Federal Power: Implications of Reduced Maintenance and Repairs of Federal
Hydropower Plants (Chapter Report, 03/30/99, GAO/RCED-99-63).

Pursuant to a congressional request, GAO reviewed the: (1) reliability
of the Bureau of Reclamation's and Army Corps of Engineers' hydropower
plants in generating electricity compared with the reliability of
nonfederal hydropower plants; (2) reasons why the Bureau's and the
Corps' plants may be less reliable than nonfederal plants and the
potential implications of reduced reliability; and (3) actions taken to
obtain funding to better maintain and repair the Bureau's and the Corps'
plants.

GAO noted that: (1) the Bureau's and the Corps' hydropower plants are
generally less reliable in generating electricity than nonfederal
hydropower plants; (2) the reliability of the Bureau's hydropower plants
has improved recently, while the Corps' has remained relatively
unchanged; (3) from 1993 through 1997, the Bureau's units were available
to generate electricity an average of about 83 percent of the time
compared with about 91 percent for nonfederal units; (4) the
availability of the Bureau's units to generate electricity improved from
about 81 percent of the time in 1993 to about 87 percent in 1997; (5)
the Corps' units were available to generate electricity an average of
about 89 percent of the time during the period 1993 through 1997; (6)
the Bureau's and the Corps' units in the Pacific Northwest were
available about 79 percent and 85 percent of the time, respectively; (7)
the Bureau's and the Corps' plants were less reliable because they could
not always obtain funding for maintenance and repairs when needed; (8)
GAO found that because of uncertain funding, the agencies delay repairs
and maintenance until funds become available; (9) GAO also found that
these delays caused frequent, extended outages and inconsistent plant
performance; (10) the power marketing administrations' (PMA) electricity
is generally priced less than other electricity; (11) however, as
markets become more competitive, PMAs' customers will have more
suppliers from whom they can buy electricity; (12) as nonfederal
electricity rates decline in competitive markets, a portion of the
federal government's appropriated and other debt of about $22 billion
may be at risk of nonrecovery if the federal electricity does not
continue to be marketable; (13) a factor affecting the marketability of
this electricity is its reliability; (14) Congress, the Office of
Management and Budget, and GAO have been working to help ensure that the
purchase and maintenance of all assets and infrastructure have the
highest and most efficient returns to the taxpayer and the government;
(15) the Bureau, the Corps, and the PMAs have taken actions to obtain
funding to maintain and repair their hydropower plants; (16) these
actions involve directly funding maintenance and repairs from the PMAs'
electricity revenues or from funds contributed by the power customers;
and (17) by enabling repairs to be made in a timely manner, these
actions have the potential to help to improve the reliability of the
PMAs' electricity and to continue their existing rate-competitiveness.

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

 REPORTNUM:  RCED-99-63
     TITLE:  Federal Power: Implications of Reduced Maintenance and
	     Repairs of Federal Hydropower Plants
      DATE:  03/30/99
   SUBJECT:  Hydroelectric powerplants
	     Electric utilities
	     Utility rates
	     Facility repairs
	     Electric power generation
	     Energy marketing
	     Comparative analysis
	     Facility maintenance

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FEDERAL POWER: Implications of Reduced Maintenance and Repairs of
Federal Hydropower Plants GAO/RCED-99-63 United States General
Accounting Office

GAO Report to the Chairman, Subcommittee on Water and Power,
Committee on

Resources, House of Representatives

March 1999 FEDERAL POWER Implications of Reduced Maintenance and
Repairs of Federal Hydropower Plants

GAO/RCED-99-63

  GAO/RCED-99-63

GAO United States General Accounting Office

Washington, D. C. 20548 Resources, Community, and Economic
Development Division

B-282016 March 30, 1999 The Honorable John T. Doolittle Chairman,
Subcommittee on Water

and Power Committee on Resources House of Representatives

Dear Mr. Chairman: This report discusses the reliability of the
Bureau of Reclamation's and the Corps of Engineers' hydropower
plants in generating electricity compared with the reliability of
nonfederal hydropower plants, reasons why the Bureau's and the
Corps' plants may be less reliable than nonfederal plants and the
potential implications of reduced reliability, and the actions
taken to obtain funding to better maintain and repair the Bureau's
and the Corps' plants.

As agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
of this report until 30 days from the date of this letter. At that
time, we will send copies of the report to Representative Don
Young, Chairman, House Committee on Resources; Representative
George Miller, Senior Democratic Member, House Committee on
Resources; Representative Calvin Dooley, Ranking Minority Member,
House Committee on Resources, Subcommittee on Water and Power;
Senator Frank Murkowski, Chairman, Senate Committee on Energy and
Natural Resources; Senator Jeff Bingaman, Ranking Minority Member,
Senate Committee on Energy and Natural Resources; Senator John
Chafee, Chairman, Senate Committee on Environment and Public
Works; and Senator Max Baucus, Ranking Minority Member, Senate
Committee on Environment and Public Works. We are also sending the
report to Charles Borchardt, Administrator, Southeastern Power
Administration; Michael Deihl, Administrator, Southwestern Power
Administration; Major General Russell Fuhrman, Director, Civil
Works, U. S. Army Corps of Engineers; Michael Hacskaylo,
Administrator, Western Area Power Administration; Judi Johanson,
Administrator, Bonneville Power Administration; and Eluid
Martinez, Commissioner, Bureau of Reclamation. We will make copies
available to others upon request.

GAO/RCED-99-63 Federal Power Page 1

B-282016

If you or your staff have any questions, please call me on (202)
512- 3841. Major contributors to this report are listed in
appendix VI.

