219 



ENCLOSURE I ENCLOSURE I 



FINANCIAL MANAGEMENT 



BACKGROUND 



Federal law requires the Bonneville Power Administration (BPA) 

 to repay the federal investment in the Columbia River Power System 

 — about $8.5 billion as of 1987 --and to set electric power rates at 

 the lowest possible level consistent with sound business practices. 

 The Federal Columbia River Transmission System Act of 1974 placed 

 BPA on a self-financing basis, giving it authority to fund its 

 operations from the revenues of power and transmission service 

 sales and to borrow from the U.S. Treasury. This law also provided 

 that BPA apply revenues to pay for, among other things, the costs 

 of (1) operation and maintenance, (2) purchased and exchanged 

 power, and (3) transmission service. 



BPA made repayments on the federal Investment from 1939 

 through 1965, using a cost-based method that incorporated fixed 

 annual repayments. In 1965, BPA switched to a "repayment study 

 method," under which annual repayments are not required; BPA need 

 only repay the federal investment within its repayment period 

 (usually 50 years). 



GAP WORK 



In June 1981, we concluded that BPA's repayment study method 

 was unaccept£a>le and recommended that BPA replace it with a cost- 

 based (mortgage- type) approach. We found that since BPA had 

 adopted the repayment study method, its repayments of the federal 

 investment had fallen far behind levels that would have been 

 expected if annual schedules had been maintained. We based our 

 recommendation on a number of factors that we believed BPA should 

 consider in evaluating its policies and alternatives, including the 

 requirements of the 1980 Pacific Northwest Electric Power Planning 

 and Conservation Act (Northwest Power Act) and the principles of 

 good government. We found that the repayment study method made it 

 virtually impossible for BPA to (1) adequately meet some of the 

 requirements of the Northwest Power Act, such as the requirement 

 that BPA allocate costs among its various customers, and (2) 

 conform to principles of good government, such as those calling for 

 the establishment of credible and reliable processes, the 

 encouragement of economy and efficiency, and the prevention of 

 unsanctioned burdens on the taxpayer. 



In testimonies before the Congress in August and September 

 1983 and in a report issued in October 1983, we continued to 

 recommend that BPA adopt a repayment method based on costs with 

 fixed annual payments. Our October 1983 report cited the fixed 

 repayment requirement that the Congress had placed on the Tennessee 

 Valley Authority to suggest that a cost-based approach was 



3 GM)/BCEI>-93-133R, GAO Products on Bonneville Poner Adainistratian 



