Dan Keppen: Testimony before the House Committee on Resources, Subcommittee on Water and Power

Submitted to the

U.S.

Senate Committee on Energy and Natural Resources

The Honorable Peter Domenici Chairman
U.S. Senate Committee on Energy and Natural Resources
354 Dirksen Office Building

Thank you for this opportunity to submit testimony on behalf of the Family Farm Alliance ( Alliance ). My name is Dan Keppen, and I serve as the executive director for the Alliance , which advocates for family farmers, ranchers, irrigation districts, and allied industries in seventeen Western states. The Alliance is focused on one mission - To ensure the availability of reliable, affordable irrigation water supplies to Western farmers and ranchers. The Alliance is recognized as an authority on critical issues of Western water policy.

We appreciate the opportunity to submit this testimony in response to an important question posed by your committee: What should the future role of the Bureau of Reclamation be in the West? The themes expressed in our response generally reflect our belief that streamlined federal regulation and decision-making are the keys to sound Western water policy. Wherever possible, meaningful delegation of decision-making authority and responsibility should be transferred to the local level, with less federal intrusion in basin issues. This philosophy drives the principles that we believe should guide the federal government's role in water resources during the 21st century, principles which built the foundation for our earlier response to all six questions posed by your committee:

1. The overriding goal of federal water policy must be to provide certainty to all water users; agricultural, tribal, municipal, industrial and environmental, who are dependent on commitments made by the government.

2. When water laws and environmental laws conflict, balanced solutions that respect treaty and contractual obligations must be the goal.

3. State laws and institutions must be given deference in issues relating to water resource allocation, use, control and transfer. The best decisions happen at the state and local level.

4. Renewed and continued support for the development of new, environmentally sound, sources of water supply is essential. New water supplies must be developed if we want to solve environmental problems, allow for growth and protect the economic vitality of the West.

With respect to the specific question that will be addressed by this panel, the Alliance strongly supports the focus of the Bureau of Reclamation (Reclamation) on fulfilling its core mission of delivering water and power in accordance with applicable contracts, water rights, interstate compacts, and other requirements of state and federal law. Inherent in this definition of core mission is the need to prioritize the expenditure of federal funds and other resources of the Department of the Interior. Water 2025, so long as it continues to recognize that transfers and the use of market mechanisms must be voluntary and pursuant to state law, provides a strong foundation for defining the role of the Bureau in meeting future water needs of the West.

Operation, Maintenance and Modernization of Existing Water Supply Infrastructure

Existing water supply infrastructure must be operated, maintained, and modernized in the most cost-effective manner possible. Qualified districts or water user organizations should be provided with the option to perform or contract with qualified private contractors any work on federal facilities that does not fall within the category of “essential governmental functions” so long as appropriate standards are met so that scarce fiscal resources are used most efficiently. Work on federal facilities performed by government agencies must be subject to greater cost control and accountability requirements.

As is recognized by Secretary Norton’s Water 2025 Initiative, it is imperative that Reclamation provide for the operation, maintenance, and modernization of existing water supply infrastructure. Many Reclamation facilities are approaching the end of or are past the design life of the facilities. In addition, many of these facilities also need to be replaced with modern designs that provide for greater water management efficiency. Sound business practices dictate that this existing infrastructure, and the water supply provided by these facilities, be protected and preserved prior to the dedication of scarce funds to the development of new supplies.

With respect to the specific question regarding the role of the Title XVI Program, the Family Farm Alliance believes that the Title XVI Program should not be funded at the expense of taking care of existing infrastructure and protecting important agricultural communities.

The Family Farm Alliance supports the Water 2025 matching grant program, and suggests that it be expanded to provide additional opportunities for the investment in water conservation and efficiency measures. However, because this program is unlikely to meet all of the needs for funding the repair and modernization of existing facilities, additional funding mechanisms must be developed.

Reclamation’s aging infrastructure is a major financial challenge for Reclamation, irrigation districts and public interests that depend upon these existing projects. Unfortunately, Reclamation’s programs for dealing with these significant rehabilitation and repair needs have likewise deteriorated. Past programs, such as the Rehabilitation and Betterment Act – which once provided loans and contracts to repair, replace, or modify equipment in existing structures or minor repairs to existing facilities - are no longer made available. The list of projects in need of major repair will only grow in the years to come. If Reclamation is to continue owning these projects, it must work with the water users to create and implement a program for rehabilitating and repairing the vital works that supply, and will continue to supply, water and power to our farms, cities and communities. Longer term repayment periods, alternative financing, and alternative funding sources should all be evaluated.

