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Discussions Continue on Fish Project Spending for 2004-2006 by Barry Espenson Columbia Basin Bulletin - February 20, 2004

The fiscal year 2004 fish and wildlife program budget is predicted to reach unprecedented levels because of Bonneville Power Administration accounting policies and management, say project sponsors, Northwest Power and Conservation Council staff and at least some Council members.

Those councilors and the fish and wildlife managers suggested this week that BPA inject the necessary additional funding into the Columbia River program to right the ship. And officials for that federal power marketing agency opened that door a small crack.

BPA is "willing to explore" a remedy for the budget dilemma as long as it doesn't affect the wholesale power rates that the agency is charging its customers, Therese Lamb said Thursday. Lamb is BPA's vice president for Environment, Fish and Wildlife.

Unless the prevailing budget strategy is changed, spending could potentially shoot past the $139 million mark that Bonneville has said the NPCC program can average for the period 2003-05 at maximum. The Council in September recommended $154 million worth of projects for fiscal 2004, assuming 2003 spending would only amount to $124 million.

That would have made a two-year average of $139 million. Except that 2003 spending -- including invoices still being processed as that year's expenditures -- has passed $134 million.

Lamb this week during the Council's meeting Boise asked for the Council's guidance for how it wanted the budget managed for the balance of 2004 and the following two years. The federal agency is contracting toward the Council's recommendation, or just slightly below. Accounting standards established by BPA say it will spend no more than $153 million in any one of the years.

If that level of spending is reached in 2004, that means the program has to maintain a $131.25 million annual average for 2005-06 to bring the four-year average down to $139 million.

Lamb and Scott Hampton, BPA's fish and wildlife business operations support manager, asked the Council if they wanted to put the brakes on this year's budget, perhaps through a renegotiation of contracts, or manage to the $153 million/$131.25 million/$131.25 million scenario.

"That would require some pretty aggressive actions in '04," Lamb said of any attempt to reduce the scope of work for existing contracts. Hampton said that roughly 75 percent of the project contracts are in place. Lamb came to the Council asking for a "confirmation of a budget strategy" either begin cutting back now or begin planning for the more austere budget in the future years.

"We need to reconcile these two paths we have," Lamb said.

The 2003 spending swelled unexpectedly for a variety of reasons. Hampton, and the Columbia Basin Fish and Wildlife Authority's Tom Iverson, estimated that nearly $10 million worth of invoices for work carried out in 2002 or earlier were paid with 2003 funds.

Bills that have come in in 2002 and 2003 for work conducted in earlier years are part of the "$40 million net gap" between contract obligations made and contracts actually paid during the 1996-2001 rate period, said Doug Marker, NPCC Fish and Wildlife director. said. The Council and staff have repeatedly said that "bow wave" of bills from obligations made under the terms of a 1996-2001 budget memorandum of understanding has distorted recent years' budgets.

Additionally, about $3 million worth of projects that the Council had thought could be funded through the "capital" portion of the program budget now have to be funded through the "expense" side of the budget. BPA's most recent "safety net" rate adjustment plugged in annual average program costs of $139 million for expense and $36 million for capital.

BPA also is funding about $2 million worth of work that the Council did not recommend for funding. Most of it is released to Endangered Species Act obligations.

A Council staff memo points out that Council recommended projects overspent by about $8 million, largely because of 2002 work that was billed late. The Council recommends what projects it feels should be funded, and Bonneville manages the contracts and pays the bills as mitigation for hydrosystem impacts on fish and wildlife. Individual project spending caps are now incorporated in the annual contracts.

Washington Councilor Larry Cassidy pointed out that Council staff calculations show that $134.4 million worth of recommendations for 320 projects were forwarded to Bonneville for 2003 and only $123 million was spent on those 2003 recommendations. Yet because of the other factors, BPA calculated that $140.5 million in bills actually accrued during the fiscal year.

Oregon Councilor Melinda Eden suggested that Bonneville had the financial means to make up that difference without tacking on the costs to rates paid by power customers.

"Bonneville is responsible for the fix we are in now and Bonneville ought to fix it," Eden said. She said that a shift last year from an "obligations" based accounting system to one based on cash flow will cause that bow wave of past years' bill to continue to disrupt current program budgets. BPA now manages program cash flow, with all bills received in a fiscal year credited to that year's budget total, regardless of when the contract was tendered or when the work was done.

Lamb acknowledged that a lack of individual project spending caps during the early part of 2003 resulting in overspending and that a number of other issues related to changes in accounting practices need to be discussed. But the commitment made in the rate case to hold to the $139 million average can not be altered.

Montana Councilor John Hines likewise said that "going to $154 (million) isn't the result of Council actions" and thus Council recommended projects should not be made to suffer. He offered a fourth option that he said potentially would maintain the integrity of the Council recommendations without putting an additional burden on ratepayers.

Hines said that if a reduction in summer spill is implemented this summer, a portion of the additional revenues produced by the hydrosystem could be used to pay off those past obligations that continue to stress annual program budgets.

"There is time for a one-time true up" of the budget, Hines said. The spill reduction is now being considered by federal fish and wildlife and hydrosystem managers because they believe the costly practice brings minimal biological benefits to migrating salmon. So-called off-set measures are also being considered that would be expected to increase survival and this mitigate for the spill reduction. A decision is expected in late March about whether a test of reduced spill operations will be implemented this year.

The proposed evaluation of reduced spill levels was triggered by the Council program's 2000 mainstem amendment that calls for an evaluation of fish operations that bring equal biological benefits at a lesser cost. Most hydrosystem fish passage operations, such as spill, are prescribed by a federal biological opinion that says the actions are necessary to avoid jeopardizing the survival of ESA-listed fish. Water spilled to facilitate fish passage bypasses the turbines and represents foregone power producing opportunities.

The Council amendment calls for an "equitable sharing" with the program of financial benefits resulting from more cost-effective fish operations.

Lamb said she thought the agency would be "interested in exploring a conversation like that" if the spill evaluation is indeed implemented.

Iverson told the Council's Fish and Wildlife Committee that the region needs "leadership from the Council" in getting BPA to fund the program's needs.

"They need to take some financial responsibility for this situation," Iverson said.

"I really think that the leverage you have is to look at the inefficiency of Bonneville," said Mary Verner, executive director of the Upper Columbia United Tribes. She said the Council and project sponsors have made to jump through hoops and deal with inconsistent and ever-changing BPA policy decisions.

"I feel like we, collectively, have been bullied," she said. Verner said BPA's internal fish and wildlife overhead costs should be reduced. She also suggested that someone other than BPA should manage the fish and wildlife mitigation funding.

The Council this week actually added, rather than subtracted, to that 2004 budget recommendations. It urged an additional $1.26 million in spending to make adjustments in five project budgets that were incorrectly noted in the original budget recommendation in September.

The largest adjustment was the addition of $461,069 to the operations and maintenance budget for Albeni Falls wildlife habitat acquisition project. That differential was the result of monitoring and evaluation and components of the acquisition that BPA will not capitalize.

The ongoing smolt monitoring program budget was also underestimated in the original recommendation. The correction is $329,743. The Lake Billy Shaw operations and maintenance budget requires an increase of $304,899.

Marker told the Council that the recommendations "puts more pressure on the $154 million spending target." But he and Hampton said that normally during the course of the year a number of projects underspend to the overall budget can likely be contained.

"We're comfortable with the risk and I think Bonneville is as well," Marker said.

Hampton said he felt contract managers could hold overall cash flow into the program below the $153 million maximum inscribed in the agency's newly adopted accounting protocols.