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House Subcommittee Calls for BPA Review by CBB Staff Columbia Basin Bulletin - July 18, 2003

The Bonneville Power Administration's financial management has come under question from a key House subcommittee in Congress.

The House Energy and Water Appropriations Committee, which has jurisdiction over the federal power marketing agency's annual budget, has called for "an independent review" of BPA's "mission, management and financial condition" in the light of recent findings by the General Accounting Office.

The directive to the secretary of energy to conduct an independent review of Bonneville is contained in a report by the subcommittee as part of its FY2004 energy and water appropriations bill. Unlike legislation, such reports are not binding, but departments that are funded by appropriations usually comply with the reports of the House and Senate appropriations committees.

The House subcommittee set a deadline for the independent report of Dec. 31, 2004. It also said the secretary should make specific recommendations to Congress "to show how Bonneville might focus its mission on delivering the electricity generated by the federal hydropower system and reduce the risk to the ratepayers in the region and to the federal Treasury."

The House passed the energy and water bill today. The Senate Appropriations Committee, which approved its version of the bill on Thursday, did not raise issues about Bonneville's finances or management.

After the Senate bill is passed, the House and Senate appropriation committees will meet to iron out differences in their bills and reports before a final bill and report is passed and sent to President Bush.

Bonneville Power officials are familiar with the issues raised by the House subcommittee and the GAO, which audits federal agencies for Congress, and have been cooperating with GAO staff. But they disagree with some of its major findings and with the House energy and water subcommittee's characterization of the risk that Bonneville might not meet its annual debt repayment to the U.S. Treasury.

The independent review of Bonneville would address four GAO findings. The subcommittee said those were:

• Last year's congressionally approved increase in BPA borrowing authority for transmission improvements "will increase BPA's overall costs but will not resolve its current financial difficulties on the power generation side," namely, low cash reserves and poor bond rating;
• "BPA is currently overextended as a result of committing to provide more power than it can generate from the federal hydropower system, creating greater volatility in costs and revenues;
• Northwest "stakeholders see a lack of sufficient oversight and a lack of incentives to control costs;"

"The net result is that Bonneville continues to operate at significant financial risk, which impacts both ratepayers in the region and taxpayers in the rest of the country," the House subcommittee said in its report.

In response, Jeff Stier, vice president for federal relations, took issue with the subcommittee's conclusion.

"We just have a fundamental difference of opinion and point of view about how much risk we pose to the Treasury and the taxpayers," Stier said today. "Our track record is quite good, and we have the tools in place and have demonstrated our willingness to use them to maintain a high probability" of making its annual payment, which is about $700 million. Bonneville will make its full Treasury payment on time this fall for the 20th year in a row "after some of most trying years" in its history, he said. BPA raised its wholesale power rates by about 50 percent over the past two years to cover costs incurred during the 2001 West Coast energy shortage and drought in 2001 and 2002. In addition, it has paid down its federal debt by about $500 million in the last two years by in effect shifting the debt to new lower-interest bonds issued by Northwest Energy, the successor of WPPSS. Bonneville this year raised rates by 5 percent for the second time in two years over the objections of some public utility customers who were willing to risk a greater chance of not making the full payment, Stier said. But that would have major political repercussions in Congress for the future of the agency and of Northwest consumers' cost-based rates. "We tried to strike a balance between the lowest possible rate increase and highest possible chance of making our payment," he said.

GAO also is investigating BPA's financial management at the request of the Senate Indian Affairs Committee, which held a hearing this spring on the issue. At that hearing, Columbia Basin Indian tribes complained Bonneville was not meeting its obligations for salmon recovery under the Northwest Power Act and Endangered Species Act and was cutting its budget for fish and wildlife mitigation projects in the region.

Stier agreed that during the 1990s, Bonneville officials obligated the agency to serve a much larger customer load than the federal hydropower system generates. But those decisions were made in response to demands by the region's industries, utilities and elected leaders, including members of Congress and Clinton administration officials.

Under 10-year settlement agreements with investor owned utilities in the region, for example, BPA agreed to provide 1000 average megawatts of power and 900 aMW of cash benefits in the first five years (2001-2006). The settlement resolved the IOUs' rights under the so-called residential power exchange program of the Northwest Power Act.

Since those contracts were signed, however, the drought and Western electricity shortages greatly reduced the supply of power and sharply increased the price, thereby reducing BPA's revenues and raising its costs.

Also this week, Sen. Ron Wyden, R-Ore., called on Bonneville Power officials to settle a lawsuit brought by public utilities against the IOU contracts. The publicly owned utilities, which have been forced to pass along BPA's rate increases, argue BPA provided more benefits to the investor-owned utilities than the Northwest Power Act allows.

Wyden said an out-of-court settlement between public and investor owned utilities "would clearly be a win-win proposition for the region" and could save at least $400 million" through 2006. That savings would allow Bonneville to reduce current rates by up to 6 percent this year, "and it would give regional utilities and consumers greater certainty about Bonneville power for the future," he said.