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122327 1 (1983-09-14)

handle is hein.gao/gaobactde0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON D.C. 20548 FOR RELEASE ON DELIVERY & } EXPECTED 122327 SEPTEMBER 14, 1983 STATEMENT OF F. KEVIN BOLAND, SENIOR ASSOCIATE DIRECTOR RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION BEFORE THE HOUSE SUBCOMMITTEE ON ENERGY CONSERVATION AND POWER COMMITTEE ON ENERGY AND COMMERCE ON THE BONNEVILLE POWER ADMINISTRATION'S REPAYMENT OF THE FEDERAL INVESTMENT Chairman and Members of the Subcommittee: We appreciate the opportunity to testify before you today on work we have recently completed on the Bonneville Power Administration's (Bonneville) repayment of the Federal investment in its power system and to provide answers to your questions. The Federal investment in the Columbia River Power System exceeds $7 billion of which Bonneville has repaid about $638 million. Bonneville collects revenues to pay for the costs of oper- ation and maintenance, purchased and exchange power, transmission service, and amortiza- tion of the Federal investment. The Federal investment is the lowest category of ex- pense, therefore, if revenues are insufficient to cover all expenses the Federal investment is deferred. During the past 10 years, Bonneville has repaid little of the Federal investment. In 1965 Bonneville abandoned making fixed annual repayments and began using a repayment study method for determining revenue requirements. Using the repayment study method, Bonneville has experienced a net operating loss in 8 of the past 10 years and has only paid a little over $43 million on the Federal investment during the past 10 years. In fact, Bonneville has not experienced net operating income since 1976 and is projecting a shortfall again for 1983. In June 1981, GAO recommended that Bonneville adopt a cost-based (mortgage-type) approach to repayment as an alternative to its current system. Under that approach, re- payment would once again be scheduled on an annual basis and form the basis for deter- mining revenue requirements. Bonneville objected to GAO's recommendation. The repayment issue has also concerned Bonneville's Adninistrator. In March 1982, he stated actions had been taken to catch up on the repayment by 1985. While Bonneville has raised its power rates since then, it is projecting a net operating loss of about $121.5 million for fiscal year 1983. However, the Administrator still plans to catch up on repayments by fiscal year 1985. To accomplish this, rates to be effective November 1983 have been designed to recover the cumulative deferral of interest through fiscal year 1982 of $152 million, the fiscal year 1983 projected deferral of $83 million plus the regularly scheduled amortization payment for fiscal years 1984-85 of $226 million for a total of $461 million. The major reason Bonneville has failed to catch up is that demand was overestimated and consequently revenue estimates did not materialize. For example, between June 1982 and June 1983 Bonneville overestimated average loads by 8.5 percent. FER also recognized this phenamena stating that Bonneville's overestimation of demand, in spite of information to the contrary, will create pressure on future rate- payers to make up deferred payments on the Federal investment. In its current rate filing, we noted that Bonneville is projecting sales to increase by 9.5 percent by oper- ating year 1985. If Bonneville's estimates of power sales do not materialize as they have not in the past a revenue shortfall could occur again. Because of Bonneville's repayment performance over the past 10 years we continue to believe that a cost-based (nortgage-type) repayment approach is needed to facilitate timely and equitable repayment of the Federal investment.

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