Bonneville Power Administration: Obligations to Fish and Wildlife
in the Pacific Northwest (04-JUN-03, GAO-03-844T).		 
                                                                 
The Bonneville Power Administration produces a large portion of  
the Pacific Northwest's electric power, largely from		 
hydroelectric projects in the Federal Columbia River Power	 
System. Bonneville also has obligations to protect, mitigate, and
enhance fish and wildlife populations affected by these 	 
hydroelectric projects. In the past several years, Bonneville has
experienced financial difficulties, in part because of rising	 
costs of providing power, lower-than-projected revenue from	 
selling surplus power, and drought conditions. Bonneville's	 
financial situation may adversely affect fish and wildlife.	 
Stakeholders have expressed concern that Bonneville has 	 
effectively reduced spending on fish and wildlife programs. This 
testimony addresses (1) Bonneville's statutory and other	 
obligations to support fish and wildlife programs, (2)		 
Bonneville's historical spending and other efforts in support of 
fish and wildlife, (3) Bonneville's current financial condition, 
(4) Bonneville's recent actions that affect fish and wildlife	 
programs, and (5) challenges Bonneville faces in supplying	 
electricity to the region while simultaneously protecting,	 
mitigating and enhancing fish and wildlife.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-844T					        
    ACCNO:   A07072						        
  TITLE:     Bonneville Power Administration: Obligations to Fish and 
Wildlife in the Pacific Northwest				 
     DATE:   06/04/2003 
  SUBJECT:   Electric powerplants				 
	     Fishes						 
	     Hydroelectric energy				 
	     Wildlife conservation				 
	     Financial analysis 				 
	     Financial management				 
	     Agency missions					 
	     Internal controls					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-03-844T

BONNEVILLE POWER ADMINISTRATION

Obligations to Fish and Wildlife in the Pacific Northwest

Statement of Jim Wells, Director, Natural Resources and Environment Team
United States General Accounting Office

GAO Testimony Before the Committee on Indian Affairs,

U. S. Senate For Release on Delivery Expected at 2: 00 pm

June 4, 2003 GAO- 03- 844T

This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

In accordance with the Pacific Northwest Electric Power Planning and
Conservation Act of 1980, Bonneville must ensure an adequate, efficient,
economical, and reliable power supply for the Pacific Northwest while also
protecting, mitigating and enhancing fish and wildlife. Under other laws
and presidential directives, Bonneville is also required to consult with
Indian tribes and fulfill trust responsibilities for fish and wildlife.
Finally, Bonneville must comply with the Endangered Species Act as it
pertains to fish and wildlife that have been listed as either endangered
or threatened.

Between fiscal years 1997 and 2001, Bonneville spent over $1. 1 billion to
support fish and wildlife programs, primarily salmon and steelhead. These
expenditures funded fish and wildlife projects undertaken by Bonneville,
other federal agencies, Indian tribes, private and state entities.
Bonneville has also funded related operations, maintenance, and capital
costs for the Army Corps of Engineers, the Bureau of Reclamation, and the
Fish and Wildlife Service. Additionally, Bonneville estimates that
spilling water from dams to enhance fish survival has resulted in over
$2.2 billion in foregone revenue or increased power purchases. Bonneville
is currently in a financial crisis. Cash reserves have fallen and

Bonneville estimates an increased risk that it will miss future Treasury
debt payments. To avoid defaulting on Treasury debt and to cover its
costs, Bonneville has increased its power rates by more than 40 percent
since fiscal year 2001, and is considering further increases.

Recent Bonneville actions appear to have caused financial difficulties for
some fish and wildlife programs. Representatives of the Northwest Power
Planning Council and some Indian tribes have pointed out that a change in
Bonneville*s budgeting approach resulted in the loss of around $40 million
in fish and wildlife funding for fiscal year 2003. Bonneville described
the change as necessary to improve management controls over fish and
wildlife program funding. Bonneville has also placed on hold plans to
acquire land to be used as habitat for fish and wildlife.

Bonneville*s two roles, as supplier of economical and reliable power and
as protector of fish and wildlife, inherently conflict. Bonneville spills
water to benefit fish and directly funds fish and wildlife projects. These
actions reduce power revenue and increase costs. On the other hand,
demands on Bonneville to supply greater amounts of power put pressure on
fish and wildlife, through more intensive use of generating facilities at
the expense of spilling water, and reduced revenues available for funding
fish and wildlife programs as has occurred during the current crisis.
Given Bonneville*s dual roles, conflicts are inevitable and will likely
become more intense if growing power demands bump up against increased
efforts to mitigate damage to fish and wildlife. The Bonneville Power
Administration produces a large

portion of the Pacific Northwest*s electric power, largely from
hydroelectric projects in the