Alternatives include a return to the Small Project Loan Program, or the development of federally backed loan guarantees that will enable water users to access alternative sources of capital in order to repair and modernize existing infrastructure. With respect to financing projects, the historical use of zero interest loans already authorized by Reclamation law still has some merit; especially when it has been conclusively shown that many projects have returned their construction costs to the Treasury many times over from tax revenues directly related to the project benefits. Even in areas of less intensive irrigation and population, benefits from the various projects have more than returned their cost, especially when all of the project benefits, including those not originally authorized and assigned costs, are considered.

Another possibility would be to allow entities with annual repayment obligations to shift those obligations to operation, maintenance and replacement reserve (OM&R) accounts. Although this does have an impact to the return to the Treasury, it could reduce the potential need for future assistance for major rehabilitation. Also, it would seem appropriate for Congress to allow for the capitalization of OM&R. Many of the infrastructure problems on old Reclamation facilities could have already been addressed if capitalization of OM&R had been authorized.

A number of years ago, the Family Farm Alliance took the lead in an effort to provide for cost containment and accountability for work by the Bureau of Reclamation that was either funded in advance by water users or subject to repayment obligations. With the cooperation of the Bureau of Reclamation in general, and Jack Garner in particular, great progress was made in this regard. However, given that federal, state, local, and private funds will be scarce, it is imperative that these efforts continue.

Recent events on several fronts that are related to this issue have been a source of concern to the Family Farm Alliance. First, the unfortunate experience with the cost overrun on the Animas-La Plata Project provided a warning signal that additional work was needed to ensure that Reclamation continues to focus on cost containment and accountability for projects funded through the Reclamation Program. Second, a number of our members have dealt with situations where cost estimates for work that would be done by the Bureau of Reclamation were substantially over the cost of having the work done by the local district itself or under contract with private consultants. There appear to be at least two reasons for the divergence in the cost estimates – excess staffing by Reclamation for work, with attendant increases in costs, and the requirement of design standards that are excessive or unjustifiable. Third, the Family Farm Alliance is deeply concerned to hear that at least one district - Northern Colorado Water Conservancy District - has been forced to use Reclamation staff for design work and was not given the option of doing the work itself or having it performed by qualified consultants. This incident is of great concern because it appears to be contrary to the practice elsewhere in Reclamation, where contractors who are paying for the work have had the option to have the work performed by Reclamation or by qualified consultants. This particular episode forms the basis for a case study that is attached to this testimony.

In light of the fact that neither Reclamation nor water users can afford to waste money through over-staffing or noncompetitive practices, the Family Farm Alliance encourages the Committee to take a very hard look at the policies and practices of Reclamation with regard to the involvement of the Reclamation programs located at the Denver Federal Center. The Family Farm Alliance also plans to provide input to the ongoing review of these aspects of Reclamation by the National Academy of Sciences (NAS)[1], which appears to be focusing on the question of what capabilities Reclamation should maintain within the agency and what work or functions can and should be performed by others. The Alliance intends to engage in this process and utilize it as a primary means of pushing to ensure that water users are being served in a most cost-efficient manner. The Alliance plans to compile experiences from around the West – both good and bad – to create a template that can be used constructively by the Bureau of Reclamation and other Interior Department agencies in dealing with the issues. We have included five case studies as attachments to this testimony, to provide a sense of the final work product we are putting together.

Regardless of the outcome of this review, fundamental fairness requires that when a water user is paying for work in advance or through repayment mechanisms, that water user should have the option to have the work executed in the manner that provides the most return for the investment.

These concerns regarding cost containment and accountability do not, in general, implicate the work done at the Regional and Area Reclamation Offices. The Family Farm Alliance is proud of its partnership with Reclamation, and believes that Reclamation has much to be proud of in its service to water users and the public.

[1] The NAS' Board on Infrastructure and the Constructed Environment is actually conducting the study.

Attachments to Testimony

Some time ago the Family Farm Alliance took a lead role in an effort that was designed to address concerns of districts that contract with the Bureau of Reclamation regarding expenses and overhead that were assigned by Reclamation to work that was paid for by the water users. While that effort was a partial success, several water districts in the West have recently experienced one or more problems, some of which are detailed in the following case study examples. There are also instances where Reclamation has strongly contributed leadership that led to effective local solutions to water management challenges. The case studies that follow are just a few examples of what will be included in a report that is currently being prepared by the Alliance , scheduled for public release later this year.

