Bureau of Reclamation: Information on Operations and Maintenance
Activities and Costs at Multipurpose Water Projects (Letter Report,
05/31/2000, GAO/AIMD-00-127).

Pursuant to a congressional request, GAO reviewed the Bureau of
Reclamation's operation and maintenance (O&M) of federal water projects,
focusing on: (1) how the Bureau defines O&M activities; (2) what
latitude the Bureau has in deciding which O&M costs to charge customers;
(3) how the Bureau accounts for O&M costs; (4) how the Bureau defines
overhead; (5) how the Bureau calculates the O&M costs that it charges to
customers; (6) what concerns have been raised by customers about
excessive O&M costs and to what extent customers have to review cost and
recommend reductions; and (7) how the Bureau's cost practices compare to
those of other entities.

GAO noted that: (1) the Bureau defines operations as activities related
to the normal performance of the functions for which a facility or item
of equipment is intended to be used, and maintenance as the upkeep of
constructed facilities and structures and capitalized equipment
necessary to realize the originally anticipated useful life of a fixed
asset; (2) the Bureau's ability to determine which O&M costs to charge
to customers is governed by general provisions of reclamation law,
project-specific legislation, and specific provisions of contracts the
Bureau enters into with water users; (3) Department of Interior policy
requires that the Bureau classify costs into direct and indirect
categories; (4) the Standard Processes of Costing Business Practices
report defines direct costs as all costs which can be specifically and
readily identified with an output or which can be specifically and
readily identified with two or more outputs through a reasonable and
economically feasible allocation; (5) the report defines indirect costs
as costs that are jointly or commonly used to produce two or more
outputs but are not specifically identifiable with any of the outputs in
an economically feasible way or through a reasonable allocation; (6) the
Bureau does not normally use the term overhead, but has developed a
definition of overhead specifically for Congress as the indirect costs
it identified as constituting overhead divided by total annual O&M
costs; (7) the Bureau's contracts with customers for supplying water are
repayment contracts or water service contracts; (8) for repayment
contracts, the customer's O&M costs are generally based on the
percentage of the reservoir's water supply to which the customer is
entitled; (9) for water service contracts, costs are based on the amount
of water delivered multiplied by the rate applicable to the particular
customer; (10) some customers have stated that the Bureau's O&M report
was not convincing to them and did not alleviate their concerns about
Bureau costs; (11) customers felt the report concerned itself primarily
with indirect costs and did not adequately address the issue of why
water rates have continued to increase; (12) GAO confirmed that
customers have been given increased opportunities by the Bureau to
review budget data; (13) other entities have reimburseable and
nonreimbursable project purposes that are similar to those the the
Bureau's; and (14) differences between the Bureau and its entities are:
(a) legislatively mandated exclusions; (b) cost exclusions; (c)
exclusion of certain categories; and (d) recovery of full employee
pensions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-127
     TITLE:  Bureau of Reclamation: Information on Operations and
	     Maintenance Activities and Costs at Multipurpose Water
	     Projects
      DATE:  05/31/2000
   SUBJECT:  Financial management
	     Federal agency accounting systems
	     Overhead costs
	     Water resources development
	     Accounting procedures
	     Cost sharing (finance)
	     Intergovernmental relations
IDENTIFIER:  Bureau of Reclamation Negotiation and Administration of
	     Water Marketing Program
	     Bureau of Reclamation Operation and Maintenance Program
	     Management Program
	     Bureau of Reclamation Examination of Existing Structures
	     Program

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GAO/AIMD-00-127

Accounting and Information
Management Division

B-283210

May 31, 2000

The Honorable John T. Doolittle
Chairman, Subcommittee on Water and Power
Committee on Resources
House of Representatives

Dear Mr. Chairman:

This report responds to your request that we review the Bureau of
Reclamation's operation and maintenance (O&M) of federal water projects. In
response to our previous work regarding the Bureau's sources and uses of
funds at the multipurpose water projects it operates and maintains, you
asked us to review in more detail the Bureau's O&M activities. Specifically,
you asked us to answer the following questions:

ï¿½ How does the Bureau define O&M activities?

ï¿½ What latitude does the Bureau have in deciding which O&M costs to charge
to customers?

ï¿½ How does the Bureau account for O&M costs?

ï¿½ How does the Bureau define overhead?

ï¿½ How does the Bureau calculate the O&M costs that it charges to customers?

ï¿½ What concerns have been raised by customers about excessive O&M costs and
to what extent do customers have an opportunity to review cost origins and
recommend reductions?

ï¿½ How do the Bureau's cost recovery practices compare to those of other
entities?

To respond to your request, we conducted audit work at the Bureau's
Washington, D.C. headquarters and Denver, Colorado office, and at its
Mid-Pacific and Pacific Northwest regions. We also conducted audit work at
the U.S. Army Corps of Engineers, State of California, and at the offices of
representatives from water users' interest groups and customers from
projects representing most of the Bureau's O&M costs in the Mid-Pacific and
Pacific Northwest regions. We interviewed knowledgeable personnel at each
audit site to obtain information relevant to the questions we were asked to
answer.

We also reviewed and analyzed relevant legislation and documents, including
(1) reclamation law, (2) a 1998 Bureau report to Congress on O&M
activities,1 (3) a 1999 Bureau cost accounting report,2 (4) federal guidance
for determining and accounting for the full costs incurred by federal
agencies in providing goods and services, (5) Corps documents pertaining to
O&M activities and cost accounting, (6) State of California documents
pertaining to O&M activities and cost accounting, and
(7) customers' bills and contracts related to the Bureau's water-related
activities. In addition, we obtained written responses from Bureau officials
to document the Bureau's position on selected questions and observed a
budget review meeting held by the Mid-Pacific Region for its customers.

The scope of our review included the Bureau's O&M activities and costs
related to the Bureau's delivery of water for irrigation and municipal and
industrial uses, but did not include reviewing the Bureau's efficiency in
performing O&M activities or incurring the related costs. We conducted our
review from June 1999 through March 2000 in accordance with generally
accepted government auditing standards. We provided the Department of the
Interior and the Bureau of Reclamation copies of a draft of this report for
review and comment. They generally agreed with the thrust of our report's
conclusions and recommendations. We have incorporated their views, including
certain technical comments from the Bureau, into the report, as appropriate,
and have reproduced the comment letter in appendix II. Appendix I describes
our objectives, scope, and methodology in detail.

The Bureau of Reclamation operates single and multiple-purpose water
projects. Major project purposes include supplying water for irrigation and
for municipal and industrial use; producing hydropower; and providing for
flood control, recreation, and fish and wildlife protection. The facilities
necessary to serve these purposes are diverse, as are the related operations
and maintenance activities conducted by the Bureau.