Federal Columbia River Power System. Bonneville also has obligations to
protect, mitigate, and enhance fish and wildlife populations affected by
these

hydroelectric projects. In the past several years, Bonneville has
experienced financial difficulties, in part because of rising costs of
providing power, lower- thanprojected

revenue from selling surplus power, and drought conditions. Bonneville*s
financial situation may adversely affect fish and wildlife. Stakeholders
have expressed concern that Bonneville has effectively reduced spending

on fish and wildlife programs. This testimony addresses (1) Bonneville*s
statutory and other obligations to support fish and wildlife programs, (2)
Bonneville*s historical spending and other efforts in support of fish and
wildlife, (3) Bonneville*s current financial condition, (4) Bonneville*s
recent actions that affect fish and wildlife programs, and (5) challenges
Bonneville faces in

supplying electricity to the region while simultaneously protecting,
mitigating and enhancing fish and wildlife. www. gao. gov/ cgi- bin/
getrpt? GAO- 03- 844T. To view the full product, including the scope

and methodology, click on the link above. For more information, contact
Jim Wells at (202) 512- 3841 or wellsj@ gao. gov. Highlights of GAO- 03-
844T, a report to the

Senate Committee on Indian Affairs

June 4, 2003

BONNEVILLE POWER ADMINISTRATION

Obligations to Fish and Wildlife in the Pacific Northwest

1 Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss the Bonneville Power
Administration*s roles in providing power and protecting fish and wildlife
in the Northwest. As you know, Bonneville provides a large fraction of the
Pacific Northwest*s electric power, produced largely from hydroelectric
projects in the Federal Columbia River Power System. Bonneville also has
obligations to protect, mitigate, and enhance fish and wildlife
populations affected by these hydroelectric projects. Through its revenues
from power sales, Bonneville provides the majority of fish and wildlife
program money in the region. Over the past 20 years, demand for electric
power in the region has grown and Bonneville*s involvement in and
expenditures on fish and wildlife programs have increased.

In the past several years, Bonneville has faced increasing financial
difficulty, in part because of drought conditions, rising costs of
providing power, and lower- than- projected revenue from selling surplus
power. This financial situation has implications for fish and wildlife.
For example, during the drought of 2001, Bonneville determined that in
order to maintain an adequate and reliable power supply during the
declared power emergency, available water would be used to generate
electricity rather than spilled (released) over the dams to aid juvenile
fish passage. Significantly reducing the amount of water spilled over the
dams can affect the survival rates of some juvenile populations of
migrating fish, which in turn ultimately reduces the number of adults
returning to spawn in the future. In addition, a number of stakeholders
have expressed concern that some Bonneville actions have effectively
reduced spending on fish and wildlife programs.

In this context, you asked us to (1) discuss Bonneville*s statutory and
other obligations to support fish and wildlife programs, (2) describe
Bonneville*s historical spending and other efforts in support of fish and
wildlife protection and enhancement, (3) evaluate Bonneville*s current
financial condition, (4) discuss some of Bonneville*s recent management
actions that affect fish and wildlife programs, and (5) discuss challenges
Bonneville faces in supplying electricity to the region while
simultaneously protecting,

2 mitigating, and enhancing fish and wildlife. To meet these objectives,
we relied on

information in our previous report on salmon and steelhead recovery
efforts 1 , interviewed officials at Bonneville, and interviewed
stakeholders in Bonneville's fish and wildlife programs, including the
Northwest Electric Power and Conservation Planning Council (Power Planning
Council) 2 and the Columbia River Intertribal Fish Commission. 3 At the
request of Chairman Hobson and Ranking Member Visclosky of House

Appropriations, Subcommittee on Energy and Water Development, we are also
currently in the process of reviewing Bonneville's financial situation.
This statement includes the preliminary findings of this effort as well.

In summary, we found that:

In accordance with the Pacific Northwest Electric Power Planning and
Conservation Act (Northwest Power Act) of 1980, Bonneville is required to
ensure an adequate, efficient, economical, and reliable power supply for
the Pacific Northwest and also to protect, mitigate, and enhance fish and
wildlife affected by operation of the Federal Columbia River Power System.
Under the provisions of various treaties, laws, court cases, and
presidential directives, Bonneville is required to consult with Indian
tribes and to fulfill trust responsibilities for fish and wildlife. Under
various laws, Bonneville also funds fish and wildlife mitigation costs
incurred by the Army Corps of Engineers and the Bureau of Reclamation.
These costs may arise as a result of compliance with biological opinions
issued by the National Oceanographic and Atmospheric Administration (NOAA)
Fisheries (formerly the National Marine

1 U. S. General Accounting Office, Columbia Basin Salmon And Steelhead:
Federal Agencies* Recovery Responsibilities, Expenditures and Actions,
GAO- 02- 612 (Washington, D. C.: July 2002). 2 The Power Planning Council
was authorized by the Pacific Northwest Electric Power Planning and
Conservation Power Act of 1980 (Northwest Power Act). It consists of
representatives of the states of Idaho, Montana, Oregon, and Washington
and is funded by Bonneville. The Northwest Power Act directs

the Power Planning Council to develop 1) a plan to guarantee adequate and
reliable energy for the Pacific Northwest and 2) a program to protect and
rebuild populations affected by hydropower development in the Columbia
River Basin. 3 The Columbia River Intertribal Fish Commission is the
coordinating agency for fishery management policies of the four Columbia
River treaty tribes, (the Confederated Tribes of the Warm Springs
Reservation of Oregon, the Confederated Tribes and Bands of the Yakama
Indian Nation, the Confederated Tribes of the Umatilla Indian Reservation,
and the Nez Perce Tribe).

