S 1552 - 6.18.15

Statement of
Dionne Thompson

Deputy Commissioner for External and Intergovernmental Affairs
Bureau of Reclamation

U.S. Department of the Interior

Before the
Committee on Energy and Natural Resources
Subcommittee on Water and Power
United States Senate
on
S. 1552 Clean Water for Rural Communities Act

June 18, 2015

Chairman Lee and members of the Subcommittee, I am Dionne Thompson, Deputy Commissioner for External and Intergovernmental Affairs at the Bureau of Reclamation (Reclamation). I am pleased to be here to provide the views of the Department of the Interior (Department) on S. 1552, the Clean Water for Rural Communities Act, which would authorize construction of the Dry-Redwater Regional Water Authority System and the Musselshell-Judith Rural Water System in the States of Montana and North Dakota. For the reasons described below, the Department cannot support S. 1552 at this time.

Like the sponsors of this legislation, the Department supports the goals of encouraging a vibrant rural economy and ensuring safe, reliable sources of drinking water in Montana and North Dakota. Rural water projects help build strong, secure communities and are important to local economies. Public Law 109-451 authorized Reclamation to establish a Rural Water Supply Program to help rural communities and tribes in the western United States analyze and develop options for meeting water supply needs through the completion of appraisal investigations and feasibility studies. However, we have concerns with the legislation as currently written and we request the opportunity to work with Congress to adequately address our concerns. S. 1552 authorizes construction of two separate projects and my statement will speak to each of those projects separately.

Dry-Redwater

Section 4(a)(1) of S. 1552 applies to the planning, design, and construction of the Dry-Redwater Regional Rural Water Authority System in eastern Montana and a small service area in northwest North Dakota, and would require the Federal government to provide up to 75 percent of the System's overall construction cost. Reclamation estimates that this authorization would amount to federal appropriations of at least $200 million dollars. The Department last testified before the Subcommittee on legislation related to the Dry-Redwater project in May of 2011, and prior to that, in July of 2009. Since 2011, the Dry-Redwater Regional Water Authority (Authority) has made steady progress planning and designing their System.

The Department is concerned about process issues raised by legislation authorizing a project for construction before the Dry-Redwater Regional Water System Feasibility Study (Feasibility Study) is complete, the potential strain on Reclamation's budget that could come about from this authorization, the cost share requirement proposed in the bill, and the proposed use of power from the Pick-Sloan Missouri Basin Program (P-SMBP) for non-irrigation purposes.

In 2012, the Authority submitted a Feasibility Study to Reclamation for review. Upon initial review of the Study, Reclamation was unable to identify a technically viable water treatment alternative that presented a National Economic Development (NED) plan with net positive benefits to the nation. Reclamation informed the Authority that the Study could not be supported as being financially or economically feasible under the requirements of Reclamation's Rural Water Supply Program. Consequently, there are significant review findings and recommendations that must be addressed to bring the Study up to Reclamation's standards. Since project costs have not been fully developed by the Sponsor and reviewed by Reclamation, there is both real and unknown potential for this project being financially unsustainable for the project sponsors and could result in an additional strain on Reclamation's budget.

Because of the importance of this issue, a Reclamation Design, Cost Estimating, and Construction (DEC) review further evaluated the Study in order to provide an independent analysis. The estimated cost to address the DEC Report Findings and Recommendations is in excess of $5.5 million. Neither Reclamation nor the Authority has sufficient funding to revise the Study to address the DEC Report Findings. In order to maintain their original service area and related project benefits, the Authority ruled out a scaled down approach. As a result of this decision, Reclamation entered into a Memorandum of Understanding (MOU) with the Authority on April 27, 2015, with the objective of completing a summary report that documents the current status of the draft Study. The MOU also identifies the additional level of effort needed to revise the Study technically in order to meet the requirements of Reclamation's Rural Water Supply Program. Given the findings that resulted from Reclamation's review of the Study, we are not in a position to support the project as financially viable or verify that the total project cost estimate is economically sound.

The Department is also concerned about the non-federal cost share for the System. As stated above, S. 1552 contemplates that the United States would fund 75 percent of the cost of constructing the System for the benefit of Montana citizens of Dawson, Garfield, McCone, Prairie, and Richland Counties, and North Dakota citizens of McKenzie County. While this has been the cost share level proposed in other rural water projects enacted into law, it represents the maximum federal cost share allowed under Title I of the Rural Water Supply Act of 2006 (PL 109-451), which includes a requirement for a Feasibility Report that includes an analysis of the sponsor's capability-to-pay and identifies an appropriate contribution by the local sponsors.

Section 5 of S. 1552 authorizes the delivery of 1.5 megawatts of P-SMBP pumping power to be used and delivered between May 1 and October 31 for the benefit of this System at the firm power rate. Section 5(b)(2)(A) of the bill requires that the System be operated on a "not-for-profit basis" in order to be eligible to receive power under those terms. Reclamation is not certain of the impact the bill's requirements could have on Western Area Power Administration's existing contractual power obligations. In addition to those concerns mentioned above, we have yet to verify whether or not water rights issues associated with the System have been adequately addressed.