The Bureau's costs of operating and maintaining its projects are classified
as either reimbursable or nonreimbursable. Reimbursable costs are recovered
from customers; nonreimbursable costs are not and are instead borne by the
federal government. Generally, costs associated with supplying water for
agriculture and for municipal and industrial use and hydroelectric
generation are reimbursable. Costs that are related to these reimbursable
purposes, either directly or indirectly, are to be distributed or allocated
to those purposes. Reimbursable costs are billed to, and recovered from,
water supply and power customers. Costs related to power generation
generally are recovered by the federal power marketing administrations (PMA)
through power rates. Costs related to flood control, recreation, and fish
and wildlife enhancement generally are nonreimbursable.

The Bureau's major funding appropriation for O&M activities is the Water and
Related Resource appropriation, which is included in the Energy and Water
Development Appropriation. The costs funded by this appropriation can be
related to either reimbursable or nonreimbursable purposes. The Bureau also
receives a Policy and Administration appropriation. Costs funded by this
appropriation are nonreimbursable by law.

In September 1997 the Conference Committee for the 1998 Energy and Water
Development Appropriations Bill asked the Bureau to prepare a report on the
O&M costs of its projects for fiscal years 1993 through 1997. This included
a request that the Bureau report total annual O&M costs and the amount and
percentage of those costs attributable to overhead for each project. The
Bureau's report in response to this request was issued in September 1998.

Because of the number and diverse nature of the questions you asked us to
address, we are responding in a question and answer format. The answers to
your specific questions follow.

The term operations and maintenance, or O&M, is commonly used by many
different types of organizations in referring to the normal activities they
undertake in conducting their endeavors. The Bureau defines operations as
"activities related to the normal performance of the functions for which a
facility or item of equipment is intended to be used." Examples of
operations costs include the costs of operating facilities and equipment,
utilities (electricity, water, sewage), fuel, janitorial services, window
cleaning, rodent and pest control, upkeep of grounds, vehicle rentals, waste
management, and salaries and wages for personnel who perform these
functions.

The Bureau defines maintenance as "the upkeep of constructed facilities and
structures and capitalized equipment necessary to realize the originally
anticipated useful life of a fixed asset." The Bureau incurs maintenance
costs for activities such as preventive maintenance, replacement of parts or
components of equipment, periodic inspection and assessment of the condition
of equipment, periodic adjustment, lubrication, and cleaning (nonjanitorial)
of equipment, painting and resurfacing, special safety inspections, and
other actions to ensure continuing service and to prevent breakdown.
Examples of typical Bureau O&M activities are shown at
table 1.

 Operations                            Maintenance

 Monitoring river flows                Upgrading or replacing automated
                                       control systems

 Operating the gates and valves in a   Painting and refinishing facilities,
 dam for water releases                such as dam gates and office
                                       buildings

 Preparing annual operating plans      Ordering and maintaining equipment
                                       and parts inventories
 Long-range forecasting of river       Inspecting facilities and equipment
 conditions                            at regular intervals

 Reporting on the results of project   Periodically tearing down,
 operations                            inspecting, and rebuilding pumps and
                                       other equipment
 Developing and updating standing      Lubricating equipment at prescribed
 operating procedures                  intervals
 Land resources management activities
 Environmental compliance activities
 Administering the laws and contracts
 that apply to water projects
 Responding to occasional emergencies
 Keeping irrigation canals free of
 weeds
 Health and safety code compliance
 activities
 Handling and managing hazardous
 materials
 Bureau review of O&M performed by
 customers of Bureau-owned facilities

Source: Annual Costs of Bureau of Reclamation Project Operation and
Maintenance for Fiscal Years 1993-97, Bureau of Reclamation, September 1998.

Our review of reclamation law did not surface any legally encompassing
definition of the activities that comprise the operation and maintenance of
Bureau facilities. Federal courts have confirmed the Secretary of the
Interior's broad discretion to define what can properly be assessed as O&M
expense. This discretion is constrained by the provisions of appropriations
acts and other authorities. Bureau contracts require that water supply
customers pay for O&M expenses assigned to irrigation or municipal and
industrial purposes. Some contracts generally define what O&M expenses are.
For example, one contract for the supply of irrigation water provides that
the

"costs which make up the construction and operation and maintenance
obligations to be paid by the Contractor to the United States under this
contract shall embrace all expenditures of whatsoever nature or kind in
relation to the function for which the charge is made, including, but
without limitation by reason of this enumeration, cost of surveys and
investigations, labor, property, material and equipment, engineering, legal
work, superintendence, administration, overhead, general expenses,
inspections, special services, and damage claims of all kinds, whether or
not involving the negligence of officers, agents, or employees of the United
States. The Secretary's determination as to what costs are properly
chargeable, the amount thereof, and the classification of those charges for
repayment purposes shall be conclusive."

The Bureau defined the O&M activities associated with its projects in its
1998 report to Congress by describing its complex mission and by providing
examples of the widely varied activities it conducts. The report stated that
the Bureau is "responsible for the O&M of an extensive infrastructure of
constructed facilities, including diversion and storage dams, pumping
plants, powerplants, canals and laterals, pipelines, and drains." Further,
it said that the Bureau is "also responsible for management of the federally
owned lands on which these facilities are located and for the natural and
cultural resources of those lands."

Charge to Customers?

The Bureau's ability to determine which O&M costs to charge to customers is
governed by general provisions of reclamation law, project-specific
legislation, and specific provisions of contracts the Bureau enters into
with water users. Within these constraints, the Bureau3 has broad discretion
in defining which of the activities it undertakes constitute O&M that can be
charged to customers. Federal accounting standards and guidance provided by
the Office of Management and Budget (OMB) indicate that the full costs
incurred by the federal government in providing services should be recovered
from beneficiaries of those services, unless such cost recovery is
legislatively precluded.

We reviewed the Bureau's exercise of its discretion in determining which O&M
costs to charge to customers in four areas. The areas we reviewed were
Policy and Administration costs, costs funded with Area Manager funds,
Associated O&M Program costs, and certain employee benefit costs. We found
that, in accordance with specific legislation, the Bureau was not recovering
the Policy and Administration costs. For the other three categories of
costs, we found that the Bureau was not recovering them even though certain
of these costs are recoverable and guidance contained in OMB Circular A-25
and federal accounting standards indicates that the costs should be
recovered. Each of these areas is discussed in the following sections.

Costs

The Bureau classifies all costs funded from its Policy and Administration
appropriation as nonreimbursable. As such, the costs are not recovered from
customers. We reviewed the Bureau's authority for classifying costs funded
by the Policy and Administration appropriation as nonreimbursable and found
that the legal basis for excluding costs funded by the Policy and
Administration appropriation from recovery is clear. The Bureau's fiscal
year 2000 appropriations act, for example, specifically states that the
Bureau's Policy and Administration Appropriation is to be nonreimbursable.

We reviewed a limited number of costs funded by the Bureau's Policy and
Administration appropriation in 1998 and found that they were reasonably in
accordance with the definitions of Policy and Administration costs that the
Bureau provided to Congress in its budget request.

