Southwestern Power Administration (2020 Presidential transition)

Book 3 - Organization Overview
Entire 2020 DOE Transition book As of October 2020

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Seal of DOE, Parent Organization

Southwestern Power Administration (Southwestern, SWPA) supports the Department of Energy (Department, DOE) Mission and strategic plan goals by marketing and reliably delivering clean, renewable, reliable, cost-based Federal hydroelectric power and related services to regional non-for-profit wholesale utilities. SWPA contributes to the stability of the national electric grid in the specific areas of power and transmission service and energy infrastructure. SWPA maintains and upgrades its energy infrastructure to ensure reliable and efficient delivery of Federal power, which is an integral part of the Nation’s electric grid.

SWPA modernizes its energy infrastructure by incrementally improving facilities, increasing transmission capacity where feasible, accommodating interconnection requests, and enhancing transmission grid security and reliability to support the rapidly changing utility industry, evolving regional needs, and interest in renewable resources. Finally, SWPA partners with its customers and other stakeholders to develop new and innovative solutions to address industry issues.

Mission Statement

To optimally use Federal resources to safely and sustainably provide clean hydropower, transmission, and related services to benefit our customers, regional communities, and the Nation.

Budget

Fiscal Year	Budget (Total Program)	Appropriations
FY 2019 enacted	$126,876,000	$10,400,000
FY 2020 enacted	$131,863,000	$10,400,000
FY 2021 request	$157,194,000	$10,400,000

Human Resources

FY 2020 authorized full-time equivalents (FTEs): 194

History

SWPA was established in 1943 by the Secretary of the Interior as a Federal agency that today operates within [DOE]. As authorized by Section 5 of the Flood Control Act of 1944, SWPA markets and delivers Federal power, generated at U.S. Army Corps of Engineers (USACE) hydropower projects, primarily to public bodies and rural electric cooperatives. SWPA recovers 100 percent of its costs through the rates charged to its customers.

SWPA was transferred to [DOE] in 1977 when the Department was created.

Section 212 of WRDA 2000 authorized USACE to accept hydropower infrastructure funding from the power customers which has allowed for the significant major replacements and rehabilitations taking place today. Referred to as “customer funding,” this funding source is critical to ensure that capital investments in the USACE hydropower program continue despite limited availability of appropriated funding for capital projects.

In 2001, Congress began to fund the SWPA purchase power and wheeling (PPW) portion of the budget using offsetting collections from power sale receipts, up to an annually authorized ceiling amount.

In 2010, Congress authorized Net Zero appropriations to allow annual expenses to be offset through revenue. SWPA still must request annual appropriation for some capital transmission system expenses not covered by other funding authorities.

Today, SWPA serves over 100 not-for-profit wholesale utilities who in turn impact over 10 million end users in homes and businesses across SWPA’s marketing area of Arkansas, Kansas, Louisiana, Missouri, Oklahoma, and Texas.

SWPA also serves several military installations that are critical to the United States defense posture.

Functions

SWPA’s primary functions:

Market and deliver power from 24 Federal hydropower projects within its region. SWPA coordinates with USACE, which operates and maintains the dams and hydroelectric facilities, and the preference power customers to schedule power delivery.
Operate and maintain 1,380 miles of transmission line located in Arkansas, Missouri, and Oklahoma in accordance with North American Electric Reliability Corporation (NERC) and Southwest Power Pool (SPP) Regional Transmission Organization (RTO) standards and criteria.

Recent Organization Accomplishments

Clean Energy

On average, SWPA provides nearly 5.6 billion kilowatt hours (kWh) of clean renewable hydroelectric energy annually. This energy production reduces emissions of carbon dioxide by 4.6 million tons per year. The clean renewable hydropower marketed by SWPA replaces 9.7 million barrels of fuel oil, 3 million tons of coal, or 42.8 billion cubic feet of natural gas that would otherwise be depleted annually to meet SWPA customers’ electricity demand.

Emergency Response and National Security

This clean resource can respond quickly to provide essential services that stabilize the Nation’s grid, including system restoration and voltage control. During Hurricane Laura in 2020, SWPA coordinated with Midcontinent Independent System Operator (MISO), customers, and USACE to bring on hydropower generation, providing a much-needed generation injection into the impacted area of congestion and capacity shortages due to transmission damage and constraints in the East Texas transmission corridor of MISO.

Infrastructure Investment

Since 1999, SWPA’s customers have approved approximately $909 million to replace or refurbish failing and obsolete equipment at USACE-owned facilities to ensure generation reliability. Replacement and rehabilitation of major equipment has been completed at four projects under the program, with work at two projects in the construction phase. Replacement and rehabilitation work at 16 projects is in the design and planning stages, with four of those scheduled to enter the construction phase in FY 2021. The initiative has an estimated customer commitment of over $1.5 billion for major replacement and rehabilitation work at the hydroelectric plants in SWPA’s marketing area over the next 30 years.

Customer and Federal Partnership Coordination

SWPA works closely with preference customers, USACE , and other Federal agencies to explore ways to improve the value, reliability, availability, and efficiency of the region’s Federal hydropower. In 2019, SWPA adjusted the scheduling times for preference customers improving the value of the resource in energy markets. SWPA is an active participant in the Federal Hydropower Council (FHC) which brings senior leadership from Power Marketing Administrations (PMAs), USACE, and Bureau of Reclamation together to explore issues on a national level, such as improving the value and cost of hydropower through refinements in the acquisition processes and project management for large hydropower infrastructure investment, such as generator rewinds and turbine replacements.