Sincerely yours, Susan D. Kladiva, Associate Director, Energy,

Resources, and Science Issues

GAO/RCED-99-63 Federal Power Page 2

B-282016 GAO/RCED-99-63 Federal Power Page 3

Executive Summary Purpose Because of new, more efficient
technologies for generating electricity and

emerging competition in restructured electricity markets,
electricity rates have decreased by about 25 percent since 1982
and are expected to continue to decrease. 1 Electricity provided
by the federal government from hydropower plants is generally
priced less than other electricity and is very marketable; 2
however, to retain this competitiveness as markets continue to
restructure, the federal hydropower plants 3 need to be operated
as reliably as nonfederal hydropower plants. Reliable operation
will help to ensure that the government can continue to market the
electricity it generates and recover its outstanding appropriated
and other debt of about $22 billion. 4 In addition, the Congress,
GAO, and the Office of Management and Budget have been working to
help ensure that the purchase and maintenance of all assets and
infrastructure have the highest and most efficient returns to the
taxpayer and the government. The agencies that generate most of
this electricity the Army Corps of Engineers (the Corps), the
Department of the Interior's Bureau of Reclamation (the Bureau)
and the federal agencies that sell it the Department of Energy's
four power marketing administrations (PMA) 5 need to be able to
adequately maintain the federal hydropower plants and transmission
systems, in order to provide a reliable supply of electricity.

As requested by the Chairman, Subcommittee on Water and Power,
House Committee on Resources, GAO examined (1) the reliability of
the Bureau's and Corps' hydropower plants in generating
electricity compared with the reliability of nonfederal hydropower
plants, 6 (2) reasons why the Bureau's and the Corps' plants may
be less reliable than nonfederal plants and the potential
implications of reduced reliability, and (3) the actions taken to

1 The 25- percent reduction is calculated in terms of constant
dollars. 2 See Federal Power: Options for Selected Power Marketing
Administrations' Role in a Changing Electricity Industry
(GAO/RCED-98-43, Mar. 6, 1998). 3 A power plant includes one or
more generating units that produce electricity. 4 We use the term
appropriated debt because the PMAs are required to set their
electricity rates to generate revenue at levels that will recover
appropriations used for capital investments by the Bureau and the
Corps. However, these reimbursable appropriations are not
considered to be lending by the Department of the Treasury. Other
debt includes primarily debt for irrigation facilities and other
debt for certain nonfederal nuclear power plants.

5 The four power marketing administrations are the Bonneville
Power Administration (Bonneville), Southeastern Power
Administration (Southeastern), Southwestern Power Administration
(Southwestern), and Western Area Power Administrations (Western).

6 Nonfederal plants would include those owned by commercial
utilities, municipal utilities, electric cooperatives, public
utility districts, or other nonfederal entities.

GAO/RCED-99-63 Federal Power Page 4

Executive Summary

obtain funding to better maintain and repair the Bureau's and the
Corps' plants.

Background Since about the 1930s, the Bureau and the Corps have
operated about 130 hydropower plants that supply about 5 percent
of the nation's total

electricity supply. These agencies generate electricity in
conjunction with other uses of water, such as fish and wildlife
enhancements, flood control, irrigation, navigation, recreation,
and water supply. The PMAs sell this electricity primarily to
wholesale customers (the power customers), such as rural electric
cooperatives and municipal utilities. The power customers, in
turn, sell this electricity to customers at the retail level. In
fiscal year 1997, the PMAs had revenues of over $3 billion from
the sale of electricity. A portion of these revenues is used to
repay the outstanding appropriated and other debt of about $22
billion. 7

The Energy Policy Act of 1992 significantly increased competition
in wholesale electricity markets, and 18 states have acted to
introduce competition at the retail level. As a result of this
competition and new, more efficient generating technologies,
prices are expected to continue to decrease by 6 to 19 percent by
2015. In more competitive markets, utility management measures the
reliability of power plants to decide where to cut costs or how to
allocate scarce dollars for maintaining plants. Within the
electric utility industry, plants are reliable if they can
function without failure over a specific period of time or amount
of usage.

Results in Brief The Bureau's and the Corps' hydropower plants are
generally less reliable in generating electricity than nonfederal
hydropower plants. The reliability

of the Bureau's hydropower plants has improved recently, while the
Corps' has remained relatively unchanged. Specifically, from 1993
through 1997, the Bureau's units were available to generate
electricity an average of about 83 percent of the time compared
with about 91 percent for nonfederal units. 8 The availability of
the Bureau's units to generate electricity improved from about 81
percent of the time in 1993 to about 87 percent in 1997. The
Corps' units were available to generate electricity an average of
about 89 percent of the time during the period 1993 through

7 As of the end of fiscal year 1997 the latest year for which
information was available Bonneville was responsible for repaying
about $14 billion, and the other PMAs were collectively
responsible for repaying about $8 billion dollars. See Federal
Electricity Activities: The Federal Government's Net Cost and
Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept. 19,
1997).

8 The availability of power plants actually pertains to the
availability of individual generating units. The availability of
power plants to generate electricity is a widely accepted measure
of their reliability.

GAO/RCED-99-63 Federal Power Page 5

Executive Summary

1997. 9 However, the Bureau's and the Corps' units in the Pacific
Northwest which account for over one- half of the agencies' total
hydropower capacity and almost all of the electricity that
Bonneville markets were available about 79 percent and 85 percent
of the time, respectively.

The Bureau's and the Corps' plants were less reliable because they
could not always obtain funding for maintenance and repairs when
needed. GAO found that because of uncertain funding, the agencies
delay repairs and maintenance until funds become available. GAO
also found that these delays caused frequent, extended outages and
inconsistent plant performance. The power marketing
administrations' electricity is generally priced less than other
electricity. However, as markets become more competitive, the
power marketing administrations' customers will have more
suppliers from whom they can buy electricity. In some power
marketing systems for example, Bonneville's service area existing
competition has lowered nonfederal electricity rates. As a result,
during the mid- 1990s, some customers left Bonneville or bought
some of their electricity from less expensive sources. As
nonfederal electricity rates decline in competitive markets, a
portion of the federal government's appropriated and other debt of
about $22 billion may be at risk of nonrecovery if the federal
electricity does not continue to be marketable. A factor affecting
the marketability of this electricity is its reliability. In
addition, the Congress, the Office of Management and Budget, and
GAO have been working to help ensure that the purchase and
maintenance of all assets and infrastructure have the highest and
most efficient returns to the taxpayer and the government.