Recovered

The Bureau does not recover certain other costs indirectly related to water
supply that are not specifically exempted from recovery by legislation.
These indirect costs should be recovered from customers in accordance with
OMB Circular A-25, which provides guidance for federal agencies to use in
setting fees to recover the full costs of providing goods or services.4 OMB
Circular A-25 defines full costs as all direct and indirect costs of
providing the goods or service. This definition is consistent with that
contained in federal accounting standards.5 The federal accounting standards
define the full cost of an entity's output as "the sum of (1) the costs of
resources consumed by the segment that directly or indirectly contribute to
the output, and (2) the costs of identifiable supporting services provided
by other responsibility segments within the reporting entity, and by other
reporting entities." Applying the definitions of "full cost" used in OMB
Circular A-25 and federal accounting standards indicates that the full cost
of the water supplied by the Bureau includes all direct and indirect costs
incurred in providing these services and that these costs should be
recovered, except where precluded by law. The indirect costs that could be
recovered are included within Area Manager funds, Associated O&M Programs,6
and certain pension and postretirement health benefits costs for Bureau
employees.

Area Manager Funds

The Bureau's Budget Review Committee established Area Manager funds in
fiscal year 1997 "to be distributed to area offices in recognition of their
expanded role and participation in broader policy issues and budget and
program formulation activities." In fiscal year 1998, Area Manager funds
were used for activities in two regions--the Pacific Northwest Region and
the Great Plains Region--where the amounts funded totaled $883,000 and
$348,000 respectively.

We found that Area Manager funds have been used to fund such activities as

ï¿½ meeting periodically with irrigation district managers to discuss Bureau
policy and initiatives;

ï¿½ developing out-year programs and budgets and discussing these budgets with
irrigation district managers; and

ï¿½ responding to requests from irrigation districts seeking easements across
Bureau-held lands.

Since these are indirect costs of supplying water, we asked the Bureau why
they were being excluded from reimbursable O&M. The Bureau responded by
citing the following language from the Fact Finders Act.7

"The cost and expense after June 30, 1945, of the Office of the
Commissioner8 in the District of Columbia and, except for such cost and
expense as are incurred on behalf of specific projects, of general
investigations and of nonproject offices outside the District of Columbia,
shall be charged to the reclamation fund and shall not be charged as a part
of the reimbursable construction or operation and maintenance costs."

We reviewed the authority that the Bureau cited for classifying costs funded
by Area Manager funds as nonreimbursable. While it exempts from recovery the
cost of "general investigations"9 and "nonproject offices," in our opinion
it does not exempt from recovery the types of costs we identified, such as
discussing with irrigation district managers, budgets that benefit the
irrigation purpose and projects. These costs should be allocated on a
reasonable basis to irrigation projects for recovery from water customers,
instead of being classified as nonreimbursable, in accordance with the full
cost definitions included in OMB guidance and federal accounting standards.

Associated O&M Programs

The Bureau's O&M report identified a group of individual programs that are
collectively called Associated O&M Programs. The report stated that the
Associated O&M Programs group involves a variety of services "in support of
its overall project O&M program." As such, these are indirect O&M costs
incurred by the Bureau. The Bureau's O&M report listed examples of
activities that had been funded by Associated O&M Programs, including

ï¿½ developing new and improved O&M practices and procedures,

ï¿½ providing the Bureau's water and power users with information on the
latest technical and nontechnical advances in the O&M of water and power
projects,

ï¿½ disseminating information concerning the agency's overall O&M policies and
programs, and

ï¿½ providing for consistency and follow-through on the effectiveness of O&M
programs from an agencywide perspective.

We reviewed some individual programs within the Associated O&M Programs
group and identified some with purposes related to water supply, including

ï¿½ the Negotiation and Administration of Water Marketing Program, which
involves the administration of repayment contracts and operational studies
for water marketing purposes,

ï¿½ the Operation and Maintenance Program Management Program, with purposes
that include standardization of O&M practices, and

ï¿½ the Examination of Existing Structures Program, which provides for the
review of Bureau facilities with respect to public safety, emergency
management, and efficient energy and water management practices.

Because some of these are indirect costs of supplying water, we asked the
Bureau why they were being excluded from reimbursable O&M. The Bureau again
responded that its authorization for excluding the costs was the Fact
Finders Act. As discussed previously, while the Fact Finders Act exempts
from recovery the cost of "general investigations" and "nonproject offices,"
in our opinion it does not exempt from recovery costs such as those we
identified that benefit a reimbursable project purpose.

Certain Pension and Health Benefits Costs

The Bureau's water rates do not recover the full cost to the federal
government of providing Civil Service Retirement System (CSRS) pensions and
postretirement health benefits for current Bureau employees engaged in work
directly related to water supply.10 The employee and the Bureau both
contribute annually toward the costs of future CSRS pension benefits. Since
the employee and Bureau contributions toward CSRS pensions are less than the
full cost of providing the pension benefits, the federal government must, in
effect, make up the funding shortfall. In addition, neither the Bureau nor
the employee pays the federal government's portion of postretirement health
benefits, which will eventually be paid by the general fund of the
Department of the Treasury.

As is the case in other federal agencies, CSRS employees and the agency each
pay a fixed percentage of the employee's salary--7.25 percent for employees
and 8.51 percent for the agency--to offset future pension costs. However,
the combined contribution does not cover the full cost of the employee's
future pension benefits, which amounted to 24.2 percent of salary as of
September 30, 1999. Thus, for fiscal year 1999 the funding shortfall was
about 8.44 percent of every CSRS employee's salary. The annual funding
shortfall associated with pension benefits will be eliminated over time as
CSRS employees leave the government and are replaced with Federal Employees
Retirement System (FERS) employees, provided that FERS pension benefits
remain fully funded annually.

The full cost of the federal government's portion of postretirement health
benefits (for both CSRS and FERS employees) is likewise not paid by federal
agencies, including the Bureau, during the period of the beneficiaries'
employment. The Office of Personnel Management estimates that over $2,550
per employee would need to have been contributed in fiscal year 1999 to
cover the cost of each employee's postretirement health benefits earned.
However, no fund has been established to accumulate assets to pay for these
future benefits, which will eventually be paid by the federal government. In
contrast to the situation regarding CSRS pensions, the annual funding
shortfall associated with postretirement health benefits will not be
eliminated as CSRS employees are replaced by FERS employees, since it is an
entirely separate benefit program not related to individual retirement
systems.

We analyzed the unrecovered costs for fiscal year 1999 related to CSRS
pensions and postretirement health benefits at the Bureau's Mid-Pacific
Region Central Valley Project (CVP) and at its Pacific Northwest Region. The
results of our analysis are shown in table 2.

