expect the unexpected in 

Congress. 

5 
83 

Comments by Jeff Nelson - East River Power Cooperative study 

Note: Jeff passed out a study done on the financial aspects of selling the Pick-Sloan 

portion of W M A. This handout is attached to these notes from the forum. 

1. The Pick - Sloan project is the most complex of all the W M A projects. 

2. The Pick - Sloan rates are the lowest in W M A. 

3. Basin Electric Power Cooperative has prepared a valuation study of the 

Pick-Sloan Project. 

4. The valuation study calculates a purchase price that is based on establishing 

a price that would yield the government an initial amount of revenue equal 

to the revenue stream of the generation at current rates. 

5. The Dakota Conservancy District believes generation revenues should pay 

for irrigation projects. This isn't currently happening and could cause rates 

to rise if this were required. 

6. $204 Million of costs are not now being recovered because the irrigation 

projects aren't built and the portion of the generation construction costs 

allocated to these future irrigation projects is not being charged to the 

existing power customers. Since these costs aren't being recovered, the 

electricity production to be used for those future irrigation projects is being 

used now at no cost by existing PMA electric customers. 

7. Even if the PMAs are sold, it may be possible to avoid paying Federal 

taxes. If the PMAs are sold, it is unlikely that state taxes can be avoided 

and this additional tax liability could amount to perhaps $45 million per 

year. 

8. Operational priorities will become a problem if the PMAs are sold. 

9. Another threat for continued preference to PMA customers is that Native 

Americans are asking for 100% of their power from Federal resources. 

10. Another threat to the continued allocations for existing customers is that 

State and Federal customers who serve a public purpose (schools, state and 

federal offices, etc.) are asking that their power come from the federal 

power projects as all of their operating expenses are supported by general 

tax revenues and are paid for by all citizens. 

6 
1 l. U the PMAs are sold, existing customers would loose their walk away 

privilege which allows them to leave without auy residual obligations. 

Under a purchase, their will have to be some continuing liability on some 

one's part. Perhaps a lease could reduce the amount of liability that would 

be created under a purchase. 

12. Selling the PMAs would result in the loss of Federal sovereignty and it 

would likely cause additional tax liabilities. 

7 
85 

Questions and Comments: 

1. Tom Heller • MBMPA 

1. MBMPA provides supplemental power to 58 municipal preference 

customers. 

2. The allocation of this preference power is made to the municipals and not 

to MBMPA as a separate entity. 

3. MBMPA urges everyone tO stay together and be· unified in this issue. 

4. 60% of the electricity coosumed by the MBMP A customers comes from 

W AP A allocatioos. 

5. We should rely on APPA and NRECA to develop our positioos and argue 

them for us in Washington. '. 

7. Our primary focus should be to protect coosumers from any rate increases. 

8. MBMPA believes that the Federal Government won't continue to be in the 

power supply business and that some change is imminent. 

9. The question we have is bow can we reduce our risks in this matter? 

10. We cant just say no anymore. The sentiment to sell the PMAs is too 

strong and the strategy of just plain opposing the sale isn't likely to work 

forever. 

11. MBMPA's position is to let APPA argue the issue on our behalf. 

l. Mark Glaess • MN Rural Electric Assoclation 

1. BPA rates have gone up. In part this has come about because of 

additional costs associated with environmental law, particularly the 

Endangered Species Act. 

2. What effect will the Endangered Species Act have on our WAPA rates? A 

transfer of ownership won't effect that liability. We will be no worse or no 

better off than we would otherwise be. 

3. Glen English responded by saying that liability for endangered species costs 

should go to all citizeos and not just to those who get power from the 

PMAs. 

8 
86 

3. Debbie Levine - California 

1. Debbie represents the Desert Southwest Group. 

2. Debbie supports acquiring the assets by purchasing them outright. 

3. The Desert Southwest Group is currently having some disputes with 

WMA. 

4. The Desert Southwest Group wants more local controL 

5, If we don't buy the PMAs now under favorable terms and conditions, the 

option of doing that may be taken away in the future. 

6. If we don't have agreement in this group on how to proceed, the Desert 

Southwest Group will move on its own. 

4. Mark Mitchell - Ex. Dir. or Arizona Power Authority 

1. Our biggest strength is to move forward together and support a common 

proposal. 

2. We definitely have an opportunity oow to gain control of the PMA assets. 

3. The Hoover Group is working on apurchase option. 

4. We would prefer a lease over a purchase as a way to provide more 

insulation &om the liabilities we would incur if we purchased the PMAs. 

5. We think th<!-t we could seek preferential terms in a lease and then 

guarantee that those rights continue for a possible future purchase. 

6. A lease now, insiead of a purchase, could avoid future liabilities. 

7. The Arizona Power Authority believes that rates can go down because the 

PMAs can be operated more efficiently than they presently are. 

8. Under a lease, it may be possible to avoid paying both state and federal 

taxes as is presently the case. 

Reply by Glen English 

1. The biggest decision to make is not whether to lease or buy but rather do 

you want to do one or the other of these as contrasted to just categorically 

opposing a sale. 

2. You can't break the PMAs into pieces. If you divide them up you will 

have all sorts of problems. 

9 
87 

Reply by Jeff Nelson 

1. East River holds the largest WA:PA allocation in the Pick-Sloan Project. 

2. We feel that we absolutely need assurance of having no rate increases 

regardless of what happens. 

3. The discussions in Congress, however, only talk about protection on the 

amount of rate increases and they don't deal with a prohibition on any rate 

increase. 

Reply by Alan Richardson 

1. It is the lOU's that are talking about providing the protection of limiting 

rate increases. We should be arguing that there should be no rate 

increases at all. 

2. If you can buy the PMAs at $2.6 billion, that is 50% of their net present 

value, that's a steal. 

3. If you pay anything more than that, there will have to be a rate increase. 

4. We're faced with a very tough situation. The Federal Government needs 

money. 

5. Just saying no has been our rallying cry in the past. 

Reply by Gleo Enplsh 

1. The issue of what represents a zero rate increase is for A:PPA and NRECA 

to define. 

2. Requiring that there be no rate increase is the argument we can use 

against the IOU proposals. 

~ When we argue to get it at $2.6 billion and for no rate increase, we're 

arguing to get it for less than it's worth. That's what we want. 

10 
88 

6. Dale Van Etter • Mayor or Sioux City Iowa 

1. Sioux City is a MBMPA customer. 

2. Question: "Is there any revenue available from irrigation?" 

Answer: Jeff Nelson: "Irrigation revenue would be based on ability to 

pay. 85% of irrigation cost must come from power sales. 

Irrigation can't be counted on to raise revenue." 

Reply by Jeff Nelson 

1. The bigger issue here is bow to deal with the costs that are presently 

allocated to future irrigation projects which will never be built. We are 

getting the free use of that generation now and may not be able to get this 

portion free if the PMAs are sold. 

2. A lease option may be a way to minimize the liability of picking up those 

COSts which are DOW deferred to future and uncertain irrigation projects. 

7. Walt Canney· General Manager, Uncoln Electric System (Nebraska) 

1. Question: "What concept of governance would be contemplated?" 

Answer: Glen English: "This will be a tough issue. I envision that it will 

involve equal representation from coops and municipals and that it will not 

be based on current allocations. I won't accept governance based on 

allocation amounts." 

8. Frank Knudson • Trl State G&:T 

1. I am concerned about the amount of past rate increases from W AP A. 

2. Customers need to get control of PMA assets to prevent future rate 

increases. 

3, We better move quickly to get a good deal while we can. 

9. Gill Hanson • KEMA (Kansas) 

1. There are 39 cities on the KEMA system. 

2. We should develop a strategy to keep unity among us. 

3. KEMA doesn't want to malce a decision now on whether to buy or lease. 

4. If we make a decision today to buy or sell, that is an irreversible decision 

and could cause us regrets in the future . 

11 
89 

Reply by Glen English 

1. If you want to preserve your options till a later day, you may lose your 

flexibility and it may winding up costing you more. There's no looking 

back after September 1. If you don't want to move forward with a 

purchase or a lease then you have also chosen an irreversible position. 

Reply by Gill Hanson to Glen English 

1. How can you make a decision if you don't know what it will cost? 

18. Greg Shennan - Marshall, Minnesota 

1. Question: "Wouldn't the lOU's have the same environmental risk if they 

were to purchase the PMAs?" 

Answer: "Yes they would, but the lOU's will just pass those environmental 

costs on to their customers." 

2. The purchase price in the future will be much higher than what we might 

be able to get now. 

11. Howard Johl- Kimbleton (MBMPA Customer) 

The PMAs will likely be sold sometime and the cost will go up later so we 

might as well buy them now. 

2. Together we can win this thing, if we're separated we fall. 

U. Harold Skybahl -Sioux City Iowa (President of MBMPA) 

I. We have a window of opportunity now to get a good deal. 

2. If the lOU's buy the PMAs, they will ch.M.I!e us 3-4e/kwhr for the power. 

12 
90 

13. Bob Martin • Rushmore Electric, Rapid City 

1. Question: "Aie we tal1cing about buying WAPA or are we talking about 

buying all the PMAs?" 

Answer: Alan Richardson: "'There must be unity among all of the PMAs as 

to what approach to use. We likely can't do one thing for one PMA and 

something different for another." 

Answer: Glen English: SEPA and SWPA are already very unified. 

14. Bryan Jobson • Sacramento Municipal Utilities District 

1. SMUD is the largest W AP A customer of all. 

2. We would be more comfortable if we had a written proposal to look at. 

3. We are concerned about the economic and political risk if we make a 

decision to buy now. 

4. The risks in buying the PMAs must be quantified. 

5. Each project must be treated separately. 

6. We need to begin by discussing these proposals with Congress and the 

Administration. 

7. We have been taking the high ground of protecting our customers from any 

rate increase. That strategy that will be lost if we make an offer to buy the 

PMAs only to have the lOU's bid it up. 

8. SMUD definitely wants a project by project treatment. 

9. We insist that this not be a one size fits all proposal. We want more local 

control than we now have. 

Reply by Glen English 

1. It would be nice to be able to lay a specific proposal on the table but the 

problem is politics don't allow this. 

2. This thing will likely change as it moves along. You're going to have to 

trust us at APPA and NRECA to develop and advance this. 

3. We will try to minimize risk by limiting liability. 

13 
91 

4. The key to this must be to keep it as simple as possible. 

5. We must argue that the lOU's will raise rates and that any rate increase is 

unacceptable. 

6. This deal must be based on the premise that the status quo needs to be 

preserved. 

7. The Pick-Sloan rates can't be changed without legislation. 

15. LeRoy Neubauer • Valley City 

1. Valley city is one of the ND Municipals and is very dependant on the 

W AP A preference power to maintain low rates. 

2. The rates for Valley City could double under a sale at market based prices. 

3. We must buy WAPA now to preserve our low prices. 

16. Harris Davis • Sioux Valley Electric, Sioux Falls 

1. Question: "Will the sale of the Alaska Power Authority give us any 

guidelines on how .::e sale of other PMA.s might go?' 

Answer: "No. In Alaska the state is involved in the purchase and there 

are no IOUs thai have been involved in any way. The Alaskan Power 

Authority sale has tUen qver 10 years to put together. We won't have that 

much time and this deal will be much more complex." 

