B-170905, NOV. 2, 1970

B-170905: Nov 2, 1970

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

FOR SALE OF ELECTRIC POWER IS SUFFICIENTLY BROAD TO PERMIT THE EXECUTION OF CONTRACTS WITH BOUNTIFUL. WHICH ARE PREFERENCE CUSTOMERS. THE LETTER STATES THAT THE PROJECT WAS PLANNED WITH AN ALL-FEDERAL 138 KV TRANSMISSION SYSTEM FOR DELIVERY OF THE POWER IN BULK FROM GENERATING SOURCES TO SELECTED CENTRAL POINTS OF DELIVERY. POWER RATES WERE BASED ON THE COSTS OF SUCH A SYSTEM. WHEELING CONTRACTS WERE ENTERED INTO IN LIEU OF CONSTRUCTING THE ALL-FEDERAL SYSTEM. THE LETTER STATES THAT BEFORE THE WHEELING CONTRACTS WERE ENTERED INTO. IT WAS EXPECTED THAT PREFERENCE CUSTOMERS WOULD BE ABLE TO OBTAIN DELIVERY OF PROJECT POWER ON THE SAME TERMS AND CONDITIONS AS WOULD HAVE BEEN AVAILABLE AND AT NO GREATER COST THAN IF THE ALL-FEDERAL SYSTEM HAD BEEN CONSTRUCTED.

B-170905, NOV. 2, 1970

ELECTRIC POWER CONTRACTS - WHEELING CONTRACTS V FEDERAL SYSTEM CONSTRUCTION ADVICE THAT THE AUTHORITY OF THE SECRETARY OF THE INTERIOR UNDER SEC. 9(C) OF THE ACT OF AUGUST 4, 1939, 43 U.S.C. 485HC), FOR SALE OF ELECTRIC POWER IS SUFFICIENTLY BROAD TO PERMIT THE EXECUTION OF CONTRACTS WITH BOUNTIFUL, PROVO, AND ST. GEORGE, UTAH, UNDER WHICH POWER WOULD BE WHEELED TO THE POINTS OF DELIVERY OVER TRANSMISSION SYSTEMS OF SUCH AREA UTILITIES INSTEAD OF CONSTRUCTING AN ALL-FEDERAL SYSTEM. PREFERENCE CUSTOMERS WOULD BE ABLE TO OBTAIN DELIVERY AT NO GREATER COST THAN UNDER AN ALL-FEDERAL SYSTEM.

TO MR. SECRETARY:

CONSIDERATION HAS BEEN GIVEN TO THE LETTER DATED SEPTEMBER 25, 1970, FROM THE COMMISSIONER, BUREAU OF RECLAMATION, REFERENCE 630, RELATIVE TO THE PROPOSED CONTRACTS FOR THE SALE OF ELECTRIC POWER TO THE CITIES OF BOUNTIFUL, PROVO, AND ST. GEORGE, UTAH, WHICH ARE PREFERENCE CUSTOMERS.

THE COLORADO RIVER STORAGE PROJECT ACT, 43 U.S.C. 620, AMONG OTHER THINGS, AUTHORIZED THE SECRETARY OF THE INTERIOR TO CONSTRUCT, OPERATE, AND MAINTAIN TRANSMISSION FACILITIES AND TO DELIVER PROJECT POWER TO PREFERENCE CUSTOMERS. THE LETTER STATES THAT THE PROJECT WAS PLANNED WITH AN ALL-FEDERAL 138 KV TRANSMISSION SYSTEM FOR DELIVERY OF THE POWER IN BULK FROM GENERATING SOURCES TO SELECTED CENTRAL POINTS OF DELIVERY. POWER RATES WERE BASED ON THE COSTS OF SUCH A SYSTEM. UPON FURTHER INVESTIGATION IT APPEARED THAT SUBSTANTIAL SAVINGS IN PROJECT COSTS COULD BE REALIZED BY ENTERING INTO CONTRACTS WITH AREA UTILITIES UNDER WHICH PROJECT POWER WOULD BE WHEELED TO THE POINTS OF DELIVERY OVER THE TRANSMISSION SYSTEMS OF THE AREA UTILITIES INSTEAD OF CONSTRUCTING AN ALL- FEDERAL SYSTEM. BECAUSE ESTIMATED SAVINGS WOULD BE ABOUT $715,000 A YEAR BY 1975-76, WHEELING CONTRACTS WERE ENTERED INTO IN LIEU OF CONSTRUCTING THE ALL-FEDERAL SYSTEM.

