[Senate Report 104-102]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 135
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-102
_______________________________________________________________________


 
     BONNEVILLE POWER ADMINISTRATION APPROPRIATIONS REFINANCING ACT

                                _______


    July 11 (legislative day, July 10), 1995.--Ordered to be printed

_______________________________________________________________________


  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                          [To accompany S. 92]
    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 92) to provide for the reconstitution of 
outstanding repayment obligations of the Administrator of the 
Bonneville Power Administration for the appropriated capital 
investment in the Federal Columbia River Power System, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.
                         purpose of the measure

    The purpose of S. 92 is to provide for the reconstitution 
of outstanding repayment obligations of the Administrator of 
the Bonneville Power Administration for the appropriated 
capital investments in the Federal Columbia River Power system 
(FCRPS).

                      summary of major provisions

    S. 92 would reset Bonneville's repayment obligation on all 
outstanding appropriated Federal investments in the FCRPS, as 
of October 1, 1995. The interest rates under which Bonneville 
sets power rates to repay the FCRPS investments would thus 
increase from their relatively low imbedded levels, which 
average approximately 3.4 percent, to current Treasury interest 
rates. Treasury interest rates at the time of the resetting of 
the principal amount of the investments are expected to be 
substantially higher than the historically imbedded rates.
    The total principal amount outstanding on the appropriated 
investment repayment responsibility, now approximately $6.7 
billion, would be reset to equal the sum of the net present 
value of the payments, BPA would be expected to make under 
current practice, plus an increment of $100 million. The 
present value would be determined using then current Treasury 
rates. The bill would lead BPA to recover for return to the 
Treasury an additional $100 million in net present value over 
that which would be returned under existing repayment 
conditions.

Offer of contract terms

    S. 92 also requires BPA to offer certain terms for all 
existing and future contracts for the sale of electric power 
and transmission. These terms would protect ratepayers from 
BPA's setting rates in a manner that conflicts with certain 
repayment terms provided in this bill. The offered contract 
terms would also protect against the United States' recovering 
any return on the subject Federal investments in addition to 
the return specified. The United States will benefit because 
the cost certainly provided would make BPA a more appealing 
electric power supplier and thereby improve BPA's ability to 
meet its Treasury payment obligations.

Reset principal and interest

    Under existing law, BPA is required to establish rates 
sufficient to meet all of its non-Federal obligations and its 
repayment responsibilities to the United States Treasury. After 
first meeting BPA's non-Federal obligations, BPA's receipts in 
the revolving fund known as the Bonneville Fund pay or repay 
debt service on bonds BPA may issue and sell to the U.S. 
Treasury, annual operation and maintenance expenses 
appropriated in the first instance to the U.S. Army Corps of 
Engineers and the U.S. Bureau of Reclamation, certain non-
interest bearing obligations for reclamation projects in the 
Pacific Northwest, and myriad capital investments in the FCRPS 
funded primarily through annual appropriations. The bill 
addresses this latter class of BPA's Federal repayment 
responsibilities only.
    BPA's current repayment obligation for these investments is 
to set power and transmission rates sufficient to recover their 
costs, plus a return on equity at interest rates prevailing at 
the time construction commenced on the related project, unless 