      Dollars in thousands
                                 CVP  Pacific Northwest Region
 CSRS pension benefits          $305  $ 77
 Postretirement health benefits 404   120
 Totalsa                        $709  $197

aOur analysis covered pension and postretirement health benefits for current
employees only; we did not analyze the costs associated with retirees.

We previously reported that CSRS and postretirement health benefits costs
associated with electricity generated by the Corps and the Bureau and
marketed by the PMAs were similarly not being recovered.11 In 1998 the Corps
and the Bureau began estimating these costs and providing the results to the
PMAs. The PMAs have begun recovering, through electricity rates, the full
cost of CSRS pension and postretirement health benefits for their employees
and for employees of the Bureau and Corps who are involved in power-related
activities. The Bureau did not, however, make similar calculations for CSRS
and postretirement health benefits costs associated with water supply and
has not included these costs in its annual O&M rates.

As with certain costs included in Area Manager funds and Associated O&M
Programs, the costs of pensions and postretirement health benefits for
Bureau employees are O&M costs incurred by the Bureau in providing services
to project customers and recovering them is not precluded by specific
legislation. Guidance contained in OMB Circular A-25 and federal accounting
standards indicates that these costs should be recovered.

The Bureau expenses O&M costs on an annual basis. For cost accounting
purposes, Department of the Interior (DOI) policy requires that the Bureau
classify costs into direct and indirect categories and ensure that these
classifications are consistently used.

In June 1999 the Bureau established a team to study cost accounting
practices. The team's goal was to "develop and implement a common and
consistent set of business practices for defining, charging, reporting, and
explaining both direct and indirect costs" within the Bureau. The team
identified a number of needs that the current system did not meet, including

ï¿½ lack of a common Bureau definition for indirect cost,

ï¿½ lack of consistency between offices in charging costs,

ï¿½ need for standard business practices that recognize and accommodate valid
and justifiable differences between offices,

ï¿½ flexibility for unique operations that result from project-specific
legislation and organizational differences, and

ï¿½ need to provide managers with the knowledge and tools to understand and
explain costs.

The resulting Standard Processes of Costing (SPOC) Business Practices,
issued in September 1999, represents current Bureau policy. This report
provides guidelines for charging regional indirect costs. It also provides
cost-charging examples from the Bureau's Reclamation Service Center,
regional offices, and area offices and describes how the costs should be
displayed to customers and others.

The SPOC report defines direct costs as "all costs which can be specifically
and readily identified with an output or which can be specifically and
readily identified with two or more outputs through a reasonable and
economically feasible allocation." An output is defined as "a product or
service specifically relating to a project or program." The report defines
indirect costs as "costs that are jointly or commonly used to produce two or
more outputs but are not specifically identifiable with any of the outputs
in an economically feasible way or through a reasonable allocation."

Bureau personnel are guided by examples of direct and indirect costs as
provided in the DOI Financial Management Manual and the SPOC report. Table 3
shows examples of direct and indirect costs from the SPOC report.

 Direct costs                        Indirect costs
 Labor and equipment used on a       Labor and other costs not used on a
 specific program or task, such as   specific program, such as services to
 maintenance on a water pump at a    the entire region provided by a
 pumping station. The mechanic's     staffing specialist in a regional
 time, tools, and supplies are all   office. The specialist's time,
 direct costs of the pumping         training, travel, and supplies are
 station.                            indirect costs.
                                     Space rental, postage, telephone
 Travel associated with a specific   expenses, and utilities (if not
 project.                            related to a specific program or
                                     task).
 Printing and data processing
 services associated with a specific
 program or project.

Source: Developed by GAO based on data from Standard Processes of Costing
(SPOC) Business Practices, Bureau of Reclamation, September 30, 1999.

DOI policy also requires that the Bureau determine the cost of projects and
services by reasonably distributing and allocating direct and indirect
costs. Figure 1 shows how the Bureau distributes and allocates direct and
indirect costs to the various reimbursable and nonreimbursable purposes
served by water projects.

During the fiscal year 1998 appropriations process, the Conference Committee
on the Energy and Water Development Appropriations Bill asked the Bureau to
report the "overhead rate" associated with its projects for fiscal years
1993 through 1997. The resulting report stated that the Bureau does not
normally use the term overhead, nor is the term defined in the Federal
Financial System. Consequently, the Bureau developed a definition of
overhead specifically for use in the report to Congress. The Bureau defined
"overhead rate" to be the indirect costs it identified as constituting
overhead divided by total annual O&M costs.

The Bureau definition of overhead included some, but not all, indirect
costs. Policy and Administration, Associated O&M Programs, and certain area
office12 indirect costs were excluded. The Bureau then calculated and
reported the overhead rate applicable to specific projects and to the agency
as a whole based on the portion of indirect costs that met its definition of
overhead. The Bureau reported an agencywide overhead rate--overhead costs as
a percentage of total O&M costs--ranging from 6 to 8 percent during fiscal
years 1993 through 1997.

The report stated that the excluded area office indirect costs related to a
variety of administrative services and support functions, such as clerical
and secretarial staffs. The Bureau did not consider these costs to be
overhead because each area office's administrative and support costs related
closely to projects. Consequently, the costs were not considered to be
overhead, nor were they classified as direct costs. The costs were shown
separately in a category called "Project General Expense."

The Bureau's report stated that even if these area office indirect costs
were included in the definition of overhead, the Bureau's agencywide
percentage of overhead costs to total O&M costs would not have exceeded 15
percent in any of the 5 fiscal years under consideration.13

The Bureau's report disclosed that Policy and Administration and Associated
O&M Program costs were excluded because they are not reimbursable by project
customers.14 The resulting calculation of overhead--using only reimbursable
costs--is meaningful to project customers, who are primarily concerned with
costs they have to pay for.

We agree that this definition of overhead is meaningful to project
customers. However, a definition that includes all indirect costs provides
important additional information to the Congress and others. Table 4
provides a calculation of Bureauwide overhead that includes the indirect
costs--Policy and Administration, Associated O&M Programs, and certain area
office costs--that were not part of the Bureau report's customer-oriented
definition.

   Dollars in
   millions

                   Bureauwide overhead          Percentage of overhead to
                                                        total O&M

  Fiscal year    Per report     All costs      Per report      All costs
                                included                       included
 1993           $31          $149             8%            30%
 1994           27           151              7             32
 1995           22           135              6             28
 1996           24           143              6             29
 1997           25           152              6             28
 1998           Not reported 150              Not reported  27

Source: Developed by GAO based on data from Annual Costs of Bureau of
Reclamation Project Operation and Maintenance for Fiscal Years 1993-97,
Bureau of Reclamation, September 1998, and from additional cost data
provided by the Bureau of Reclamation.

Customers?

The Bureau's contracts with customers for supplying water are of two types:
repayment contracts and water service contracts. The Bureau calculates O&M
costs charged to customers in accordance with the provisions of these
different types of contracts. For repayment contracts, the customer's O&M
costs are generally based on the percentage of the reservoir's water supply
to which the customer is entitled. For water service contracts, costs are
based on the amount of water delivered multiplied by the rate applicable to
the particular customer.