17. Jeff Nelson • East River 

l. Question: •can we really expect to be able to buy the PMAs for $2.6 

billion?" 

Answer: Glen English: 'There are a lot of Pigs in the Poke on this one. 

That is to say that there are a lot of things that could come up that we 

don't know about now." 

Answer: Alan Richardson: "I don't think the $2.6 billion price will hold. 

$2.6 billion is a difficult price to support politically. It's a damn good deal 

if you can get it though." 

14 
92 

18. Jeff Censer • law firm • Dunc:an Weinberg Keller 

1. There are no guarantees in any of this. 

2. Congress is very budget driven right now and they are likely to look for any 

sources of revenue that they can find: 

3. KISS (Keep it Simple Stupid) may or may not work. There are other 

things that may come in to play here. 

4. Senator Murkowski has said that the sale is not likely to happen this year. 

5. Bob Nordhaus bas presented testimony that bas stated that the sale of the 

PMAs should yield $4.47 billion. 

6. Scott Klug will insist, at a minimum, on at least getting the amount that 

Nordhaus has testified to. 

7. Representative Schaefer, Colorado, will propose withdrawing the sale of 

petroleum from the federal petroleum resetves. If this happens, one of the 

other revenue options will be removed and Congnss could look to the 

PMAs for even more money. 

8. The final budget recommendations will be budget driven and some of these 

other issues may be difficult to argue. 

9. The only thing we know is that Congress needs to raise a lot of money. 

10. Proposing a sale is risky because once you agree to the sale, you won't be 

able to control the issue anymore and you may get others wanting a chance 

to buy it. 

11. Watch closely what happens to sale of petroleum resetves, that could be an 

indication of how badly Congress may need to get money out of the PMAs. 

12. Opening up the ANWR is an alternative to PMA sale, but Clinton would 

likely veto it. If ANWR were opened, though, that could raise a lot of 

money and maybe there would be less pressure to sell the PMAs. 

13. You have to give your national associations wide latitude in developing this 

issue. 

14. You have to stay unified or you will lose much of your political force. 

15 
93 

Iteply by Glen English to Jeff Genser 

1. Don't get hung up on the numbers, whether it's $2.6 billion or not, or how 

feasible it is. 

2. The question isn't so much the number as it is "Do you want to buy the 

PMAs or do you want to continue saying, Hell no, we don't want them 

sold. Where do you want to go?" 

3. As to price, if the price goes above $2.6 billion, then the horse is out of the 

barn and you won't be able to preserve the sale for the existing customers. 

You have to argue that $2.6 billion is the absolute highest price because 

anything more will result in a rate increase and any rate increase must be 

resisted. 

4. Our strategy should be to argue for a quick sale at $2.6 billion and get the 

President's support by providing him the an opportunity to declare a 

victory. He can say that he proposed selling the PMAs and that he bas 

accomplished it and bas gotten the government out of the power business. 

Everybody should be happy. 

5. The price will get settled politically and we should develop a moral high 

ground position to insist on a sale to current customers at a price that will 

result in no rate increases. That number is $2.6 billion and we have to 

justify the rightness of the number on the philosophical reasons, not the 

financial details. 

19. Leslie James • Manager Contracts, Salt River Project 

1. The SRP owns the Navajo contract • Not the U.S. 

2. Navajo is not for sale because Salt River bas it tied up. Regardless of what 

you may bear to the contrary, the Navajo project is not a part of any of 

these discussions. 

16 
94 

20. Craig Osbnx:k • Brookings, South Dakota 

1. We have to yield to our national organizations and let them represent us. 

2. This country seems to have a love affair with deregulation. Deregulation is 

being promoted by big business interests and not by the customers or by 

customer interests. 

3. We must argue that competition isn't necessarily good. 

4. The lOU's will keep up the attack on us and we must try and keep them 

off our back. 

5. We should argue for owning or leasing and we should drop our position of 

just being opposed to any sale. 

21. Denny Valentine· NPPD 

1. The best deal would be to buy the assets for $2.6 billion and then sell them 

back to the lOU's for $9-$14 billion. 

2. We would like to see the numbers associated with the options. 

3. We would like to see a group to get together and develop numbers and a 

strategy. 

Reply to Denny Valentine by Glen English 

1. We don"t have the time. This has to get put together in August. We need 

to know today what we should do. 

2. Our options are the following: 

a. Continue to say no and fight it to the death. 

b. Offer to buy the PMAs. 

c. Put together a lease proposal. 

17 
95 

%2. Dennis Hill - North Dakota Association or Rural Electrics 

1. We started .out in the beginning by just saying, "Hell no." 

2. What has happened? Have we lost ground? We didn't used to talk about 

anything except flat out opposition to a sale. 

3. Byron Dorgan has said, "Hell no, it won't go." He has led the fight for us 

in Washington and has done a good job of keeping up the opposition to a 

sale of any kind. We can't Jet Dorgan down and turn around now and say 

"OK. I guess we have decided to buy it. • It's a matter of principle. Until 

we're convinced there are no other options except a purchase, we can't 

decide to go ahead and do this. 

aesponse from Glen Enallsh to Dennis Hlll 

1. Either we support Doolittle's proposal or offer an alternative. 

%3. Gerald OberJ - McClain Electric 

1. 40% of our power comes from W M A 

2. We're opposed to throwing in the towel. We'd like to continue to oppose 

the sale. 

3. Does anybody know what the remaining life of dams is? 

l4. Dan Boyce - East Grand Forks, Minnesota 

1. 60% our power comes from WMA. 

15. AJ Crowser - Alcundrla, Minnesota 

1. 50% of our power comes from W MA 

2. We need more local input in developing alternatives. 

M. Bryan Jobson - Sacramento Munidpai Utilities District 

1. Maybe we should be ready to buy - but we shouldn't offer to do so until we 

know more. 

'1.7. Steve BR¥ig - NIPCO - Iowa 

1. Should this group meet again if necessary? 

18 
96 

ll. Dennis Hill • North Dakota Association of Rural Elec:tries 

1. Our direction can't change based on this meeting. 

2. I don't have the authority from my board to make any decision here and 

none of the others has the authority to speak for their organizations 

29. Ron Mortenson • OPPD 

1. Only 5% of our power comes from WAPA 

2. We can't just sit on our hands, we have to do something. 

19 
9'1 

MID-WEST ELECTRIC CONSUMERS ASSOCIATION 

PMAFOBUM 

Water and Power Marketing Committee &port 

Issues 

.System Value 

•Customer Acquisition-Financing 

•Suballocated/Joint Costs 

•Ultimate Development 

•Unfinished Irrigation 

•Taxes 

System Valuation Studies [Pick-Sloan] 

•Assumptions 

-Purchase occurs at 12/31198 

-"Drought" deficits at $28 million (Currrently $175 million) 

-No suballocated costs 

-No incomplete irrigation costs 

-No "ultimate development" 

-PRS replacement/additions through 1998 

-PV includes principle, interest and "booked" aid to irrigation 

•Results @ PV of: 

6%- $1.343 bil 

7% ~ $1.217 bil 

8%- $1.112 bil 

9%- $1.023 bil 

10o/o-- $0.948 bil 

System Bate Impact-Financing 

•Assumptions 

-85% debt/15% equity financing 

-Acquisition cost $1.112 bil (8% PV) 

-Interest on debt: 7.225% 

-Equity value: 6.5% 

-30 year repayment 

-O&M same as PRS 

•Results 

-Decrease of $8 million/year or -0.8 mills/kwh 

{1) 
98 

2 

Suballocated/Joint Costs 

•Power investments "set-aside" (suballocated) in anticipation of 

future federal irrigation development along with "sunk" (existing) 

investments in common facilities now allocated to irrigation (joint costs) 

-Suballocated costs - $300 million 

-Joint irrigation costs-$120 million 

Total - $420 (@0% interest) 

-350 MW (currently marketed as firm) 

•Potential Rate Impact -0-3.8* mills/kwh (0 to $38 million/year) 

*25 years@ 7.8% interest 

Ultimate Development 

•Commitment of power revenues to aid in federal irrigation 

project repayment 

-Current: $725 million 

-Future: $5.9 billion 

•Potential rate impact 

-0 to? 

-Political vs. economic issue 

Unfinished Irrigation 

•Funds appropriated for the uncompleted Garrison Irrigation 

Project which is currently "outside" repayment obligation~133 

million plus $71 million in several other unf"mished projects -$204 million 

•Potential rate impact (Garrison) 

-0 to 1.3 mills/kwh (0 to $13 million/year) 

Taxes 

•Depending on the form of ownership federal taxes may be applied and state property taxes will be applied 

•Potential rate impact -Assuming a $1.5 billion "taxable" base and equivalent of 

3% property tax rate: 

$45 million/year 

4.5 mills/kwh 

-Federal taxes:? 

Summary of Financial Issues 

Annual lm~act 

$(millions) Rates( mills/ kwh) 

Financing 

Suballocated/ 

Joint Costs 

Ultimate development 

Unfinished irrigation 

Taxes 

Total 

($8) (.8) 

0-$38 0--3.8 

~? 

0-$13 

$45 

$(8}--$96 

~? 

~1.3 

4.5 

(.8)-9.6 
99 

3 

Other Key Issues 

•Competing operational priorities 

•Native Americans 

•State/Federal customers 

•Insurance/liability 

•Loss of current "walk-away" •Federal Sovereignty 
100 

Mid-West Electric Consumers Association 

Dc~r Pic:k.-Sio:sr. cu~lOint:r. 

11>:: Uniled SllllCS c~'fll!le•~ o:on•:n .. e;"' ~'lnJ:,Jcr w!H:lhcr t:r nul to :<ell 

the We-:tcm Ar::a r!>wn Admir.isllllion ~~~~~ 011-=r f.,.,lcn!J Power Motkcting 

.'\d111inislt:llions. Dm!llhc .S.:a!o: a:ld I~ H01:sc BU<Jan Re.uiulitl!lS all for 

sQIC cf ~I'M A.•; l1tlt lir,: S,"!la!~ ~l<l' iuciu,lell ;n on>:!llllllC'nl Uf!!.'O!IinJl<.'le •)f 

th-e I'MJ\~. Conrcn.~ 31c: meeting !<1 !'CSUive lliiTercm:e. ~wee" the tw~• 

~ter~ion~ . 11t~· :nUih)r!7.i.,, t.:•,....mi\1('('~ are ;~t-ct ~gilmir:H tl .. \!'Jnsid::r h:sul:~ 

;u."ci:lled with .talc ol th<'.c v:llu:JOk: ret~eraJ ~. Nu"'crou• hiils h::sc ~n 

ionrC<!u~c<l.!allin,: f"r Ill<: s;.l~ ur the fcdo."r..l Power M~:tCI;u: J\doniuiAmtivn•. 