The Bureau, the Corps, and the power marketing administrations
have taken actions to obtain funding to maintain and repair their
hydropower plants. In general, these actions involve directly
funding maintenance and repairs from the power marketing
administrations' electricity revenues or from funds contributed by
the power customers. By enabling repairs to be made in a timely
manner, these actions have the potential to help to improve the
reliability of the power marketing administrations' electricity
and to continue their existing rate- competitiveness.

9 The Bureau's and the Corps units were unable to generate
electricity 17 percent and 11 percent of the time, respectively,
because of breakdowns, repairs, and maintenance, compared with
about 9 percent for nonfederal units.

GAO/RCED-99-63 Federal Power Page 6

Executive Summary

GAO's Analysis The Bureau's and the Corps' Hydropower Plants Are
Less Reliable Than Nonfederal Plants

The hydropower plants of the Bureau and the Corps are less
reliable in providing electricity than nonfederal hydropower
plants. However, the reliability of the Bureau's plants improved
while the Corps' has remained relatively unchanged. From 1993
through 1997, the Bureau's and the Corps' hydropower units were
available to generate electricity about 83 percent and 89 percent
of the time, respectively. Nonfederal hydropower units were
available to generate electricity about 91 percent of the time. 10
The availability of the Bureau's units to generate electricity
increased from about 81 percent in 1993 to about 87 percent in
1997. (See fig. 1.) At the same time, from 1993 through 1997, the
Bureau's units were in outage status 11 an average of about 17
percent of the time for breakdowns, repairs, and maintenance,
compared with an average of about 9 percent for nonfederal units.
The Corps' units were in outage status an average of about 11
percent of the time. In addition, the Corps' units were in forced
outage status an average of about 5 percent of the time while
nonfederal and the Bureau's units were in forced outage status an
average of about 2 percent of the time 12

10 Availability and outage data were obtained from the North
American Electric Reliability Council an organization formed by
the electric utility industry to promote the reliability of the
electric supply system of North America.

11 Outage status means a generating unit was unavailable to
generate electricity because of anticipated repairs and
maintenance ( scheduled outages) or unanticipated breakdowns or
emergency repairs ( forced outages). This differs from a utility's
deciding not to operate a unit for reasons unrelated to its
operating condition, for example, insufficient or restricted water
for operating the plant.

12 As a result of comments from the Department of Defense
(including the Corps), GAO revised the report in chapter 2 to
recognize the Corps' availability factor for 1998 and a decline in
the Corps' forced outage factor for 1998. Defense suggested that
GAO include the 1998 data in its figures, but GAO did not do so
because comparable data were not available for the nonfederal
entities at the time of GAO's review.

GAO/RCED-99-63 Federal Power Page 7

Executive Summary

Figure 1: Average Availability Factors of the Bureau's, the
Corps', and Nonfederal Hydropower Generating Units, 1993- 97

Notes: The percentages are the sum of all units' available hours
divided by the sum of all units' period hours. A unit's period
hours for a year equal 8,760 hours, or 24 hours multiplied by 365
days.

Sources: The Bureau, the Corps, and the North American Electric
Reliability Council.

In addition, forced outages are strong indicators of decreased
reliability because they indicate that a utility's units generate
electricity inconsistently. According to Corps officials, as a
result of major initiatives to rehabilitate its generating units,
the agency has reduced its forced outages from almost 6 percent in
1995 to 4.5 percent in 1997.

In the Pacific Northwest, the availability to generate electricity
of the Bureau's and the Corps' units was generally lower than it
was for the agencies other locations. From 1993 through 1997, the
Bureau's units in the Pacific Northwest were only available to
generate electricity about 79 percent of the time and were in
outage status about 21 percent of the time. The Corps' units in
this region were available about 85 percent of the time and were
in outage status 15 percent of the time. In contrast,

GAO/RCED-99-63 Federal Power Page 8

Executive Summary

nonfederal units in the region were available about 90 percent of
the time and were in outage status about 10 percent of the time.
The reliability of the Bureau's and the Corps' hydropower plants
in the Pacific Northwest is important to the overall reliability
of the Bureau and the Corps.

Funding Processes' Impacts on the Reliability of the Bureau's and
the Corps' Hydropower Plants

The federal planning and budget processes, under which the Bureau
and the Corps must operate, do not provide timely and predictable
funding needed for the maintenance and repair of hydropower
plants. It can take as long as 2 to 3 years before a repair that
is identified is funded, if it is funded at all. For example,
consistent with the normal budget cycle, in formulating a budget
for fiscal year 2000, a regional office of the Bureau began its
budget process in August 1997. However, the process will not
culminate and the funding level will not be known with certainty
until the fiscal year 2000 appropriations act is signed by the
President.

Delays in funding federal repairs and the uncertainty about the
levels of this funding have caused some maintenance or repairs to
be postponed until funds become available. For example, at the
Bureau's Shasta plant in California, the need to repair the
generating units was identified in 1983. However, funding did not
become available until 1995 when the customers provided advance
funding. According to a Bureau official, the repairs will not be
completed until 2003. Moreover, over time, deterioration at the
power plant worsened and, in response, the Bureau reduced the
plant's operations.