The following discussion describes, in general, how the Bureau calculates
the O&M charge for each type of contract. The examples are derived from
repayment contracts as used by the Bureau's Pacific Northwest Region and
water service contracts as used by the Mid-Pacific Region's Central Valley
Project. Both examples assume that there is no Bureau charge for any O&M
related to the conveyance of water, since this function has largely been
taken over by the customers in both regions. The calculations shown are
generalizations--specific contractual terms can result in a difference in
how O&M charges are calculated for individual contracts. Moreover, while our
examples cover only O&M costs, customers are also responsible for repaying
certain capital costs of the facilities from which they receive their water.

Repayment contracts are the most common legal instrument that the Bureau
uses to obtain reimbursement from its customers for O&M costs incurred by
Bureau projects. Generally, the O&M costs charged to the customer are
allocated based upon the share of the reservoir water supply the customer is
entitled to by contract; in some cases, certain other O&M charges may be
based on benefits received in proportion to all project benefits. The
customer must pay O&M costs in advance, based on the Bureau's internal
budget estimates for the upcoming year. The customer's bill is subsequently
adjusted for the difference between actual costs incurred and advance
payments that have been made based on estimates.

For example, for a repayment contract entitling Customer A to 10 percent of
the water stored in a particular dam's reservoir, the O&M charge is
calculated as follows:

ï¿½ The Bureau estimates that for fiscal year 1999, the reimbursable O&M costs
for the dam, including both direct and certain indirect costs, will total
$100,000. Customer A's share of the Bureau's estimated fiscal year 1999 O&M
is 10 percent of $100,000, or $10,000. Customer A must pay this "up front,"
i.e., before the Bureau performs the work.

ï¿½ The Bureau's actual O&M costs for the dam turn out to be $90,000. Customer
A's share of actual costs is 10 percent of $90,000, or $9,000.

ï¿½ Customer A's bill for fiscal year 2000 estimated O&M costs will be
credited for the $1,000 overpaid in fiscal year 1999.

The Bureau's most common use of water service contracts is at its Central
Valley Project in California. Under water service contracts, contractors pay
a combined capital and O&M charge for each acre-foot15 of water delivered.
The contracts typically entitle the customer to a specified quantity of
water annually. The O&M costs paid are based upon a rate the Bureau
establishes for each individual customer. The rate is composed of separate
charges for each of the services the Bureau provides to the customer. Water
storage, marketing,16 pumping, drainage, and conveyance are the primary
services involved.

The Bureau establishes a charge for each of these services by estimating the
annual total O&M costs expected to be incurred by that service--for example,
for water storage. Total annual estimated water storage O&M costs are then
divided by the total quantity of water expected to be delivered during the
year. The result is a unit charge for water storage that is applied to each
acre-foot of water sold to each customer.

The Bureau's Central Valley Project has two types of water service
contracts--cost-of-service and fixed-rate. For cost-of-service contracts,
the O&M cost the customer pays annually is the rate the Bureau calculates
based on budgeted costs and water delivery projections. For fixed-rate water
service contracts, the O&M cost is based on the rate established by
contract. For both types of contracts, if actual costs exceed the contract
payments, the Bureau establishes an "O&M deficit" that is carried over to
future years for payment. If actual costs are less than contract payments,
excess payments are applied to interest, O&M deficits, and capital repayment
(an amount assessed to cover project construction costs) in accordance with
Central Valley Project ratesetting policies.

Under both cost-of-service and fixed-rate water service contracts, customers
pay O&M in advance. The advance payments are based on the Bureau's O&M
budget estimate and the amount of water expected to be delivered. The
customer's bill is adjusted for the difference between actual costs incurred
and payments that have been made based on estimates. The following examples
show how the customer's costs are calculated for both cost-of-service and
fixed-rate water service contracts.

Water Service Contract
Cost-of-Service O&M Cost Calculation

A cost-of-service water service contract entitles Customer B to a maximum of
15,000 acre-feet of water per year. The Bureau estimates that it will be
able to deliver 15,000 acre-feet to Customer B in fiscal year 1999. The O&M
charge is calculated as follows:

ï¿½ The services Customer B uses are water storage and water marketing.
Customer B does not use, and is not charged for, other services that can
comprise the Bureau's water service contract rate (e.g., water conveyance,
pumping, and drainage).

ï¿½ The Bureau estimates that it needs to charge $4.61 per acre-foot for water
storage in order to cover all of the O&M costs that are related to water
storage. The Bureau also estimates that it needs to charge $4.63 per
acre-foot to cover all of the O&M costs that are related to water marketing
costs. Consequently, the rate Customer B is charged for O&M costs is $9.24
per acre-foot.

ï¿½ Customer B pays a total of $138,600 in estimated O&M costs in advance of
water delivery ($9.24 per acre-foot multiplied by the 15,000 acre-feet
estimated amount of water delivery).

ï¿½ After actual costs become known, Customer B's total fiscal year 1999
payments are applied to the customer's allocated costs. Excess payments
generate capital and/or deficit repayment, while a shortage generates a
deficit.

Water Service Contract
Fixed-Rate O&M Cost Calculation

For a fixed-rate water service contract under which Customer C is to pay $3
per acre-foot for water delivered, the O&M charge is calculated as follows:

ï¿½ Customer C's estimated water delivery is 2,000 acre-feet in fiscal year
2000.

ï¿½ Customer C prepays $6,000 ($3 per acre-foot multiplied by 2,000
acre-feet).

ï¿½ Customer C is delivered 1,500 acre-feet in fiscal year 2000. The contract
with Customer C, however, requires Customer C to pay for 2,000 acre-feet,
whether or not it actually was delivered. The total cost based on actual
deliveries is $4,500. Therefore, Customer C has made payments of $1,500 in
excess of cost.

ï¿½ Customer C is credited for $1,500 against its allocated capital costs.

ï¿½ If the contract's fixed rate is inadequate to cover the Bureau's actual
O&M costs, Customer C incurs an O&M deficit that is carried over to future
years for payment. A contract might have an accumulated deficit at the end
of the contract term.

Costs and to What Extent Do Customers Have an Opportunity to Review Cost
Origins and Recommend Reductions?

We met with representatives from 31 organizations who were Bureau customers,
or represented the interests of Bureau customers, in the Bureau's
Mid-Pacific and Pacific Northwest regions. A list of the customers we
contacted can be found in appendix I.

The customers we contacted were generally concerned about the level of the
Bureau's costs and their ability to influence costs. Some customers thought
the Bureau's overhead costs were excessive. Others were more concerned with
total O&M costs.

