Bureau of Reclamation:

Information on Operations and Maintenance Activities and Costs at Multipurpose Water Projects

AIMD-00-127: Published: May 31, 2000. Publicly Released: Jun 30, 2000.

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Pursuant to a congressional request, GAO reviewed the Bureau of Reclamation's operation and maintenance (O&M) of federal water projects, focusing on: (1) how the Bureau defines O&M activities; (2) what latitude the Bureau has in deciding which O&M costs to charge customers; (3) how the Bureau accounts for O&M costs; (4) how the Bureau defines overhead; (5) how the Bureau calculates the O&M costs that it charges to customers; (6) what concerns have been raised by customers about excessive O&M costs and to what extent customers have to review cost and recommend reductions; and (7) how the Bureau's cost practices compare to those of other entities.

GAO noted that: (1) the Bureau defines operations as activities related to the normal performance of the functions for which a facility or item of equipment is intended to be used, and maintenance as the upkeep of constructed facilities and structures and capitalized equipment necessary to realize the originally anticipated useful life of a fixed asset; (2) the Bureau's ability to determine which O&M costs to charge to customers is governed by general provisions of reclamation law, project-specific legislation, and specific provisions of contracts the Bureau enters into with water users; (3) Department of Interior policy requires that the Bureau classify costs into direct and indirect categories; (4) the Standard Processes of Costing Business Practices report defines direct costs as all costs which can be specifically and readily identified with an output or which can be specifically and readily identified with two or more outputs through a reasonable and economically feasible allocation; (5) the report defines indirect costs as costs that are jointly or commonly used to produce two or more outputs but are not specifically identifiable with any of the outputs in an economically feasible way or through a reasonable allocation; (6) the Bureau does not normally use the term overhead, but has developed a definition of overhead specifically for Congress as the indirect costs it identified as constituting overhead divided by total annual O&M costs; (7) the Bureau's contracts with customers for supplying water are repayment contracts or water service contracts; (8) for repayment contracts, the customer's O&M costs are generally based on the percentage of the reservoir's water supply to which the customer is entitled; (9) for water service contracts, costs are based on the amount of water delivered multiplied by the rate applicable to the particular customer; (10) some customers have stated that the Bureau's O&M report was not convincing to them and did not alleviate their concerns about Bureau costs; (11) customers felt the report concerned itself primarily with indirect costs and did not adequately address the issue of why water rates have continued to increase; (12) GAO confirmed that customers have been given increased opportunities by the Bureau to review budget data; (13) other entities have reimburseable and nonreimbursable project purposes that are similar to those the the Bureau's; and (14) differences between the Bureau and its entities are: (a) legislatively mandated exclusions; (b) cost exclusions; (c) exclusion of certain categories; and (d) recovery of full employee pensions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Bureau of Reclamation (BOR) has examined Area Manager funds and Associated O&M Program costs in regards to reimbursability. BOR also issued guidance, to be used by offices nationwide, on how Area Manager Funds and Associated O&M Program funding sources are to be used. The guidance clarifies which types of activities involve costs that should be charged to benefiting customers, and which types of activities should be considered nonreimbursable. As a result, the action is responsive to GAO's recommendation.

    Recommendation: To fully recover all appropriate costs, the Secretary of the Interior should direct the Commissioner, Bureau of Reclamation, to examine Area Manager funds and Associated O&M Programs to identify costs related to reimbursable project purposes and recover those costs from the benefiting customers.

    Agency Affected: Department of the Interior

  2. Status: Closed - Not Implemented

    Comments: As of March, 2004, the Bureau of Reclamation was studying its authority to recover the full costs of employee post-retirement health benefits and Civil Service Retirement System (CSRS) pensions related to employees involved in providing reimbursable services. However, the recommendation had not gone through the necessary approval process and an estimated completion date was not established. We acknowledge the efforts made by the Bureau of Reclamation but full implementation of the recommendation was never achieved and therefore we are closing it as not implemented.

    Recommendation: To fully recover all appropriate costs, the Secretary of the Interior should direct the Commissioner, Bureau of Reclamation, to calculate and begin recovering the full costs of employee postretirement health benefits and Civil Service Retirement System employee pension costs related to reimbursable project purposes.

    Agency Affected: Department of the Interior

 

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