On .luly 17 ati:OO ~·.m.lr: Slou" Fzn,, lb<ol\Ud·W"'t El~drio: 

Cul'•nmetf ;\~51>-:illlWIIWIU be c•mnnlll' I sp~bal meo.fin~ c1(alll'lck~'iJnan 

....-.su,...., . .,,. • .,.d ektrlc ulllllie to> .lise= ood t>m&itler adio"" In 

CouJft'S5 relali"l! to tiN PMA 's. Tile «J>nUnr. ,.ill IJ., conv..ntd :11 the 

Ho,..nnl ,hohn.<11n lJul•l :~tJ.'Il!J W•><~ Ru.<::!tll. We ..-ill adjonnc tl1:ot 

:tftertiCIC'ML J1or lhO:iC llt;i:.Jint f~oMll!II~I\'NiUII~.th·..: nunahcral Jft.\Yt~ll.! 

Jvhn:-;on's i~ Gfi!·3:v, .. I(](Xl , 

The P''~"P'"" ''' tl11! nlCCiinJ: isle> ?Mvidc a forum f(lr T'id-Stoan 

cu"omw. We wi!l ht: up.latinl; y•.ou ~tile ~::otu.• ur I'Mt\ ~tiv;tics iu 

Cna~~n:~. and t:1c:- pro.-:.~ct' arxl pmceS! fv. cnngrt$Si.;Jtal action. We will be 

drvoliPJI a J!'>O<i :lc:JI uf time"' lli«US.•ior.s ~·) 111<1! we m•? bcllcr •<lilrc<• ohl: 

C~l[-\'e~ anc.J !lt~:~cth-e.s or l'ick-SI'.l.1n \."U,i\OJIW:S •• _..,t h:tve in .. iletl our 

J;nJio..•n:ll a.c...• ::~i:tfir.us, APPA .-nd f.IRl3CA, h.l anend 3.1; wc11. 

f.\-~r)·tmc ha'i l<""l 111~1'\y me\!Hr.g-r; thtl"( days, but it is. itnp<.•ltl!'ll (,,r yott IO 

!l!ten~ thi., sc:;~i·Jr!. !( Vt.'e :lrt to suc:r.:t.cd in pmte:;ring our ialtn:Sl;(, we r~usl 

main!:.in lh·! uniry IM~t h.a.\ ~rvcf.l Hat: MiSSo:HJii River hil.~in $1) w·~ll r,~ ~., n~y 

ycr.:s. Ttt m;liUI•::ulh:.•! uni1y -.·c nu•st \\"t.lrl: ·~c!her il! u:klcrsta.,dliti the u.1hm: 

r•f 1!!e i.~sct:s onft~ ... 1nr.g us nm! ~k1-:N.in~ ~~r~n il '(nrrsc uf ;t~;;inn r.hhl :s !n :hr. 

br-st i1:tcn.:·:•t ,:.r ;1!1. 
101 

1r you will be a~~&nclinc this Pick-Sloan fonam, please return the enclosed 

response for u soon •• possible 10 that we can finish planninl tbc lopliC1 for 

this meetinJ. We look forward to sceinc you in Sioux Falb. 
102 

THE WALL STREET JOl R~.U. FRIDAY. SEPTE:.!BER 8. 1995 Exhibit e. 

Electric Co-Ops and Municipal Utilities 

Seek to Buy U.S. Assets at Bargain Price 

By BE.~JA:O.II~ A. HoLD£....-

SUI/1 Rll'portll'r o/ Tur. W .u.&. Sncr:r Ju1..-.~.u. 

Groups reprosentinc member-owned electric cooperatives and munidpaJ utili· 

ties have devised a plan to bUY federal power assets lor less than one-third of their market value. which stUdies put at S9 

blltion or more. accordinC to an .. eculive 

:amutar with tho plan. 

AI a JUly mettln( in Slowt Falls. S.D .. executives of the American Publlc Power ASSOdalion and the Nalloaal Rur.ll Ele<· lricCooperative Association outlined aSH 

biU!on bid lor three of the l!•e Power Martetinc Admlnlmalions operated by 

tile Department of Ene'l)', says a uWity 

executl .. wbo atteDded. The nve apncies 

"'"' hYdrofleclric clams and transmission lines that criSSCrOSS tho country and rener· 

111 "'of tho nation's power. 

111 tht sprinc. the CIIDton adminlstra· lion IIIIIOUIICed u pan ot its 1996 budret a plalllD sell three of tht power acenetes lor 

Sl.7bllllon. selllnr the The--- assets to anyone but the cus· tomers of tho arencies. namely their or· pnaatlons' members. They arrue that investor-owned uWit!es. !I permilled ID 

buy tile arencies. Will raise rales to rtCGUP tbelr inoestments.III..,IDr-owned uWit!es 

support seWnr the arenetes. but arrue tilt IV9fTMIOlllcan realize tile full value ot the asseu.Dilly thnJulll compelit!ve biddiJir. 

The pornment ... n't decided -• fonn the sales Will IUe. But tile usaci&· tiolls' idea of • -ued pre!- llle 

carries Wfillltbecallse tbelr lliOiliiiOrs buy 

t11e bUlk of thearenaes·_.... The....,. ciationl arrue they thus have • quasHn· 

ershipin-ln thepoom' usets. bldled. a fourth &lfiiCY in Alub appean 110 be on the verre of btinc sold. wttllotlt blddln&'. 110 

trs cuscomeiS. · The National Rural uaocialion crili· 

cized tht CIIDIIIII plaD U "ID open invlta· 

lion IDiDYOS- ulllltiesiDl'llle the 

electric rates of America.·· and in a r«ent policy paper oa the matter. the American 

Public association said it "stronriY 01> poses" the sale of the arencies to anyone otMr tban the txistinr customen. Neither croup returned repeated phone calls seek· ing comment on the matter. "Their ll'(lllllODt Is ·we·ve paid for them. therefore we own them,· .. says Rep. 

Scoctl.. Kill( Ut, Wis.), head ol the House 

PrivatiWlon Tllk l'on:e. "But When I poy 

my blll at Wisconsin Power &r Ucht. they 

don't send me shares of slDCk and say thanks ror buyinc our electricity ... 

Opponents of preference sales were less kind upon bUrlnr of the proposed bid. 

"This Is outrqeOUS." saJd Tom Kubn. 

president of the l!dlson l!leclrlc IDstltute. the m...tar- uWilies' trade rroup. "They're'*"'' lor a raid on the American trnsw-y.'' 

The in..,tar-owned uWit!es press this 

&rJUIIIOIII by pointinc lD about 10 CIIIIIPft· inc studies on the value of the usets put 

torether by various Wubinclllll pm~­

ment and lobl>yinc II'OUPI- The studies value the assets at S1 bWion ID 514 bWion. 

"I think 52.6 bWion Is off by a fac:tar of 

lour:· saJd Ward 1. Uaerut~.a 'rice pres!· dent at Otter Tall Power cu .. baled in 

Ferrus Fllll, Minn. "It's a nre sale.--

Otter Tall 1s amonr t11e handful of 

investar- ut!Ut!es that 11a.. at· 

lfmi>IOd ID-tile -·ralsiJic 

pocentlal ol the- aa-105 by_... in ldUal bids. Barller this year. ,_ 

Ele<lri< - cu. ollencl about S550 mllllon for tile Arlmn&-bUed usets of ... 

of the apnctes. 

Rep. Kluf saJd the petldlnc m million 

llle of tile AIUka Power--- Is ... -deal" and-"" complel.od soon. The telltailft tM>bid deal wu reached last month with tile cityo!Ancbar· 

are and tile ..-r·s- Rep. Kill(- ........... ~u.. 

sates in some cases. ··E.tctl ! J)I)Wer agency! may be treated differently:· he said. ··some should bt leased. some sold to 

preference customers. some to investor· owned utilities. But to say we·re going to 

put them in a bloc and soU them to preferential customers at rtre·sale prim is absolutely nuts." 

But no matter how they are done. the 

sale! must co &Mad. says Rep. Klur. ' 'TWenty-ei(ht perm~t of the DOE does 

n~thinr more tban run·· the power aren· oes. he said. ··u you'rt roing to do anv 

ldlsmantiinr oil the Department or Energy. the [ICfDCiOS[ h&Yt (01 10 (0.'' 
103 

SUNDAY EDITION 

The ForUm 

SUNDAY, MARCH 17, 1996 

Wlutl• Oller Tail Power Co. pmp<nlng? •OtterTail wantalo take ovtrrnanagtfl'ltnt oiWAPA's Eastern Missouri Basin 

system for tiYe )'111'1 for a pilot study to tttablilh guidelint1 for the tventual 

111e ofthefivl PMAs to private i'IYrlltorl. n would rec:eivw $10 million ynrty 

..... ....,.. •OtterTall8dwatn raising ra111 for ITI.Inicipalllnd Malllldric c:ooperatives 

riOIMng public hydrc:JcxMer- an -.ge of 2510 30 !*Wit for rruicip&l 

CUIIklfl'lll'l, 5 pen:enl tor rutal Metric~

• RltH would~ tor tarmtts, Amant.~ Indians and~ cusaomers. 

r·:~~~~~~~~~M~~~~~~.~~~.~~~~~~.,. 
104 

Untapped 

potential? 

Otter Tail Power says 

hydropower_savings could 

end N.D.'s water problems 

Making people pay 

for 'free power' k~y, 

says power company 

By Petrick Springer 

The Porum 

•we're not the only oDes wbo are· 

~lha~.,!r~ T. ~= ddn&-" The ~napector General for the Department of Interior determined 1D 1"3 that one· quarter of the lmeltment for power feai:Ulel ol the ~Bum qstem wu allocated to lrr1pt1on project~ that never will be built, includina Garrtaon Diver· olon. 

Unt!llha com are mode <he respon- stbtltty of the electtidty rate payer$, 

:tlft?ne::n:'~u;ofo~C::' .!~ matnttnance costs. Taxpayers pay 

another $30-m!llion ennually in truerest to finance S382 million in costS, 

the "-<for GeD<TOI conc:lucled. 

Debt~ 

TWo-thirda of the $2.6 billlon U- , 

tobulldthoil'ld<.siooDM!IIouriBosln 

Plo)oct remOinl uni>old. 47 ,am- i the powe:I:;Jyltem We:DI into teJ'\'iCt, . 

onor Tall,_ .. ,._ .Hydropowu cua- . 

,.,.,.,. dlApe; thOr ..., <o pOfi:Onl· of the debe bas been pold. 

On averace. Wesiem Area Power Admlnlstnlt!on'l (WAPA) Miaoourl 

Buln has paid annual interest nua of jua 1.6 percent, Otter Tail main· tains. At tbac rate it would take 150 

year:~ to retift the project's debt, 

uaorud1111. · 

-There a.re no unrecovered coats," says Tom Keller, pneral manqet of 

Mluourt 8u1n Munidpal Power 

~t:;!,~': ~ ~~~~~c: des, lncludln& Moorhead and Valley Ctty. -The interest rate is actually hip !han they have indic&ted." 

In esaenct, Otter Tail says its plan would end Jub.idta for abandoned 

~~tiothe~~~e:~ additional J't'Venues of Sl02 million a year for the fedora! answy. 