such interest rates are otherwise specifically prescribed in 
law. BPA sets power and transmission rates to recover each 
investment within the expected useful life of the related 
facility, while paying highest interest bearing Federal 
repayment responsibilities first. The bill would not affect 
this practice, although the bill limits the prepayments BPA may 
make on the appropriated investments to $100 million principal 
amount through fiscal year 2000. While the bill protects 
against the acceleration of the date by which BPA assumes, for 
ratemaking purposes, that the investments are to be repaid, it 
pointedly does not affect administrative authority under 
current repayment practice to set such due dates that are later 
than those currently in place. The bill would also not affect 
the nature of the repayment obligation on these appropriated 
investments as cumulative preferred dividends. If unpaid, the 
interest and principal would still be carried over to future 
years in which the payment thereon could be tendered.
    The bill would, however, raise the investments' rates of 
return that BPA assumes in setting its power and transmission 
rates to Treasury rates prevailing at the time of the 
refinancing transaction. The date of this transaction is 
October 1, 1995, which coincides with the commencement of BPA's 
next fiscal year. The new interest rates assigned to the reset 
principal amount of the various investments will depend on the 
repayment dates of the respective investments. Thus, in effect, 
BPA would use the prevailing yield curve to determine the new 
rate of return for each specific investment.
    While the interest rates for most if not all appropriated 
investments will increase, the nominal principal amount will 
decrease because each principal amount will be adjusted to the 
present value of the payments BPA would make therefor under 
current practice of using a discount rate that is identical to 
the interest rate of return on the investment to be assigned 
under this bill. The existing principal balance is 
approximately $6.7 billion, and would be reduced to 
approximately $4 billion, assuming current discount rates. Once 
adjusted in this manner, each investment will be increased by a 
pro rata share of $100 million, and bear interest at the new 
interest rate until prepaid, or until the due date, whichever 
is earlier. This supplement to the present value of BPA's 
repayment obligation will cause a noticeable but tolerable 
increase in the costs to be recovered in BPA's rates. It will 
also result in favorable budget scoring effects.
    The bill requires that BPA offer certain contract terms in 
all future and existing contracts for the sale of electric 
power and the provision of transmission services. These 
contract terms are intended to discourage a future Congress 
from amending law in a manner that would exact further returns 
with respect to an investment once the investment is repaid, or 
from taking returns on the investment in addition to the 
principal and interest provided under the bill. The contract 
provisions assure that if a future Congress were to enact 
subsequent legislation to circumvent the contract provisions, 
the parties protected by the contract term could seek 
compensation against the United States under the Fifth 
Amendment to the U.S. Constitution. The contract provisions 
also clarify that a breach by the United States of the contract 
terms would not be recovered in BPA's rates but rather would be 
paid by the extant continuing appropriation for the payment of 
claims against the United States.
    These contract provisions will assure BPA's customers that 
a future Congress or administration will not seek mid-stream to 
accelerate or increase repayment of the Federally-appropriated 
investments in the FCRPS. This will enable BPA to maintain a 
competitive posture in the marketing of its products and 
enhance BPA's ability to make its Federal repayment obligations 
on time and in full. It will also bring final resolution to an 
issue that has for many years absorbed the attention of policy 
makers in the Washington, D.C. and in the Pacific Northwest.