3 Fisheries Service) and the Fish and Wildlife Service or as mitigation
measures

recommended in the Columbia River Fish and Wildlife Program adopted by the
Power Planning Council. In addition, a number of fish populations in the
region have been listed as either threatened or endangered under the
Endangered Species Act. With these listings, Bonneville and other federal
agencies became responsible for ensuring that operation of the Federal
Columbia River Power System does not jeopardize the continued existence of
these populations.

From fiscal years 1997 through 2001, Bonneville spent over $1.1 billion in
support of fish and wildlife programs* primarily to benefit salmon and
steelhead. Some of these expenditures have funded fish and wildlife
efforts, including those undertaken by Bonneville, other federal agencies,
Indian tribes, and the four northwest states (Idaho, Montana, Oregon, and
Washington). Bonneville has also funded operations and maintenance and
capital costs for the Army Corps of Engineers, Bureau of Reclamation, and
the Fish and Wildlife Service for projects such as fish bypass facilities
at dams and fish hatcheries. In addition, Bonneville estimates that from
fiscal years 1997 through 2001, spilling water from dams and augmenting
flows to

enhance fish survival resulted in over $2.2 billion in forgone revenues or
increased power purchases.

Bonneville is currently in a financial crisis. Cash reserves have fallen
and Bonneville has estimated an increased risk that it will miss future
Treasury debt payments. Specifically, for the fiscal year 2002- 2006 rate
period, Bonneville estimates that its costs will be about $5.3 billion
higher than for the previous five- year rate period and revenues will be
about $1.4 billion less than projected in June 2001. To avoid defaulting
on Treasury debt and to cover its costs as required by law, Bonneville has
increased its rates for power by over 40 percent since fiscal year 2001
and is considering further increases. In addition, Bonneville has plans to
reduce costs and hopes that favorable water and price conditions will
enable it to increase revenues from power sales.

4

Some recent management actions by Bonneville appear to have adversely
affected fish and wildlife programs enhancement efforts. Specifically,
Power Planning Council staff and representatives of some Indian tribes
have pointed out that a change in Bonneville*s approach to budgeting for
fish and wildlife expenditures, adopted in October 2002, caused the loss
of around $40 million in planned fish and wildlife funding for 2003.
Stakeholders have also observed that the budgeting change was not well
understood by program managers and that funding was lost when expenditures
incurred in fiscal year 2002 were counted by Bonneville against fiscal
year 2003 fund levels. Bonneville staff described the change as necessary
to improve management controls over the funding of fish and wildlife
programs but acknowledged that the change in budgeting was abrupt and not
well understood by many of those affected by the change. Bonneville has
also placed on hold its plans to acquire land to be used as habitat for
fish and wildlife and is working with the Power Planning Council and
constituents on how to prioritize purchases in the future.

Bonneville*s dual roles* as supplier of economical and reliable power and
as protector of fish and wildlife* inherently conflict. Supporting fish
and wildlife efforts, either by spilling water that could otherwise be
used to generate electricity, or by directly funding other fish and
wildlife programs, can only be achieved by raising Bonneville*s power
rates. On the other hand, demands on Bonneville to supply greater amounts
of power will put pressure on fish and wildlife, either through more
intensive use of generating facilities at the expense of spilling water,
or through reduced revenues available for funding fish and wildlife
programs as has occurred during the current crisis. Bonneville*s
management problem is more severe in drought years* lower water
availability causes both higher electricity prices and natural stresses on
fish populations* and will only increase as growing populations and demand
for power bump up against increased efforts to mitigate fish and wildlife.

BACKGROUND The Columbia River Basin is North America*s fourth largest,
draining about 258,000 square miles and extending predominantly through
the states of Washington, Oregon,

5 Idaho, and Montana and into Canada. The basin contains over 250
reservoirs and about

150 hydroelectric projects, including dams on the Columbia River and its
primary tributary, the Snake River. The Columbia River Basin also provides
habitat for many species of fish and wildlife, including a number of
threatened and endangered species.

The development of the reservoirs and hydroelectric projects in the basin
has posed hazards for some of the species in the basin, especially
anadromous fish, such as salmon and steelhead. Such fish are born in
freshwater streams, where they live for 1 to 2 years before migrating down
river to the ocean to mature. After 2 to 5 years, the fish migrate back to
the freshwater streams to spawn a new generation. To migrate past a dam,
juvenile fish must either go through its turbines, go over the spillway,
use other installed bypass systems, or be transported around the dams in
trucks or barges. Each alternative has risks and increases the mortality
rate of juvenile fish. To return upstream to spawn, adult fish must find
and use fish ladders provided at each of the dams.

Bonneville is responsible for marketing the power that the 31 federal dams
in the Federal Columbia River Power System produce. Depending upon the
annual amount of water available to the system, Bonneville provides about
45 percent of the electric power used in the Pacific Northwest each year.
In addition, Bonneville*s transmission system accounts for about 75
percent of the region*s high- voltage grid, and includes major
transmission links with other regions. Through its revenues from power
sales, Bonneville provides the majority of fish and wildlife program money
in the region. These programs fund a variety of activities including
tribal fish hatcheries, fish screens at irrigation diversions, habitat
improvement projects, watershed restoration, land acquisition, and various
research studies.