Payoff for ,., .D. 

n!:~d~ow~:~ve :/~~ amount. Oner Tail Aya.. l'Ut'a 

_!Mca~_.Y!.·~-aJ£.ed-....!.'? 

recei'!'e one-fifth of promiled intption ~ from w.ter projedl nner buil~ uaorud •11- Thar·• not a cood swap, Sen. Byron 

Dore-n, D-N.D., Uytt. 
"Tbla Ia a utility company that wantato raiM elecaical ratos for peo- ple," he saya. "I ..-that'• the bUll· neathey'retn.• 

Dorpn wu a Iader In a fllhtlut year In Conpa~ to block propoea!J to Hll the federal power JYI!ema, lndudlnc Wltl'A, which lnducla the M!aOWI BuiD projects. Otter Tail wang to mana11 Wltl'A'• Mlllourt BuiD power oya· tem durtn1 a five-year pUot prOject. It would IIUdy ways to-the tran· 

lltlon of stUID1 the federal power I)'Sitllllto priVate Investors, an idea 

eon...- rejected lui year. "Thil Ia Just a muquerade COl· 

tume," Dorpn says. •what they've done is put a new COitWD.e on a pro- posal that's tired and worn out and lon1 burted and uoned l! out apln. • The Qner Tall proposal faces formidable cbaUen~t~. says Sen. Kent Conrad, D-N.D. "We'vo not bad a chance to evalu· ate the full tmpltcatlons, but I've lOt 

to say to you that I th1Dk it Ia hlchiY 

unlikely that what they've propoled here would ever come to paa," Con· 

radsaya. 

"They would be taktil1 on 10 many 

constituencies In so many paru of tho counrty that any objective view 

Is that it's unlikely to happen." he says. ·And if they did 101 that money freed up there'd be a lot of people there to snatch ft.· 

105 

• Halstad 

• Hawley 

• Moorhead 

• O!lonvlle 

• Wadena 

Money INikes allies Jut offtdala repraendnl FarJo - which doa - receive low<Oit hydropower - are IDtorested In the 

oner Tall JII'OPOI81 u a means of ras. IDI money for- devtlopmenL · "We're IDtei'Hted In anyth!D1 we can do to aolvt our water problemr In 

the future, • says J1U1o Mayor Bruce I'Urnea "II c:ould btlitfltJIUio but It could bun a lot of people around Farso. We waJII to be Mllllllve to that.• jon 1.lndpen. who repraentr CU. 

County on the Gurtaon Diversion Conaervancy District and preceded Fumeu u mayor, believes oner Tall's proposal bas more merit than 

simply ukiDI eooer- for more fed. 

eral au: money. "II Hems very apparent that the power rates are too low," Lindpn says. •lf.theyn too low they need to 

be !nc:raMd.' There would be a lot of money If they were. Some of l! could 10 to water development In North Dakota." 

Proponentr -of Nonh Dakota's Gar· rison Dlvtrslon Project, which would carry M!Aourt River water to the east, last fall outlined a plan 

Mtldnl uoa· Dlulton In additional federal paymentr to flniah the water project, and S7S million In state support. 

The plan by the Garrison Diver- sion ConHrYanqt District does not 

propose ralslne hydropower rates, but lays claim to money for hydropower allocated for lrrlptton features never butlt. Garrison. Diversion's plan Htks to 

lfl money from the lrrlpUon alloca· lion to the projtct - valued· at $800 

million - wtthout ratalng electric rates. II hasn't worked out bow. The board bu not taken a ~~and on Otter 

Tail's proposal . "I don't th1Dk It would be an issue of the dtatrtct to appraise that pro· posal," says Garrison Diversion Manager Warnn Jamison. "It's a powertuue.• 

Rates would jump Under Otter Tall's plan, rates would lncreue more sharply for municipal power cuatomers than 

rural elecatc cuotomers because a much bieber proportion of munlcl· pal power Ia low-cost public 

hydropower. 

Municipal hydropower customers would pay elecatc bills averaging Z5 to 30 percent more under the Oner TaU plan. "Jut thell rates would JtilJ be far below the mte 

averace: uaerud says. · For lnltance, Moorhead Public Service, which recelva es percent <~f 111 elecatdty from low-coJt pub- lic hydropower, would face a 2 7 

percent !Jicreatc. That translates Ill to S 120 a yev for a typical rest· dentlal UMt. 

"Tbat'a a 1ood. bit <~n your elec· trtdty bill.· says 1111 Schwandt, cen· oral manacer of Moorhead Public Service. The non-profit utility 

thcould not be penalizecl for holdln1 lu rates down and.maldn1a wtae daclllon 40 yean a10 to buy public 

hydropower, be aays. Even with · a 27·percent rate 

lncreue, Moorhead power rates still would be 20 percent below rates paid by Northern Slates Power 

Co. cu11omers In Parso, U11erud ays. The Moorhead IJicruse would raise S5 million a year, uuerud says. "lt'a a no-braiDer," be says. "What Moorhead 1e11 paid In aub11dies pays for the DevUs Lake aolutlon In rwo yean. • A solution for fioodtnl at Nonh Dakota's Devils Lake would COli an tsllmated se million. 

Schwandt'• response: ·sO. he'd like Moorhead to pay for Devtls Lake's problem?" 

Price hikes vs. efflc:lency 

Rural electric and municipal power customers arcue that Otter Tail, a private utility, Is trytne to force Its public power competitors to chai'Je bieber ratea. A new era Is 

comlnl In tbe power lndusrty, 

where lar1e CUitomers eapeclally wtll be able to ehooae their power 

supplier .. 
A subcommittee of the House 

Resources Committee has requested 

a study of the hydropower allocations by the General Accounting 

Office, the investigative arm of 

Congress, based on Uggerud's notes 

and other information. Uggerud , 

expects to be subpoenaed. 

Dorgan stepped in with a request 

of his own. He wrote a letter Feb. 7 

asking the GAO to study unanticipated flood control and navigation benefits to stateS downstream from the 

Missouri River dams. "Take a look at 

the other half as well so we can see 

the whole map; he says. ' 

Sen. Kent Conrad. D-N.D., says the 

power allocation issue is worth 

studying, but doubts Otter Tail's proposed privatization study ever will 

pass Congress. 

Fargo Mayor Bruce Furness wrote 

the North Dakota congressional delegation asking them to support the 

allocation. study. •we think this is 

something that should be investigat- ed and determined; he says. Fargo, 

which does not receive the low-cost 

hydropower, is interested in a fund- ing source for future water needs. The •free power• does not go to 

distinct customers. It gets blended 

with public hydroelectric transmiS- sions going to scores of rural elettric 

co-ops and municipal power companies in WAPA's eastern Missouri 

Basin region. The financial bottom line, according ·to Uggerud: customers of public 

power in effect get a 15-percent discount for their electricity, because 

their rates pay only 85 percent of 

capital costs associated with irrigation power. 

Rural electric and municipal 

power administrators note, however, that about 15 percent of WAPA's 

eastern Missouri Basin power goes 

to private utilities, although Otter 

Tail is not one of them. 

106 

Instead of becoming more efficient, "They're approaching it from 

another direction,• says Heller, who 

managed Moorhead Public Service 

before heading Missouri Basin 

Municipal Power Agency. "They're 

trying to get everybody else to p~y 

more. That's how they're trying to 

compete.• . . Otter Tail's return for its proJ)osed 

hydropower management .study: a 

fee of roughly Sl'O million a year, to 

pay administration and . research 

costs, which would inClude identi~ 

fying farmers and· American Indi-. ans who . would receive reducedrate 'power. It. will recommend 

guidelines f~r private ownership of 

the by~~P~~er ~Yste~ ~nd a ~d- ual schedule to avoid •rate shock• 

for customers. 

The company insists it has no 

plans to bid for any public 

hydropower assets, a position Dor- gan, among others, regards as dubious. Instead, Uggerud says, Otter 

Tail is offering ·a viable means of 

raising money for significant water 

development, vital for North Dakota's economic future. 

"We walk away at the end of five 

years, • Uggerud says, •and 

Congress will have a very valuable 

study.• . · 
107 

Uggerud a potential 

witness in probe of 

hydropower abuses 

By PDtc:lc Springer 

'l'bOPanuu 

·· AI compenation for mauln 

Doodh11 from the d&ma - rou&hly ! 500,000 lDundatecl aau ·each ~ 

·North Dakota &Dd South Dakota -

major intption projecU wert 

promlled the mtu. Larp alloca· · r 

-Uon.s of lo~o.t hydropower from . ! 

~h were ·d• to._ trrt~uon 1 

~~~~omen_'- were n~(t~ .- be I 

c;h&rjed for the irriptton· pOwer ! 

~ Until :tnfp1!o~ was delivered . .;,. and; so yean lAter, ·mOat of the -

'projectl baYe been abandoned, Yl<-

t11D1 of enrironmental and bud· ptalybettlel. · ... . 

Cheap power for ~t1on flows thouahout WUA'1 euterit ~vt

,·illon; only 11 percent of WAJ>A lrrt· 

ptlon projects were built Ugerud stumbled onto the catch· 

22 at the july 17 meetinc of the M!d· 

Welt Electric COnaumera Aaoda· tlon, held 1n Siouz Palll. The meet· 

me. auended by around 150 mUDld· pal and rural electric. ezecuttna, wu called to clilc:uA a plaJt by the 

=~cor~;A-::d'::. !rl!uTeJ: :aJ power markeunc ac:lmini.mattons. 

'Buyout b.usted up . Their propoaed price: $2.6 blllton, ·tea than one-third of their markef ~.value , estimated at ·ss billion .or 

.Jn§!fe,-_ 'J:'ll' . ...!1-!!l_~treetj~~~ 

· reponM ·the ·cbem~ tn September 

- bued on Ugerua•a notes and corroborated by other. information 

;=~o=~fJ~P~ ; The pwcl>ue, called •a steal" by 

one · executt•e lit the meetlnJ, revtned the preference customers' vehement objection to prtvatiza· tion. They offered the bid as an alternative to a Clinton adminiJtration plan to sell the poWer acendes for $3.7 billion, a plan ld.Jled lut 

year 1n the Senate,_ in an attack. tr. which Sen. Byron ~rgan , O.N.D., played aleadlDI role. Jeff Nelaon, ceneral manaeer of . Eut River Electrtc Power Coopera- tive ln Mad.i.ton, S.D., said the 1n1: 

ration power alloca~on subsidies u.ociated with projects like North Dakota'• ,· uncomple~~d ' · Gan1son Dtventon '-: _Project · are widelY: 

known . .'"!·; -:!; -· -_- : "It doem't·Arik.e me u much of a secret that Garrt.on wun't built: NeJ.on aya.. -rboee numbers h.ne alway~ been aVat .. ble.• 

Not really, Uuerud matntatu. Allocation~ were noted; free power wu not ipe).led out. . · The power for unbuilt ln1ptton 

projectl il not cl1lcloatd 1n WMA'I 

annual repoJU .. It 11 mentioned in 

obtute phruei web u "•uballoca- ·tion• in pubUc powu documentl. 

A 1994 conJrel&l.onal repon, "Taldnc Prom the Tupayer: Public Sub1tdie~ for Natural Resource Dev~opmerit,• nota al983_1Dipector Geneial'•_ •tudy thai. deterinl.a.ed 

~~~:~~~ =~~~ ~y~:te~ wu allQC;&ted_to .tme-:tt~n 

projecta not UbJi.to be built. . · 

-"There'• no 1e~ other than what the plan t. here. • Nel.on ay1, · 

rit!:r~J·!op~~pyricJlt protectine : 

. Uuerud'a notu quote Nelson as nytnr $204 million of . ·eutern WAPA -IYittm coRa are not beme · 

recovered, meaniDI that electricity 11 being used at no colt by cuatomers. ·we are lettinl the free ue .of that 1enerat1on now and may not be able to pt th1a portion free if 

the PM.Aa• - power marketing adm1nt1trationa - •are •old, • Nel- son told the S1ou.z ~alia meetl.nJ. 