Colville Tribes Grand Coulee Dam Settlement Act

    Section 9 of S. 92 would provide certain appropriations to 
BPA in connection with payments. BPA would make under the 
previously enacted Public Law No. 103-436, The Confederated 
Tribe of the Colville Reservation Grand Coulee Dam Settlement 
Act, enacted on December 22, 1994. Section 9 of S. 92 would 
replace section 6 of Public Law No. 103-436. BPA's obligation 
to make payments to the Tribes under the Settlement Agreement 
authorized in P.L. 103-436 would not in anyway change if S. 92 
were enacted. Likewise, BPA's payments to the Tribes under the 
Settlement Agreement authorized in the P.L. 103-436, would in 
no manner be conditioned on or subject to the availability of 
the permanent appropriation provided under S. 92.
    Pursuant to the settlement agreement with the Tribes 
(Settlement Agreement), BPA is obligated to pay amounts to the 
Tribes so long as Grand Coulee Dam produces electric power. 
Section 6 of the Colville Settlement legislation, as enacted, 
includes Bonneville Fund repayment credit provisions rather 
than the permanent appropriation included in this bill. By 
contrast, the Administration's September 15, 1994, proposed 
Bonneville Power Administration Appropriations Refinancing Act, 
as well as S. 92 include a permanent appropriation for the 
Bonneville Fund in lieu of the credits.
    These appropriations, like the credits, would partially 
offset the BPA rate impacts of the annual payments by BPA to 
the Tribes under the Settlement Agreement. Under either 
approach, the portion of the settlement borne by Treasury is 
identical in present value terms. Thus, the taxpayers, through 
the appropriated amounts under section 9 and amounts paid from 
the judgment fund to the Tribes under the Settlement Agreement, 
and BPA's ratepayers, through the BPA's obligations to pay 
annual amounts under the Settlement Agreement, would each bear 
an equitable share of the costs of the settlement. The 
Committee is assured that the same results can be achieved by 
the permanent appropriation approach as by the provision of 
permanent repayment offset credits to the Bonneville Fund.
    Although the amounts appropriated to BPA in section 9 are 
made in connection the settlement agreement, BPA may obligate 
against and expend these amounts for any authorized purpose. In 
addition, these amounts are made available without fiscal year 
limitation, meaning that the amounts remain available to BPA 
until expended. In this manner the amounts appropriated under 
section 9 are the equivalent of other amounts available in the 
Bonneville Fund and constitute an ``appropriation by Congress 
for the fund'' within the meaning of section 11(a)(3) of the 
Federal Columbia River Transmission System Act (16 USC. 838i 
(a)(3)).
    The bill would appropriate to BPA, without fiscal year 
limitation, $15.25 million in fiscal year 1996, $15.86 million 
in fiscal year 1997, $16.49 million in fiscal year 1998, $17.15 
million fiscal year 1999, $17.84 million in fiscal year 2000, 
and $4.0 million in each succeeding fiscal year so long as BPA 
makes annual payments to the Tribes under the Settlement 
Agreement.
    The annual amounts appropriated hereunder, including fiscal 
years 2001 and beyond, will be made available to the BPA Fund 
at the beginning of the fiscal year in which a payment is due 
to the Tribes under the Settlement Agreement. The Settlement 
Agreement provides that annual settlement amounts are based on 
a fiscal year's power production from the Grand Coulee project. 
The amount to be paid to the Tribes in respect of a fiscal 
year's power production is due on the March 1 following the end 
of such fiscal year in which power was produced. Thus, for 
example, Bonneville will calculate the amount due the Tribes on 
March 1, 2001 for operation of the project in fiscal year 2000. 
Bonneville will receive a $4 million appropriation under 
section 9 on the first day of the fiscal year 2001 in which the 
related settlement payment is due, October 1, 2000.
    The amounts under this appropriation for fiscal years after 
fiscal year 2000 are available ``so long as the Administrator 
makes payments to the Tribes.'' For those fiscal years 
beginning with fiscal year 2001, the Committee understands that 
BPA will provide certification to the Secretary of the Treasury 
that the Grand Coulee project generated electric power in the 
prior fiscal year and that under the terms of the Settlement 
Agreement BPA is obligated to make an annual settlement payment 
therefor to the Tribes. In general, BPA should provide such a 
notice to the Secretary not less than 30 days prior to the 
beginning of the fiscal year in which the related payment is 
due under the settlement agreement, for fiscal years 2001 and 
beyond only. Once the notice has been received, the Secretary 
of the Treasury shall make available to the Bonneville Fund the 
$4 million on the first day of the fiscal year in which the 
related settlement payment is due. Thus, for example, within 30 
days of the end of fiscal year 2000, BPA will provide a 
certification to the Secretary of Treasury, the Secretary will, 
under this appropriation, make $4 million available in the 
Bonneville Fund at the beginning of fiscal year 2001, and on 
March 1, 2001, BPA will pay the Tribes the settlement payment 
for fiscal year 2000 operations.

Elimination of future below-cost investments

    S. 92 proposes to make certain changes to repayment 
practices relating to appropriated capital investments 
hereafter made in the FCRPS. These changes address the 
calculation of interest during construction of the related 
facility and the determination of the interest rate assigned to 
the investment once the related facility is placed in service. 
These changes assure that no additional investments will be 
made in the FCRPS at interest rates below Treasury's cost of 
money.