Bonneville sets its power rates high enough to cover its internal costs,
the costs of fish and wildlife programs, and to repay its debt, including
its revolving Treasury debt and any other appropriated funds used to build
and operate the power system.

6 BONNEVILLE HAS NUMEROUS FISH AND WILDLIFE RESPONSIBILITIES In addition
to its responsibility for providing transmission services and marketing
the

electric power generated by the dams in the Federal Columbia River Power
System, Bonneville is obligated by the Northwest Power Act of 1980 to
protect, mitigate, and enhance fish and wildlife populations affected by
these hydroelectric projects. In addition to this mandate, significant
declines in historical returns of salmon and steelhead to the Columbia
River Basin have resulted in the listing of 12 populations as threatened
or endangered under the Endangered Species Act. With these listings,
Bonneville and other federal agencies became responsible for ensuring that
operation of the Federal Columbia River Power System does not jeopardize
the continued existence of these 12 populations. The table below
identifies, and provides a brief explanation of, some of the laws defining
Bonneville*s responsibilities.

Table 1: Legislation Defining Bonneville*s Responsibilities for Fish and
Wildlife

Bonneville Project Act (1937)

Creates the Bonneville Power Administration and authorizes it to market
power produced by the Bonneville Project and to construct transmission
lines to transmit electric energy. Requires Bonneville to set its rates to
recover the cost of producing and transmitting electric energy from the
Federal Columbia River Power System, including the amortization of the
capital investment. These rates must be based on the cost allocations
among the project*s purposes that Congress authorized* typically power,
navigation, flood control, and irrigation. Endangered Species Act

(1973) Directs the National Marine Fisheries Service and the United States
Fish and

Wildlife Service to return endangered and threatened species to the point
where they no longer need special protection measures by protecting
threatened or endangered species and the ecosystems upon which they
depend. Transmission System Act

(1974) Designates Bonneville as the marketing agent of all electric power
generated by

federal plants constructed by the Army Corps of Engineers or the Bureau of
Reclamation in the Pacific Northwest, except for power required for the
operation of such projects and the power from Bureau of Reclamation*s
Green Springs project. Authorizes Bonneville to operate and maintain the
federal transmission system within the Pacific Northwest and to construct
appropriate additions and improvements. Establishes the Bonneville Fund
within the United States Treasury, a revolving fund that consists of all
of Bonneville*s receipts and proceeds, and from which Bonneville*s
administrator may make expenditures determined to be necessary or
appropriate. Pacific Northwest Electric Power Planning and Conservation
Act

(1980) Authorizes the formation of the Pacific Northwest Electric Power
and

Conservation Planning Council (Council) and directs it to develop a
program to protect, mitigate, and enhance the fish and wildlife of the
Columbia River Basin. Requires Bonneville*s administrator to use
Bonneville*s funding authorities to protect, mitigate, and enhance fish
and wildlife affected by the development and operation of the Federal
Columbia River Power System and to do so in a manner consistent with the
Council*s program while ensuring the Pacific Northwest an adequate,
efficient, economical, and reliable power supply. Limits Bonneville*s

7

share of mitigation costs to those necessary to deal with adverse effects
caused by the development and operation of the dams* electric power
facilities only. Requires federal agencies responsible for managing,
operating, or regulating hydroelectric facilities in the Columbia River
Basin to provide equitable treatment for fish and wildlife with the other
purposes for which these facilities are operated and managed. These
agencies must, at every relevant stage of their decisionmaking process,
also consider, to the fullest extent practicable, the Council*s fish and
wildlife program.

Source: GAO review of legislation. In addition to the laws summarized
above, Bonneville must comply with other environmental laws and also has a
trust responsibility with the 13 federally recognized tribes in the
Columbia River Basin. In an April 29, 1994 Memorandum to the Heads of
Executive Departments and Agencies, then President Clinton made trust
responsibilities and tribal relations the responsibility of all federal
departments. To fulfill this responsibility, Bonneville developed a formal
tribal policy, which provides a framework for a government- to- government
relationship with the 13 tribes. This framework includes a commitment to
fulfill its obligations under the terms of treaties, as well as other
applicable laws and regulations. Various treaties and court cases
guarantee the rights of the tribes to fish at their usual and accustomed
fishing locations and to take 50 percent of the annual harvestable surplus
of salmon. The table below identifies, and provides an explanation of,
some key environmental laws and treaties.

Table 2: Other Laws, Treaty Obligations, and Court Cases Affecting
Bonneville*s Responsibilities for Fish and Wildlife

Clean Water Act (1972) Authorizes the Environmental Protection Agency
(EPA) to establish water quality

standards and to issue permits for the discharge of pollutants from a
point source to navigable waters. Authorizes EPA to approve total maximum
daily loads established by states and tribes. These standards are
determined by the maximum amount of a pollutant that a water body can
receive and still meet

water quality standards for specified uses, including fish and wildlife.
Columbia River Treaty

(1961) Defines the relationship between the United States and Canada
concerning the operation of Columbia River dams and reservoirs.