List of Attachments – Case Studies

Sacramento River Basinwide Management Plan, California
Colusa Drain Mutual Water Company, California
Northern Colorado Water Conservancy District , Colorado
Pershing County Water Conservation District , Nevada
Hermiston Irrigation District , Oregon
Sources of Information

Summary of Findings

The case studies in Colorado , Oregon and Nevada illustrate several criticisms that irrigation districts throughout the West have recently expressed relative to Reclamation’s role in design and construction projects:

A demand by Reclamation that design work be performed by Reclamation staff.
Cost estimates for work that are significantly over the reasonably anticipated costs.
Claims of unsatisfactory contract management.
Criticism of Reclamation’s apparent unwillingness to document the basis for construction and other cost estimates.
Lack of recourse by districts to fully understand and engage in decision-making and related cost estimates.
Significant Reclamation over-staffing of meetings or work on projects.
A need to improve "turn-around" times for design work or decisions.

The Family Farm Alliance is committed to constructively working with Reclamation, the Department of Interior, and Congress to address these concerns. As illustrated in the two California case studies, Reclamation officials at the regional and area office levels have demonstrated a willingness to “think outside of the box” and to take calculated risks that ultimately benefit the federal government, local water users, and the public interest. We look forward to assessing other positive case studies, and employing the lessons learned from those success stories to reduce or eliminate negative experiences faced by other water users.

CASE STUDY #1: Sacramento River Basinwide Management Plan

The Sacramento River Basinwide Management Plan (BWMP) was prepared by the Sacramento River Settlement Contractors (SRSC) with assistance and input from the U.S. Bureau of Reclamation (Reclamation) and the California Department of Water Resources (DWR). The BWMP was prepared to meet the requirements of the January 1997 Memorandum of Understanding between the Settlement Contractors and the United States .

Staff members from Reclamation regional and area offices in northern California played a key role in helping to find the right path to make this process work. Extensive coordination among the SRSCs, Reclamation, DWR and the consultant team took place throughout the preparation of the BWMP. This coordination included monthly meetings to review project status and issues, preparation and review of draft technical memoranda and reports, and follow-up meetings to discuss review comments and other project issues among the project participants. The BWMP originated as a settlement to a lawsuit, so Reclamation and other participants literally helped turn an adversarial process into a positive outcome.

The BWMP process has been a successful, cooperative effort among the SRCSs, Reclamation, and DWR, as evidenced by the following:

v The BWMP process provided for an open dialogue and increased understanding of the water resources issues facing the Sacramento River Basin .

v The BWMP process provided a technical forum for addressing the different methodologies of water resources management and the associated technical issues.

v The BWMP process provided the necessary data and background to allow the ultimately successful completion of the contract renewal process.

v The BWMP process provided the framework for the subsequent development of the successful Phase 8 negotiations to the Bay-Delta Water Rights Hearings.

The BWMP process was a lengthy endeavor (1998-2004). However, the project objectives that were established for the BWMP process were successfully met. Sufficient background information has been developed on the water resources management issues affecting the Sacramento Valley to help promote the successful completion of he negotiations process for contract renewal of the Sacramento Valley Settlement Contracts. The framework of cooperation and understanding developed through the BWMP process has assisted in providing the backdrop for ongoing regional water resources solutions, such as the regional water management program and the successful Phase 8 settlement negotiations.

Joint SRSC / Reclamation and DWR efforts that are focused on identifying appropriate measurement practices, drainwater management, and system improvements will continue to be evaluated and submitted for potential funding, as well as potential conjunctive management projects. The data and relationships developed in the preparation of the BWMP will likely continue to foster improved water management across the Sacramento Valley . A major accomplishment was the movement away from a "one-size-fits-all" approach to water conservation criteria to an approach that endorsed regional or basin-specific criteria.

CASE STUDY #2: Colusa Drain Mutual Water Company (Water Company)

The Water Company was organized on March 25, 1987 , to represent the water users diverting water from the Colusa Basin Drain (Drain) and entered into a contract with Reclamation dated July 12, 1988 . The Drain was originally constructed because the Sacramento River irrigation return flows as well as natural runoff were causing considerable flooding of the lower lands in the Colusa Basin . Although historically, the water supply was physically available in the Colusa Basin Drain during the irrigation season and was sufficient to meet the maximum diversions of most Drain water users, a major portion of that water supply had to satisfy senior rights downstream along the Sacramento River and in the Sacramento-San Joaquin Delta. Diversion of this water supply by the water users along the Colusa Basin Drain required the United States to increase releases of stored water from the Central Valley Project (CVP) into the Sacramento River to replace and meet the requirements of those downstream users with water rights senior to those of the Drain users, including the water rights of the United States.