The Bureau's 1998 SPOC report recognized that concerns had been raised by
customers in the recent past in regard to their perception that the Bureau's
O&M costs were excessive. Some customers stated that the Bureau's O&M
report, which showed relatively low overhead costs, was not convincing to
them and did not alleviate their concerns about Bureau costs. The customers
commented that the report's results were largely dependent upon how indirect
costs were defined and that they were concerned that their water rates
contained costs that should have been nonreimbursable and therefore
excluded. Finally, some customers commented that the Bureau report concerned
itself primarily with indirect costs and did not adequately address the
issue of why water rates have continued to increase.

A directive from the Bureau's Commissioner dated September 24, 1998,
required Bureau regions to involve customers in the budget process. We
confirmed that in the Mid-Pacific and Pacific Northwest regions, customers
have been given increased opportunities by the Bureau to review budget data.
Both regions had held meetings to present budget estimates and to obtain
customer comments. The customers told us that the Bureau's recent initiative
to "get them involved" in the budget process was a "good start." Detailed
customer comments included the following:

ï¿½ Mid-Pacific Region customers we interviewed stated that they were
generally encouraged by this year's efforts by the Bureau to get them
involved in the budget process. However, they said they need a great deal
more detail to be able to make substantive determinations as to the
appropriateness of O&M activities and charges. For example, they stated that
they would like enough detail to be able to identify Policy and
Administration costs in order to ensure that they were not being charged for
costs that are by law nonreimbursable.

ï¿½ Some Mid-Pacific Region customers expressed concern that there was no
mechanism for them to determine whether the Bureau had acted upon any of
their comments. They stated that they would like to obtain feedback with
regard to the extent to which their suggestions were implemented. Bureau
regional officials responded that timely feedback was difficult because of
OMB restrictions placed upon the release of data before the budget is
enacted, but that they would work with customers on providing this
information.

ï¿½ Pacific Northwest Region customers generally were encouraged by the
Bureau's efforts to involve them in the budget review process. However, some
customers commented that they did not have enough detail to identify
indirect costs.

ï¿½ Some Pacific Northwest Region customers complained that the final bill
that they received from the region was not sufficiently detailed--that it
was just a one-line bill for O&M costs for the year. Regional officials
stated that they were studying the possibility of providing more detail in
the bills.

ï¿½ Some Mid-Pacific Region customers stated that the water marketing costs
that were included in rates were excessive. They stated that they did not
know what these costs were for and that increases were troubling because
there appeared to be "no end in sight." Bureau Mid-Pacific Region officials
stated that details on water marketing costs and other information about
rates were communicated to customers attending customer group meetings, such
as those held by the Central Valley Project Water Association, and in
responses to questions posed directly to ratemaking staff. Customers were
optimistic that the budget review meetings and the new cost accounting
policies adopted by the Bureau in its SPOC report would provide increased
opportunities to review these costs.

ï¿½ Some Pacific Northwest Region customers said that the Bureau's basis for
classifying costs as O&M, rather than capitalizing them, was unclear.17
However, most customers contacted in both regions were not concerned about
the Bureau's capitalization policy and generally understood the basis for
the decisions the Bureau made. They stated that these decisions were
governed by the specific terms within the individual contracts and by
published guidance the Bureau uses that lists specific items and establishes
criteria to determine whether the cost should be capitalized.

ï¿½ Two Mid-Pacific Region customer groups that we contacted had taken over
the responsibility for O&M on some of the Bureau's water conveyance
facilities. One of the groups stated that its O&M costs were lower than the
Bureau's had been because it was using fewer employees to do the same work.
The Bureau responded that the comparison was invalid because the customer
group overstated the number and costs of employees that the Bureau had used.
An official from a group that represents many customers of the Central
Valley Project--the largest project in the Mid-Pacific Region--told us that
it would be difficult to substantiate any such claims that facilities taken
over by customer groups are operated more efficiently than they had been by
the Bureau.

Other Entities?

As previously discussed, the Bureau manages large multiple-purpose water
projects and is required to recover reimbursable costs it incurs from water
service and other customers. The U.S. Army Corps of Engineers and the State
of California's State Water Project offer meaningful comparisons to the
Bureau. The Corps is a federal entity that manages multiple-purpose water
projects with cost recovery requirements. California's Department of Water
Resources manages the State Water Project, which is the largest
multiple-purpose water project managed by a nonfederal entity in the United
States.

Both Corps projects and the California State Water Project have reimbursable
and nonreimbursable project purposes that are similar to those of the
Bureau. These include reimbursable purposes, such as water service and
electrical power production, and nonreimbursable purposes, such as
recreation, fish and wildlife protection, and flood control.

Laws applicable to the Bureau of Reclamation and Bureau interpretations of
those laws lead to some differences in the types and amounts of costs the
Bureau classifies as reimbursable when compared to other entities. Some
differences are described below.

ï¿½ The Bureau excludes costs funded by its Policy and Administration
appropriation from recovery, in accordance with the specific provisions in
the appropriations laws that are applicable to the Bureau. The California
State Water Project does not have a similar legislatively mandated
exclusion.

ï¿½ The Corps excludes costs funded by its General Expense appropriation from
recovery. However, unlike the Bureau, the costs funded by this appropriation
are limited to the agency's headquarters and division levels. We did not
review the Corps' legal authority for excluding these costs from recovery.

ï¿½ The Bureau classifies some categories of indirect costs as nonreimbursable
because they are of "Bureauwide" benefit rather than benefiting any specific
project. These include the Associated O&M Programs costs and costs paid for
by Area Manager funds.18 According to Corps and State of California
officials, neither the Corps nor the California State Water Project excludes
similar categories of indirect costs from recovery.

ï¿½ Neither the Bureau nor the Corps recovers the full cost of employee
pensions and postretirement health benefits.19 State of California officials
advised that the full pension and health benefits costs associated with the
State Water Project are recovered from customers.

Federal power marketing administrations offer another contrast. These
organizations market power produced at the Bureau's multiple-purpose
projects. The power marketing administrations are recovering the full
employee pension costs that are related to the production of power at Bureau
facilities.

To recover the full cost of providing services, the Bureau needs to identify
and include in its billing all O&M costs that are related to reimbursable
project purposes. The Bureau cannot have assurance that it is recovering all
reimbursable costs until it undertakes a review of all costs funded by Area
Manager funds and Associated O&M Programs and identifies costs that are
either directly or indirectly related to reimbursable project purposes.

Recovering these costs, and the full costs associated with employee pension
and health benefits, would help ensure that the federal government's net
costs related to the services provided by the Bureau are minimized.

To fully recover all appropriate costs, we recommend that the Secretary of
the Interior direct the Commissioner, Bureau of Reclamation, to

ï¿½ examine Area Manager funds and Associated O&M Programs to identify costs
related to reimbursable project purposes and recover those costs from the
benefiting customers, and

ï¿½ calculate and begin recovering the full costs of employee postretirement
health benefits and CSRS employee pension costs related to reimbursable
project purposes.