THE LETTER STATES THAT BEFORE THE WHEELING CONTRACTS WERE ENTERED INTO, IT WAS EXPECTED THAT PREFERENCE CUSTOMERS WOULD BE ABLE TO OBTAIN DELIVERY OF PROJECT POWER ON THE SAME TERMS AND CONDITIONS AS WOULD HAVE BEEN AVAILABLE AND AT NO GREATER COST THAN IF THE ALL-FEDERAL SYSTEM HAD BEEN CONSTRUCTED. HOWEVER, IT NOW APPEARS THAT BECAUSE OF DIFFERENT TECHNICAL CONDITIONS, THE COSTS OF SOME PREFERENCE CUSTOMERS FOR CONNECTING TO THE UTILITIES SYSTEM WILL BE GREATER THAN THEY WOULD HAVE BEEN FOR CONNECTING TO THE ALL-FEDERAL SYSTEM. THREE SUCH CASES UNDER CONSIDERATION INVOLVE THE CITIES OF BOUNTIFUL, PROVO, AND ST. GEORGE, UTAH.

IT IS ALSO STATED IN THE LETTER THAT BECAUSE THE RATES THAT CUSTOMERS ARE CHARGED FOR PROJECT POWER ARE BASED ON THE COSTS OF THE ALL-FEDERAL SYSTEM, IT IS PROPOSED TO DEFRAY, OUT OF THE SAVINGS THAT WILL BE REALIZED BY HAVING ENTERED INTO THE WHEELING CONTRACTS, SUCH ADDITIONAL COSTS AS THESE CUSTOMERS HAVE INCURRED OR WILL INCUR BECAUSE THE ALL FEDERAL SYSTEM WAS NOT CONSTRUCTED. IT IS PROPOSED TO DO THIS BY ENTERING INTO CONTRACTS WITH THE CITIES UNDER WHICH THEIR CHARGES FOR PROJECT POWER WILL BE REDUCED BY THE AMOUNT OF THEIR ADDITIONAL COSTS.

IN ACCORDANCE WITH THE LONG-STANDING PRACTICE FOR THE BUREAU OF RECLAMATION NOT TO CONSTRUCT AND OPERATE FACILITIES ON THE SYSTEMS OF OTHER UTILITIES OR TO ACQUIRE TITLE TO SUCH FACILITIES, THE PROPOSED CONTRACTS WITH THE CITIES WILL PROVIDE THAT THE CITIES WILL BUILD AND PAY FOR ADDITIONAL TRANSMISSION FACILITIES NECESSARY TO OBTAIN DELIVERY.

ADDITIONAL FACILITIES HAVE ALREADY BEEN PROVIDED BY BOUNTIFUL. UNDER THE PROPOSED CONTRACT, THE ADDITIONAL COSTS WOULD BE ABOUT $5,000 A YEAR FOR 20 YEARS WHICH WOULD BE OFFSET AGAINST ESTIMATED ANNUAL POWER CHARGES OF $800,000. THE COSTS TO ST. GEORGE ARE ESTIMATED TO BE ABOUT $35,000 A YEAR FOR 20 YEARS TO BE OFFSET AGAINST ESTIMATED ANNUAL POWER CHARGES OF $645,000. ADDITIONAL COSTS FOR PROVO HAVE NOT BEEN COMPUTED.

THE LETTER EXPRESSES THE VIEW THAT WHETHER SUCH CONTRACTS SHOULD BE ENTERED INTO IS A QUESTION OF MANAGEMENT AND BUDGET POLICY, WELL WITHIN YOUR DISCRETION AS AUTHORIZED UNDER SUBSECTION 9(C) OF THE RECLAMATION PROJECT ACT OF 1939, WHICH IS EXPRESSLY MADE APPLICABLE BY SECTION 4 OF THE COLORADO RIVER STORAGE PROJECT ACT, 43 U.S.C 620(C). OUR CONCURRENCE IN THIS VIEW IS REQUESTED. IT IS ALSO STATED THAT THE MATTER WILL BE PRESENTED TO THE APPROPRIATIONS COMMITTEES FOR THEIR APPROVAL.