                          background and need

    BPA is at a crossroads. As the power marketer for abundant 
inexpensive hydroelectric power from the Columbia River and 
other river systems in the Pacific Northwest, BPA was for many 
years unhampered by serious competitive pressure. Free for the 
most part from the constraints that normally attend 
competition, BPA was able to use its cheap resource mix to 
achieve revenues that enabled it to pursue the ambitious 
mandates of the Pacific Northwest Power Planning and 
Conservation Act of 1980 (Northwest Power Act). Whatever their 
views of BPA's mandated programs, BPA's customers stayed 
because BPA was by a substantial margin the low-cost provider, 
with a reliable and stable bulk electric power system unequaled 
in the world. Indeed, low cost Federal hydroelectric power was 
the key assumption underpinning the Northwest Power Act. The 
assumption must now yield to a new reality. While the costs of 
BPA's required fish mitigation efforts under the Endangered 
Species Act and the Northwest Power Act, and its resource 
acquisitions (primarily nuclear energy and electric power 
conservation) have driven BPA's price inexorably upward, other 
factors have aligned to drive down the costs of alternative 
sources of electric power. New technology in the form of highly 
efficient combined cycle gas turbines, declining gas prices 
caused by open competition and the discovery and exploitation 
of huge gas deposits in Canada, and the presence of surplus gas 
generation in California have combined to lure long term BPA 
customers away from BPA and Federal hydroelectric power.
    First and foremost BPA is a business enterprise. It must 
meet the competition, and maintain a customer base sufficient 
to fund its statutory responsibilities and to protect the 
billions of dollars invested in the FCRPS by Federal taxpayers. 
To protect the investment, BPA is cutting costs dramatically 
through huge program deferrals, program elimination and staff 
reductions. These severe cuts are essential to maintaining an 
adequately low product price. Nonetheless, the Committee 
realizes that it may not be enough. To maintain a long-term 
customer base, BPA must be ``rate stable,'' meaning it must be 
able to assure its customers that they are insulated from 
important risks of cost escalation.
    For many years, several administrations have threatened to 
change fundamentally the terms upon which BPA satisfies its 
obligation to return the taxpayers' investment in the FCRPS. 
These proposals had varying facets but in general would have 
increased substantially the returns to the Treasury. Faced with 
these annual threats, BPA's customers are concerned that 
steeply increased returns to the Treasury may ultimately be 
visited on them. The bill would eliminate this risk. Yet at the 
same time it would exact from ratepayers a fair price for 
eliminating the uncertainty. Analogizing to a common 
transaction relating to mortgages or other financial contracts, 
the bill would have BPA and its ratepayers pay a charge to 
refinance the contract to obtain other favorable terms. At the 
same time, the bill acknowledges the new reality of the 
marketplace and seeks to strengthen BPA so that it is 
positioned in the long run to recoup the Federal investment in 
full.
    The purpose of S. 92 is to assure power purchasers that the 
Bonneville Power Administration (BPA) will not be forced to 
raise its rates to noncompetitive levels in order to satisfy 
possible future changes in law or practice relating to the 
requirements under which BPA presently repays the Federal 
capital investment funded by appropriations in the Federal 
Columbia River Power System (FCRPS). In exchange for providing 
enhanced certainty in the terms of BPA's repayment 
responsibilities, the U.S. Treasury will realize additional 
returns from BPA ratepayers because the bill increases BPA's 
payments in respect of the investments by a net present value 
of $100 million. It is estimated the bill would also reduce the 
Federal deficit. S. 92 provides additional benefits to the U.S. 
Treasury because BPA will be better positioned to retain market 
share and thereby fund all of its responsibilities, including 
the fish and wildlife duties under the Northwest Power Act and 
the repayment obligations to the U.S. Treasury. The bill also 
clarifies several technical aspects of administrative practice 
for the repayment of Federal investments in the FCRPS.

                          legislative history

    In the 103rd Congress, on July 28, 1994, S. 2332, the 
Bonneville Power Administration Refinancing Act, was introduced 
by Senator Hatfield and Senator Murray. On January 4, 1995, S. 
92 was introduced by Senator Hatfield for himself and Senator 
Murray. On March 21, 1995, the Subcommittee on Energy 
Production and Regulation held a hearing on S. 92.

           committee recommendations and tabulations of votes

    The Senate Committee on Energy and Natural Resources, in 
open business session on June 14, 1995, by a unanimous voice 
vote with a quorum present, recommends that the Senate pass the 
bill as described herein.

                   cost and budgetary considerations

    The following estimate of costs of this measure has been 
provided by the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 23, 1995.
Hon. Frank H. Murkowski,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 92, the Bonneville 
Power Administration Appropriations Refinancing Act.
    Enactment of S. 92 would affect direct spending. Therefore, 
pay-as-you-go procedures would apply to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

               congressional budget office cost estimate

    1. Bill number: S. 92.
    2. Bill title: Bonneville Power Administration 
Appropriations Refinancing Act.
    3. Bill status: As ordered reported by the Senate Committee 
on Energy and Natural Resources on June 14, 1995.
    4. Bill purpose: The bill would change the procedures the 
Bonneville Power Administration (BPA) uses to determine the 
amounts the agency charges its electricity customers to repay 
prior government appropriations that financed the construction 
of the hydroelectric system in the Pacific Northwest. The value 
to the Treasury of such payments would increase slightly, but 
BPA would have to commit, in its contracts for the sale of 
electricity, that it would not assess any additional charges in 
the future to cover previously appropriated construction costs. 
In addition, S. 92 would appropriate funds for future payments 
BPA is required to make to the Colville Tribe, which otherwise 
would be financed by charges levied on BPA's customers.
    5. Estimated cost to the Federal Government: By 
restructuring BPA's appropriated debt, S. 92 would increase the 
debt service payments the agency makes to the Treasury by about 
$30 million annually over the 1996-2000 period. At the same 
time, however, S. 92 would permanently appropriate funds to BPA 
to pay for part of the federal government's settlement with the 
Colville Tribe. These changes would increase receipts to the 
government by an average of $14 million annually over the five-
year period. The following table summarizes these estimated 
budgetary effects.