National Environmental Policy Act (1969)

Procedural act requiring federal agencies to examine the impacts of
proposed federal actions that may significantly affect the environment.

Magnuson- Stevens Fishery Conservation and Management Act (1976)

Requires federal agencies, in consultation with the National Marine
Fisheries Service (NMFS), to promote the protection of essential fish
habitat. NMFS shall provide conservation recommendations for any federal
or state activity that may adversely affect essential fish habitat.
Pacific Salmon Treaty

(1985) Treaty signed by the United States and Canada in 1985 governing the
harvest of certain salmon stocks in the fisheries of the Northwest states
(including Alaska)

8

and Canada.

U. S. v. Oregon, U. S. v. Washington

(1969 and 1974) Court decisions affirming the right of certain Indian
tribes to 50 percent of the

harvestable surplus of salmon. Treaties between individual Indian tribes
and the United States

Establish federal agency responsibilities for trust assets, hatchery and
harvest issues, and tribal water rights.

Source: GAO review of legislation, treaties, and court cases. BONNEVILLE*S
SPENDING AND OTHER EFFORTS TO PROTECT FISH AND WILDLIFE ARE CONSIDERABLE
BUT EFFECTS ARE DIFFICULT TO ISOLATE In total, Bonneville estimates it has
spent over $1.1 billion (in 2001 dollars) from 1997-

2001 on fish and wildlife efforts. Of this total, Bonneville spent over
$460 million on direct programs and funding for fish and wildlife related
activities of other agencies and entities. The bulk of Bonneville*s
expenditures for fish and wildlife are spent on the 12 populations of
salmon and steelhead currently listed as endangered or threatened under
the Endangered Species Act. 4 Bonneville*s direct spending on projects as
well as their funding of other agencies and entities in support of fish
and wildlife programs for 1997- 2001 are shown in table 3 below.

4 GAO recently completed a review of these expenditures for 11 federal
agencies* U. S. General Accounting Office, Columbia Basin Salmon And
Steelhead: Federal Agencies* Recovery Responsibilities, Expenditures and
Actions, GAO- 02- 612 (Washington, D. C.: July 2002). This report dealt
only with salmon and steelhead programs, but Bonneville staff told us that
this represents the bulk of Bonneville*s support for fish and wildlife
programs. Therefore, the data provided in this testimony are indicative,
but not a complete accounting, of Bonneville*s recent financial
commitments to fish and wildlife protection, mitigation, and enhancement.

9

Table 3: Bonneville*s Expenditures and Funding Provided to Others (in
thousands of 2001 dollars)

Source: GAO presentation of data provided by Bonneville Power
Administration. In addition to the expenditures shown above, Bonneville
(1) reimburses the Treasury for the hydroelectric share of Army Corps of
Engineers, Bureau of Reclamation, and the Fish and Wildlife Service
operation and maintenance and other non- capital expenditures for fish and
wildlife, and (2) funds the hydroelectric share of capital investment
costs of the Army Corps of Engineers and Bureau of Reclamation fish and
wildlife projects. Such projects include fish bypass facilities at dams
and fish hatcheries. Bonneville estimates that its operation and
maintenance reimbursements between fiscal year 1997 and 2001 were $215.1
million and its funding of capital investment for the same time period
totaled $453.9 million.

Bonneville also estimates that spilling water and augmenting flows to
assist fish migration has led to over $2.2 billion in forgone revenues and
purchases of replacement power. Bonneville*s estimates of these costs are
included in the table below. GAO did not audit these figures. Group 1997
1998 1999 2000 2001 Total

Bonneville $5,533 $4,913 $5,608 $4,507 $5, 444 $26,005

Federal Agencies $12,740 $9,082 $9,150 $9,675 $16, 543 $57,247

States $16,249 $22,137 $21,286 $17,873 $20, 011 $103,361

Tribes $22,054 $21,465 $17,438 $18,126 $22, 344 $95,622

Power Council $375 $686 $1,784 $686 $353 $3, 883

Others $23,554 $37,527 $38,165 $32,758 $44, 855 $176,858 Total $80,505
$95,810 $93,429 $83,625 $109, 550 $462,976

10

Table 4: Bonneville*s Estimated Power Purchases and Forgone Revenues (in
millions of 2001 dollars)

Source: Bonneville Power Administration There are some indications that
Bonneville*s actions in conjunction with other agencies* have increased
fish survival.

Bonneville worked with the Army Corps of Engineers and Bureau of
Reclamation to increase fish passage survival at dams, on average, by 5
percent or more at each dam.

Predator control throughout the Federal Columbia River Power System and
the estuary saved approximately 7 to 12 million juvenile salmon and
steelhead per year, an approximate 5 to 10 percent increase in juvenile
fish survival.

In- river survival of juveniles through the Federal Columbia River Power
System is now higher than ever measured.