IN CONNECTION WITH THE MATTER THE COMMISSIONER STATES THAT IN OUR LETTER OF JUNE 28, 1960, B-62789 TO THE CHAIRMAN OF THE SPECIAL SUBCOMMITTEE ON ASSIGNED POWER AND LAND PROBLEMS, COMMITTEE ON GOVERNMENT OPERATIONS, HOUSE OF REPRESENTATIVES, IN AN ANALOGOUS SITUATION WE HAD ADVISED THAT IT WAS WITHIN THE DISCRETION OF THE SECRETARY OF THE INTERIOR TO DISCOUNT FROM THE AMOUNTS CHARGED TO A PURCHASER OF POWER THE COSTS TO THE PURCHASER OF CONSTRUCTING TRANSMISSION FACILITIES NECESSARY TO ENABLE IT TO OBTAIN DELIVERY FROM THE BUREAU OF RECLAMATION.

SUBSECTION 9(C) OF THE ACT OF AUGUST 4, 1939, 51 STAT. 1193, 43 U.S.C. 485HC), REFERRED TO IN THE COMMISSIONER'S LETTER OF SEPTEMBER 25, 1970, PROVIDES IN PERTINENT PART:

" *** ANY SALE OF ELECTRIC POWER OR LEASE OF POWER PRIVILEGES, MADE BY THE SECRETARY IN CONNECTION WITH THE OPERATION OF ANY PROJECT OR DIVISION OF A PROJECT, SHALL BE FOR SUCH PERIOD, NOT TO EXCEED FORTY YEARS, AND AT SUCH RATES AS IN HIS JUDGMENT WILL PRODUCE POWER REVENUES AT LEAST SUFFICIENT TO COVER AN APPROPRIATE SHARE OF THE ANNUAL OPERATION AND MAINTENANCE COST, INTEREST ON AN APPROPRIATE SHARE OF THE CONSTRUCTION INVESTMENT AT NOT LESS THAN 3 PER CENTUM PER ANNUM, AND SUCH OTHER FIXED CHARGES AS THE SECRETARY DEEMS PROPER; *** "

THE BROAD AUTHORITY VESTED IN THE SECRETARY OF THE INTERIOR BY THE ABOVE- QUOTED PROVISIONS TO FIX THE RATES AT WHICH ELECTRIC POWER IS TO BE SOLD WAS RECOGNIZED IN THE DECISION OF THIS OFFICE TO THE THEN SECRETARY OF THE INTERIOR, B-62789, DATED JANUARY 9, 1947, WHICH HELD THAT THOSE PROVISIONS WERE SUFFICIENTLY BROAD TO EMBRACE THE GRANTING OF DISCOUNTS WHERE TRANSMISSION FACILITIES ARE CONSTRUCTED WITH FUNDS CONTRIBUTED FOR THAT PURPOSE BY A CUSTOMER. THAT DECISION WAS CITED IN OUR LETTER OF JUNE 28, 1960, B-62789, REFERRED TO ABOVE, IN WHICH WE ADVISED THE CHAIRMAN OF THE SPECIAL SUBCOMMITTEE ON ASSIGNED POWER AND LAND PROBLEMS, COMMITTEE ON GOVERNMENT OPERATIONS, HOUSE OF REPRESENTATIVES THAT IT WAS WITHIN THE DISCRETION OF THE SECRETARY OF THE INTERIOR TO DISCOUNT FROM AMOUNTS CHARGED TO A PURCHASER OF POWER THE COSTS OF CONSTRUCTING TRANSMISSION FACILITIES NECESSARY TO ENABLE IT TO OBTAIN DELIVERY FROM THE BUREAU OF RECLAMATION.

ACCORDINGLY, UNDER THE CIRCUMSTANCES AND IN THE ABSENCE OF ANY FURTHER PERTINENT LEGISLATION, IT IS OUR VIEW THAT WHETHER OR NOT SUCH CONTRACTS AS ARE NOW PROPOSED SHOULD BE ENTERED INTO IS A MATTER WITHIN THE DISCRETION VESTED IN THE SECRETARY OF THE INTERIOR BY THE PROVISIONS OF SUBSECTION 9(C) OF THE ACT OF AUGUST 4, 1939, QUOTED ABOVE.