The Department of the Interior generally agreed with the basic thrust of the
report's conclusions and recommendations--that the Bureau of Reclamation
needs to identify and recover appropriate costs related to providing
services to project beneficiaries. DOI's comment letter is reproduced in
appendix II.

DOI stated that, due to the complexity of the cost recovery issue and its
potential impacts, it has asked the Bureau of Reclamation to more fully
review the report and its recommendations and provide a preliminary report
on them to Bureau and DOI officials by June 9, 2000. Specifically, DOI
stated that (1) the Commissioner of the Bureau of Reclamation and the
Solicitor would review costs charged to Area Manager funds and Associated
O&M Programs to determine whether more of these costs can be recovered from
project beneficiaries, and (2) the Solicitor would review the Bureau's legal
authority to recover the full costs of employee postretirement health
benefits and CSRS pension costs that are related to reimbursable project
purposes.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its date. At that time, we will send copies to Representative Calvin M.
Dooley, Ranking Minority Member, House Subcommittee on Water and Power,
Committee on Resources; Representative Joe Barton, Chairman, and
Representative Rick Boucher, Ranking Minority Member, House Subcommittee on
Energy and Power, Committee on Commerce. We are also sending copies of this
report to the Honorable Bruce Babbitt, Secretary of the Interior, the
Honorable Eluid L. Martinez, Commissioner, Bureau of Reclamation, and other
interested parties. Copies will also be made available to others on request.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-9508. Key contributors to this report were Dave
Bogdon, Mark Connelly, Michelle Dimodica, Brian Eddington, Larry Feltz, Rob
Martin, and Jack Warner.

Sincerely yours,

Linda M. Calbom
Director
Resources, Community, and Economic Development
Accounting and Financial Management Issues

Objective, Scope, and Methodology

The Chairman, Subcommittee on Water and Power, House Committee on Resources,
asked us to review several issues relating to the Bureau of Reclamation's
operation and maintenance (O&M) of federal water projects. The specific
objectives of our review were to determine
(1) how the Bureau defines O&M activities, (2) the Bureau's latitude in
deciding which O&M costs to charge to customers, (3) how the Bureau accounts
for O&M costs, (4) how the Bureau defines overhead, (5) how the Bureau
calculates the O&M costs that it charges to customers, (6) what concerns
have been raised by customers about excessive O&M costs and to what extent
customers have an opportunity to review cost origins and recommend ways to
reduce them, and (7) how the Bureau's cost recovery practices compare to
those of other entities. We met with Bureau customers in order to obtain
their views on relations with the Bureau and the extent to which the Bureau
has been responsive to their concerns.

As agreed with the requester, our review was limited to the Bureau's
delivery of water for irrigation and municipal and industrial use. We did
not review the Bureau's activities related to hydroelectric power production
or to any nonreimbursable functions at multipurpose Bureau facilities, such
as recreation, flood control, or fish and wildlife protection. Our work was
also limited to O&M activities and costs; we did not review the recovery and
treatment of capital construction costs. In addition, we did not assess the
Bureau's efficiency in performing its O&M activities or in incurring related
costs.

We conducted audit work at the Bureau's Washington, D.C. headquarters and
Denver, Colorado office, and at its Mid-Pacific and Pacific Northwest
regions. We also conducted audit work at the U.S. Army Corps of Engineers,
State of California, and at the offices of representatives from water users'
interest groups and customers from projects representing most of the
Bureau's water sales in the Mid-Pacific and Pacific Northwest regions. We
interviewed knowledgeable personnel at each audit site to obtain information
relevant to the questions we were asked to answer. We also reviewed and
analyzed relevant legislation and documents. In addition, we obtained
written or oral responses from Bureau officials to document the Bureau's
position on selected questions and issues and observed a budget review
meeting held by the Mid-Pacific Region for its customers. The following
section details the methodology used in our analyses and any additional
restrictions on the scope of our work.

O&M Costs

To determine how the Bureau defines O&M and overhead and how it accounts for
O&M costs (objectives 1, 3, and 4), we reviewed and analyzed relevant
legislation and documents, including reclamation law; a 1998 Bureau report
to Congress on O&M activities and overhead;20 a 1999 Bureau cost accounting
report;21 Department of the Interior and Bureau of Reclamation policies,
accounting manuals, and other cost accounting guidance; and certain
contracts with water supply customers. We also reviewed sample O&M bills the
Bureau issued to various water customers and traced the charges in these
bills back to Bureau accounting records. In addition, we consulted with
Bureau Denver office officials to develop a flowchart that documents how the
Bureau's costs are allocated and distributed.

To determine how the Bureau calculates O&M (and overhead) costs (objective
5), we reviewed DOI and Bureau policy and procedures for determining O&M
costs and discussed these policies and procedures with Bureau officials. We
also traced sample O&M bills issued to customers back into Bureau accounting
records to test the Bureau's ability to break O&M bills down into their
constituent elements of materials, labor, and indirect costs and discussed
our findings with Bureau personnel.

We reviewed repayment and water service contracts and discussed contract
provisions with Bureau regional officials. We used this information to
develop generalized examples of how a customer's O&M bill would be
calculated under both types of contracts.

Charge Customers

To determine the extent of the Bureau's latitude to designate costs as O&M
(objective 2), we reviewed and analyzed relevant legislation, DOI and Bureau
accounting policies and procedures, and the Bureau's O&M report. We reviewed
Bureau capitalization policies and analyzed Department of the Interior
Office of Inspector General reports relating to the Bureau's past practices
in accounting for O&M costs. We met with Bureau customers to obtain their
views on the Bureau's practices regarding the designation of costs as O&M
and certain Bureau contracts with water supply customers.

We reviewed the Bureau's authority to include and exclude O&M costs from
recovery. This review included analyzing the legislation pertinent to the
appropriations that funded the costs; questioning Bureau officials;
reviewing the legislation cited by the Bureau as justifying its
determination that the costs were nonreimbursable; and identifying costs
associated with the Bureau's exclusions.

To define the full cost of the services provided by the Bureau, we reviewed
(1) Office of Management and Budget (OMB) Circular A-25, which provides
guidance for use in setting fees to recover the full costs of providing
goods and services and (2) Statement of Federal Financial Accounting
Standards (SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards
for the Federal Government. OMB Circular A-25 defines full cost as all
direct and indirect costs of providing goods and services and is consistent
with guidance for full cost reporting contained in SFFAS No. 4.