While these results are promising, the available data are not sufficient
to fully isolate the effects of overall fish and wildlife programs on fish
populations generally, because of a number of confounding factors,
including changing weather and ocean conditions and the length of time it
takes for project benefits to materialize. For example, if ocean
temperatures rise, adult fish may be unable to find and consume enough
food to fortify themselves for spawning and, therefore, die before they
can return. At other times, abnormally high or low water in the spawning
streams, can mean that adults face dried up or washed out spawning beds.
In low water years, flows may also be insufficient to transport juvenile
salmon and steelhead to the ocean in time to make the transition to salt
water, so they die in the streams. Given such variable conditions, federal
efforts to enhance water flows or improve passage are difficult to assess.
Moreover, project

Cost Category 1997 1998 1999 2000 2001 Total

Purchase Power costs $0.0 $5.7 $49.7 $66.1 $1,389. 0 $1,510.5

Foregone Revenues $115. 5 $123.3 $206.4 $197.1 $115. 9 $758.2 Total $115.
5 $129.0 $256.1 $263.2 $1,504. 9 $2,268.7

11 benefits may take several years to materialize. For example, during the
declared power

emergency brought on by the drought of 2001, barges and trucks were used
to transport juvenile fish past the dams. However, it will be 2 to 5 years
before these juveniles return as adults and uncontrollable factors like
ocean temperatures will also affect how many will eventually make it back.
In the end, it will be difficult to isolate the success of the
transportation program from the impacts of uncontrollable factors.

The figures below show the fluctuation in adult salmon and steelhead
returns to the Columbia River Basin for the past 25 years as counted at
two dams. Bonneville Dam is the first dam adult fish must pass on their
way up the Columbia River, and Lower Granite Dam is the last dam they must
pass on the Snake River before they can migrate into Idaho.

Figure 1: Returning salmon and steelhead at Bonneville Dam (1977- 2001)

Source: GAO analysis of data from the Fish Passage Center. 0 200,000

400,000 600,000

800,000 1, 000,000

1, 200,000 1, 400,000

1977 1980

1983 1986

1989 1992

1995 1998

2001 Salmon

Steelhead

12

Figure 2: Returning adult salmon and steelhead at Lower Granite Dam (1977-
2001) Source: GAO analysis of data from the Fish Passage Center. As
figures 1 and 2 indicate, fish populations can vary widely from year to
year. While 2001 was the best year since 1977 for salmon and steelhead
overall, there is no clear long- term trend over the entire period.
Moreover, it is important to point out that while overall salmon numbers
may be improving, the situation for individual species remains far less
favorable. Further, all of the 12 populations of salmon and steelhead
initially listed as either threatened or endangered remain so despite the
efforts and spending described above. BONNEVILLE IS FACING A FINANCIAL
CRISIS In recent years, Bonneville*s financial position has deteriorated
significantly. For

example, Bonneville*s cash reserves totaled $811 million at the end of
fiscal year 2000 but had fallen to $188 million by the end of fiscal year
2002. In addition, for the fiscal year 2002- 2006 rate period, Bonneville
recently estimated that its costs will be about $5.3 billion higher than
in the previous five- year rate period. A large part ($ 3.9 billion) of
the estimated higher costs came from purchases of power to meet demand
over and above what the Federal Columbia River Power System can produce.
To meet this additional

0 50, 000

100,000 150,000

200,000 250,000

300,000 19

77 19

80 19

83 1986

1989 1992

1995 1998

2001 Salmon

Steelhead

13 demand, Bonneville took a number of steps, including purchasing power
in long- term

contracts at prices above current market prices and above the $22/ MWh
rates it initially set for the fiscal year 2002- 2006 rate period. In
addition, Bonneville estimated that its revenues will be about $1.4
billion less than were projected in 2001. A large part of the decreased
revenue estimates are the result of lower than projected market prices.
These lower than projected prices caused Bonneville to revise its expected
surplus power revenues downward by over $700 million. Drought conditions
in 2001 and low water conditions in 2002 also contributed to Bonneville*s
reduction in estimated revenues. In early 2003, Bonneville announced that
it estimated a greater than 50 percent chance of missing a payment on its
outstanding debt to the Treasury this fiscal year.

In response to the financial crisis, Bonneville has increased its rates
for power by over 40 percent over fiscal year 2001 levels and is
considering further increases if necessary to increase the likelihood it
will be able to make its Treasury payments. In addition, Bonneville plans
to reduce costs or expenditures and hopes that favorable water and price
conditions will enable it to increase revenues from power sales.
Bonneville is also seeking to (1) refinance some of its debt, (2)
renegotiate some long- term power contracts, and (3) reach agreement on
the reduction and/ or deferral of financial benefits to certain customers.
Bonneville is also involved in a regional dialogue with its power
customers, the Power Planning Council, and other stakeholders to try to
avoid similar problems in the future.

RECENT ACTIONS BY BONNEVILLE MAY HAVE REDUCED TOTAL SPENDING ON FISH AND
WILDLIFE Bonneville has recently undertaken several actions that are
viewed by members of the

fish and wildlife community as reducing the amount of funding available to
support fish and wildlife protection and recovery efforts. These actions
include changes in approach to contract management and the planning and
budgeting system that have resulted in some work completed in fiscal year
2002 being paid for with fiscal year 2003 funds.

