Indian Issues: Spokane Tribe's Additional Compensation Claim for 
the Grand Coulee Dam (02-OCT-03, GAO-04-125T).			 
                                                                 
The Grand Coulee Dam was constructed on the Columbia River in	 
northeastern Washington State from 1933 to 1942. The reservoir	 
behind the dam covers land on the Colville Reservation along the 
Columbia River and land on the adjacent Spokane Reservation along
both the Columbia and Spokane rivers. Under a 1940 act, the	 
federal government paid $63,000 and $4,700 to the Colville and	 
Spokane tribes, respectively, for the land used for the dam and  
reservoir. Subsequently, the Colville tribes pursued additional  
claims for their lost fisheries and for "water power values" and 
in 1994 were awarded a lump sum payment of $53 million and,	 
beginning in 1996, annual payments that have ranged between $14  
million to $21 million. The Spokane tribe is currently pursuing  
similar claims. S. 1438, introduced in July 2003, is a proposed  
legislative settlement for the Spokane tribe's claims. While	 
settlement proposals introduced in the 106th and 107th Congresses
directed the settlement costs to be split between Bonneville and 
the Treasury, S. 1438 provides that the settlement be paid	 
entirely from the Treasury. This statement for the record	 
addresses the (1) impact of a settlement on Bonneville if the	 
costs were split between Bonneville and the Treasury and (2)	 
possible allocation of these costs between Bonneville and the	 
Treasury.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-125T					        
    ACCNO:   A08649						        
  TITLE:     Indian Issues: Spokane Tribe's Additional Compensation   
Claim for the Grand Coulee Dam					 
     DATE:   10/02/2003 
  SUBJECT:   Claims settlement					 
	     Cost analysis					 
	     Electric utilities 				 
	     Native American claims				 
	     Proposed legislation				 
	     Utility rates					 
	     Indian lands					 
	     Land management					 
	     Columbia River (WA)				 
	     Colville Indian Reservation (WA)			 
	     Franklin D. Roosevelt Reservoir (WA)		 
	     Grand Coulee Dam (WA)				 
	     Spokane Indian Reservation (WA)			 
	     Spokane River (WA) 				 

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GAO-04-125T

United States General Accounting Office

GAO Testimony

Before the Committee on Indian Affairs,

U.S. Senate

For Release on Delivery

Expected at 2:00 p.m. EDT INDIAN ISSUES

Thursday, October 2, 2003

     Spokane Tribe's Additional Compensation Claim for the Grand Coulee Dam

Statement for the Record by Robert A. Robinson, Managing Director, Natural
Resources and Environment

GAO-04-125T

Highlights of GAO-04-125T, a statement for the record for the Committee on
Indian Affairs, United States Senate

The Grand Coulee Dam was constructed on the Columbia River in northeastern
Washington State from 1933 to 1942. The reservoir behind the dam covers
land on the Colville Reservation along the Columbia River and land on the
adjacent Spokane Reservation along both the Columbia and Spokane rivers.
Under a 1940 act, the federal government paid $63,000 and $4,700 to the
Colville and Spokane tribes, respectively, for the land used for the dam
and reservoir. Subsequently, the Colville tribes pursued additional claims
for their lost fisheries and for "water power values" and in 1994 were
awarded a lump sum payment of $53 million and, beginning in 1996, annual
payments that have ranged between $14 million to $21 million. The Spokane
tribe is currently pursuing similar claims.

S. 1438, introduced in July 2003, is a proposed legislative settlement for
the Spokane tribe's claims. While settlement proposals introduced in the
106th and 107th Congresses directed the settlement costs to be split
between Bonneville and the Treasury, S. 1438 provides that the settlement
be paid entirely from the Treasury.

This statement for the record addresses the (1) impact of a settlement on
Bonneville if the costs were split between Bonneville and the Treasury and
(2) possible allocation of these costs between Bonneville and the
Treasury.

www.gao.gov/cgi-bin/getrpt?GAO-04-125T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robert A. Robinson at (202)
512-9894 or [email protected].