Nelson nya: Otter Tail does not publicize ita -own: 1Ubaidle1: $12.7 mtllion ln tax breab ln 1t93 alone, 

totallnc SI20 million onr the 

r:~r~~ru-~:-!'~:~;~e:; busiDeu_ and are not wlique to prl· vate utilities. 

'CorPorate Npkxiage• Nelaon does J;J.Ot deny the ~ka:. 

but uys U1cerud'1 1urrept1tious notes were an act of •corporate espi· 

onage• aimed at ford.ne the sale of hydropower auets. 

Ugerud says he il wtl1tnt to testi· 

fy under oath about hia nota. •what they said was thi1 l.s wrong bur we kind of llke 1t that way." be ays. 

uuerud'a notes and alleptioru have come to the attention of a con· pessional committee that il investt· ptine whether WAPA and other fed· eral power markettnl administra- tions are aell1nc aome of their elec· trtdty at no cOlt. 
108 

TESTIIIOIIY OF BRUCE C. DRIVER 

REPRESBII'l'DfG THB 

LA1ID Alii> WATER FUIID OF THE ROCJUES 

JO:DifBST OFFICE OP THE IZAAK WAL'l'OII LEAGUE OP AIIBRICA 

NATURAL USOURCBS DEFDSB COOlfCIL 

WATIOWAL WILDLIPB PBDBRA'riOif 

BBPORB THE WATER AlfD POIIBR RBSOVRCES SUBCOIIIII'l"l'BB 

OP 'l'IIB 

COIIIII'l"l'BB Olf RBSOURCES I 

UNITED STATES ROUSB OP REPRBSBII'l'ATIVES 

KAY Z, 1996 
109 

Testi.ony of Bruce c. Driver 

Good 110rni119, Mr. Chainaan and Mellbera of the Subco-i ttee, I 

- Bruce Driver. My business address is :2:260 Baseline Road, 

Boulder, Colorado 8030:2. I - speaking toc1ay on behalf of the Land 

and Water Fund of the Rockies, the Midwest Office and south Dakota 

Division of the Izaak Walton League of Aaerica•, the Natural 

Resources Defense Council and the National Wildlife Federation. 

All are organizations with an interest in the i•pact of federal 

electric and water policy on the natural environ•ent. An 

atta~nt to •Y testi110ny briefly describes each organization. 

My testi110ny today addresses: (1) the allocation of the costs 

of the Pick-Sloan Missouri Basin Project and (:Z) the otter Tail 

Power co•pany proposal to privatize the Billings Marketing Area of 

the Western Area Power Adainistration (WAPA). 

I , PICIHSLOAII COS'f ALLOCA'l'Iml 

The •Audit Report No. 93-I-1641, Pick-Sloan Missouri Basin 

Progr- Cost Allocation, Bureau of Reclaaation,• authored by the 

u.s. De~nt of the Interior, Office of Inspector General, dated 

Septa.ber, 1993, concludes that, abeent cost reallocation, 

inveat.ent costa of $38:2 •illion (nearly $:200 million in present 

value te:n~a) in Pick-Sloan Missouri Basin Project (PSMBP) 

facilities -y not be recovered from project users. This situation 

developed, the - Audit Report describes, as a result of the 

• The - League sponsors this testi.ony but does not 

necessarily support the positions of the testi110ny co-sponsors on PHA privatization •ade elsewhere. 

1 
110 

allocation of certain reservoir storage and power facility costa to 

future irriqation developaent that is not likely to occur. Power 

users appear to benefit from the operation of these reservoir and 

power facility investaents, but are not fully payinq for them. It 

also appears that the reallocation of costs away froa future 

irriqation projects to power users--the step necessary to rectify 

this situation--can be aade only by Conqress. 

We do not collectively take a position on whether Conqress 

should reallocate coats related to future irriqation projects that 

are unlikely to be built to power use. Whether such reallocation 

should take place raises issues of policy that qo beyond the scope 

of ay testiaony. 

We do believe, however, that, should congress decide to 

reallocate these costs and thereby raise additional revenues froa 

project power users, it should refrain froa re-directinq or 

allowinq these revenue.• to flow towards unsound water projects. As 

this Subcommittee knows well, coapletion of water projects 

originally conceived as part of the PSMBP have been the subject of 

contentious disputes in congress, soae of thea settled by Conqress 

in the Garrison Reforaulation Act of 1986. In our view, it makes 

little sense to create pressure to re-open these disputes by 

holding out the possibility that Congress aight earaark or perait 

additional power revenues for use in the construction of water 

projects that have alr .. dy been liaited or defeated by Congress. 

our concerns in this regard have been heightened by the latest 

proposal being circulated by the Garrison Conservancy Subdistrict 
111 

of lforth Daltota. Accordin9 to the National Wildlife Federation 

(lflfP), a Garrison proposal dated February 7, 1996 asks for $800 

aillion in federal water and power funds to "finance irri9ation 

project& to build what faraera had expected fr011 the federal 

9overnaent over the past -51 years." The proposal, MWF indicates, 

requ-ts an additional $400 aillion in federal buy-out 

appropriations froa Con9ress for a total of $1.2 billion. MWF is 

concerned that the 110ney that the District seeks for water projects 

for which congress has already liaited federal taxpayer support 

years ago aay soaehow be aade available froa hiqher PSHBP power 

rates. 

II • O'ft'BR TAIL PlliVATIZATIOII PROPOSAL 

otter Tail PoWer Co.pany has proposed a "pilot privatization• 

project for the Billinqs Marketinq Area of the Pick Sloan Project 

(proposal). My understanding of the proposal is based on an 

eleven-page docuaent published by Otter Tail in April 1995 and 

revised January 1996. • 

A. 'ftw ~1 

otter Tail propos- to enter into a 5-year contract to 

•aanage, operate and aaintain the 8illin9a Marketinq Area of WAPA," 

also known- the Eastern Division of the Pick-Sloan Missouri Basin 

Project. (Proposal, paqe 1. ) otter Tail would •take over all 

po-r aarketin9 acti viti- and would iaple .. nt strategies to 

transition rates to aarket levels." (ld.) otter Tail would hava 

"Proposal for a pilot project to privatize the Billings 

11arketin9 Area of WAPA," otter Tail Power coapany, April 1995 

(Revised January 1996). 

3 
112 

•coaplete flexibility ·on all operational aattera, includinq 

pricinq.• (Propoaal, peqe 9.) However, Otter Tail believe• that 

it can liait or avoid rate increaae• to "production aqricultural 

cuato .. r• of the rural cooperative• now receivinq allocation• of 

federal prefer.nce power ••• • and Mative Aaerican reaidential 

cuato•r•. state and federal inatitutional cuatoaer• would receive 

their full allocationa of power for fr... (Propoeal, pp. 6-7.) 

otter Tail would earn a aanaqeaent f" of one aill per kilowatthour for thi• aervice. (Propoaal, p. 1) Revenu .. in axe .. • of 

coat• would be returned to the u.s. Treaaury. (Id.) 

B. r .... reilled by tbe otter 'rail propo.al" 

1. Abw•nga pf detail go key iteuee 

The propo•al focuaea on juat one aapect of privatization--

•tranaitioninq• the price of Pick Sloan{Ba•tern Divi•ion power to 

aarket level•--but appear• to iqnore aany other is•uea rai•ed by 

privatization, auch aa the follovinq: 

a. WAPA' • Baa tern Di vi•ion power aale contracta expire in 

2000. In Noveaber, 1995, WAPA proaulqated requlation• ( 60 PR 

54151) that would extend current Baa tern Diviaion contract• for 20 

yeara. Would otter Tail honor thia requlation, or doe• it, under 

the rubric of •coaplete flexibility• •eek authority to iqnore it? 

Indeed, would any preference for tribe•, aunicipalitiea and 

cooperative• •tJ.U exi•t under the propoaal? 

Under the aforeaentioned requlationa MAPA would alao create a 

In coa.entinq on the otter Tail propoeal, we take no poaition re4J&rdinq whether privatization of the Ba•tern Divi•ion of 

any other Power llarketinq Acbliniatrationa i• or 1a not appropriate. 

4 
113 

resource pool of up to 6t of the •arltetable resource, priurily to 

be •ade available to new custo .. rs, but possibly also to .. et 

evolving water-related environ~~ental needs within the Missouri 

River Basin. Does otter Tail seelt authority to ignore the resource 

pool? Otter Tail does not answer these i•portant questions in the 

docuaentation I bav~seen. 

b. At the sa•• ti .. that WAPA pro.ulqated rules to 9Uide 

the allocation of power to !astern Division cuato .. rs, it also 

i•ple•ented Int891"ated Resource Planning (IRP) rules for its 

cuato .. rs. These rules were pro.ulqated under the direction of 

congress in Section 114 of the lnarqy Policy Act of 1992 (ZPAct). 

The rules require WAPA custo..rs, including its Eastern Division 

cuatoaers, to fila IRP docu.entation for review by WAPA showinq 

that they have evaluated the full ranqe of cleun~- and supply-side 

alternatives for energy resources on their syste.e. 

WAPA cuato.ers aust file their Integrated Resource Plana 

(IRPs) or •sull custo.er plans• within one year fro. the data of 

the prOINlqation of the IRP regulations (or 11 110ntba therefro• if 

custo..rs file joint IRPs) and aqain every five years thereafter. 

Western .ust review each of the filed IRPs or plans and, a110nq 

other thinqs, dete~n• their reasonableness. Non-co.plyinq 

cuatoaers can lose a portion of their power allocation. 

As of 1994 NAPA bad 274 Eastern Division custo .. re, all or 

.a.t of ~ will have to file IRPs, either sinqularly or as part 

of qroups of cuatoaers. Does otter Tail propose to taJce over the 

iJIPl ... ntation of NAPA's IRP regulations? Its proposal is not 

5 
114 

clear. can it physically do so? Would it be appropriate to have 

otter Tail, a potential coapetitor with utilities Who file IRPa, 

reviewing their IRPa and passinq jud~nt on thea? If otter Tail 

doea not intend to take over WAPA'a IRP reaponaibilitiea, will it 

impleaent the aarketing penalty provisions of WAPA's IRP 

regulations for non-coaplying WAPA cuatoaers? 

c. There are other aspects of national enerqy policy that 

WAPA is beginninq to intec;rrate into its power aarketinq decisions, 

including the intec;rration of non-hydro renewable re.ources into its 

resource aix. Will Otter Tail iaple .. nt these policies when it 

takea over the aarketinq of power froa WAPA? Has otter Tail even 

thought about how it will shoulder the energy and environaental 

policy burdens beinq integrated into WAPA' s power aarketinq 

proqraaa? 

d. WAPA aarkets power froa aulti-purpose facilities that 

.. et power, irrigation, recreational, fish, wildlife, naviqational, 

aunicipal and industrial and other needs. An atteapt ia aade to 

aeat these needs in a balanced way after diacussiona between WAPA, 

the Bureau of Reclaaation, the u.s. Aray corpa of Engineers, 

Missouri Basin states and tribes. The u.s. Environaental 

Protection Agency, u.s. Fish and Wildlife service, Bureau of Indian 

Affaire and other federal agencies also have interest• in the 

operation of Pick-Sloan facilities as do non-governaental 

orqanizations, includinq environaental groups, irrigators, 

recreational users and aany others. In short, operation of the 

Missouri River ia a coaplex, contested and, soaetiaes, politici%ed 

6 
115 

aatter. Ju.t what role does otter Tail see for itself in operation 

of Mi .. ouri River facilities? Does otter Tail expect to take on 

WAPA's role in participatinq in the qovernance of Missouri River 

facilities? Would this be appropriate? 

