Electricity Markets

PMA benefits, grid asset sale opposition highlighted at hearing

The benefits that power marketing administrations (PMAs) provide to their customers including the delivery of low-cost hydropower and the ways in which PMAs are working to ensure federal hydropower resources remain competitive were highlighted at a recent Senate hearing.

At the same time, senators and officials testifying at the hearing criticized a recent Trump Administration proposal that calls for the sale of the transmission assets of three PMAs and the Tennessee Valley Authority (TVA).

The Senate Energy and Natural Resources Committee’s Subcommittee on Water and Power held the hearing on May 14, which examined issues and challenges at the PMAs.

Testifying at the hearing were the following PMA officials: Mark Gabriel, Administrator, Western Area Power Administration (WAPA); Dan James, Deputy Administrator, Bonneville Power Administration (BPA); Kenneth Legg, Administrator, Southeastern Power Administration (SEPA); Mike Wech, Administrator, Southwestern Power Administration (SWPA); and Nicki Fuller, Executive Director, Southwestern Power Resources Association (SPRA).

In her opening remarks, Subcommittee Chairman Martha McSally, R-Ariz., noted that the benefits of federal hydropower to communities are made possible through the partnership between the PMAs and their municipal, cooperative and tribal preference customers.

“In Arizona, we know this firsthand,” McSally said. “The affordable hydropower delivered by WAPA to our cooperative and municipal utilities has helped keep power bills low and allowed for our economies and populations to grow.”

In his testimony, WAPA’s Gabriel noted that in 2018, nearly 80 percent of WAPA’s customers experienced stable or decreased rates and WAPA rates are often among the lowest in the country.

He also noted that more than 94 percent of WAPA’s budget comes directly from customers and the appropriations it receives are paid back to the U.S. Treasury with interest. “Since 2013, we have returned $1.8 billion to Treasury to recover the original investment in dam and energy infrastructure and repay appropriations.”

Gabriel also noted that WAPA is investing in cyber and physical security, as well as looking at markets as they evolve in the West.

BPA’s James said in his testimony that BPA’s financial position is sound. In Fiscal Year 2018, BPA completed its annual Treasury payment of $862 million “and this repayment represents 35 consecutive years of full and timely repayment to U.S. taxpayers for their investments in the Northwest’s power and transmission system. The completion of this annual repayment is evidence of BPA’s financial health and the ability to satisfy its obligations.”

James also noted that earlier in May, the country’s major independent credit rating agencies “reported their high ratings on non-federal debt backed by BPA. These ratings represent independent review of BPA’s cost management and value.”

In her testimony, Fuller said that legislation recognizing federal hydropower for the clean, renewable energy source that it is “would add significant value by allowing my members to receive renewable energy credits and other renewable incentives which are properly due for their SWPA allocations.”

SPRA is a voluntary, not-for-profit organization of rural electric cooperatives and public power systems in Arkansas, Kansas, Louisiana, Missouri, Oklahoma and Texas which serves nearly 10 million regional citizens. These cooperatives and systems are customers of SWPA.

She also said that proposals to sell in whole or in part the PMAs “are seriously misguided and a needless distraction from the real issues at hand.”  She noted that taxpayers “do not subsidize or pay for any activity of any PMA, including SWPA. Therefore, there would be no savings to the Treasury with this proposal.”

“In fact, if the federal hydropower customers did not pay the power rates, the taxpayers would have to fund the joint-use costs for the dams currently included in the PMA power rates. This proposal would cause increased power bills for primarily rural end-users across the country while not saving the Treasury a single dollar.”

President Donald Trump’s fiscal year 2020 budget proposal calls for the sale of the transmission assets of PMAs and the Tennessee Valley Authority and change the PMA’s rate structures from a cost-based structure to a market-based structure.

Cantwell criticizes PMA sale proposal

Sen. Maria Cantwell, D-Wash., said that she and Sen. James Risch, R-Idaho, intended to send a letter to Office of Management and Budget Director Mick Mulvaney in opposition to the fiscal year 2020 budget proposal (The letter was subsequently sent by Cantwell and Risch to Mulvaney on May 17. A copy of the letter is available here). More than 60 House members on May 8 sent a letter to House Budget Committee leaders expressing opposition to Trump’s proposal.