October 2, 2003

INDIAN ISSUES

The Spokane Tribe's Additional Compensation Claim for the Grand Coulee Dam

A settlement with the Spokane tribe along the lines provided to the
Colville tribes would likely necessitate a small increase in Bonneville's
rates for power. While the rate increase would amount to less than 20
cents per month per household, it comes at a time when (1) Bonneville's
customers have already absorbed rate increases, including those announced
on October 1, 2003, of over 40 percent and (2) the economy of the
northwestern region, Bonneville's primary service area, is experiencing
difficulties. However, the bulk of Bonneville's obligations in any
settlement similar to the Colville settlement will occur in the future,
when the conditions causing Bonneville's current financial
difficulties-such as costly long-term contracts to purchase power from
other suppliers-will probably have abated. Therefore, Bonneville's current
financial difficulties should not unduly influence current discussions
about how to compensate the Spokane tribe.

A reasonable case can be made to settle the Spokane tribe's case along the
lines of the Colville settlement-a one-time payment from the U.S. Treasury
for past lost payments for water power values and annual payments
primarily from Bonneville. Bonneville continues to earn revenues from the
Spokane Reservation lands used to generate hydropower. However, unlike the
Colville tribes, the Spokane tribe does not benefit from these revenues.
Spokane does not benefit because it missed its filing opportunity before
the Indian Claims Commission. At that time, it was pursuing other avenues
to win payments for the value of its land for hydropower. These efforts
would ultimately fail. Without congressional action, it seems unlikely
that a settlement for the Spokane tribe will occur.

Mr. Chairman and Members of the Committee:

We are pleased to have the opportunity to comment on the Spokane tribe's
additional compensation claim for the Grand Coulee Dam and the proposed
legislative settlement, S. 1438. As you know, the Grand Coulee Dam was
constructed on the Columbia River in northeastern Washington State from
1933 to 1942. When finished, the 550-foot high dam was the largest
concrete dam in the world. It is still the largest hydroelectric facility
in the United States. The Franklin D. Roosevelt Reservoir, which was
created behind the dam, extends over 130 miles up the Columbia River and
about 30 miles east along the Spokane River. The reservoir covers land on
the Colville Reservation along the Columbia River and land on the adjacent
Spokane Reservation along both the Columbia and Spokane rivers. Under a
1940 act, the federal government paid $63,000 and $4,700 to the Colville
and Spokane tribes, respectively, for the land used for the dam and
reservoir.1

Subsequently, the Colville tribes pursued additional claims for their lost
fisheries and for "water power values" (i.e., a share of the hydropower
revenues generated by the dam from the use of their lands) before the
Indian Claims Commission. The Colville tribes' fisheries claim was settled
in 1978 for about $3.3 million. Under a 1994 act-the Confederated tribes
of the Colville Reservation Grand Coulee Dam Settlement Act (P.L. 103-436,
Nov. 2, 1994)-the Colville tribes were awarded a lump sum payment of $53
million for lost hydropower revenues and, beginning in 1996, annual
payments that have ranged between $14 million and $21 million for their
water power values claim.2 The lump sum payment was made from the U.S.
Treasury, and the cost of the annual payments is shared between the
Bonneville Power Administration (Bonneville), which markets the power
generated at the dam, and Treasury.

The Spokane tribe is currently pursuing similar claims. S. 1438,
introduced in July 2003, is a proposed legislative settlement for the
Spokane tribe's claims. While settlement proposals introduced in the 106th
and 107th

1Pub. L. No. 76-690, 54 Stat. 703 (1940), an act for the acquisition of
Indian lands for the Grand Coulee Dam and Reservoir, and for other
purposes, granted the United States title to Indian lands the Secretary of
the Interior designated as necessary for the Grand Coulee Dam project and
authorized the Secretary to determine the appropriate amount to be paid to
the tribes for lands so designated.

2Pub. L. No. 103-436, 108 Stat. 4577 (1994).