For the most part, the PMAs' electricity is priced below market,
thus helping to ensure that the PMAs' can sell their electricity
and helping to secure the repayment of the government's
appropriated and other debt. However, in more competitive markets,
the PMAs' customers will have a choice of suppliers from which to
buy electricity. In such markets, if the reliability of federal
electricity continues to be below that of other producers, some of
the competitive advantages of the PMAs' electricity would erode,
thus decreasing its marketability. This is particularly true in
specific PMA systems where the PMAs' electricity is already priced
at about the market rate or where competition already exists to
the sale of the PMAs' electricity. For example, in Bonneville's
service area, competitive challenges exist to the sale of
Bonneville's electricity. Bonneville is facing competition from
low- cost suppliers of electricity that, during the mid- 1990s,
caused customers to leave Bonneville and buy electricity at rates
below Bonneville's. 13

13 See GAO/AIMD-97-110 and 110A.

GAO/RCED-99-63 Federal Power Page 9

Executive Summary

Actions Taken to Promote Faster and More Certain Funding to Better
Maintain and Repair Federal Plants

Recognizing the delays and uncertainties that can result from the
federal planning and budget processes, the Bureau, the Corps, and
the PMAs have acted to secure funding to maintain and repair the
federal hydropower plants and related facilities. For example,
recognizing the lower reliability of the plants in the Pacific
Northwest, from 1993 through 1997, the Bureau, the Corps, and
Bonneville concluded four agreements whereby Bonneville's
electricity revenues will provide advance funding of over $1
billion dollars for routine operations and maintenance and capital
repairs of the electricity facilities from which it markets
electricity. 14 The agencies expect to be able to plan and pay for
maintenance and repairs systematically and predictably over
several years and to fix unanticipated breakdowns more rapidly.
For example, under the Bureau's and Bonneville's December 1996
funding agreement, the Bureau prepares an annual operations and
maintenance budget by identifying major line items for each
project for funding during the next fiscal year and also for 5
fiscal years. Annual expenditures that are less than the targeted
amount are carried over to future years and accounted for in a
savings account, which can be tapped, as provided for in the
agreement, to pay for emergency repairs. Annual budgets are
proposed and approved less than 1 year in advance, instead of 2 to
3 years, which is the general time frame under the traditional
appropriations process. Bonneville believes that the increased
demand for its electricity and the increased financial resources
provided by the funding agreements would improve its competitive
viability and ability to recover the full cost of the electricity
system from which it markets power. 15

In addition, at such locations as the Central Valley Project in
California and the Pick- Sloan Program in Montana, North Dakota,
South Dakota, and nearby states, direct payments from the PMAs'
electricity customers have funded the maintenance and repair of
the federal power plants and related facilities. As authorized by
law, the PMAs' customers can directly pay for the maintenance and
repair of the federal power plants and related facilities, but
these commitments must be made before the repairs begin. For
example, electricity customers have made commitments to pay for
future operations and maintenance and some selected repairs of the
federal power plants and related facilities in the Central Valley
Project.

The direct funding of maintenance and repairs by electricity
revenues and customers' financing agreements could diminish
opportunities for oversight by the Congress. However, at this
time, the Bureau, the Corps,

14 The agreements were concluded pursuant to the Energy Policy Act
and other statutes. 15 Bonneville markets electricity from the
Federal Columbia River Power System.

GAO/RCED-99-63 Federal Power Page 10

Executive Summary

and the PMAs provide such information as the history and
background of their power plants, the plants' generating capacity
and electricity produced, annual electricity revenues and costs,
and related environmental and water quality issues to the
Congress, other decisionmakers, and the public. The means of
communicating this information include the PMAs' annual reports;
the PMAs', the Bureau's, and the Corps' Internet Websites; and
letters to the appropriate congressional committees.

Recommendations This report contains no recommendations. Agency
Comments GAO provided the Department of Energy (which represented
the views of

Southeastern, Southwestern, and Western), the Department of the
Interior (including the Bureau), the Department of Defense
(including the Corps), and Bonneville with a draft of this report.
The comments of Energy, Interior, Defense, and Bonneville, and
GAO's responses to those comments, are included in appendixes II,
III, IV, and V, respectively.

The Department of Energy provided technical suggestions for the
draft report but deferred to the comments of the Bureau and the
Corps on more substantive matters. For example, Energy suggested
that GAO clarify the differences between reliability and
availability. The report already discusses that plants are viewed
as reliable, within the electric utility industry, if they can
function without failure over a specific period of time or amount
of usage. The report also states that there are several ways of
measuring reliability, including the availability factor and
outage factors. Accordingly, we made no substantive changes to the
report.

The Department of the Interior, including the Bureau, commented
that the report did a good job in recognizing the funding needs
for operating and maintaining electrical- generating facilities.
However, according to Interior, the report should recognize that
the Bureau's availability factors are partly the result of the
fact that the Bureau's facilities operate to fulfill multiple
purposes and that the generation of electricity is secondary to
irrigation and other purposes. The report clearly recognizes that
water is used for multiple purposes and affects how electricity is
generated. For example, the executive summary recognizes that the
Bureau and the Corps generate electricity in conjunction with the
use of water for flood control, navigation, irrigation, and other
purposes. Accordingly, no changes are needed to the report. Also,
Interior stated that the reliability of its plants

GAO/RCED-99-63 Federal Power Page 11

Executive Summary

compares favorably with nonfederal plants, and that the forced
outages factor is a better indicator of comparative reliability
than the availability factor. GAO does not agree that the Bureau's
plants are as reliable as nonfederal plants because, as discussed
in this report, the Bureau's plants have lower availability
factors and are in outage status more of the time than nonfederal
plants. In addition, the report already recognizes that the forced
outage factor, along with the availability factor, is viewed as
one of the most meaningful ways of measuring reliability.
Accordingly, for these points, no changes to the report are
needed. Finally, GAO agrees that the availability factor should be
interpreted within the context of various factors, some of which
the Bureau listed. GAO revised chapter 1 to recognize that
assessing the performance of a hydropower plant or unit by
examining its availability factor calls for understanding
additional variables. GAO added language to reflect that the
availability factor needs to be understood in terms of such
factors as the role played by the plant in terms of the kind of
demand it meets (e. g., whether it meets peak demand), the
availability of water throughout the year, and the purposes
satisfied by the dam and reservoir.

The Department of Defense, including the Corps, provided verbal
comments to clarify its position on GAO's draft report, noting,
most significantly, that the report did not reflect changes in the
performance of the Corps' hydropower plants that occurred in
fiscal year 1998. Defense suggested that GAO include this data in
various graphs in its report. GAO revised chapter 2 to recognize
the Corps' availability factor for 1998 and a decline in the
agency's forced outage factor for 1998. GAO did not include these
data in graphs because comparable data were not available for the
nonfederal entities at the time of GAO's review.