The idea of selling the PMAs is “looney,” Cantwell said, “but behind the looniness is also a very big economic impact.”

Cantwell noted that the Northwest Power and Conservation Council has said that rates could rise as much as 24 percent “if this kind of concept were pursued.”

Referring to PMAs, Cantwell said that “We shouldn’t be throwing this great idea that has paid benefits to our country for so many years out the door, we should be doubling down on it.”

Subcommittee Ranking Member Catherine Cortez Masto, D-Nev., said in her opening remarks that “it would be unwise and shortsighted to sell the PMAs off to the highest bidder.”

Masto said that transmission assets and other infrastructure managed by the PMAs need continued investment, maintenance, and potentially even expansion.

“Rather than turn our backs and sell off this vital infrastructure, I see an opportunity to build on successful programs” like WAPA’s Transmission Infrastructure Program (TIP), which has already financed two transmission lines with several more proposals under consideration, she said.

The American Public Power Association and the National Rural Electric Cooperative Association in late March voiced opposition to the proposal to sell the transmission assets of the three PMAs and TVA and change the current cost-based rates structure. The March 20 letter was sent to Mulvaney by Sue Kelly, President and CEO of the American Public Power Association, and Jim Matheson, CEO of the National Rural Electric Cooperative Association

McSally asks about efforts to maintain competitiveness of hydro

During the Q&A portion of the hearing, McSally asked panelists to discuss where PMA hydro in their region sits in relation to the overall market and detail ongoing efforts to ensure federal hydropower resources remain competitive going forward.

WAPA’s Gabriel said that WAPA has been focused on maintaining costs in-line with what is happening in the power industry. He pointed out that WAPA “really consists of 10 separate systems, each with its own financing mechanism and each with its own operating behaviors.”

With the exception of the California system, “our rates are significantly below those in the market,” he noted. “In fact, very often, we’re the price maker in a market.” Gabriel said that challenges WAPA faces in California are tied to the Central Valley Project Improvement Act, “which in certain years can cause the cost of our power to go out of market.”

The cost is split between water and power users. “In very dry years, or ironically enough in very wet years, the cost for the Central Valley Project Improvement Act pushes us out of market. The actual cost of our power is very reasonable within the market range.”

He also noted that the spot market price is not the price for long-term contracts “and all of us deal on the longer-term basis, so really the parallel needs to look at what is a mid-term and long-term contract by comparison.”

“The central tenet of our strategic plan is delivering on our public responsibilities through a commercially successful business – one has to go with the other,” said BPA’s James. The key to that is managing costs, he noted.

“We have proposed a rate increase below the rate of inflation for the upcoming rate period,” he said. The BPA is working closely with customers, stakeholders and others “on asset investment priorities that reflect implementation of our plan.”

SEPA’s Kenneth Legg said that ‘We are working hard to try to reduce our prices.” He said that the product “we sell as power marketing administrations is a guaranteed capacity with associated energy.” In SEPA’s case, it is peaking energy and it is relatively limited, he said.

“So often the comparison is made with the spot market energy prices and we fall below partly because of subsidies and other incentives for renewables,” Legg went on to say.

SWPA’s Mike Wech said that “We’re making significant strides to try and be cost competitive.” 

He noted that SWPA has done a thorough reevaluation of transformer and conductor replacement strategies for power system equipment “and extending the life after doing significant testing and studies to show that we can actually utilize that equipment for a longer period of time.”

SPRA’s Fuller said that SWPA “has done a lot of cost-cutting measures and we are very grateful -- to not see a rate increase for six years is really something unprecedented in our region.”

At the same time, she said that “competitiveness is an issue that we need to continue to be looking at. Not only do we have to be concerned about non-generation related expenses,” but there is also a need to make sure “the trend of adding those things to the rates doesn’t continue.”

Fuller went on to say that there is a need to look to non-monetary ways to make federal hydropower more valuable.

SPRA has been working with SWPA on timing issues, “so that we can schedule federal hydropower consistent with timing in the three markets that we straddle. Those sorts of creative ways of thinking about the way that we handle federal hydro will really help increase the competitiveness,” she said.

Also, “if we do have that distinction of being an actual renewable energy source that would be a huge way that our members could maintain a non-monetary value but increase the competitiveness” of federal hydro at the same time, Fuller said at the hearing.