Congresses directed the settlement costs to be split between Bonneville
and the U.S. Treasury, S. 1438 provides that the settlement be paid
entirely out of the U.S. Treasury.3 In this context, you asked us to
address the (1) impact of a settlement on Bonneville if the costs were
split between Bonneville and the U.S. Treasury and (2) possible allocation
of settlement costs between Bonneville and the U.S. Treasury. To meet
these objectives, we relied on information developed for a preliminary GAO
report to the Subcommittee on Energy and Water Development, House
Committee on Appropriations;4 interviewed officials at Bonneville and
representatives of the Spokane tribe; and reviewed numerous documents on
the Colville and Spokane tribes' claims for additional compensation. Our
work for the Appropriations Subcommittee on Bonneville's financial
condition is continuing. We plan to issue our final report in June 2004.
Also, as you know, we are continuing our review of Bonneville's
obligations for tribal fish and wildlife programs for this Committee. See
appendix I for a more detailed description of how we estimated the impact
of a settlement on Bonneville. We performed our work in September 2003,
according to generally accepted government auditing standards. We provided
a a draft of this statement to Bonneville for comment but did not receive
a response in time to include in this statement.

In summary, we found the following:

o 	A settlement with the Spokane tribe along the lines provided to the
Colville tribes would likely necessitate a small increase in Bonneville's
rates for power. While the rate increase would amount to less than 20
cents per month per household, it comes at a time when Bonneville's
customers have already absorbed rate increases, including those announced
on October 1, 2003, of over 40 percent and when the region's economy is
experiencing difficulties. However, the bulk of Bonneville's obligations
in any settlement similar to the Colville settlement will occur in the
future, when the conditions causing Bonneville's current financial
difficulties will probably have abated. Therefore, Bonneville's current

3The legislative settlement proposals introduced in the 106th Congress
were S. 1525 and H.R. 2664. In the 107th Congress, the proposals were S.
2567 and H.R. 4859. The proposals pending in the 108th Congress are S.
1438 and H.R. 1753. Under S. 1438 the settlement costs would all be paid
out of the U.S. Treasury, while under H.R. 1753, the settlement costs
would be split between Bonneville and the Treasury.

4U.S. General Accounting Office, Bonneville Power Administration:
Long-Term Fiscal Challenges, GAO-03-918R (Washington, D.C.: July 1, 2003).

financial difficulties should not unduly influence current discussions
about how to compensate the Spokane tribe.

o 	A reasonable case can be made to settle the Spokane tribe's case along
the lines of the Colville settlement-a one-time payment from the U.S.
Treasury for past lost payments for water power values and annual payments
primarily from Bonneville. Bonneville continues to earn revenues from the
Spokane Reservation lands used to generate hydropower. However, unlike the
Colville tribes, the Spokane tribe does not benefit from these revenues.
The Spokane tribe does not benefit because it missed its filing
opportunity before the Indian Claims Commission. At that time it was
pursuing other avenues to win payments for the value of its land for
hydropower. These efforts would ultimately fail. Without congressional
action, it seems unlikely that a settlement for the Spokane tribe will
occur.

Background	The Colville and Spokane Indian reservations were established
in 1872 and 1877, respectively, on land that was later included in the
state of Washington. The Colville Reservation, of approximately 1.4
million acres, was created on July 2, 1872, through an executive order
issued by President Grant. The Spokane Reservation, of approximately
155,000 acres, was created by an agreement between agents of the federal
government and certain Spokane chiefs on August 18, 1877. President Hayes'
executive order of January 18, 1881, confirmed the 1877 agreement. In
2001, the Colville and Spokane tribes had enrolled populations of 8,842
and 2,305, respectively.

The Indian Claim Commission was created on August 13, 1946, to adjudicate
Indian claims, including "claims based upon fair and honorable dealings
that are not recognized by any existing rule of law or equity."5 Under
section 12 of the act that created the Commission, all claims had to be
filed within 5 years. Ultimately 370 petitions, which were eventually
separated into 617 dockets, were filed with the Commission. The great
majority of the claims were land claims. Settlements awards were paid out
of the U.S. Treasury.

5Pub. L. No. 79-726, S: 2, 60 Stat. 1049, 1050 (1946).

