Energy:

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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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.

Early in its history, Bonneville adopted annual amortization schedules as a businesslike approach to measuring repayment progress. An economic crisis during the late 1950's and early 1960's caused it to depart from this approach, and it could not meet its scheduled annual repayment requirements. Believing that a rate increase would seriously impair the economic growth of the region, it adopted a policy which used future revenue forecasts to provide conformance to repayment requirements. A 1966 House committee report has remained the test for revenue and repayment sufficiency, but DOE and the Department of the Interior have continued to change repayment policies. While Bonneville has been encouraged to explore a cost accounting amortization approach as an alternative to current repayment study methodology, its officials have decided to retain existing repayment methodology in the near term and are willing to consider a range of cost-based alternatives. However, Bonneville has neither identified a preferred alternative nor established a schedule for doing so. GAO believes that a cost-based approach would offer many advantages over the current methodology. The factors identified by GAO as those Bonneville should consider in evaluating its current policies and alternatives fall into two categories involving: (1) requirements of the Pacific Northwest Electric Power Planning and Conservation Act; and (2) principles of good government. The requirements of the act should be major considerations in evaluating repayment policies.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: 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.

    Recommendation: 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.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: Recommendations in RCED-84-25 make this recommendation obsolete.

    Recommendation: 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.

    Agency Affected: Department of Energy

 

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