Customers Fund Operations and Maintenance at Reclamation Hydro Plants

About $253 million in operations and maintenance funding has been provided over 13 years by power customers in the Bureau of Reclamation’s Mid-Pacific Region. This money has allowed significant improvements that likely would not have been accomplished otherwise.

Whether at home or at work, we have all faced the same question: “How do I find the money I need to accomplish all the work I have to do?” Solutions vary, but for the Mid-Pacific Region of the Bureau of Reclamation, power customers stepped up to the funding challenge for work needed at Reclamation’s eight hydroelectric projects in northern California. The resulting program – where customers provide advance funding for operations, maintenance and rehabilitation projects – can be a workable solution for other hydro project owners.

Aging infrastructure

The Mid-Pacific Region is responsible for the Central Valley Project, which is one of the nation’s major water conservation developments. It extends from the Cascade Range in the north to the semi-arid but fertile plains along the Kern River in the south. Initial features of the project were built primarily to protect the Central Valley from crippling water shortages and menacing floods, but the CVP also improves Sacramento River navigation, supplies domestic and industrial water, generates electric power, conserves fish and wildlife, creates opportunities for recreation and enhances water quality.

In total, there are 26 hydro generators (including station service units) with a combined nameplate capacity of about 2,000 MW in the project. Many of these hydroelectric generating facilities were constructed in the 1940s and 1950s. Although construction of new dams and power plants continued into the 1980s, it was at a decelerating pace. Some of the older CVP power plants are 710-MW Shasta (circa 1945); 198.72-MW Folsom, 105-MW Keswick and 13.5-MW Nimbus (all circa 1955); and 140-MW Trinity, 154-MW JF Carr and 190-MW Spring Creek (all early 1960s). At 300 MW, New Melones is one of the “newer” plants, as it was built in the late 1970s.

Just like many other utilities, Reclamation plans its maintenance work based on service life expectancy for major generation components, as they can usually put a big dent in any budget. For stator windings, a service life of 25 years is a rule of thumb, although continually operating generators at or above their rated capacity can shorten the winding service life. Turbines are assigned a service life of 50 years. Other major components, such as exciters and governors, fall somewhere in between.

Budgeting and planning for the recurring rewinds at the CVP plants typically was a simple process. Outages for such work were programmed on a 25-year cycle, give or take a few years. These planned generator outages could then be sequenced to avoid multiple simultaneous outages in a plant. As long as funding was available, the Mid-Pacific Region accomplished one or two generator rewinds every year. Thus, over the life of each generator, rewinds have occurred on a fairly routine basis.

For instance, Unit 5 at Shasta commenced generation in 1945 and was rewound in 1956, 1969 and 1999. Winding failures or opportunities to increase unit ratings could shorten programmed winding replacements, or the good condition of some windings could increase their lives, so the 25-year cycle was not strictly followed.

As a federal agency, Reclamation traditionally relied on annual appropriations from Congress to fund all aspects of its hydroelectric generator operations, maintenance and rehabilitation. Even though originally funded by Congress, the costs of these activities are reimbursed by the CVP beneficiaries or customers each year. These customers are both the Reclamation water users and power users who receive the benefits from the CVP facilities.

Why would customers “step up?”

As the key components of Reclamation’s hydroelectric infrastructure continued to age, the budgetary resources required to keep all of the major equipment in tip-top shape also increased. But during the 1980s and early 1990s, competition for appropriations from Congress and budget cuts occurred, both of which resulted in fewer funds available for Reclamation, making it necessary to defer planned major rehabilitation projects. This essentially made the orderly and planned periodic replacement process meaningless. Impacts to the hydroelectric generators were not immediately seen, but forced outages started increasing and unit availability was affected.

In 1994, Reclamation power customers in California already had agreed to provide about $25 million in funding for rewinding/uprating of the five Shasta generators. Although this practice was not uncommon in Reclamation’s other regions, it was the first time an experimental funding arrangement was tried in California. The result, when the work was completed in 2005, was an increase in capacity of each of the five Shasta hydro generators to 142 MW from 125 MW.1 In addition, replacement turbines were furnished, which increased their efficiency from 91% to 95.38%.

This arrangement paved the way to an expanded customer funding program. Recognizing the successes at Shasta, Reclamation asked its water and power customers if they would like to participate in a similar advance funding program to provide all the money needed for Reclamation’s annual operations and maintenance expenses for the California plants.

To understand the rationale behind their response, these customers’ repayment obligation should be explained. As mentioned previously, Reclamation’s water and power customers are responsible for all of the water and power-related costs that have been allocated to them for repayment. These include the capital costs, that is, those costs of constructing the power plants, transmission lines, and portions of the dams and other infrastructure related to power. In addition, the annual O&M costs related to power are reimbursed on an annual basis.