The Colville tribes filed a number of claims with the Indian Claims
Commission within the 5-year window-on July 31, August 1, and August 8,
1951. Their fisheries claim and water power values claim became part of
Indian Claims Commission Docket No. 181, which was originally filed on
July 31, 1951. The original petition for Docket No. 181 included broad
language seeking damages for unlawful trespass on reservation lands and
for compensation or other benefits from the use of the tribes' land and
other property. The tribes' original petition did not specifically mention
the Grand Coulee Dam. In 1956, Docket No. 181 was divided into four
separate claims. The tribes' fisheries claim became part of Docket No.
181-C. In November 1976, over 25 years after the original filing of Docket
No. 181, the Indian Claims Commission allowed the Colville tribes to file
an amended petition seeking just and equitable compensation for the water
power values of certain riverbed and upstream lands that had been taken by
the United States as part of the Grand Coulee Dam development. This
amended water power value claim was designated as Docket No. 181-D, and it
was settled in 1994 by Public Law 103-436.

The Spokane tribe filed one claim with the Indian Claims Commission,
Docket No. 331, on August 10, 1951, just days before the August 13, 1951,
deadline. The claim sought additional compensation for land ceded to the
United States by an agreement of March 18, 1887. Furthermore, the Spokane
tribe asserted a general accounting claim. These two claims were separated
into Docket No. 331 for the land claim and Docket No. 331-A for the
accounting claim. Both claims were jointly settled in 1967 for $6.7
million. That is, the Spokane tribe settled all of its claims before the
Indian Claims Commission almost 10 years before the Colville tribes were
allowed to amend their claim to include a water power values claim. In
doing so, the Spokane tribe missed its opportunity to make a legal claim
with the Indian Claims Commission for its water power values as well as
its fisheries. At that time, the Spokane tribe, as well as the Colville
tribes, were pursuing other avenues for compensation of water power
values.

The Bonneville Power Administration was formed in 1937 to market electric
power produced by the Bonneville Dam.6 Bonneville's marketing
responsibilities have expanded since then to include power from 31
federally owned hydroelectric projects, including the Grand Coulee Dam.
Under the Pacific Northwest Electric Power Planning and Conservation Act
of 1980 (Northwest Power Act), Bonneville is responsible for providing

6Pub. L. No. 75-329, S: 2, 50 Stat. 731, 732 (1937).

the Pacific Northwest with an adequate, efficient, economical, and
reliable power supply.7 Bonneville currently provides about 45 percent of
all electric power consumed in Idaho, Montana, Oregon, and Washington and
owns about 75 percent of the region's transmission lines.

  Bonneville Would Have to Recover Settlement Costs from Ratepayers, but
  Magnitude of Rate Increase Would Be Small

A settlement requiring Bonneville to pay the Spokane tribe would add to
its costs of operation, and it therefore would probably pass these costs
to Bonneville's customers in the form of higher rates for power.
Bonneville is a self-financing agency, which means that it must cover its
costs through the revenue generated by selling power and transmission
services. Bonneville typically sets its rates for 5-year periods in order
to generate enough revenue to cover the costs of operating the federal
power system and to make its debt payments.

Assuming that the settlement with the Spokane tribe is similar in nature
to the settlement with the Colville tribe in 1994, the impact on
Bonneville's rates would be small. Under the settlement with the Colville
tribe, Bonneville has made annual payments since 1996 that have ranged
from about $14 million to $21 million. Currently, Bonneville estimates
that it will pay about $17 million per year over the next 5 years.8 In its
negotiations with Bonneville, the Spokane tribe has asked for about 40
percent of the Colville tribe's settlement, which would amount to about $7
million annually from Bonneville. Bonneville uses a rule of thumb to
determine rate increases: between $40 million and $50 million in
additional annual costs will lead to a rate increase of 1/10th of a cent
per kilowatt hour (kWh). Using this rule, we estimate that a settlement
with Spokane that is equivalent to 40 percent of the Colville settlement
would lead to an increase in rates of less than 20 cents per month per
household for a typical household relying solely on power from Bonneville,
or a 0.5 percent increase in rates over current levels.9

7Pub. L. No. 96-501, S: 2, 94 Stat. 2697 (1980).

8The payments are to be made in perpetuity, but Bonneville gave us an
annual estimate for the next five years that conforms to its 5-year rate
case planning horizon. While Bonneville will make these payments to the
Colville tribes, it will receive interest credits in the amount of $4.6
million per year from the U.S.Treasury-also in perpetuity-effectively
reducing its payments by about 27 percent.