2. The wapriety of gne staJtebgldttr awgng wany--otter Tail--

priyatiaing tbe Eastern Diyisign 

Having just one entity a.onq the aany who are stakeholders of 

the Eastern Division •privatize• the Division raises probleaa. 

Aaonq thew are: 

a. Should a utility be in the position of raisinq the 

rates of ita utility cowpetitora? 

coapetition is increasinq in the electric industry. Otter 

Tail already aust cowpete with WAPA's utility custowera in 

wholesale electric JDarketa. Within a aatter of a few years, 

dependinq on the evolution of utility requlatory policy in the 

states in which otter Tail operates, otter Tail and WAPA customers 

aay be coapetinq for retail electric loads. 

Otter Tail' a proposal puts it in a position to aanipulate the 

rates of other utilities with which it way coapete in all aarkets 

within a few years. This would' enable otter Tail to stifle 

coapetition or to shape it to suit its needs. At a minimum, this 

aspect of the proposal is likely to breed skepticisa aaonq current 

WAPA utility customers r19ardinq ita fairness. 

b. Should one stakeholder, AIIOnq aany, privatize a aulti-purpose systew? 

Subsection 1 of this section discusses so- of the aany issues 

raised by privatizinq the Eastern Division, including issues of 

enerqy and environ ... ntal policy. Is it appropriate for just one of 

7 
116 

the many stakeholders to take the lead in privatizing such a 

system? Does not any such privatization, assuming it would be 

appropriate at all, require the involvement of all affected publics 

and the balancing of policy objectives? Is otter Tail the right 

entity to lead this effort? Should not any such effort be led or 

convened by federal agencies, who at least together should have a 

broader view of the issues than one lone utility? Ne think these 

questions raise considerable doubt regarding the propriety of 

giving the task of leading a privatization effort to Otter Tail. 

c. Assuaing that one privatization effort, 

utility? 

utility could lead a is Otter Tail the right 

Otter Tail is proposing to take on the marketing of power from 

41 federal hydroelectric units with an installed capacity of 2800 

megawatts. It is also asking to take on the burden of serving the 

partial loads of NAPA's 274 Eastern Division customers, including 

47 municipalities in Iowa, 46 in Minnesota, 51 in Nebraska, 11 in 

North Dakota and 33 in South Dakota. otter Tail would also have to 

meet the partial needs of 25 rural electric cooperatives, 4 federal 

agencies includinq Ellsworth Air Force base, 34 state aqencies 

around the reqion, seven public utility districts, 3 irrigation 

districts and even 9 shareholder-owned utilities like otter Tail. 

Is Otter Tail the proper entity to take on these tasks? 

4. Mb•r• will r•v•nuea trga higher pgwer rate• qg1 

As indicated above, in its published proposal otter Tail 

proaises to return revenues in excess of costs to the federal 

Treasury. Indeed, the proposal proaises hiqher returns to 

8 
117 

taxpayers if it is allowed to iapl-nt ita propo-1. However, 

otter 'l'ail is reported to be proaisinq that at least a portion of 

the increased revenues it would raise fro• higher rates for WAPA 

power would flow to new water projects in North Dakota. 

According to an article in the Fargo Porwa by Patrick 

Springer, •otter Tail Power Coapany is floating a proposal it says 

would raise $20 aillion a year for water developaent in North 

Dakota vi thout raising taxes. • otter 'l'ail Vice-President ward 

UCJ9erud vas quoted in the •a- article ae etatinq that •otter Tail 

ie offering a viable -ana of raisinq aoney for significant water 

developaent vital for North Dakota's econoaic future.• 

Which ie it? Money for federal taxpayers or to pay for water 

development? Ia it both? What about water development in other 

states that WAPA now serves with Eastern Division resources, like 

Nebraska, Wisconsin, Iowa, Minn .. ota or Montana? I• the proposal 

to siphon off power revenues into developaenta in th .. e states, 

too? Will there be anything left for the federal taxpayer? 

5. Tb• fee arrona4Mnt 

otter Tail seeks a f .. for ita -naqeaent, operation and 

•aintenance of WAPA'e Eastern Division equal .to 1 aill per 

kilowatt-hour of the Division's sales. In 1994 WAPA sold 

10,309,106,000 kilowatt-hours of electricity to Eastern Division 

cuat~rs. Thus, in 1994 otter Tail's f .. would heve been $10.3 

aillion. over the five years of ita pilot proposal, asswain9 1994 

sal.. levels, otter Tail would earn over $51,000, ooo tor its 

services. This sounds like a lot of 110ney to iaple-nt a propo-1 

9 
118 

that nay accomplish only one objective: To raise electric rates. 

Are there sufficient cost-savings or other benefits that make this 

deal worth entering into? 

6. Relationehip bltwAtn cost reallocation and Otter tail 

Suppose that Congress deteraines to reallocate costs to power 

users as discussed in Section I, above. How close to aarket value 

would WAPA power be after reallocation? Put another way, how auch 

additional revenue would be raised for federal taxpayers by otter 

Tail's proposal above and beyond that already raised by cost 

reallocation? 

7. Ie ptter Toil'• propoeal a ~Ood expariwent to shed li~bt 

on notional PMA priyatizatign policy? 

Otter Toil represents that "the experience [of iapleaenting 

the otter Tail proposal) will be helpful in estoblishinq the qround 

rules for open and coapetitive sales as well as for additional 

leases or operatinq contracts or sales for w .. tern's other 

aarketinq areas and the other Power Korketinq Administrations. • 

(Proposal, page 1.) It is this representation that initially drew 

our attention to the Otter Tail proposal. 

The concerns raised in ay testi.ony cause me to conclude that 

the otter Tail proposal would not lead to the eatobliahment of 

ground rules to quide privatization of other WAPA aarketinq areas 

or other PNAs, assuain; any such privatization is appropriate at 

all. 

10 
119 

Attac~nt: Identification of Testiaony Sponsors 

'l'be Lind and wayr Fund of tiM Bpgkig is a regional environ~~ental 

law center serving the Roc~y Mountain and Interaountain states of 

the ~rican west. The LAM Fund's Energy Project was created to 

proaote clean power technologies in this region of the country through interventions before state utility regulatory aqenciea and 

before federal aqenciea, such as the Western Area Power 

Adainistration (NAPA). 

Incorporated in 1922, the :rzaak, Malton 14aaue of Al!tlrica, has about 

50,000 --.ber nationwide. The League puraues a broad ranqe of 

national, re;ional and local conservation 9oals, includin9 clean 

water, clean air, fara conservation and protection of natural areas. The Midwest Office of the League is located in Minneapolis, Minnesota, and serves the states of Minnesota, Iowa, Wisconsin and 

Illinois. Ita priorities include the proaotion of enerqy efficiency and renewable resources. 

The Natural Retgyrges Defenlt coungil is a nationwide environaental 

organization with 250,000 -..bars. Since 1970 KRDC has coabined 

law, tcience and qrass roots strength in defense of the 

environaent. KRDC'a Energy Project is active in the pro•otion of 

energy efficiency and renewable reaources throuqhout the country. 

The Jlational Wildlife PedarrtiQD, with about 6 •illion -IIbera, is 

the nation's largest conservation education organization. NIP's 

pri .. ry objective is to proaote tha viae use of natural reaources throuqb education proqr ... , publications, r1111rcb activitiea and 

cooperation with le;ialators, govar~nt aqenciea and private 

qroupa. 
120 

• 

United States Department of the Interior 

. 

IN U:PlY UfU. TO: 

GP-2500 

Hoaonble 1oha Doolittle 

Clllimu 

BURfAU OF RECLAMATION 

Grearl'tMa.lt.poo 

P.O . ... J6900 ......-.,,.7_ 

:or 1 3 1!1!1~ 

Houa Sull c a ••• oa WM«IIId ,_. Relourc:a 

W .......... D.C. 20515 

DelrMr ~ 

At )'0111" May 2, 1996, oveniahl harina 011 Piclt-Slou Project Repayment 1-. Conpessmao 

lticbard Pombo abel me to provide for the lariaa record a report explainina bow the Amry 

Corpa ofEaP-'1 Clk:ulated the recrealion bendlta UIOCiated with Pick Sloan. Ill rap0111e, I 

am JIIOYicliala eopy ofCllapca' 6 of the eo.p.' Dnft Ea.>m..UI S..... 011 the RCYiew 

llld Upclale of the Mat.-Wac. CocUol Mllua1 for the~ Riwr, publilbed July 1994. 

Pn:plred by the Corpa' Millouri Riwr DMiioa ill Omaha, Ncbn*a, the encloled cblpter il pll1 

of._.. *-lludy eY&Iuatias whllther the c:umac water coatrol plaa lllffieieady meetl 

c:oiltemponry aeeda ill the Millouri Riwr Balia. Tbe doalmeat &Miyzea bendlta provided by the 

Corpl' Millouri liwr MaiDitaD a-voir SyRaD. but cloel110t ~ beaefiu derMd at 

&ure.. ofJec:!MM!jgo llld Corpa riutlry &alitiea. If you have additioaa1 quationa, you may 

willa to caD die Corpa' Omlba o8k:e clirel;dy at ( 402) 697-2400. 

Ill addition, I prepared the attKbed ovemew of recreation llld other bendlta provided by PickSloan. If you have any queltionl, pleue c:oatac:t me at (406) 247-7600. 

A limilar leua- is beiDa eent to CoapeumaD lticbard Pombo. 

Sincerely, 

~oz:::__ 

Committee Note: These attachments were place in subcommittee files. cc:: Hoaonble ..... DeFaio 

Houaof~ 

W .......... D.C. 20515 

(W/owrview) 
21 S Soulh t:•sc•de Street POBox 496 

F~tJUS Fall•. ~linnesou ~'1~96 

! 18 -39-3200 

May9, 1996 

Jobn T. Doolittle 

121 

Chairman. Suboomlt.,.. on l"oer and Relourees 

us Hou8e cl Repreeentat1we 

WMhlngtDn. DC 20505 

Dear Oudrman DoollttJe: 

--

'lbllnk you 8111fn b the opport1m1ty whkh was afbded me to tesU1Y befOre the l"oer 

and Rellaunlea Sub+ •••utdttee on the PMA 188ue. Fair and equitable treatment cl the 

.Ameltam taxpayer Ia certainly an l88ue cl concem baD cl ua. 