We suggest System sponsors continue working with Reclamation's Great Plains Regional and the Montana Area Offices to further evaluate the System for scale and economic viability in an effort to refine the National Economic Development accounting such that the ratio of total benefits exceeds costs. We also recommend that they work with the Western Area Power Administration and their contractors on the issues related to the System's pumping power needs

Musselshell-Judith

Section 4(a)(2) of S. 1552 would authorize the planning, design, and construction of the Musselshell-Judith Rural Water System in central Montana and would authorize appropriations of at least 75 percent of total project costs. Since the total estimated construction cost of the project is $87,102,000, Reclamation estimates that the total federal contribution of 75% would equate to $65,327,000 (2014 dollars). While a 75% cost share level has been proposed in other rural water projects enacted into law, the Department also does not support this cost share for the same reasons as stated previously -- this represents the maximum federal cost share allowed under the Rural Water Supply Act of 2006, which includes a requirement for a Feasibility Report that includes an analysis of the sponsor's capability-to-pay and identifies an appropriate contribution by the local sponsors, based upon that analysis.

Earlier this year, the Central Montana Rural Water Authority's (Authority) Musselshell-Judith Rural Water System Feasibility Study (Feasibility Study) was submitted to Reclamation for technical review under Public Law 109-451. Even though initial indications suggest the System is technically feasible and provides benefits in excess of its costs, the Department is concerned about the strain on Reclamation's budget resulting from additional authorized rural water projects.

Common - Both Water Systems

Another unique feature to the language of S. 1552 is in Section 7(b), which addresses the cost indexing for the authorization of appropriations. Reclamation is not aware of a specific rationale for the differing indexing dates prescribed in the legislation. For the ‘such sums as are necessary' appropriations authorized for the Dry-Redwater System, appropriations are to be indexed to January 1, 2008. For the Musselshell-Judith, the appropriations are to be indexed to November 1, 2014. Obviously this implies a different value in the funding authorizations, and while both projects have been on different timelines, is not clear on the specific policy rationale for these provisions since neither project has been certified by Reclamation as having a complete feasibility study at this time.

Authorized rural water projects compete with a number of priorities within Reclamation's Budget, including aging infrastructure, Indian water rights settlements, environmental compliance and restoration actions, developing sustainable water supply strategies, and other priorities intended to address future water and energy related challenges. In the Fiscal Year 2016 Budget, the Administration carried forward the President's commitment to be prudent with taxpayer dollars while setting consistent spending priorities for Reclamation. The 2016 budget request includes $36.5 million for rural water projects, $18.0 million of that total is for operation and maintenance of completed tribal systems and the remaining $18.5 million is for continued construction of authorized projects.

The Department has concerns about adding to the backlog of Reclamation's authorized rural water projects seeking federal construction funding. Discretionary rural water funding has enabled Reclamation to make progress in promoting certainty, sustainability, and resiliency in support of basic drinking water needs of rural western communities. However, Reclamation's ability to make federal investments that match on-the-ground capabilities has its limitations. Presently, the estimated federal funding requirement to complete construction on six authorized rural water supply projects exceeds $1.4 billion. Furthermore, Acts of Congress authorizing Reclamation's involvement in the existing six rural water supply projects require indexing of cost ceilings to adjust remaining construction cost balances for inflation, which is estimated at about 4 percent annually. In a climate of constrained budgets, indexing widens the gap between the original authorized amounts and the total estimated funding required to complete rural water supply projects.

Of Reclamation's six currently authorized rural water projects under construction or funded at some level today, all of the projects pre-date Title I of the Rural Water Supply Act of 2006. Authorizing additional rural water projects may delay rural water projects that are already under construction. For example, two of six authorized rural water construction projects are located in Montana and like the proposed Systems, these projects present compelling needs. As of September 30, 2014, the Fort Peck Reservation/Dry Prairie Rural Water System was approximately 50 percent complete and the Rocky Boy's/North Central Rural Water System was approximately 22 percent complete, as financially determined. These two Montana rural water projects not only represent over $381 million in authorized federal need, but also represent significant on-the-ground construction investments and the promise of water delivery to Native American and other communities. In the 15 years since these two projects were authorized, the federal government has invested over $247 million dollars; demonstrating the long-term commitment of resources to existing rural water projects in Montana. Various levels of federal need can also be demonstrated by sponsors for other authorized rural water projects in North Dakota, South Dakota, Iowa, Minnesota, and New Mexico.

Conclusion

Given existing constraints on program resources and other rural water project commitments as described earlier, Reclamation does not recommend the authorization of Federal assistance for these Water Systems as contemplated in S. 1552 at this time.

That concludes my written statement. I am pleased to answer questions at the appropriate time.#