9This estimate also assumes that Bonneville pays the entire $7 million per
year. If Bonneville receives interest credits from Treasury for part of
the amount, the impact would be proportionally smaller.

Although the magnitude of the rate increase necessary to fund a settlement
with the Spokane tribe would be small, it comes at a time when
Bonneville's customers have recently faced large rate increases. From 2000
through early 2003, Bonneville experienced a substantial deterioration in
its financial condition because of rising costs and lower-than-projected
revenues. As a result, Bonneville's cash reserves of $811 million at the
end of fiscal year 2000 had fallen to $188 million by the end of fiscal
year 2002. To cope with its financial difficulties, Bonneville raised its
power rates for 2002 by more than 40 percent over 2001 levels. On October
1, 2003, Bonneville raised its rates a further 2.2 percent. Despite
Bonneville's current financial difficulties, Bonneville predicts the
conditions that led to the financial problems-namely, consecutive years of
low water conditions, extreme market price volatility, and long-term
contracts Bonneville signed to buy power from other suppliers at a high
cost, which are due to expire in 2006-will abate. Therefore, because the
bulk of Bonneville's obligations in any settlement similar to the Colville
settlement will occur in the future, Bonneville's current financial
difficulties should not unduly influence current discussions about how to
compensate the Spokane tribe.

  A Reasonable Case Can Be Made for Adopting the Colville Model in Allocating
  Any Costs Associated with a Settlement for the Spokane Tribe

A reasonable case can be made for having Bonneville and the U.S. Treasury
allocate any costs for the Spokane tribe's claims along the lines agreed
to for the Colville tribes. Any settlement would attempt to re-institute a
commitment the federal government made to the tribes in the 1930s. Under
the Federal Water Power Act of 1920, licenses for the development of
privately owned hydropower projects should include a "reasonable annual
charge" for the use of Indian lands.10 Originally, the Grand Coulee site
was licensed, and the Spokane tribe expected to receive annual payments
for its lands used for the project. However, the license was cancelled
when the federal government took over the project (federalized the
project). Since the federal government is not subject to the Federal Water
Power Act, it was not required to make annual payments to the tribes.
Nevertheless, the federal government made a commitment in the 1930s to
make annual payments to the Colville and Spokane tribes as if the project
had remained a nonfederal project. However, the federal government did not
follow through on this commitment after the project was completed and
started generating revenues from electricity sales in the 1940s. In
pursuing this

10Pub. L. No. 66-280, S:10(e), 41 Stat. 1063, 1069 (1920).

matter, the tribes weathered various administrations and changes in the
federal government's Indian policy. In the 1950s and 1960s, the federal
government actively sought to terminate its relationship with a number of
tribes, including the Spokane tribe.

In the early 1970s, when it became clear that the federal government was
not going to make these payments, the Colville tribes were able to amend
their claim with the Indian Claims Commission to pursue this matter. After
agreeing to the overall legitimacy of the Colville tribes' claims, the
Congress ultimately approved a settlement that primarily required
Bonneville to provide annual payments for water power values. This
settlement was a compromise to split the costs between Bonneville and the
U.S. Treasury. Bonneville is primarily paying the recurring annual
payments, and the U.S. Treasury's Judgment Fund provided the one-time lump
sum payment in settlement of the past annual payments-$53 million.11 The
Spokane tribe, however, had already settled its claim years earlier and
therefore could not file an amended claim with the commission.
Nevertheless, since Bonneville collects the annual revenues for the
electricity generated by the dam, it could be argued that Bonneville
should make annual payments to the Spokane tribe out of those revenues, as
it does for the Colville tribes; the U.S. Treasury would then pay a lump
sum to settle any claims for past years. The current House settlement
proposal, H.R. 1753, and previous House and Senate settlement proposals
introduced in the 106th and 107th Congresses directed the settlement costs
to be split between Bonneville and the U.S. Treasury.