Bonneville noted that GAO sought to conduct a fair assessment of
the Corps' and the Bureau's facilities during the time of the
study. Bonneville agreed, as stated in the report, that the
availability factors of the Bureau's and the Corps' hydropower
plants in the Pacific Northwest are lower than in the rest of the
nation. However, Bonneville suggested that GAO clarify the report
by stating that Bonneville, the Bureau, and the Corps recognized
the lower reliability of the plants in the Pacific Northwest and
took action through a series of direct- funding agreements to
address the problem. Bonneville further suggested a clarification
that from 1993 through 1997, the Bureau extensively upgraded and
rehabilitated its plants, partly as a result of the increased
funding flexibility provided by the direct funding agreements.
Chapter 4 already discusses in detail the provisions of the
agreements, the $1 billion of repairs that are being funded as a
result of the

GAO/RCED-99-63 Federal Power Page 12

Executive Summary

agreements, and the expected improvements in the Bureau's planning
and budgeting systems that result from them. GAO agrees that the
suggested revisions would enhance the reader's understanding of
the funding agreements and revised the report to recognize that
the increased funding flexibility that resulted from the
agreements enabled the Bureau to undertake extensive repairs.

GAO/RCED-99-63 Federal Power Page 13

Contents Letter 1 Executive Summary 4 Chapter 1 Background

16 Changes in Electricity Markets 17 Measuring the Reliability of
Power Plants 20 Objectives, Scope, and Methodology 22

Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

24 The Bureau's and Corps' Hydropower Generating Units Are Less

Available to Generate Power 24

The Bureau's and Corps' Hydropower Generating Units Are in Outage
Status More of the Time Than Nonfederal Units

26 Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

33 Funding for Repairs Can Take Years to Obtain and Is Uncertain
33 Funding Difficulties Lead to Delays of Maintenance That Result

in Maintenance Backlogs 35

Delayed Repairs Lead to Inconsistent Plant Performance 36
Inadequate Funding for the Maintenance and Repair of Federal

Hydropower Plants May Impact Marketability of Federal Electricity

38 Chapter 4 Actions Taken to Promote Faster and More Certain
Funding to Better Maintain and Repair the Bureau's and Corps'
Plants

40 Direct Funding by Electricity Revenues May Pay for Over $1

Billion for Maintenance and Repairs 40

Initiatives for Funding by Customers Are Being Implemented 44
Appendixes Appendix I: Objectives, Scope, and Methodology 46

Appendix II: Comments From the Department of Energy 50

GAO/RCED-99-63 Federal Power Page 14

Contents

Appendix III: Comments From the Department of the Interior 52
Appendix IV: Comments From the Department of Defense 63 Appendix
V: Comments of the Bonneville Power Administration 65 Appendix VI:
Major Contributors to This Report 71

Table Table I. 1: Characteristics of Bureau, Corps, and Nonfederal
Hydropower Generating Units as of 1997

47 Figures Figure 1: Average Availability Factors of the Bureau's,
the Corps',

and Nonfederal Hydropower Generating Units, 1993- 97 8

Figure 1.1: Map of the Service Areas of the Power Marketing
Administrations

17 Figure 2.1: Average Availability Factors of the Bureau's, the

Corps', and Nonfederal Hydropower Generating Units, 1993- 97 25

Figure 2.2: Total Outages factors of the Bureau's, the Corps', and
Nonfederal Hydropower Generating Units, 1993- 97

27 Figure 2.3: Forced Outages factors of the Bureau's, the Corps',

and Nonfederal Hydropower Generating Units, 1993- 97 28

Figure 2.4: Scheduled Outages factors of the Bureau's, the Corps',
and Nonfederal Hydropower Generating Units, 1993- 97

29

Abbreviations

GAO General Accounting Office MW megawatt( s) NERC North American
Electric Reliability Council OMB Office of Management and Budget
PMA power marketing administrations TVA Tennessee Valley Authority

GAO/RCED-99-63 Federal Power Page 15

Chapter 1 Background

The Army Corps of Engineers (the Corps) and the Department of the
Interior's Bureau of Reclamation (the Bureau) operate about 130
hydropower plants at dams throughout the nation. These plants
generate electricity from the flow of water that is also used for
other purposes, including fish and wildlife enhancement, flood
control, irrigation, navigation, recreation, and water supply.
Since about the 1930s, electricity that is generated by these
hydropower plants has played an important role in electricity
markets. These plants were a key element in electrifying rural and
sparsely populated areas of the nation. These plants account for
over 35,000 megawatts (MW) 16 of generating capacity (or about 5
percent of the nation's total electric supply) in 1998. The
Department of Energy's power marketing administrations (PMA) 17
generally market the electricity generated at these plants to
wholesale customers (the power customers), such as rural electric
cooperatives and municipal utilities, that in turn sell the
electricity to retail customers. (Fig. 1.1 shows the service areas
of the PMAs.) Revenues earned from the sale of this electricity
totaled over $3 billion in fiscal year 1997. These revenues pay
for the operation and maintenance of the government's electricity-
related assets and repay a portion of the outstanding federal
appropriated and other debt 18 of about $22 billion for the
Bureau's and the Corps' power plants, related PMA transmission
lines, and well as certain related federal investments for
irrigation, water supply, and other facilities that are to be
repaid over time from electricity revenues. 19 The revenues also
pay interest on the outstanding appropriated debt, where
applicable.

16 A watt is the basic unit used to measure electricity. A
megawatt equals 1 million watts. A megawatt- hour is equal to 1
megawatt of electricity applied for 1 hour. A kilowatt- hour
equals 1,000 watt- hours.

17 The PMAs are the Bonneville Power Administration (Bonneville),
Southeastern Power Administration (Southeastern), Southwestern
Power Administration (Southwestern), and Western Area Power
Administration (Western).