To determine whether the activities funded by the Policy and Administration
appropriation are reasonably in accordance with Bureau definitions of Policy
and Administration costs, we reviewed and discussed with Bureau
representatives, supporting documentation for a limited number of charges
judgmentally selected from Bureau-prepared lists of transactions recorded as
Policy and Administration costs in September 1998. To determine the nature
of costs charged to Associated O&M Programs, we reviewed Bureau-prepared
lists of costs charged to Associated O&M Programs by Bureau headquarters and
regional offices during November 1997 and September 1998. From those lists
we chose a limited number of judgmentally selected individual transactions
and discussed the nature of those costs with a Bureau official.

the Extent to Which Customers Have an Opportunity to Review Cost Origins and
Recommend Ways to Reduce Them

To identify specific concerns that customers have raised about excessive O&M
costs and the extent to which customers have an opportunity to review the
origins of O&M costs and recommend ways to reduce them (objective 6), we
spoke to Bureau Mid-Pacific and Pacific Northwest region customers and
customer groups from 31 organizations (the groups are listed at the end of
this appendix). We selected a sufficient number of customer representatives
to ensure that we had contacted parties representing more than a majority of
the water supplied by the Bureau in each region, including both irrigation
water supply and municipal and industrial water supply customers. These
customers and customer groups were selected judgmentally and do not
represent a projectable random sample.

We obtained customers' views on the O&M bills they receive from the Bureau
and asked about recent trends in the amounts of these bills. We also asked
about the extent to which the Bureau involves them in the O&M budget process
and the extent to which they feel the Bureau is responsive to customers'
concerns.

Those of Other Entities

To determine how the Bureau's cost recovery practices compare to those of
other entities (objective 7), we identified two entities--the U.S. Army
Corps of Engineers and the California State Department of Water
Resources--that, like the Bureau, operate extensive, multiple-purpose water
development projects. We discussed the policies and procedures for defining
and accounting for O&M practices with officials of the Corps at their
Washington, D.C., headquarters and selected division, district, and area
offices, and with officials of the California State Department of Water
Resources at their Sacramento, California, headquarters. We compared those
policies and procedures with those we found used by the Bureau of
Reclamation.

We conducted our review from June 1999 through March 2000 in accordance with
generally accepted government auditing standards. We obtained written agency
comments on a draft of this report, which are reproduced in appendix II.

We contacted the following organizations during the course of our work.

Black Canyon Irrigation District, Idaho
Boise Project Board of Control, Idaho/Oregon
California Department of Water Resources
Central Valley Project Water Association, California
Chowchilla Water District, California
Contra Costa Water District, California
East Columbia Irrigation District, Washington
Exeter Irrigation District, California
Fresno Irrigation District, California
Friant Water Users Authority, California
Ivanhoe Irrigation District, California
Kennewick Irrigation District, Washington
Kittitas Reclamation District, Washington
Lindmore Irrigation District, California
Madera Irrigation District, California
Nampa and Meridian Irrigation District, Idaho
Payette River Water Users' Association, Idaho
Quincy-Columbia Basin Irrigation District, Washington
Roza Irrigation District, Washington
San Luis and Delta-Mendota Water Authority, California
Santa Clara Valley Water District, California
Saucelito Irrigation District, California
Shaffer-Wasco Irrigation District, California
South Board of Control, Owyhee Project, Idaho/Oregon
South Columbia Basin Irrigation District, Washington
South East Colorado Water Conservancy District, Colorado
South San Joaquin Municipal Utility District, California
Sunnyside Irrigation District, Washington
Tea Pot Dome Water District, California
Terra Bella Irrigation District, California
Westlands Water District, California
Yakima-Tieton Irrigation District, Washington

Comments From the Department of the Interior

(913859)

  

1. Annual Costs of Bureau of Reclamation Project Operation and Maintenance
for Fiscal Years 1993-97, Bureau of Reclamation, September 1998.

2. Standard Processes of Costing Business Practices, Bureau of Reclamation,
September 30, 1999.

3. The authority to make this determination is delegated to the Bureau by
the Secretary of the Interior.

4. The purpose of OMB Circular A-25 is to implement a law commonly known as
the User Fee Statute. However, its guidance may be used by agencies in
setting fees authorized by other laws to the extent that it does not
conflict with the requirements of those laws.

5. Financial Accounting Standards Advisory Board Statement of Federal
Financial Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting
Concepts and Standards for the Federal Government, June 1995.

6. Beginning in the fiscal year 1998 budget, the Bureau discontinued the
Associated O&M Programs terminology and included their constituent programs
in its "Bureauwide" budget category.

7. Fact Finders Act of April 19, 1945 (59 Stat. 54) (43 U.S.C. sect.377).

8. Commissioner of the Bureau of Reclamation.

9. General investigations are studies and planning efforts designed to
"acquire and analyze data and to formulate plans for improved management and
development of water and related land resources." Examples of activities
undertaken as general investigations include water conservation studies and
studies related to the construction of new facilities for water supply or
delivery.

10. According to Office of Personnel Management officials, pensions for
employees covered by the Federal Employees Retirement System (FERS) are
fully funded each year and cumulatively, so there are no similar unrecovered
costs related to Bureau employees covered by FERS.

11. See Power Marketing Administrations: Cost Recovery, Financing, and
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, September 19, 1996),
Federal Electricity Activities: The Federal Government's Net Cost and
Potential for Future Losses (GAO/AIMD-97-110, September 19, 1997), and Power
Marketing Administrations: Repayment of Power Costs Needs Closer Monitoring
(GAO/AIMD-98-164, June 30, 1998).

12. Each area office represents a designated geographic area within its
respective regional office's boundaries. Area office responsibilities
include O&M for dams, pumping stations, canals, and other Bureau facilities.

13. We confirmed the Bureau's statement. The range was from 12.2 to 14.9
percent during this period.

14. As discussed previously, the Associated O&M Program costs that are
related to reimbursable project purposes and not legislatively precluded
from recovery should be recovered because they are indirect O&M costs and
OMB guidance and federal accounting standards indicate that they should be
recovered.

15. An acre-foot of water is the volume necessary to cover 1 acre to a depth
of 1 foot. It is approximately 326,000 gallons of water.

16. Water marketing costs are for those administrative activities associated
with the sale of project water, including contracting, contract
administration, water accounting, and water ratesetting functions. Certain
environmental mitigation costs are also included in the water marketing
component of rates.

17. Classifying costs as O&M and expensing them in the year incurred puts
greater upward pressure on current rates than capitalizing the costs and
recovering them over a period of years.

18. As discussed previously, the Area Manager funds and Associated O&M
Program costs that are related to reimbursable project purposes and not
legislatively precluded from recovery should be recovered because they are
indirect O&M costs and OMB guidance and federal accounting standards
indicate that they should be recovered.

19. As discussed previously, the employee pensions and postretirement health
benefits costs that are related to reimbursable project purposes and not
legislatively precluded from recovery should be recovered because they are
indirect O&M costs and OMB guidance and federal accounting standards
indicate that they should be recovered.

20. Annual Costs of Bureau of Reclamation Project Operation and Maintenance
for Fiscal Years 1993-97, Bureau of Reclamation, September 1998.

21. Standard Processes of Costing Business Practices, Bureau of Reclamation,
September 30, 1999.
*** End of document. ***