Cost Management

Every SWPA dollar spent is recovered in the customers’ power rates- SWPA works diligently to manage costs. In FY 2019, SWPA worked in coordination with the DOE Realty Officer to purchase a headquarters facility in Tulsa, Oklahoma. This effort will save considerable costs over annual leasing and put downward pressure on power rates. Efforts like this and others have allowed SWPA to maintain steady power rates over the last seven years for the vast majority of customers.

Financial Performance

SWPA’s financial performance is measured by SWPA’s accomplishment in consistently repaying the Federal investment in the hydropower facilities, as well as a significant portion of the multi-purpose water resource projects’ joint costs shared with flood control, navigation, recreation, and other project purposes. The Independent Auditor, KPMG, concluded that the FY 2019 Southwestern Federal Power System (SWFPS) financial statements—comprised of the combined accounts of SWPA and the related hydroelectric generating facilities and power operations of USACE, a component of the U.S. Department of Defense (DOD)—present fairly, in all material respects, the respective financial position of the SWFPS as of September 30, 2019, and the results of its operations and cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.

Leadership Challenges

High level challenges currently being faced by the organization:

COVID Pandemic

In response to the pandemic, SWPA had a highly successful transition to maximum telework status. Concerns that State and local electricity no-shut off policies would affect the ability of SWPA customers to pay invoices or the need to sequester and provide sustenance for SWPA dispatcher staff at the 24-7-365 electric operations center locations have not been realized to date. However, the possibility for these scenarios still exists and policy solutions are needed to ensure future pandemic or emergency response requirements are considered non-reimbursable for the PMAs as they are for other Federal entities.

Funding Security

The current funding mechanisms for the SWPA and USACE hydropower program and related infrastructure come from Congressional use of receipt authority. Total program cost for hydropower can be difficult to predict, particularly in drought conditions, and having access to funds when needed is an important management need. SWPA has limited ability to retain funds across fiscal year for long term planning purposes and relies heavily on annually approved appropriation authority. Since FY 2018, Congressional Budget Office (CBO) scoring changes to PMA PPW use of receipt authority has impacted the approved fund level for these costs when power must be purchased to meet contractual obligations when hydropower generation is unavailable. SWPA has sought several solutions to secure financial stability, most recently a revolving fund that would allow the program to rely solely on power revenue receipts without annual appropriations requirements. Moving to this model would reduce risk, improve long-term planning, and put downward pressure on power rates for millions of regional ratepayers. However, technical scoring issues have hindered support.

Grid Resiliency

SWPA continues investing resources and technology to defend against ever evolving threats to the electrical power grid. Through coordination with DOE’s Office of Electricity and electric utility partners, Southwestern is working with the Department of Defense , DOE labs, DOE’s Chief Information Officer, and DOE’s Office of Cyber Security, Energy Resiliency, and Emergency Response to improve the Nation’s grid security and resiliency.

Increasing Demand for the Water Resource

The USACE water resource projects from which SWPA markets the hydroelectric power are all multi-purpose. As the demand for water for other uses, in addition to the need for hydropower, increases, hydropower can be impacted by loss of water storage and availability, as well as required operational changes that will affect the amount of energy generation and the operating capacity of the generating units. Current USACE water policy negatively impacts Federal hydropower generation and viability in the Southwest and is one of the initiatives being discussed and explored in the FHC mentioned above. Under this policy, water storage (or hydropower’s “battery”) and water usage (hydropower’s “fuel”) is being removed without fair evaluation, deliberation, or compensation. Further, without associated financial credits or a reduction in the repayment obligation for the lost resource, such changes will increase SWPA’s power rates to its customers, and the Federal hydropower customers will inappropriately subsidize other project purposes. SWPA is also concerned with the USACE interpretation of its discretionary authority to reallocate water storage to the water supply purpose under the Water Supply Act of 1958 (WSA). Previously, through its practice, the USACE had interpreted the WSA language of “serious affects” and “major change” by limiting water storage reallocations to the greater of 15% of storage or 50,000 acre-feet. Through more recent USACE legal opinion, the USACE has abandoned this set limit and is taking a project-by-project approach; the exact methodology will be unique to each reallocation request. USACE has already exceeded the previous set limit in several recent storage reallocations and continues to do so in active studies in SWPA’s region, and SWPA has raised concerns about the lack of an appropriate methodology for determining the impact to the hydropower purpose. The loss of a set limit introduces a higher level of uncertainty of the water resource for the hydropower purpose.

Competitiveness of SWPA’s Power Rates

The Federal hydropower product is becoming more expensive, less competitive in the marketplace, and less desirable to customers in the evolving electricity marketplace. In some instances, the PMA rates are over market and customers are considering power supply alternatives to Federal hydropower. SWPA’s integrated system composite firm energy rate is currently over estimated market rates; factoring in supplemental (non-firm) energy, SWPA’s integrated system composite energy rate is, on average, slightly below estimated market rates. This could threaten cost recovery of existing Federal investment and jeopardize future funding for the PMAs and the USACE, which is provided, in varying degrees, through existing customers. Ensuring that SWPA’s rates do not experience instability or upward pressure while increasing certainty and maximizing flexibility and benefits to SWPA’s customers is essential to the sustainability of the Federal power program in SWPA’s marketing area.^[1]