18 We use the term appropriated debt because the PMAs are required
to set their electricity rates to generate revenue at levels that
will recover appropriations used for capital investments by the
Bureau and the Corps. However, these reimbursable appropriations
are not considered as lending by the Department of the Treasury.
Other debt includes primarily debt for irrigation facilities and
debt for certain nonfederal nuclear power plants.

19 As of the end of fiscal year 1997 the latest year for which
information was available the Bonneville Power Administration was
responsible for repaying about $14 billion, and the other PMAs
were collectively responsible for repaying about $8 billion
dollars.

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Chapter 1 Background

Figure 1.1: Map of the Service Areas of the Power Marketing
Administrations

WA ID OR

CA NV

AZ UT

TX NM

CO WY

MT ND SD NE KS

MN IA

MO AR OK

LA WI

IL IN MI

OH PA

NY VT NH

ME MA

RI CT NJ

FL SC

GA AL MS NC TN

KY WV

VA MD DE

BPA WAPA

SWPA SEPA BPA Bonneville Power Administration

SEPA Southeastern Power Administration

SWPA Southwestern Power Administration

WAPA Western Area Power Administration Both Western and
Southwestern market power in Kansas.

KS

Source: Developed by GAO from data provided by the Department of
Energy and the PMAs.

Changes in Electricity Markets

In traditional markets, electric utilities enjoyed relative
certainty about the amount of demand they would have to satisfy in
the future. A compact existed between utilities and state public
utility commissions. Utilities were obligated to serve all
existing and future customers in their pre- established service
areas. In return, utilities were granted monopolies within their
service areas and approved rate schedules that guaranteed

GAO/RCED-99-63 Federal Power Page 17

Chapter 1 Background

stated earnings on their operating costs and investments. They
forecasted the load they would serve by using econometric and end-
use analyses models over future periods of time that were as long
as 20 years. They collected sufficient funds in their electric
rates to pay for needed generating capacity and to operate,
maintain, and repair existing power plants and other electricity
assets. The funds collected through rates also include profits.

However, the nation's electricity markets are undergoing
significant changes. The Energy Policy Act of 1992 significantly
increased competition in wholesale electricity markets. In
addition, competition at the retail level is now arriving.
According to the Department of Energy's Energy Information
Administration, as of March 1999, 18 states had acted by
legislation that had been enacted (14 states) or by regulatory
order (4 states) 20 to restructure electricity markets. Regulators
in these states expected that industrial, commercial, and,
ultimately, residential consumers would be able to choose their
electricity supplier from among several competitors, rather than
being tied to one utility.

As competition increases, the rates paid by consumers for
electricity have dropped and should continue to do so. For
example, according to the Energy Information Administration, as a
result of such factors as emerging competition and new, more
efficient generating technologies, retail electricity rates
decreased by about 25 percent from 1982 through 1996, after
factoring in the impact of inflation. The administration expects
electricity rates to continue to decrease in real terms by 6
percent to 19 percent by 2015.

Utilities Respond to More Competitive Markets

In recent years, uncertainty about the pace and extent of
competitiveness in electric markets has caused utilities to be
more flexible. Utilities have relied more on purchasing
electricity from other sources or acquiring new power plants, such
as smaller natural- gas- fired plants, that are less expensive and
more flexible for meeting shifting demand. They have also cut
costs by reorganizing and reducing staff, and they have
consolidated or merged with other utilities where they believed it
was appropriate. For example, after years of virtually no mergers,
from October 1992 to January 1998, investor- owned utilities had
proposed over 40 mergers and completed 17 of them, according to
the Edison Electric Institute. In

20 The states that enacted legislation were Arizona, California,
Connecticut, Illinois, Maine, Massachusetts, Montana, Nevada, New
Hampshire, New Jersey, Oklahoma, Pennsylvania, Rhode Island, and
Virginia. Other states with regulatory orders were Maryland,
Michigan, New York, and Vermont.

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Chapter 1 Background

addition, according to utility officials, some utilities are
retiring or divesting some high- cost power plants, while others
are buying those same plants to serve a niche in their resource
portfolios.

According to utility officials, in more stable electricity
markets, utilities and federal agencies maintained and repaired
their hydroelectric and other power plants according to a schedule
that was predetermined by the manufacturer's specifications and
the operating history of the plant. Maintenance and repairs were
frequently made at this predetermined time whether or not they
were needed. Because maintenance or repairs could have been
performed later or less frequently, perhaps with lower costs, some
Bureau and utility officials that we contacted characterized these
practices as over- maintenance of the hydropower plants. These
practices, according to an industry consultant, were seldom
questioned partly because of the low costs and resiliency of
hydropower plants especially of those placed into service during
the 1950s.

However, as markets become more competitive, federal agency,
utility, and electric industry officials have increasingly viewed
hydropower plants as particularly useful to utilities' overall
operations. One of hydropower's important traits is its
flexibility in meeting different levels of demand. This
characteristic, according to utility officials, means that
hydropower plants will likely continue to play a significant role
in meeting demand during peak periods and providing ancillary
services, 21 without which electricity systems cannot operate.
Currently, utilities provide these services routinely. However,
according to Bureau, PMA, and utility officials, depending upon
actions taken by federal and state regulators in the near future,
a separate market may develop for ancillary services. These
services may be priced separately and may allow utilities with
hydropower to capture a market niche and earn additional revenues.

In response to new markets and perceptions about the role of
hydropower in those markets, federal agencies and some utilities
have reconsidered how they operate, maintain, and repair their
hydropower plants. For example, some utilities have implemented
less- expensive, more- flexible maintenance practices, which
consider such factors as the generating size of a utility's
hydropower plants, those plants' roles in the utility's generation
portfolio, and marketing and economic considerations. One such
approach, called Reliability Centered Maintenance, is defined as a
maintenance philosophy that attempts to make use of the most
logical,

21 Ancillary services are services or tariff provisions related to
the generation and delivery of electricity other than the simple
generation, transmission, or distribution of electricity.