The Water Company’s contract is a replacement contract that does not provide for direct delivery of CVP water to the Water Company members. The contract authorizes the Water Company to divert water from the Colusa Basin Drain during those times when the Water Company’s and its members’ water rights are deficient in exchange for payment to the United States for CVP water released to the Sacramento River on behalf of the Water Company to ensure senior downstream water right holders remain whole. Unfortunately for the Water Company, there has been a significant reduction in return flows accruing to the Drain as a result of upstream environmental restrictions on water diversions and implementation of water conservation programs by neighboring Settlement Contractors. As a result, in many years the Water Company suffers from inadequate water supplies during the summer months and has had to arrange, through annual transfer agreements with neighboring Settlement Contractors, for other supplemental water supplies to be delivered to the Colusa Basin Drain. The inadequate water supplies resulted in reduced yields due to the high salt content of the water in the Colusa Basin Drain.

The impact of the transfers with neighboring Settlement Contractors is essentially a change in the way the Water Company pays for its water. If there were sufficient flows in the Colusa Basin Drain, the Water Company would pay the United States in accordance with the terms and conditions of its existing CVP contract. Because the neighboring Settlement Contractors have the capability of controlling the return flows into the Colusa Basin Drain, the Water Company now makes arrangements for transfers with the Settlement Contractors to assure water is physically available in the Colusa Basin Drain for diversion. The result of these arrangements is that the Water Company has to pay for the supplemental water provided by the Settlement Contractors to the Colusa Basin Drain. The quantity of water provided by the neighboring Settlement Contractors is credited against the quantity of Project water the Water Company would otherwise have had to purchase from the United States .

Since 1997, Reclamation has worked cooperatively with the Water Company and neighboring Settlement Contractors to effect these annual transfers. These transfers have provided the Water Company with a reliable, affordable, and quality supply of water. Absent these cooperative efforts, much of the land served by the Water Company would not have been able to continue in agricultural production.

CASE STUDY #3: Northern Colorado Water Conservancy District

The Northern Colorado Water Conservancy District (District) since 1999 has been working to complete a project that would add an outlet to Carter Lake Reservoir. The objective of the District has been to complete this project by April 2007 in the most cost-effective manner possible with a total cost not to exceed $10 million. The District has spent considerable time and resources working with the Bureau of Reclamation (Reclamation) Technical Services Center (TSC) in Denver on this project. As a result of this experience, the District has reluctantly concluded that the completion of this project on time and within a budget based on reasonable engineering standards and practices will require that it contract with qualified private civil engineers for the design, contract administration, and construction management of this project.

There are four reasons why the District is requesting that TSC no longer have a lead role in the engineering, design and construction management of this project:

Significant cost overruns (in some cases as much as 77 percent) have occurred on the pre-design phases of this project. According to the District, these cost overruns are related to the management of the project, as is demonstrated by the fact that as many as 17 Reclamation employees attended a meeting to discuss a project that is relatively small in scope and not extraordinary from an engineering and policy perspective.
Although the District and its water users are paying for this project and the terms of the agreements provide for full and meaningful consultation with the District on this project, Reclamation did not consult with the District before it made material and expensive changes in the work being performed or in the project configuration. Further, Reclamation has not provided cost accounting or work product to the District for work completed to date.
Reclamation personnel have attempted to force project design changes that will be expensive, which the District and its consultants believe are not supported from an engineering perspective. Disagreements of this type at the staff level are not by themselves a problem, but the District would like the opportunity to elevate these issues and have them resolved in a timely fashion based on accepted engineering standards and practices.
The District has learned that other districts in the West have been given the option of using the TSC or contracting with qualified consultants for design and construction work, including instances where the work affected a major facility owed by the United States .

This latter concern raises several policy questions. Is it the policy of Reclamation to require that TSC perform design work? If so, is this a Reclamation-wide policy? From a policy perspective, the District believes there is no reason to depart from the historic model that has existed for projects of this nature associated with the Colorado-Big Thompson (C-BT) Project. The Carter Lake project is not extraordinary in nature and is well within the demonstrated capacity of the District and its consultants to perform, particularly when compared to the District’s successful completion of the entire Windy Gap Project and the construction of over 100 miles of water supply pipelines and related facilities in recent years. There is no reason why this work cannot and should not be performed by qualified, private consulting engineers in accordance with accepted engineering standards, under the review and approval of Reclamation.

