B-249705, February 18, 1993

B-249705, February 18, 1993

APPROPRIATIONS/FINANCIAL MANAGEMENT Budget Process Interest Accounting principles Applicability Our accounting standard regarding imputed interest costs does not apply to the U.S. Army Corps of Engineers' delivery of excess hydroelectric power to federal power marketing agencies under 16 U.S.C. Sec. 825s. The standard only applies to determining the cost of selling goods or services outside the federal government.

Mr. John F. Wallace Director of Resource Management Department of the Army U.S. Army Corps of Engineers

Dear Mr. Wallace:

This responds to your letter dated June 30, 1992, asking for our opinion on whether our accounting standards require the U.S. Army Corps of Engineers to account for and recover imputed interest costs related to its hydroelectric power operations. The U.S. Army Audit Agency (AAA) raised this issue in a report that questioned whether the Corps' accounting systems meet our accounting standards. For the reasons stated below, we conclude that our standard regarding imputed interest does not apply to the Corps' delivery of excess hydroelectric power to federal power marketing agencies under 16 U.S.C. Sec. 825s (1988).

DISCUSSION

Our accounting standards require federal agencies to include imputed interest in accounting for their costs of providing publicly sold goods or services. GAO, Policy and Procedures Manual for Guidance of Federal Agencies, tit. 2, app. I, 66-67 (TS No. 2-24, Oct. 31, 1984). The purpose of this requirement is to ensure that agencies that do not pay the federal government's interest costs account for such costs when determining the total cost of providing publicly sold goods or services. Our standards also direct agencies to include imputed interest in the rates to be charged for the goods or services. Id.

At the request of the Assistant Secretary of the Army (Financial Management), AAA conducted a review of the Army's Internal Management Control Program. As a part of that review, AAA examined the basis of the Corps' conclusion that Corps accounting systems conform to our accounting standards. In its report, AAA pointed out that excess hydroelectric power generated at Corps facilities is sold to the public. AAA also pointed out that the Corps' accounting systems do not account for, and the Corps does not recover, the imputed interest associated with producing hydroelectric power. AAA therefore questioned whether the Corps' accounting systems conform to our standards. The report recommended that the Corps request our interpretation of how the imputed interest accounting standard should be applied to the Corps' hydroelectric power operations.

The Corps argues that our accounting standard does not apply to its hydroelectric power operations because it does not sell the hydroelectric power to the public. Under 16 U.S.C. Sec. 825s, the Secretary of the Army must deliver to the Secretary of Energy all excess electrical power generated at Army reservoir projects. The Secretary of Energy must then "transmit and dispose of such power and electricity at the lowest possible rates to consumers consistent with sound business principles . . . ." Id. Thus, when acting under section 825s, the Army delivers excess electrical power to federal power marketing agencies within the Department of Energy and does not itself sell the power outside the federal government.

We agree with AAA that when federal agencies sell hydroelectric power outside the federal government, imputed interest costs should be accounted for and considered in determining rates. However, since our accounting standard on imputed interest only applies to selling goods or services outside the federal government, our standard does not apply to the Army's delivery of excess power under section 825s.

We trust that this responds to your request. Should you have any additional questions or comments concerning this matter please contact Mr. Douglas H. Hilton of my staff at (202) 275-5644.