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Chapter 1 Background

cost- effective mix of breakdown maintenance, preventive
maintenance, and predictive testing and proactive maintenance to
attain the full life of the equipment, reduce maintenance costs,
and encourage reliable operations. For example, according to some
utilities we contacted, in determining when to maintain or repair
equipment, they are relying increasingly on the use of monitoring
equipment to detect changes in the operating conditions of the
equipment, instead of performing those actions in a prescheduled
manner, as in the past. On the basis of these examinations, the
utility may decide to repair or replace the component.
Alternatively, the utility may decide to stretch out the operation
of the component to the point of near- failure. Some components
may actually be run until they fail. However, according to Corps
and utility officials, in the cases of some smaller hydropower
units, installing monitoring equipment at a cost of $200 to $500
per unit may not make economic sense. Other measures may also be
used to monitor the operating condition of equipment. For example,
the Corps tests the lubricating oil to indicate the condition of
its generating equipment.

Also, in some cases, when deciding how and when to maintain and
repair generating units, management now considers the plant or the
unit as an individual cost center that must make a positive
contribution to the utility's bottom line. In such an environment,
plant managers will become more aware of the production costs and
will exert increased pressures to cut costs at the plant and at
the corporate levels. Plant managers may become aware that a
utility may actually shut down and sell a generating unit if
operating or repairing it does not return a required, positive
financial return.

Measuring the Reliability of Power Plants

As market competition intensifies, utilities will face increasing
pressures to operate as efficiently and cost- effectively as
possible. Utilities' management will need to know how well their
plants are producing electricity in order to make informed
decisions about how to allocate scarce dollars for maintaining and
repairing power plants, where to cut costs, or, in more extreme
cases, which generating units 22 to sell or shut down. 23 An
important concept for defining power plants' performance is the
reliability with which plants generate electricity. Within the
electric

22 A power plant is made up of one or more generating units that
produce electricity. 23 The Bureau, for example, has benchmarked
the performance of its hydropower plants against other plants in
the industry, using such indicators as the availability, scheduled
outage, and forced outages factors. See Future Generations: A New
Era of Power, Performance, and Progress, Bureau of Reclamation
(1996).

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Chapter 1 Background

utility industry, power plants are viewed as reliable if they are
capable of functioning without failure over a specific period of
time or amount of usage. The availability factor and the related
outages factors are widely accepted measures of the reliability of
power plants. The time a generating unit is available to generate
electricity is the time it is mechanically able to generate
electricity because it is not malfunctioning unexpectedly or
because it is not being maintained or repaired. For instance, if a
unit were available to generate electricity 8,000 hours out of the
8,760 hours in a year, then its availability factor would be 8,000
hours divided by 8,760 hours, or about 91.3 percent.

When a unit is unable to generate electricity because it is
broken, being repaired, or being maintained, it is in outage
status. Outages are further classified as scheduled outages if the
unit is unable to generate electricity because it is undergoing
previously scheduled repairs or maintenance. If a unit is unable
to generate electricity because of an unexpected breakdown and/ or
if unanticipated repairs need to be performed, then it is in
forced outage status. If a plant were in scheduled outage status
for 100 hours over the course of one year, then its scheduled
outage factor would be 100 hours divided by the 8,760 hours in a
year, or 1.1 percent. If a plant were in a forced outage status
for 600 hours, then its forced outage factor would be 600 hours
divided by the 8,760 hours in the year, or 6.8 percent of the
time. For any generating unit, the availability factor, the
scheduled outage factor, and the forced outage factor, added
together, should equal 100 percent because, taken together, they
account for a plant's entire operating status over a period of
time.

Assessing the performance of a hydropower plant or unit by
examining its availability factor calls for understanding
additional variables that would affect its performance. Many
officials we contacted said that the availability factor needs to
be understood in terms of such factors as the role played by the
plant in terms of the kind of demand that it meets (for instance,
whether it meets peak demand), the availability of water
throughout the year, and the purposes satisfied by the dam and
reservoir. For example, according to a utility consultant, because
water is abundant at the New York Power Authority's Niagara Power
Project, the generating units are used primarily to satisfy
nonpeak loads. Therefore, the utility attempts to operate and
maintain those units to be on line as much as possible. To do
otherwise entails a loss of generating revenues that could be
earned almost 24 hours per day. Nevertheless, officials at every
utility we contacted said that they achieved an availability of at
least 90 percent,

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Chapter 1 Background

and the Bureau and the Corps have formal goals of attaining that
availability level.

Objectives, Scope, and Methodology

As requested by the Chairman, Subcommittee on Water and Power,
House Committee on Resources, we examined the (1) reliability of
the Bureau's and Corps' hydropower plants in generating
electricity compared with the reliability of nonfederal hydropower
plants; 24 (2) reasons why the Bureau's and the Corps' plants may
be less reliable than nonfederal plants and the potential
implications of reduced reliability; and (3) actions taken to
obtain funding to better maintain and repair the Bureau's and the
Corps' plants.

To compare the generating reliability of the Bureau's and the
Corps' hydropower plants with nonfederal ones, we obtained,
analyzed, and contrasted power plants' performance data, including
availability and outages factors, from the Bureau, the Corps, and
the North American Electric Reliability Council. 25 We discussed
the limitations of these performance indicators with officials
from the Bureau, the Corps, the PMAs, the Tennessee Valley
Authority, investor- owned utilities, publicly owned utilities,
and other experts in the electric utility industry.

To explore why federal hydropower plants sometimes performed at
lower levels, we obtained and analyzed various reports on the
subject and discussed the topic with representatives of the
Bureau, the Corps, the PMAs, various PMA electricity customers or
their associations, investor- owned utilities, and nonfederal,
publicly owned utilities. Moreover, in addressing the implications
of any reduced performance by federal plants, we interviewed
industry experts, representatives of investor- owned and publicly
owned utilities, officials of the PMAs, and the PMAs' electricity
customers. We also examined studies about the changes in
electricity markets.