Reclamation proposed that since the California customers are already repaying those power O&M costs, albeit in arrears each year, how about if they advance fund the exact same amount at the beginning of each year? Reclamation could use those advance funds to cover its O&M needs, as well as help accomplish the federal government’s goal to utilize “off-budget” financing wherever possible. All of this is possible under the Contributed Funds Act authorized by Congress in 1921.

As with any negotiations, it is natural that the water and power customers would want something in return. Their request was for Reclamation to involve them in its annual hydro budget preparation and work priority processes. This transparency was not unreasonable, so discussions toward development of an Advance Funding Agreement commenced.


Involving more than 75 water and power customers in designing a program and obtaining their agreement to participate was not unlike “herding cats.” Everyone had good ideas, but developing a consensus took about a year. Fortunately, smaller customers tended to follow the lead of larger ones. Several of the larger power customers include Sacramento Municipal Utility District, Northern California Power Agency, and the city of Santa Clara, all of which own hydroelectric generation facilities. Their expertise was certainly desired, and they were anxious to help.

One group of customers was interested in helping Reclamation prioritize work but, more importantly, they thought they could find ample opportunities to influence cost savings. This group embarked on a tour of several Reclamation power plants, intent on identifying places to “cut the budget.” Much to their surprise, they could not find any significant areas where O&M costs could be reduced, as Reclamation had been frugal in its use of limited funding.

Conversely, the customers’ findings, which were published in an internal report, recommended that additional funds be provided so as to improve the reliability of the power plants. This was the turning point for those water and power customers pledging to develop the Advance Funding Agreement.

Agreement concepts

The agreement was completed and executed in 1997. It is a simple agreement that is voluntary and allows participating water and power customers to commit to provide funds three years in advance of the fiscal year when Reclamation would use them. This time frame was selected to coincide with the federal budget process. The goal was to give Reclamation the opportunity to seek appropriations from Congress should the customers choose not to fund a certain year or only partially fund it. With the mounting success of the program, customers have fully funded the program ever since its inception.

Administration of the agreement is performed by a Governance Board and Technical Committee, both of which are comprised of customers and federal agency representatives. This organizational structure ensures the funding entities have a direct say with regard to what projects or activities would be funded.

The 12-member Technical Committee meets quarterly or as needed if a problem develops, such as a winding failure. Its primary involvement is with evaluating priorities of proposed projects as well as following the status of ongoing projects. The committee requests studies and analysis by Reclamation, such as determining the power benefits of raising Keswick Dam and reviews justifications for upcoming projects. The 12-member board meets twice a year and is the final approving body that represents customer interests and funding levels.


The customers were cautious regarding the amount of funding they provided in the first year. They chose to provide a total of $100,000 in 1998 to fund two small projects: automating the trashrake at the Keswick plant and cleaning the Clear Creek tunnel (which is the penstock for the Carr plant). In addition, the customers created and funded an account called rapid return to service (RRTS) with a balance of $125,000 for reasons obvious in the name: to be used in the event overtime or small component replacement can be achieved in short order to accelerate the return of a generator to service after an unexpected outage.

As trust grew between the parties, advance funding also increased. In 2001, the first funding for the total cost of operations and maintenance of the Spring Creek plant was accomplished, as well as Spring Creek transformer life extension and circuit breaker rehabilitation. In addition, there was an increase in the RRTS of $250,000. The total 2001 funding was $1.4 million. Fast forward to 2012, when customer contributions have increased to 100% of the funds required for operations and maintenance of all Reclamation’s California hydro plants, or $23 million plus an annual $10 million increment directed to major rehabilitation of hydroelectric generator components.

Since the inception of the funding program, huge benefits have accrued both to Reclamation and the power customers. At first there was some reluctance among Reclamation’s staff to answer the many requests for information from customers. There was the natural fear of being second-guessed or having to defend prior decisions. This resistance gradually gave way once it became apparent that the customers wanted to understand the decision-making process as well as share their experiences and wisdom in tackling the same problems. The process has since matured in that all parties are open and sharing with regard to ideas, problem-solving and determining ways to optimize CVP hydro production and reliability.

Ed Roman is a former power contract specialist at SMUD and was a key participant and customer representative during development of the Advance Funding Agreement. “The O&M Funding Program via its governance structure has created a greater sense of trust between Reclamation and Western Area Power Administration staff and an enhanced working relationship among the federal agencies and customer representatives,” he reflected recently. “The transparency afforded by this voluntary agreement provides an opportunity for the customers and agencies to voice honest opinions, request additional information and make recommendations on how the program could be modified and/or improved in the future.”

Once this trust was established, the Reclamation-customer relationship solid-ified and effective and efficient problem-solving occurred.