------------------------------------------------------------------------
                               1996     1997     1998     1999     2000 
------------------------------------------------------------------------
Additional offsetting                                                   
 receipts:                                                              
  Appropriations repayment                                              
    Estimated budget                                                    
     authority.............      -31      -30      -31      -30      -30
                            --------------------------------------------
      Estimated outlays....      -31      -30      -31      -30      -30
Reduction in offsetting                                                 
 receipts:                                                              
  Colville tribe payments                                               
   under S. 92                                                          
    Estimated budget                                                    
     authority.............       15       16       16       17       18
                            --------------------------------------------
      Estimated outlays....       15       16       16       17       18
  Net budgetary impact of                                               
   S. 92 (direct spending)                                              
    Estimated budget                                                    
     authority.............      -16      -14      -15      -13      -12
                            --------------------------------------------
      Estimated outlays....      -16      -14      -15      -13      -12
------------------------------------------------------------------------

    The costs of this bill fall within budget functions 270 and 
450.
    6. Basis of estimate:

Background

    The BPA is responsible for selling electricity generated at 
federally owned dams in the Pacific Northwest. The agency 
operates on a self-financing basis and does not receive annual 
appropriations because it has authority to use receipts from 
the sale of power to pay for its annual operating costs. In 
addition to covering such costs, current law and regulations 
require BPA to set the price it charges for power so that 
receipts are sufficient to recover a share of the federal 
government's capital costs of building these dams and 
hydroelectric facilities.
    From the 1930s through 1994, the federal government 
appropriated $7.7 billion for construction of the hydroelectric 
components of the BPA system. At the end of fiscal year 1994, 
$6.7 billion in construction costs had not yet been repaid by 
hydroelectricity consumers. Interest on this sum is accruing at 
an average annual rate of 3.4 percent. In 1994, BPA collected 
about $300 million from its electricity users to make principal 
and interest payments on the outstanding appropriated 
construction costs of the system. Under current law and 
regulations, BPA estimates that over the 1996-2000 period it 
will collect about $285 million annually from its customers to 
make such payments, mostly for interest.
Appropriated debt

    This bill would restructure BPA's ``appropriated debt,'' 
which is generally the money the government spent to construct 
dams and powerhouses for electricity generation that power 
consumers are expected to repay. S. 92 would also indirectly 
affect how BPA repays the bonds it sells to the Treasury under 
the Federal Columbia River Transmission Act. Funds borrowed 
under this act are used to build the federal electric 
transmission system in the Pacific Northwest. BPA has some 
flexibility in determining when it will repay these bonds to 
Treasury. Thus, if its schedule for repaying appropriated debt 
is changed by the enactment of S. 92, the repayment schedule 
for BPA's Treasury bonds would also change so as to minimize 
total debt service payments to the Treasury. The table captures 
this effect by showing the change in total BPA receipts, some 
of which are used to make Treasury debt service payments, 
including appropriated debt and Treasury bonds.
    Starting in fiscal year 1996, the bill would direct BPA and 
the Treasury to redefine the outstanding appropriated 
construction costs of the system. The bill would require BPA 
and Treasury to calculate the net present value of future 
principal and interest payments on outstanding appropriated 
construction costs, using a discount rate equal to the average 
interest rate on outstanding federal borrowing of comparable 
maturity in September 1995. Under the bill, this net present 
value amount, plus $100 million, would be defined as the new 
outstanding appropriated construction cost of the system. Based 
on CBO's most recent economic assumptions, and on the planned 
repayment terms for BPA's currently outstanding appropriated 
construction costs, we estimate that the applicable discount 
rate would be about 7 percent, yielding a new outstanding 
appropriated construction cost for the BPA system of $4.2 
billion.
    The bill also would assign a new interest rate to be 
applied to the new outstanding appropriated construction cost. 
For system construction costs incurred before fiscal year 1996, 
the new interest rate would be set by the Treasury, considering 
the prevailing yields for government securities of comparable 
maturity in September 1995. For purposes of this estimate, we 
assume this interest rate would average about 7 percent.
    Reducing the outstanding construction cost that must be 
repaid to the Treasury from $6.7 billion to $4.2 billion and 
increasing the average interest rate on this outstanding sum 
from 3.4 percent to about 7 percent would require the BPA to 
collect more money from its electricity customers. Under 
current law, CBO estimates that debt service repayments to the 
Treasury would range from about $720 million in 1996 to about 
$780 million in 2000. CBO estimates that under S. 92 these debt 
service payments to the Treasury would grow to about $750 
million in 1996 and to about $810 million by 2000. As a result, 
over the 1996-2000 period, payments to BPA from its customers 
would increase by about $30 million annually. The increased 
payments would be reflected in the budget as increased 
offsetting receipts to BPA. BPA would use these increased 
collections to make the additional payments to the Treasury, 
which would be intragovernmental transactions and would have no 
net budgetary impact.
    BPA has estimated that its electricity rates would have to 
rise by about one percent in order to make higher payments for 
outstanding appropriated construction costs of the system. The 
net rate increase resulting from enactment of this bill would 
be about one-half percent, however, because section 9 would 
eliminate the requirement for BPA rate payers to make payments 
to the Colville Tribe over the 1996-2000 period.