14 Starting in fiscal year 2003, Bonneville eliminated the automatic
carryover of funding for

fish and wildlife programs that had previously been provided under
contract management. Under the previous methods, if the funds were not
spent in the year approved, they were generally carried over and were
available to be spent in the following year. As a result, Bonneville
officials stated that they did not have current and reliable information
on the cost of work performed each year. With the switch to the new
planning and budgeting system, Bonneville has requested that contractors
inform Bonneville by a certain date in the new fiscal year how much they
are owed for work actually performed in the last fiscal year. Bonneville
uses the information to establish an account that sets aside monies from
that fiscal year to pay bills as they come in during the next year. If
contractors do not provide Bonneville with this information then bills
that come in for work done in the previous fiscal year must be paid for
with monies from the next fiscal year.

Contractors and others told us that this change was made with little
advance notice or training and without a clear understanding on their part
of its ramifications on fiscal year 2003 funding. As a result, funding for
fiscal 2003 planned projects is being reduced by the amount needed to pay
for work completed in fiscal year 2002, which they failed to notify
Bonneville was completed. In addition, they note that if a project is
approved but no work is done on it in a given fiscal year it now runs the
risk of having to go back through the formal funding approval process,
potentially causing delays.

Stakeholders told us of several concerns they have about Bonneville*s
funding of fish and wildlife programs:

According to Power Planning Council officials:

Bonneville*s budgeting change caused a reduction in fish and wildlife
funding. In a February 2003 letter to the Bonneville Administrator, Power
Planning Council staff stated that over $40 million in fish and wildlife
obligations that had been carried over from the 1997 - 2001 rate period
were no longer available. The Power Planning Council says that its fish

15 and wildlife program has had to absorb the $40 million in previous

obligations in its 2003 budget.

In December 2001, Bonneville told the Power Planning Council that it
estimated an annual average of $150 million for the 2002 - 2006 rate
period to fund the Power Planning Council*s fish and wildlife program and
actions required by the biological opinion for the Federal Columbia River
Power System. Bonneville reduced this figure to $139 million. Furthermore,
in March 2003 Bonneville notified the Power Planning Council that this
figure may be reduced further and asked the Power Planning Council if
further reductions would be feasible.

Although Bonneville had agreed to provide $36 million in capital funding
to be used to purchase land or easements to protect fish and wildlife,
Bonneville notified the Power Planning Council that all land or easement

purchases had been placed on hold due to Bonneville*s financial condition.
Bonneville further indicated that capitalizing land or easement purchases
may not be appropriate, a contention the Power Planning Council disputes.
While the Power Planning Council has agreed to Bonneville*s decision to
place fiscal year 2003 land purchases on hold, it has also notified
Bonneville that this issue must be resolved before the Power Planning
Council can evaluate future program requirements.

According to representatives of the Columbia River Intertribal Fish
Commission:

Bonneville cancelled funding for the acquisition of approximately 2,500
acres along Squaw Creek in Oregon. Habitat enhancement in the Squaw Creek
area is administered by the Confederated Tribes of the Umatilla Indian
Reservation.

The Columbia Basin Fish and Wildlife Authority, is slated to lose half of
its funding. The Columbia Basin Fish and Wildlife Authority coordinates
the work of the 13 tribes and 7 fish and wildlife agencies in the Columbia
River Basin, administers aspects of the provincial review process,
coordinates project reviews and research, and acts as a funding vehicle
for projects involving multiple agencies. This organization is important
to the tribal

16 community because it assists tribes in coordinating with each other as
well

as with outside fish and wildlife agencies.

According to representatives of the Yakama tribe:

The tribe lost between $6 and $8 million in fish and wildlife funding due
Bonneville*s change in the new planning and budgeting system.

A deal the tribe had reached to get conservation easements, remove dams
impassable to fish, and upgrade irrigation systems to reopen several
steelhead spawning streams fell through when the funds allocated for these
projects became unavailable after the budgeting change.

Bonneville described the changes in their budgeting and accounting of fish
and wildlife program funds as follows:

Overall, Bonneville*s yearly direct program expenditures have increased
since 1996 from $68.5 million in expense spending to $138 million in 2002.
Those direct program expenditures * now totaling $139 million a year
through FY 2006 * have been the principal source of funding support for
tribal fish and wildlife programs and the implementation of projects that
address Bonneville*s mitigation obligations and recovery objectives. In
the Fall of 2002, Bonneville changed the planning and budgeting process
that is used with regional entities for these fish and wildlife
expenditures from an obligations to an accrual- based planning and
budgeting process. As required under Generally Accepted Accounting
Principles (GAAP), Bonneville records expenditures on an accrual basis. In
an effort to more closely align the budgeting process with accrual based
accounting, Bonneville moved from an agency obligation budgeting method to
agency budgeting based on accruals in the mid- 1990s. However, due to
processes documented in the original Fish Funding Memorandum of Agreement,
the regional planning and budget process for fish and wildlife funding
remained on an obligations basis. Due to Bonneville*s dire financial
circumstances, the planning and budgeting process was changed to more

17 closely correlate with accrual accounting, and the agency*s planning

method.