It could also be argued that the U.S. Treasury should pay the Spokane
tribe's claim, as it does for most claim settlements against the federal
government. S. 1438 provides for the settlement of the tribe's claim from
the U.S. Treasury. However, we do not believe a compelling case can be
made to have the nation's taxpayers fully absorb an additional cost of
doing business associated with Bonneville's production of power in one
region of the country.

In conclusion, since the Spokane tribe missed its opportunity to file
claims with the Indian Claims Commission for its fisheries and water power
values, it is unlikely that the tribe's claims and any associated
settlement or

11The Judgment Fund is a permanent indefinite appropriation available to
pay certain settlements and judgments against the federal government.

final resolution will move forward in any meaningful way without some form
of congressional intervention. If the Congress is satisfied with the
merits of the tribe's claims, settlement legislation, such as the current
House and Senate bills, could be used as a method to resolve the tribe's
claims. A reasonable case can be made for adopting the model established
in the Colville settlement to allocate the settlement costs between
Bonneville and the U.S. Treasury. Another option would be to enact
legislation providing for some form of dispute resolution, such as
mediation or binding arbitration. If the Congress has any doubts about the
merits of the claim, it could enact legislation to allow the tribe to file
its claim in the U.S. Federal Court of Claims.12 The merits of the claims
could then be decided in court. Such an action was discussed in 1994 when
the Colville settlement was reached.

Contacts and For further information, please contact Robert A. Robinson on
(202) 512-3841. Individuals making key contributions to this testimony
included JillAcknowledgments Berman, Brad Dobbins, Samantha Gross, Jason
Holliday, Jeffery Malcolm, Frank Rusco, Rebecca Sandulli, and Carol
Herrnstadt Shulman.

12See, e.g., Pub. L. No. 95-280, S: 2, 92 Stat. 244 (1978), Pub. L. No.
96-251, 94 Stat. 372 (1980), Pub .L. No. 96-404, 94 Stat. 1711 (1980), or
Pub. L. No. 104-198, 110 Stat. 2418 (1996).

Appendix I

Methodology for Estimating the Impact of a Settlement on the Bonneville Power
Administration

Because a settlement has not yet been negotiated, we used the terms of the
Colville settlement to estimate the potential effect of the Spokane
settlement on electricity rates in the Pacific Northwest. Assumptions used
in this calculation are designed to provide a conservative (high-end)
estimate of the impact of the settlement on Bonneville's rate payers. For
planning purposes, Bonneville estimates that payments to the Colville
tribes total $17 million annually.1 The Spokane tribe is requesting as
much as 40 percent of the Colville settlement, or approximately $7 million
annually. To estimate the impact of increasing costs on power rates,
Bonneville uses a rule of thumb that $40 million to $50 million in
increased costs over a year necessitate a rate increase of approximately
$0.001 per kilowatt-hour (kWh). Using this rule of thumb, a $7 million per
year cost increase would raise Bonneville's wholesale power rates by
approximately $0.00016 per kWh.

According to the Oregon Department of Energy, the average household in
Oregon uses approximately 1,000 kWh of electricity per month. An average
household in Washington uses 1,170 kWh of electricity per month, according
to the Washington Utilities and Transportation Commission. Using the
approximate rate increase calculated above, the electricity bills for
average households in Oregon and Washington would increase approximately
16 cents and 19 cents, respectively. These calculations assume that the
household receives all its electricity from Bonneville and that its retail
utility passes through the wholesale rate increase. The impact on the
region as a whole would be smaller because Bonneville provides only about
45 percent of the region's power. Our calculations also assume that
Bonneville would not be permitted to deduct any portion of its payment to
the Spokane tribe from its debt payment to the U.S. Treasury. Public Law
103-436 enables Bonneville to deduct a portion of its annual payment to
the Colville tribes as an interest credit on its Treasury debt payments.
If a similar provision were included for any payments for the Spokane
tribe, the impact on ratepayers would be reduced.

1From fiscal year 2000 onward, Bonneville receives a $4.6 million interest
credit on its Treasury debt payment to offset some of the cost of the
Colville settlement. Therefore, Bonneville's share of the Colville
payments total $12.4 million net of the credit. This calculation
conservatively assumes that Bonneville will be responsible for the entire
Spokane payment.

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