Settlement with Colville Tribe

    Section 9 would appropriate about $83 million to BPA over 
the 1996-2000 period to make payments to the Colville Tribe. 
Resulting outlays would average $16.5 million annually for the 
five-year period. In addition, the bill would appropriate $4.1 
million annually starting in 2001 and continuing for as long as 
BPA makes payments to the Colville Tribe under the settlement 
agreement with the tribe. Under current law BPA will make these 
payments to the Colville Tribe with funds collected from the 
sale of power. By appropriating the funds directly, the bill 
would reduce the costs to be borne by BPA's customers, thus 
resulting in lower offsetting receipts from the sale of 
electric power. CBO estimates that this decrease in receipts 
would total about $83 million over the 1996-2000 period.

Contract provisions

    Section 10 would direct BPA to offer to amend its contracts 
with customers covering electric power and related services. If 
desired by customers, BPA would amend current and future 
contracts for sale of power to provide that, following 
implementation of this bill, no additional money may be 
collected by the government from power customers as repayment 
of outstanding appropriated system construction costs, whether 
by way of rate increase, rent charges, lease payments, 
assessments, user charges, or any other fee. The bill would 
further provide that payment of any settlement amounts for a 
breach of this contract provision would be made from the Claims 
and Judgments Fund. The Claims and Judgments Fund is a 
permanent, open-ended appropriation, and any amounts paid from 
it would be considered direct spending. Such claims could 
occur, for example, if future legislation were to raise the 
interest rate on outstanding appropriated construction costs, 
or require regular fixed principal payments for repayment of 
these costs. Since these contract provisions would require the 
Treasury to compensate BPA rate payers for any increase in 
costs, there would be no budgetary advantage to charging BPA 
customers more for repayment of appropriated construction 
costs. Therefore, it is unlikely that any outlays from the 
Claims and Judgments Fund would be necessary for this purpose.
    7. Pay-as-you-go considerations: Section 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985 sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts through 1998. CBO estimates that enactment 
of this bill would affect direct spending. Therefore, pay-as-
you-go procedures would apply to the bill. The following table 
summarizes the estimated pay-as-you-go impact of this 
legislation.

------------------------------------------------------------------------
                                        1995     1996     1997     1998 
------------------------------------------------------------------------
Change in Outlays...................        0      -16      -14      -15
Change in Receipts..................      (1)      (1)      (1)     (1) 
------------------------------------------------------------------------
\1\ Not applicable.                                                     

    8. Estimated cost to state and local governments: None.
    9. Estimate comparison: None.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Kim Cawley.
    12. Estimate approved by: Robert A. Sunshine, for Paul N. 
Van de Water, Assistant Director for Budget Analysis.

                      regulatory impact evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out this measure.
    The bill is not a regulatory measure in the sense of 
imposing Government-established standards or significant 
economic responsibilities on private individuals and 
businesses.
    No personal information would be collected in administering 
the provisions of the bill. Therefore, there would be no impact 
on personal privacy.
    Little, if any additional paperwork would result from the 
enactment of this measure.