Due to difficult financial circumstances, Bonneville accelerated a change
from an obligations to an accrual based planning and budgeting process for
the fish and wildlife program. This approach to planning correlates more
closely with the agency*s planning method and provides greater accuracy in
fiscal year expenditure forecasts. In addition, Bonneville has initiated
changes in contract management to provide Bonneville managers with
accurate and current information to facilitate administration of
Bonneville*s fish and wildlife program on an accrual basis.

In December 2002, as Bonneville*s financial concerns deepened, the
Administrator asked the Power Planning Council to take appropriate steps
to assure that spending for the fish and wildlife program did not exceed
the budgeted level of $139 million in expense accruals for fiscal year
2003.

Bonneville acknowledges that these changes affected the planned
expenditures for fiscal year 2003. However, the 2003 funding level of $139
million is consistent with the funding commitment made in a December 2001
letter to the Power Planning Council and is a 40 percent increase in
program support from the previous rate period. In that letter, Bonneville
supported a planning assumption of $150 million in expense for fish and
wildlife; this was expected to result in an actual expense accrual of $139
million.

While Bonneville has spent well over $100 million on wildlife habitat
since 1989, only one agreement has been capitalized. The Montana Trust
resolved and indemnified Bonneville for all losses resulting from the
construction of Libby and Hungry Horse dams and was funded with a onetime

commitment of $12 million. Bonneville instituted a temporary hold on land
acquisitions until the Power Planning Council could make recommendations
on how to prioritize 2003 expenditures. Upon review of the forecasted
expenditures

18 for 2003, the Power Planning Council recommended the deferral of land

acquisitions for the remainder of fiscal year 2003 to allow consideration
of a change to Bonneville*s capitalization policy for fiscal year 2004.
This allowed other projects to move forward within the $139 million
budget. Bonneville is currently working with the Power Planning Council
and constituents to develop a method for capitalizing land acquisitions
that is consistent with GAAP accounting standards and Bonneville*s limited
borrowing authority.

BONNEVILLE*S CHALLENGES STEM FROM ITS DUAL AND CONFLICTING ROLES AND
RESPONSIBILITIES Bonneville*s dual roles* as supplier of economical and
reliable power and as protector

of fish and wildlife* are inherently in conflict. Bonneville*s
stakeholders include both consumers of electricity and proponents of fish
and wildlife protection, and both groups apply pressure on Bonneville to
deliver more of what they want. However, providing more support for fish
and wildlife comes at the cost of less electricity and higher rates.
Similarly, providing more electricity can put greater pressure on fish and
wildlife, either through more intensive use of generating facilities at
the expense of spilling water, or through reduced revenues available for
funding fish and wildlife programs as has occurred during the current
crisis.

Further, Bonneville operates in a changing environment with regard to
demand for its electricity and with regard to the treatment of fish and
wildlife required by law and treaty agreements. For example, demand for
electricity has generally grown throughout Bonneville*s existence and it
has responded up until now by increasing its generating capacity or buying
electricity from other sources to meet the needs of its electricity
customers. As Bonneville has continued to provide electricity beyond the
capacity of federal hydroelectric facilities, it has encountered higher
costs. In addition, over the past two decades, Bonneville*s spending and
actions in support of fish and wildlife have grown considerably with the
enactment of various environmental laws and with

19 increased regulations put in place to protect the environment. Most
recently, a ruling in

federal court has determined as inadequate the biological opinion
developed by the National Marine Fisheries Service (now NOAA Fisheries) to
direct the protection of endangered fish species in the Columbia River
Basin. The judge has remanded the biological opinion to NOAA Fisheries and
suggested that greater certainty will be required for specific mitigation
measures before NOAA Fisheries can rely upon them for protecting listed
endangered species. The consequences of this ruling on river and dam
operations is uncertain as is any subsequent impact on the amount and
timing of power Bonneville has to sell and on fish and wildlife.

----- In closing Mr. Chairman, while the future is uncertain, one thing is
very clear* Bonneville and its numerous stakeholders are faced with some
potentially painful decisions in the coming years. The outcomes of these
decisions will affect the health and viability of fish and wildlife
populations and the way of life of Northwest residents who benefit from
electric power. Given the competing priorities that involve making trade-
offs, we continue to support public oversight of the decisions being made
and will continue to pursue our ongoing work relating to your request that
we study Bonneville*s obligations to support fish and wildlife programs.

Mr. Chairman, that concludes our prepared statement. We would be happy to
answer any questions that you or Members of the Committee may have.

For further information, please contact Jim Wells at (202) 512- 3841.
Individuals making key contributions to this testimony include, Jill
Berman, Jonathan Dent, Samantha Gross, Cynthia Norris, Frank Rusco, and
Barbara Timmerman. (360353)

The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO*s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail

this list to you every afternoon, go to www. gao. gov and select
*Subscribe to daily E- mail alert for newly released products* under the
GAO Reports heading.

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to: U. S. General Accounting Office 441 G Street NW, Room LM
Washington, D. C. 20548 To order by Phone: Voice: (202) 512- 6000

TDD: (202) 512- 2537 Fax: (202) 512- 6061

Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470 Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202) 512-
4800

U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
C. 20548 GAO*s Mission Obtaining Copies of

GAO Reports and Testimony

Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal
Programs Public Affairs
*** End of document. ***