Policies Governing BPA's Repayment of Federal Investment Still Need Revision

RCED-84-25: Published: Oct 26, 1983. Publicly Released: Oct 26, 1983.

Additional Materials:

Contact:

Daniel C. White
(202) 353-3711
contact@gao.gov

 

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

Federal law requires the Bonneville Power Administration (BPA) to repay the federal investment in its power generation facilities. In a follow-up to a previous report, GAO examined BPA policies regarding repayment.

Through 1964, BPA used a fixed annual payment approach to repayment. In 1964, BPA adopted the repayment study method to determine revenue requirements. Under this method, estimated revenues are projected to cover estimated expenses over the repayment period of a facility. If actual revenues are insufficient to cover all expenses, the federal repayment is deferred. BPA has also adopted a policy of making repayments on its highest interest-bearing debt rather than repaying its oldest debts. In its earlier report, GAO recommended that BPA use a fixed annual payment approach to amortizing the federal investment. In response, BPA prepared a plan to catch up on deferred payments by 1985; however, BPA recently estimated that it will fall behind by an additional $119.4 million because of a $350 million shortfall in revenues. GAO found that the practice of paying higher interest debts first reduces the BPA payment to the Treasury and costs money because of the difference between the borrowing cost paid by BPA and that paid by the Treasury. While this has had little effect because of the small amount repaid since the policy was adopted, under a fixed-payment approach the effect would be more significant.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GAO will probably review alternatives for federal power pricing methodologies in early FY 1986 and follow-up on this recommendation at that time. GAO, Treasury, and FERC have all made this recommendation and testified in its favor, but it is politically sensitive since it will probably result in higher electric rates in the northwest.

    Recommendation: The Secretary of Energy should direct BPA to replace its repayment study method of determining revenue requirements with a cost-based method incorporating a fixed annual repayment schedule. Incorporated into the cost-based method should be a provision that late or missed repayments incur interest costs at the higher of project interest costs or the Treasury's current cost of borrowing.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: GAO will probably review alternatives for federal power pricing methodologies in early FY 1986 and follow-up on this recommendation at that time. GAO, Treasury, and FERC have all made this recommendation and testified in its favor, but it is politically sensitive since it will probably result in higher electric rates in the northwest.

    Recommendation: The Secretary of Energy should abandon the policy of repaying highest interest projects first and require scheduled repayment of each increment of the federal investment in the power system based on its cost and repayment period. If revenues in any given year exceed the annual debt service, BPA should be authorized to apply surplus revenues to the highest interest-bearing projects.

    Agency Affected: Department of Energy

 

Explore the full database of GAO's Open Recommendations »

Jul 21, 2016

Jun 23, 2016

May 12, 2016

Apr 14, 2016

Mar 4, 2016

Oct 30, 2015

Sep 9, 2015

Aug 17, 2015

Jul 9, 2015

Apr 27, 2015

Looking for more? Browse all our products here