CASE STUDY #4: Pershing County Water Conservation District

Pershing County Water Conservation District (District) is located in Lovelock, in northwestern Nevada . On October 17, 2002 , the U.S. Senate passed House Bill H.R.5200 by unanimous consent. The President signed the bill (Public Law 107-282) into law on November 6, 2002 . The law is intended to transfer title of the Humboldt Project from the United States to the Pershing County Water Conservation District, the State of Nevada , Lander County and Pershing County .

While title transfers are viewed by many as a positive means of strengthening control of water resources at the local level, the District continues to meet challenges with the Bureau of Reclamation in this process. Many of the District’s concerns are similar to other case studies in the West which revolve around design-and-build functions of Reclamation. Key concerns and observations of the District include:

1. Reclamation required that design work be performed by Reclamation staff and an apparent unwillingness to consider allowing this work to be performed in conjunction with the Districts or qualified consultants. For example, neither the District nor it’s consultant were permitted to be involved in the process of developing the cultural resources compliance required as part of the title transfer. Reclamation after two years has outlined a process that for the initial phase alone will cost $960,000. Notably, this is after the District had already completed an extensive Environmental Impact Statement (EIS).

2. Cost estimates for work that are significantly over the reasonably anticipated costs, including estimates from qualified consultants (see above). This is particularly true for cultural resources activities.

3. A need to improve contract management. In the District title transfer, a portion of the lands will be conveyed to the State of Nevada , and two counties. The District made an agreement to cover the costs of the two counties and Reclamation agreed to make a similar agreement with the State. Reclamation has not delivered on this. As a result, the District advanced the State costs so that the transfer could proceed.

4. Lack of recourse by the District to fully understand and engage in decision-making and related cost estimates. The District believes it has little control of what Reclamation will decide to spend title transfer funds on with respect to cultural resources, even though the District is responsible for ½ of these costs.

5. A need to improve "turn-around" times for design work or decisions. For example, relative to the EIS mentioned above, Reclamation promised a one-year turn around. The District is now into the process at least two years, and that time period may have been even more prolonged if the District had not bid out the National Environmental Protection Act contractor under State law. As to the aforementioned cultural resources initial process document, the District was initially promised it would be wrapped up within months; the process has now extended to over a year and a half.

The District is proud of its partnership and working relationship with Reclamation, and is hopeful that these challenges can be constructively and timely addressed as the title transfer moves to conclusion.

CASE STUDY #5: Hermiston Irrigation District

In the mid 1990’s, Hermiston Irrigation District (District) participated in a safety of dams update to its facilities in northeastern Oregon . Included in that update process was a requirement by the Bureau of Reclamation (Reclamation) to install a new backflow structure. Despite objection from the District to Reclamation’s proposed design – which the District felt was not acceptable from an operations standpoint – Reclamation proceeded with final design and construction of the facility.

As predicted by the District, numerous operational problems over the next three years led to a revised design of the structure, which the District was required to pay for as part of the safety of dams expense. The cost of the modification was $115,000, including engineering design. Importantly, 55 percent of the price tag was attributed to engineering costs generated by Reclamation staff.

More recently, Reclamation has required that the District replace an inlet drop structure that feeds the District reservoir. Although the District has hired registered professional engineers to perform the analysis and engineering for this replacement, Reclamation insists that the District contract with them to have these plans reviewed – at District cost. Finally, the District to date has not received a detailed cost accounting for Reclamation’s expenses incurred in the safety of dams process.

SOURCES OF INFORMATION

Case Study #1: “Sacramento River Basinwide Water Management Plan”, prepared by Sacramento River Settlement Contractors in cooperation with U.S. Bureau of Reclamation and with assistance from California Department of Water Resources. October 2004. Personal communication with Van Tenney , general manager of Glenn-Colusa Irrigation District, a Sacramento River Settlement Contractor, March 30, 2005.

Case Study #2: Bureau of Reclamation Briefing Paper, Willows Construction Office, Willows, California . Personal communication with Marc Van Camp , MBK Engineers and Don Bultema, Bureau of Reclamation, March 28-29, 2005.

Case Study #3: Northern Colorado Water Conservancy District letter to John Keys, Commissioner of Reclamation, dated March 17, 2005 .

Case Study #4: Personal communication with Laura Schroeder, Counsel for Pershing County Water Conservation District, March 10, 2005 .

Case Study #5: Personal communication with Chuck Wilcox, Hermiston Irrigation District, March 7, 2005 .