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ENCLOSURE I ENCLOSURE I 



practicable. Our October report also included two additional 

 recommendations. First, we recommended that BPA stop its practice 

 of first paying the highest interest-bearing obligations, rather 

 than repaying debts in the order in which they were incurred. We 

 concluded that the practice of first paying high- Interest 

 obligations reduces BPA's payment to the Treasury. As a result, 

 the Treasury has to borrow more money at interest rates that 

 usually exceed those paid by BPA, thereby costing the taxpayer 

 more . 



The report also recommended that the cost-based method contain 

 a provision that late or missed repayments incur interest costs at 

 the higher of the project's interest costs or the Treasury's 

 current cost of borrowing. In response to our recommendations, the 

 Department of Energy (DOE) stated that (1) BPA's repayment study 

 method was appropriate but that DOE and BPA were continuing to 

 study alternative methodologies, including the cost-based method 

 that we had recommended; (2) imposing an interest penalty on missed 

 repayments was not legally permissible; and (3) paying the highest 

 interest-bearing capital obligation first was consistent with sound 

 business principles. 



In a September 1989 report, we reviewed the authority of 

 several federal agencies, including BPA, to borrow funds when this 

 authority was not provided in advance in annual appropriations 

 acts. At the time, agencies with authority to borrow were 

 financing a large portion of their programs with debt and were 

 repaying their debt with appropriations or new borrowing rather 

 than collections. We recommended that those agencies that would, 

 in all likelihood, be able to repay their borrowings entirely with 

 collections be granted authority to borrow. We concluded that, 

 since BPA had not received appropriations to reduce debt and since 

 BPA had attempted to set its rates at a level sufficient to recover 

 its costs, it was reasoneUale to expect that BPA would be able to 

 repay its $1.8 billion in borrowings with collections.* 



Our 1990 report reviewed BPA's Residential Exchange Progreun, 

 which was created by the Northwest Power Act. The purpose of this 

 program was to reduce the disparity in electric rates paid by 

 residential and small farm customers of the region's utilities by 

 having BPA "exchange" its relatively low-cost power with Northwest 

 utilities that had higher-cost power. We found that, although the 

 program reduced the disparity in rates, this reduction stemmed 

 mostly from significant increases in BPA's rates over the period 

 rather than from reductions in rates attributable to utilities' 

 purchases of lower-cost BPA power. After finding that BPA had not 



^he report noted that BPA was also required to pay $6.7 billion 

 in debt resulting from appropriations. 



4 GAD/BCED-93-133R, GAO Pzodncta go Bonneville PoNer Adainistration 