                        executive communications

    The pertinent communications received by the Committee from 
the Federal Energy Regulatory Commission setting forth 
Executive agency relating to this measure are set forth below:
  Statement of Jack Robertson, Deputy Administrator, Bonneville Power 
                  Administration, Department of Energy

    It is a pleasure to appear before the Energy Production and 
Regulation Subcommittee of the Senate Committee on Energy and 
Natural Resources. My testimony today will focus on S. 92, the 
``Bonneville Power Administration Appropriations Refinancing 
Act.'' The purpose of this legislation is to provide for the 
reconstitution of outstanding repayment obligations of the 
Administrator of the Bonneville Power Administration for the 
appropriated capital investments in the Federal Columbia River 
Power System. The Administration supports enactment of S. 92.


                               background


    Since the early 1980's, there has been significant 
discussion over proposals to increase interest rates on 
outstanding appropriations that financed the Federal Columbia 
River Power System. Proposals have been made to restructure 
repayment of the obligations on appropriations, including 
increasing the interest rates on these obligations, and 
repaying them on a fixed amortization schedule over the 
remaining repayment period rather than on the flexible schedule 
now in use. These repayment reform proposals would make 
repayment scheduling more rigid and significantly more costly 
to Bonneville's customers.
    Three years ago Senator Hatfield asked Bonneville and its 
customers to initiate discussions to find a way to resolve 
these issues permanently. The result of that was a report 
proposing various long-term solutions. In the fall of 1993, as 
part of the President's National Performance Review Initiative, 
the Administration proposed legislation based on a proposal in 
the report that called for Bonneville to ``buy-out'' its 
outstanding low-interest repayment obligations on 
appropriations with debt that Bonneville would issue on the 
open market. Although the proposed legislation was intended to 
increase the present value of Bonneville's debt service 
payments to the U.S. Treasury, the legislation was scored as 
adding to the Federal deficit because Bonneville would have 
incurred issuance costs and a higher rate of interest than if 
the buy-out were financed through the U.S. Treasury. That 
legislation also raised concerns that Bonneville open market 
access could conflict with the Treasury's overall debt 
management plans. As a result, that legislation did not move. 
Since late 1993, Bonneville has consulted with its customers, 
the Office of Management and Budget, the Department of the 
Treasury, and Congressional Budget Office staff in an effort to 
develop legislation that did not present these problems and 
would benefit both taxpayers and ratepayers.