Just becau8e the majortty cl Ameltl:an8 do not Wldeiltand the --lnvolvtng PMAa 

<be not mean the caaar-lhould look the other way wblle bdllana cl dollars cl .,.....,. aR bmlg pruvtded to "l*eteaence• Cl.l8tomen eacb year. 1 o•1111•ud you for" 

your Bdenlblp In looking 0 truth and !ICMIIptaNIIly, OUr countly would be In 

much better lloandllllhape If aD mmlbera cl caaar- eaad&ed tbe degree clllacal 

would 

_.,...that be I!!Qidneutty you haft IIIIR bnJu&ht 

rapeded 

to your 

lflt 

sublx 

operated 

••• "'ee 

a would 

OUr 

a 

.,.rem 

bualneu 

cl ~ 

U8lng eound 

!ICO!I'"""C prtnclplea. 

Dudal my teliUIDauy, I was ailed queatlana about certain metstng prw::Uces. 

Att.dled to tbla letter Ia a copy cl our 'Teet Schedule" b revmue meten. AI80 

att.dJeclla a copy cia letter Wdttllll to tbe North DaiiiDta Public SerYice C+iQII .... I'l 

6uthrr "1"-'nlttC our ...-r teeUng policy. 

Should you baYe aclclltloMI questionS. I would be moat happy to answer them b you. 

Slocerely, 
122 

OTTER TAIL POWER COMPANY 

TEST SHEDULE FOR INSTRUMENT RATED METERS 

USED ON RETAIL CUSTOMERS 

Annual KWH 

Consumption 

2,000,000 & Above 

170,000 to 2,000,000 

25,000 to 170,000 

Less than 25,000 

Meter ,Circuit, 

and Ratio Test 

1 Year • 

6 Years 

12 Years 

16 Years 

No. of 

Customers 

61 

llOO 

3900 

TOTAL 5561 

• Ratio Check can be taken every other year. 
April 22, 1996 

Ms. Illona A. Jeffcoat-Sacco 

Director, Public Utilities Division 

Public Service Commission of North Dakota 

600 E. Boulevard 

Bismarck, ND 58505-0480 

Dear Ms. Jeffcoat-Sacco 

123 

In your January 9, 1996 letter to John Erickson you requested information about Otter Tail Power 

Company's standard procedures related to four areas. Dolores Simdom will respond to three of 

the areas and requested that I respond to the Required Meter Tests area (69-09-02-26). 

The following addresses each section of 69-09-02-26, Electricity Meter Testing. 

I. Our central meter shop located in Fergus Falls has two watt-hour meter calibration 

boards. The accuracy of these boards is checked once each week with a solid state 

reference standard. Our three reference standards are returned to the manufacturer each 

June to have the calibration checked. This maintains the traceability of our wac-hour 

standards to the national standards. 

When a meter is tested on the calibration board if it's "as found" accuracy is within our 

guidelines we do not adjust the meter. When the "as found test" is outside our guidelines 

the meter is adjusted and retested. This procedure ensures accuracy as close to I 00 % as 

practical. All test data from our two boards is stored in our meter inventory system. 

Instrument transformer rated meters tested in the field are compared to a solid state 

weather standard. These standards are check against shop reference standards at least 

once a year. 

2. All new demand meters and polyphase Kwh meters are tested in the central meter shop 

before initially placed in service. New single phase self-contained Kwh meters are 

sampled tested when they are received from the manufacturer to ensure acceptable 

accuracy. Ally meters that are reconditioned in the meter shop are tested before they are 

sent to Divisions for installation. 
Ms. Jeffcoat-Sacco 

Page 2 

124 

Instrument transformer rated accounts are checked with a phase angle meter, ammeters 

and voltmeter to ensure proper coMections wen made by installer. These checks are 

done by M&C Technicians. Tests are completed within sixty days from the time 

sufficient load is coMected to the service to ensure an accurate evaluation of metering. If 

current transformer or potential transformers need to be replaced this procedure is 

repeated. We also check these circuits whenever the premise is visited to update metering 

or as part of periodic test. 

3. Our procedure requires a test at full load, light load and power factor which is the 

industry standard method. The full load and liaht load tests are done at unity power 

factor. Power factor test is done at fifty percent power factor. 

4. Single phase Kwh meters are sample tested by groups. These aroups are set up using 

manufacturer and age of the meters. Results the annual sample test help to determine 

which groups of meters should be put on the obsolete meter list We presently are 

retiring a number of ball bearing meters each year since our previous sample tests have 

shown that this group of meters is starting to slow down. Information exchange with 

manufacturers and other utilities is used in designing the sample test and in choosing 

meters that should be retired. 

Single phase self-<ODtained demand meters and self<Ontained polyphase meters are on a 

sixteen year test scbedule. We also retire a number of obsolete meters each year in this 

group before they reach the scheduled test period. 

Premises with instrument rated meters are tested on a schedule which is based on annual 

Kwh consumption. 

Agnual Kwh COIISIIIII!lCion 

2,000,000 and above 

170,000 to 2,000,000 

25,000 to 170,000 

Less tha 25,000 

Test Scbedule 

1 year 

6years 

12 years 

16 years 

We coatinue to be actM in natioaal meterilla groups to bep abreast of tbe metering 

induslry issues. Our purc:baae of a number of solid state mccas in tbe put two years will 

require us to study this poup of meters as tbey aac to ddenaine if tat interval am be 

extellded. 
Ms. Jeffcoat-Sacco 

Page 3 

125 

S. Our customers request only a few special meter tests each year. (17 meters in 1995) 

Meters which our customers request to be tested are sent (UPS or hand delivered) to our 

central meter shop for testing. The results are mailed back to the Division office so that 

they can contact the customer to address their concern. 

6. Since we have so few requests for tests, I am not aware of any cases where we have 

requested payment from our customer. 

The information that I have provided is a quick overview of the activities related to meter testing. 

If you would like more details on any part of our processes, please let me know. 

If your travels bring you to Fergus Falls please stop by for a short tour of our meter shop. 

Brian Malchert, Manager 

Energy Measurement & Control 

218-739-8391 

c: Mr. John Erickson 

Ms. Dolores Simdom 
126 

eo. ,.,,..,ocs rR-H.JI. Co-C"""'" 

428 CANMOH HOB 

WASHIMO'TOH, D.C. 205 I !5 

C202l ZZ!5·!538 I 

MAIIt"" Mlt!:"'.r."' tQ-MA ' . C~ C .. •J• .J I e CArt"+()" HOB 

WAS .. IHGTON , 0 C. 205 Is 

1202 ) Z25·341 1 

ru (20ZJ ZZS-8480 

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~AX fZC2l 226o0771 

THE NORTHEAST-MIDWEST CO~GRESSIONAL COALITION 

Sf•t~mtnt nf Rep. Marty _Meehaa befORthe 

House Water aad Power Resourcu Subcommitt« 

Ma)" 2, 1996 

1334 l.oncwonh House Oftice Buildins 

Mr. Cbairmm. lapprociolc lh< oppornmity to teotilY befOR )"OU and to join my 

c:oUca&uc. Rq>. Bob fl'lllks. iD applludiDc your cO'orts to roview the questionable 

practi<:es of Ibis COUIIIIy's power marbtinJ odmillislnlioas. 

No doubt~ lllllkccina odmiDislrllions .._ a aood idea, particularly in the 

1930's wileD rc--lhan 12 pcr<CIIIofnnl Americ~Mhad ...... toelcctricity. Yet 

times ba>c chaD&cd. aud PMAI.,.., anaebtoaism to the put. UnfOitlmlldy, PMAs.,. 

costly IIIII unjuslitiable IIDICIIroaisms, u taxpayers Slill provide federal subsidia to 

"prdiomd" custom<n that !hen sell low-east eleclricity to lllrll residents os well as to 

pCIIb hcccll iD Hiltoa Head IIIII Slelmboat Sprinp. 

Tbe taxpayer aubsidy, ,.-bich is substantial, eao be criticizccl from several qles. 

fint, it distcns the lllldtet, \\-bich is a particul. problem iD the emersin; era of 

compctitioa within the eleclricity ~· Secood, it diiiCOUI'IJCS efficiency 

fl'<llll my penpeeti .. u 1 co-d>air of the Nonhoast-Midwest Coogressional 

Coalition, IIIII subsidy lila piu rqioDs .tpiDst cadi other. While consumen in the 

Norlheut·Midweslarc payinJ SOIIIC of the llllioo's bipest electric rates, cloll.vs sent from.,...- co WoobiapJo ae beiDa used to k<q> electricity costs in other reJions at 

below raarkd rateS. To m.alce mailerS worJC:, other sllla .,. usinsthis low-cost 

~. which my Cllftlliluads wmillin¥1)' subsicly, to lure away businases from the 

Norlheut IIIII Midwest. 

Today the public will Jam that the PMA story has become even more bianc 

IIIII iDdd'casiblc. My coostitucta. let me say quill: dearly. will be outropd by 

c...-tn.. PMA bcudiiCiaries that they "ore paiaJ the free uae ofthot..,..mioo." 

My conai-riPtfttlly will be appalled that fodenlu.xpayers have provided some 

ball a biUion clollan in vinllllly-hiddoo - subsidies to • few ldect customers. 

f .. m.y IDIIaaem IIIII midv.'esltm lawmakers ba•e had only a limited 

role in clob.- about Pt.!As, IIOiiai that none is loealecl in ...- rqion. Yet in this era of 

budfet .-it)' IIIII ddicil nOictioo. tho 111011 pcesain& roquiremcnt 10ithin Congress is 

10 idalliCy and~ oatdllod subsidy JII'OIIWM· We -tamiDatA: _.. 

.....u-IUblidies that disaimitta apiDst ccrtaiD rqions of lh< COUIIIry ond provide 

liate volae fGr the IAXIM)'er'l clollar. 
127 

S'l'A'l'IDID'l' BY COIICJRUIIIIU BOB ftUK8 (a-lf,J) 

CO-CBAJ:IUIAII, lfoa'fBDB'l'-lll:DWU'l' COIIGaUSJ:OIIAL COALI'l'IOif 

Boos• auouacu sUBCOIIJII'l"l'BB 011 nora uo l'OWBil usouacu 

IDY 2, 111' 

Kr. Chairaan, thank you very auch for allowinq ae to aake a 

•tat .. ent before the water and Power Subcoaaittee. A• coChairaan of the lforthea•t-Kidwe•t conqre••ional Coalition, I 

coaaend you and your oolleaque• for providinq the needed 

over•iqht of the acoountinq practice• of power aarketinq 

adaini•tration•. 

I aa very concerned that taspayar• in the lforthaa•t and 

Kidwa•t are •ub•idi•inq electricity for "preferred cu•toaar•" in 

part• of the south and •••t, while beinq forced to pay aoaa of 

the hiqha•t utility rata• in the nation. In fact, the lforthaa•t 

and Kidwe•t are the only area• of the country without federally 

aub•idi•ed power • .at only i• the aub•idy qiven to the south and 

•••t unfair to oon•uaer• in our area, it place• our reqion at a 

coapatitive di•advantaqa in attractinq and kaapinq bu•in•••••· 

It'• hard to convince enerqy-inten•iva bu•ine••e• to atay in the 

Borthaa•t or Kidwaat when they oan pack up and aova to the south 

or •••t and pay auch lower enerqy bill•. That i• why I aa 

particularly alaraed about the alleqation that preference 

ou•toaer• of the We•tern Area Power Adaini•tratioa (DPA) have 

been raceiviaq free electricity. 