Oversight/experience sharing

One of the early Technical Committee requests for data related to an effort to determine the “low hanging fruit” in the many Reclamation power projects, or those tasks that would produce the quickest return on investment. Examples include increasing generator efficiency or reducing lost generation resulting from equipment reliability issues. The committee used this data to develop a study that identified the value of the loss of each generator in the project for a year. All of the CVP hydro plants were modeled based on dry-year, average-year, and wet-year hydrology and their energy production calculated at market value. Then the value of the loss of one unit for a year at each plant was determined. The generator that reflected the biggest loss of value was placed at the top of the list for rehabilitation.


This value analysis wasn’t “rocket science,” but its recognition during the decision-making process did result in several immediate changes to the priorities for rewinds and turbine replacements. More than one person was surprised that smaller, base loaded plants once thought to be low priority compared to a much larger Shasta unit would impact the CVP more if it was lost.

Another project identified early involved the turbines at the New Melones plant. Serious cavitation problems had developed over the years. It was so bad that during one annual investigation, when the beam of a flashlight was held on the cavitation damage on one side of a turbine blade, the light could be seen shining through the remaining metal on the other side of the blade. Reclamation was spending as much as $500,000 a year to repair as much cavitation damage at New Melones as could be accomplished with limited time outages and budgets.

The power customers questioned what a new turbine would cost, which was about $2 million in 2002. When they questioned why the turbines were not replaced, Reclamation could only respond that funds were so limited, money was only available for repair, not replacement. Advance funding was quickly provided to replace the two New Melones turbines, and this was accomplished in 2006 and 2007. In addition to eliminating excessive annual repair costs, this work resulted in a 3% efficiency gain for each turbine plus a wider operating range to achieve the higher efficiencies, as a result of the new computer design and modeling technologies used by turbine vendors.

To further capitalize on the technical resources of Reclamation’s customers, we have invited their specialists to participate on technical proposal evaluation committees. This TPEC is part of Reclamation’s acquisition process, where engineers and designers analyze the technical details of proposals submitted by winding and turbine manufacturers in response to solicitations. TPEC recommendations play an important role in determining the vendor that will receive the award. Because the customers have funded the work, their participation in the selection process not only allows insight into the decision-making, it provides Reclamation a great technical resource for peer reviewing the design-to-award work.

The mix of power customer technical specialists that participated in potential project evaluations included engineers, financial analysts and technicians who were all familiar with hydropower operations and facilities. One of the participants was good at the proverbial “thinking outside of the box,” and his efforts steered the group to not only determine the best value when analyzing equipment replacement options, he also stressed the importance of studying ways to optimize Reclamation’s hydro generation operation.

As a result of this thinking, one project that is being pursued is to from 1 to 3 feet on top of the spillway fixed wheel gates at Keswick Dam. This dam captures releases from the Shasta and Spring Creek power plants and regulates flows into the Sacramento River. Adding up to 3 feet on the fixed wheel gates would increase the regulating reservoir capacity, which then will allow Shasta and/or Spring Creek generation to be scheduled a greater amount of time during peak hours every day. This on-peak generation produces a big benefit to the power customers.

If more is better, isn’t much more much better?

Most folks would think this would not be a problem, but too much funding can create other issues. After more than 10 years of the Advance Funding Agreement being in place, many important projects have been undertaken with customer-provided funding. Both New Melones turbines have been replaced, replacement of runners and generator rewinds are under way at the Carr, Spring Creek and Trinity plants; digital governors and generator buses have been uprated at Shasta, excitation systems have been replaced at various plants; and the three units at the Folsom plant are now in the construction phase for rewinds and runner replacements.

There are several more rewinds and runner replacements that will happen in the near future, but the amount of funds currently provided is likely at optimum levels. Reclamation staffing at the power plants, its design engineers, and acquisitions support team have undertaken a mammoth task in bringing the facilities to the long-term viable state. The only limitation is the ability to complete more work within the current staffing levels.

However, power customers’ appetites for efficiency gains when older turbines are replaced have not yet been satisfied. They have a strong desire to realize even more benefits but are limited by current agency processes. As such, the customers are exploring other ways to assist Reclamation in the acquisitions process. One option would be that, instead of providing advance funding, customers would take a Reclamation design and written specification for a turbine and bid and award that work. The new turbine would then be delivered at the time desired for Reclamation staff to install. With the amount of success these customers have had helping Reclamation “think outside of the box,” such creative thinking may continue to provide great value.

Since its inception in 1999 and up to and including the 2012 commitments, the advance funding provided by the power customers has amounted to about $253 million for Reclamation capital rehabilitation and operations and maintenance projects.

In addition, the same agreement covers work performed by the Western Area Power Administration in California. It is projected that by 2012, about 7 million in customer funds will have been provided to WAPA for substation and transmission line projects.

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