                            current proposal


    The bill before you, S. 92, was introduced by Senator 
Hatfield and is endorsed by the Administration. This proposal 
is an important part of Bonneville's efforts to maintain its 
position as a reliable, low-cost provider of electric power and 
transmission services in an increasingly competitive 
environment. Greater transmission capacity, more open 
transmission access, and low cost generation alternatives are 
increasing the competitive pressure on Bonneville as a 
wholesale supplier and on its customers as wholesale buyers. 
With increased deregulation and new technology in the power 
industry, Bonneville's customers have more alternative sources 
of low cost power and easier access to those sources. Several 
major Bonneville customers are looking seriously at alternative 
power suppliers, because the gap between the price for 
alternative power supplies and the price for Bonneville's power 
has narrowed dramatically (see attached graph), and because of 
concerns about Bonneville's costs, rate stability and 
competitiveness. Some of Bonneville's customers have already 
chosen to purchase some of their load from suppliers other than 
Bonneville. As these customers look to the future, they see the 
potential for increases in the Bonneville cost base leading to 
further increases in rates. One potential cause of rate 
increases is the threat of large repayment changes. Bonneville 
believes that if Bonneville loses too much of its customer 
base, it will jeopardize Bonneville's ability to repay the 
Federal investment in the Federal Columbia River Power System 
and to sustain investments in fish and wildlife mitigation and 
other key program areas.
    This proposal has advantages for both the Federal taxpayer 
and for the Northwest ratepayer. Both taxpayers and ratepayers 
benefit because the legislation would help reduce a cloud of 
uncertainty regarding future Bonneville rates, would better 
enable Bonneville to maintain its customer base, and would 
improve its competitive position. The taxpayers benefit from 
the payment of an additional $100 million in net present value 
for the privilege of allowing BPA to refinance its 
appropriations debt. Last year, when the Administration 
submitted essentially the same legislation, it estimated that 
the provisions of that legislation would decrease net Federal 
outlays by approximately $45 million over the period of fiscal 
year 1996 through fiscal year 1998. We expect a similar benefit 
from this bill.
    Northwest ratepayers would also benefit because the 
repayment reform risk to Bonneville's financial stability and 
to its rate competitiveness would be resolved. This bill would 
fix the repayment issue by ending the recurring uncertainty 
over the terms and conditions of historic, appropriated 
repayment obligations. The restructured appropriations would be 
assigned interest rates based on Treasury's prevailing yield 
curve. Further, it would prescribe that interest rates on 
capital investment appropriations in the future be based on 
Treasury market rates prevailing at the time the investments 
are placed in service. The bill also includes clarifying 
language regarding Treasury's role in the restructuring 
transaction.
    This proposal calls for Bonneville's estimated $6.7 billion 
in outstanding repayment obligations on appropriations at the 
end of fiscal year 1995, to be restructured by resetting the 
outstanding principal at the present value of the principal and 
annual interest that Bonneville would pay to the U.S. Treasury 
in the absence of this Act, plus $100 million. Interest rates 
on the new principal amounts would be reassigned at prevailing 
Treasury yield curve interest rates at the time of the 
transaction, October 1, 1995. The bill also restricts 
prepayments of the reconstituted obligations to $100 million in 
the period from October 1, 1995, through September 30, 2000. 
Other repayment terms and conditions would remain unaffected. 
The legislation includes a provision directing Bonneville to 
offer a contractual commitment to its customers that these 
appropriations repayment obligations will not be increased in 
the future.
    Included in the bill is the cost of refinancing. This $100 
million cost has been determined based on the unique 
circumstances of the Federal Columbia River Power System, and 
the Administration's position is that it does not establish a 
precedent, in any way, to be used in debt repayment proposals 
for the other power marketing administrations. Bonneville 
customers view the $100 million as an appropriate payment in 
return for the contractual commitment that repayment of the 
outstanding debt will not be altered in the future.
    S. 92 also proposes that Bonneville receive appropriations 
in connection with payments Bonneville will make under the 
Colville Tribes/Grand Coulee Settlement Act. Under the terms of 
the settlement, Bonneville makes annual payments to the 
Colville Tribes beginning at approximately $15 million in 
fiscal year 1996, and escalating under provisions in the 
settlement. Under this bill, Bonneville would receive 
appropriations of an estimated 100 percent of Bonneville's 
annual payments to the Colville Tribes in each of fiscal years 
1996 through 2000. In fiscal years thereafter, Bonneville would 
receive approximately $4 million per year. These appropriated 
amounts, together with a one-time payment of $53 million from 
the Department of Justice Judgment Fund, represent an equitable 
allocation of the ratepayer and taxpayer costs identified in 
the Colville Tribes/Grand Coulee Settlement Act. 
Notwithstanding these appropriations, revenues to the U.S. 
Treasury would be enhanced in each year through 2009.
    This legislation has been designed to minimize the impact 
on Bonneville's ratepayers. The principal amount to be paid 
would decrease and the interest payments would increase, with a 
net increase in power and transmission rates estimated to be 
\1/2\ percent, or an average of $14 million per year, for the 
first five years, and 1 percent thereafter for about the next 
decade. The rate impact would be phased in during the first few 
years, recognizing that Bonneville is currently experiencing 
financial difficulties as a result of several years of drought 
conditions, substantial new fish mitigation costs, and strong 
competitive pressures. Recovery from this drought will take a 
few years. Bonneville has proposed significant new actions to 
help improve its financial position, including cuts in 
spending. Bonneville is also looking into other fundamental 
reforms that could help improve its long term competitiveness. 
It is important to note that if S. 92 is enacted, Bonneville 
would continue to fulfill all its existing statutory 
obligations.


                               conclusion


    In summary, this legislation would result in benefits both 
to Federal taxpayers and to the Northwest region and it would 
enhance Bonneville's future competitiveness and stability by 
removing the risk of future repayment reform. It would also 
enhance Bonneville's continued ability to meet its annual 
Treasury payment. It would result in the U.S. Treasury 
receiving an increase in present value of $100 million in 
Bonneville payments to Treasury and increase net receipts to 
the Treasury. We urge the swift adoption of this legislation.
    Mr. Chairman, that completes my testimony, and I will be 
glad to answer any questions.




                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by S. 92, as ordered reported.