Aa I underatand, the Qeaeral Accountinq Office will report 

at thi• hearinq that federal taspayara provided aoae one-half 
1~ 

billioD dollar• iD .ub•idie• to preferred cu•toaer• •uoh a• 

auaioipaliti•• aDd co-operative• iD the waPA ••rvioe area. Thi• 

i• outraqeou•· CoDqre•• oaaaot reiD iD eqreqiou• qoveraaeDt 

•peadiDq aad balaDoe the federal budqet a• loDq •• federal 

•ub•idie• like waP& .. i.t. 

A8 70U know, toda7 there are five power aarketiDq 

adaiDi8tratioae ooveriDq ao•t of the aouth aad we•t. Th&7 

operate 129 federa117-owaed qeaeratiaq plaDt8. The large•t of 

the•e, the Boaaeville •ower AdaiDi•tratioD, provide• half of all 

the electric power u•ed iD the aDtire •aoific Borthwe•t aaqioD. 

With thi• oa.aittee•• coatiDued effort•, we aa7 evea fiDd that 

other PNa• have •iailar •ub•idi••· 

Ia •7 hoae •tate of Baw Jer••7• hiqh eaer97 co•t• are 

hiDderiaq job qrowth. ID fact, a&a7 ba8iD••••• that are aow 

leaviaq the •tate ideDtif7 high aaer97 coat• a• oDe of the top 

reaeoae for their relooatioD. IDdeed, oae ju•t ha8 to look at 

the dieparit7 iD •••r97 co•t• batweeD a DOD-PM& •tate like aew 

Jer•87 aad ..a •tat•• euoh a• Georqia or T..... aooordiaq to the 

aew Jer-.r Board of .ablio Utilitie•, the iadaatrial electric 

rate for -.. Jer•87 i• 7.9• oaat•/kilowatt hour. Bowevar, T ... • 

aad GeOrgia ba•lDe•••• pa7 ju•t t.38 aad t.23 oaat•/kilowatt hour 

reepeotive17. The•e hiqh electric oo•t• are iahibitiag job 

qrowth aad ecoaoaio .-paa•ioa ia •7 •tate. 

at a aiDt.ua, I believe coaqr••• aaat recover the fiaaaoial 
1~ 

reaourcea loat becauae of tbe wapa aubaidy. rurtberaore, 

CoDqr••• aboul4 privati•• tbe PNaa aa aooD aa poaaible aDd eD4 

tbe reqioaal iDequitiea tb~ create. Tbere ia DO juatificetioa 

for ... Jera~ tazpayera to pay aa.e otber atat••• electric 

bill•· •• .uat eliaiaate tbe buadred• of aillioaa of dollar• 

tazpayer• aow •peDd every Je&r to operate ..a 9eaeratia9 plaat• 

aD4 take tbe federal 9overaaaat out of tbe power buaia•••· 

~ JOUo 
130 

STATEMENT 

OF 

Thomas DoaneDy 

Executive Vice--President 

National Water Resources Association 

before the 

Committee on Resources 

Subcommittee on Water and Power Resources 

on 

Pick-Sloan Repayment Issues 

May2.1996 
131 

MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE: 

I am Thomas F. Donnelly, Executive Vice President of the National Water 

Resources Association. The following testimony is presented to assist the Subcommittee 

in its oversight review of Pick Sloan Missouri River Basin Program. 

The National Water Resources Association (NWRA) is a nonprofit federation of 

state associations and individuals dedicated to the conservation, enhancement, and 

efficient management of our Nation's most precious natural resource, water. The NWRA 

is the oldest and most active national association concerned with water resource policy 

and development. Its strength is a reflection of the tremendous "grassroots" participation 

it has generated on virtually every national issue affecting western water conservation, 

management, and development. 

BACKGROUND 

The Pick-Sloan Missouri Basin Program (PSMBP) was initially authorized by the 

Flood Control Act of December 22, 1944, which approved the general comprehensive 

plan for the conservation, control, navigation, irrigation of over 5 million acres, power 

generation from hydroelectric plants with a total installed capacity of about 2,500 

megawatts, municipal and industrial water supplies, stream pollution abatement, sediment 

control, preservation and enhancement of fish and wildlife, and creation of recreation 

opportunities. 

As part of the PSMBP, more the 1,000,000 acres of prime Wmlaad in the 

Dakota's were permanently flooded by construction of the Garrison, Oabe, Big Bend, 

Fort Randall and Gavins Point Dams and additional acres of prime farmland were flooded 

with the construction of the Fort Peck Dam in Montana. These dams provide flood 

control, downstream navigation, hydroelectric power generation, recreation, rural, 

municipal and industrial water for the Missouri basin states. 

In the SO years since the PUSI8e of the Act, the tlood control, power llld 

navigation components have been essentially KCOmplisbed or completed. Development of 

water supplies for irrigation llld domestic use as intended by the plan has not occurred. 

The PSMBP originally idcatified 137 irrigation units that would have provided water to 

nearly S million acres of land. Currently less than 10 percent of those land are receiving 

water service. 
132 

PRESENT PICTURE 

The upper Missouri River Basin Tribal Governments and the states of Montana, 

North Dakota, South Dakota, and Wyoming have made several attempts at receiving the 

benefits promised in the PSMBP, unfortunately the Federal government and Congress has 

turned a deaf ear to most of those proposals. 

For example: 

• The Subcommittee is well aware of the changes to the Garrison Unit in North Dakota 

which occurred in 1986. I will not dwell on that history other than to indicate the 

State has benefited from the municipal, rural and industrial program authorized under 

that legislation. I understand that the State is working on a detailed plan to have the 

promise of Missouri River water actually being delivered to Eastern and Central North 

Dakota. Hopefully this Subcommittee will address that specific issue sometime in the 

near future. 

• When the Garrison Unit was undergoing reformulation in early 1980's, South Dakota 

was working on the CENDAK plan to deliver Missouri River water through the 

facilities partially constructed for the defunct Oahe Unit of the PSMBP, the 

development of the Lake Andes/ Wagner Unit and Gregory County Project, and the 

development of rural water systems to serve major areas east and west of the Missouri 

River. South Dakota has benefited from the authorization and development of three 

.rural water systems. Authorization legislation for a fourth rural water system will be 

introduced later this year or early next year. While successful in the development of 

rural water, the State is waiting for the opportunity to complete the facilities that 

would deliver water for the purpose of irrigation as promised under PSMBP. 

• Montana and Wyoming are waiting for the completion of water development promised 

under the Pick-Sloan Missouri Basin Plan. 

As I have previously indicated, the PSMBP is a multi-purpose development 

program which has delivered various benefits to the PSMBP states of Colorado, Kansas, 

Montana, Nebraska, North Dakota, South Dakota and Wyoming. As well as, the states of 

Minnesota aud Iowa as part of the project area for hydroelectric power marketing 

purposes. 

The citizens of the upper Great Plains, an area represented by NWRA, have seen 

homesteads, farms and towns wither and disappear because the Federal government has 

failed to deliver the water development promised by the Flood Control Act of 1944. 

While individual water projects have been developed and Conpess made new project 

adjustments and authorizations in the Omnibus Reclamation Authorization Act of 1992. 

There is still a oeecl to address the overall water needs of Ill the citizens within the Upper 

Basin. It is important to UDderstand however, there is still the expectation that the Federal 

Government will deliver on the water development promises that have yet to be met. 

2 
133 

SPECIFIC COMMENT 

The PSMBP was authorized to bring rural economic benefits to the region through 

the multipurpose development of a major river basin. There are a couple of unique 

features of PSMBP which are a part of this hearing. They are the Ultimate development 

and suballocation concepts. 

The Ultimate Development Concept, a method by which costs are allocated to the 

main project functions, is based on the ultimate development and completion of the 

project. For example, in the case ofPSMBP, the ultimate benefits of flood control were 

realized as soon as the dams and reservoirs on the main stem of the Missouri river were 

completed. To date, the flood control benefits have been calculated at over $2 billion 

dollars of flood damage prevented. The proposed ultimate development plan of the 

1950's and 1960's was to have the entire PSMBP completed by the year 2000. 

The ultimate development concept has been a very important part of the PSMBP 

development as it has allowed for the multipurpose development without major financial 

impacts. NWRA believes it is essential that the ultimate development concept be 

maintained if the remaining water development in the upper basin states has any chance of 

proceeding. 

The other unique feature of the PSMBP program is the suballocation percentage. 

There are few people in the country that understand the arcane details of this issue, and I 

don't pretend to be one. What I do understand is that the basic plan for the PSMBP 

contemplated that capacity from the project hydroelectric power plants would be used for 

pumping irrigation water for the many units not capable of service by gravity flow. 

Accordingly, a portion of the cost of the power system can be said to be for the exclusive 

use of irrigation, and, in that sense, appropriately allocable to the purpose of irrigation 

which is the suballocation percentage. 

As in all multi-purpose projects where irrigation is a function it has been the 

Federal policy that power revenues would be used to repay the costs of irrigation 

development that is beyond the ability of the water user to pay. As you know, this 

particular component is called irrigation aid. To date, there has not been a demonstration 

of commitment by the Federal Government to complete the irrigation components of the 

PSMBP. It is our hope that the irrigation aid component of the power revenues and 

pumping energy can be used for water development that would meet the contemporary 

water needs of the upper basin states. 

The individual upper Missouri River basin states are developing innovative projects 

and plans that would allow each state to receive the economic benefits that were 

promised when the original project was authorized and the reservoin created a permanent 

flood of prime farmland on the upper Missouri River. To accomplish this we think a 

strong water-power partnership and maintaining the principles of ultimate development in 
134 

the PSMBP is the only way to complete the water development and improve the economic 

conditions of the upper basin states. 

The development of safe, affordable water supplies will translate into the research 

and development of diversified businesses, new products, marketing strategies and 

employment opportunities. Economic development opportunities on the Great Plains 

depend on the careful stewardship of all the natural resources. The pioneer spirit, rural 

values and heritage.that have served as the foundation for the establishment of the current 

rural economy will guarantee the development of future opportunities. 

CONCLUSION 

In summary NWRA asks that the Subcommittee consider the following points: 

• that there is a compelling regional necessity and obligation to stay with an ultimate 

development concept for the Pick-Sloan Missouri Basin Program; 

• that the upper'%ssouri River Basin States gave up over 1 million acres of prime 

agricultural land to satisfy Pick-Sloan Missouri River Basin Program needs on the 

federal promise of water development and the attending economic development, which 

to this day are unrealized, 

• that the states of Montana, North Dakota, South Dakota and Wyoming are working 

on comprehensive proposals for the development of water resources as envisioned in 

the Flood Control Act of 1944. Each state has different needs and they should be 

allowed the opportunity to design a program that will fulfill the contemporary water 

development needs of their citizens. We urge the Subcommittee give these proposal 

serious consideration when they are completed and submitted for authorization. 

Thank you for this opportunity to provide our view. NWRA looks forward to working 

with the Subcommittee as you move forward on these issues. 

0 

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