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Policies Governing the Bonneville Power Administration's Repayment of Federal Investments Need Revision

EMD-81-94 Published: Jun 16, 1981. Publicly Released: Jun 16, 1981.
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Highlights

The Bonneville Power Administration increased its wholesale electric power rate by about 90 percent in 1979 and has proposed another rate increase of about 50 percent effective July 1, 1981. It expects to follow these increases with annual rate hikes over the next several years. Because of widespread concern over the power rates, GAO conducted a survey of Bonneville's policies for repaying federal investments in power generating and transmitting facilities. Bonneville's repayment policies form the basis for calculating its annual revenue requirements, which in turn determine the size of its power rate increases and also affect the amount and timing of funds returned to the Treasury. The GAO survey included the Department of Energy's (DOE) study of alternative amortization methods initiated in 1979.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Energy The Secretary of Energy should evaluate and explain decreases in cumulative repayments in responding to this letter and, if these decreases are found to be recapitalizations or refinancing of previously repaid investments, stop the practice immediately.
Closed – Not Implemented
The Bonneville Power Administration took no action. GAO has issued a followup report (RCED-84-25, October 26, 1983) which contains new recommendations that will be followed up at a later date.
Department of Energy The Secretary of Energy should develop and implement a cost-based approach to revenue need determination to replace the current repayment study methodology to use in preparing the July 1983 rate proposal. Bonneville should develop a schedule for implementation within 60 days of this report. In implementing such an approach, Bonneville should carefully consider approaches such as retaining the congressionally sanctioned 50-year maximum repayment period or, if repayment periods are extended to equal asset lives, should consider adjusting interest rates during each year of the extension period to equal the Treasury's average cost of borrowing.
Closed – Not Implemented
Recommendations in RCED-84-25 make this recommendation obsolete.

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Topics

Cost accountingCost analysisEconomic analysisElectric utilitiesEnergy suppliesFinancial managementFiscal policiesPolicy evaluationReimbursements to governmentUtility rates