In examining steps to secure funding to better maintain and repair
the Bureau's and the Corps' plants, we studied the efforts of the
Corps, the Bureau, and the PMAs to pay for the maintenance and
repair of federal hydropower assets more quickly and with greater
certainty. In this regard, we contacted the Bureau, the Corps, the
PMAs, and the PMAs' power

24 Nonfederal plants would include those owned by commercial
utilities, municipal utilities, electric cooperatives, public
utility districts, or other nonfederal entities. 25 The Council
was established by the electric utility industry to promote the
reliability of the electricity supply system of North America.

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Chapter 1 Background

customers at several different locations, including Denver,
Colorado; Boise, Idaho; Portland, Oregon; and Sacramento,
California. At these locations, we also examined any funding
agreements concluded by these parties and asked detailed questions
about the benefits and other implications of these agreements. Our
analysis was based on the assumption that the Bureau's and the
Corps' hydropower plants, the related facilities, and the PMAs
would continue to exist under some form of federal ownership. In
examining other steps to secure enhanced funding, we relied to the
greatest extent possible upon previous work that we had performed
on federal electricity, especially work performed during two prior
reviews Federal Power: Options for Selected Power Marketing
Administrations: Role in a Changing Electricity Industry
(GAO/RCED-98-43, Mar. 6, 1998) and Federal Power: Outages Reduce
the Reliability of Hydroelectric Power Plants in the Southeast
(GAO/T-RCED-96-180, July 25, 1996).

Our work was performed at many different locations that included
various power plants and offices of the Bureau, the Corps,
Bonneville, Southeastern, Southwestern, and Western; investor-
owned utilities; and publicly owned utilities. We also contacted
national and regional industry trade associations.

Our work was performed from July 1998 through February 1999 in
accordance with generally accepted government auditing standards.
Appendix I contains a more complete description of our objectives,
scope, and methodology.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

Within the electric utility industry, power plants are viewed as
reliable if they are capable of functioning without failure during
a specific period of time or amount of usage. From 1993 through
1997, the reliability of the Bureau's hydropower plants improved,
while the Corps' remained about the same. However, the Bureau's
and the Corps' hydropower plants are generally less reliable in
generating electricity than nonfederal plants. 26 The Bureau's and
the Corps' hydropower generating units have been in outage status
more of the time for forced and scheduled outages. Importantly,
the reliability of the Bureau's and the Corps' plants in the
Pacific Northwest is generally below that of Bureau and Corps
plants elsewhere and also below that of nonfederal plants in the
region and elsewhere. The Bureau's and the Corps' plants in the
region account for over half of these agencies' total generating
capacity and almost all of the power marketed by the Bonneville
Power Administration (Bonneville) the largest of the PMAs in terms
of power sales.

The Bureau's and Corps' Hydropower Generating Units Are Less
Available to Generate Power

Nationwide, both the Bureau's and the Corps' generating units are
less available to generate electricity than those of nonfederal
utilities and providers; however, the Bureau's availability factor
has been improving, while the Corps' remained about the same. 27
(See fig. 2.1.) Generating units that have malfunctioned
unexpectedly or are undergoing maintenance and repairs are not
considered to be available. Generating units that are more
available to generate electricity are considered to be more
reliable. The availability factor is considered to be a key
indicator of reliability, according to the Bureau.

From 1993 through 1997, nonfederal hydropower generating units
were available to generate electricity an average of 91.3 percent
of the time. During that same period, the Bureau's hydropower
units were available an average of 83.3 percent of the time (or 8
percent less than the average for nonfederal units) and the Corps'
hydropower units were available an average of 88.8 percent of the
time (or 2.5 percent less than nonfederal units). The availability
factor for nonfederal units from 1993 through 1997 was relatively
unchanged. The Bureau's availability factor improved from 80.9
percent of the time in 1993 to 86.6 percent in 1997. The Bureau
believes that one reason for its lesser availability factors is
that more of its

26 Nonfederal plants include those of commercial utilities,
municipal utilities, electric cooperatives, public utility
districts, and other nonfederal entities. 27 A generating unit is
available to generate power when it is mechanically able to do so.
The availability factor is not a measure of whether a plant can or
cannot generate power because water cannot be released through the
turbines or is otherwise not present for purposes of generating
power.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

plants are located on pipelines, canals, and water diversion
facilities in comparison with most nonfederal plants. The Corps'
availability factor was relatively unchanged declining slightly
from 89.6 percent in 1993 to 89.2 percent in 1997. Corps officials
later provided us with data showing an availability factor of 89.5
percent in 1998. Also, the Bureau provided us with data showing an
availability factor of 88.5 percent in 1998.

Figure 2.1: Average Availability Factors of the Bureau's, the
Corps', and Nonfederal Hydropower Generating Units, 1993- 97

Notes: The percentages are the sum of all units' available hours
divided by the sum of all units' period hours. A unit's period
hours for a year equal 24 hours multiplied by 365 days, or 8,760
hours.

Source: The Bureau, the Corps of Engineers, and the North American
Electric Reliability Council.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

The Bureau's and Corps' Hydropower Generating Units Are in Outage
Status More of the Time Than Nonfederal Units

If generating units are not available to generate electricity,
they are said to be in outage status. 28 Because the Bureau's and
the Corps' generating units were less available to generate
electricity than the rest of the industry, they also had higher
outages factors. The longer or more frequent its outages, the less
available a unit is to generate electricity. (See fig. 2.2.) From
1993 through 1997, the hydropower units of the Bureau were in
outage status an average of 16.7 percent of the time, and the
Corps' units were in outage status an average of 11.2 percent of
the time. In contrast, nonfederal units were in outage status an
average of 8.7 percent of the time. 29

From 1993 through 1997, the Corps' total outage factor was
relatively unchanged, whereas the Bureau's decreased from 19.1
percent in 1993 to 13.4 percent in 1997. Nonfederal units' total
outages factors were relatively unchanged.

28 Outage status means that a generating unit was unavailable to
generate electricity because of anticipated repairs and
maintenance ( scheduled outages) or unanticipated breakdowns or
emergency repairs ( forced outages). Outage status means a unit
cannot operate because it is broken, is being maintained, or is
being repaired. This differs from a utility's deciding not to
operate a unit for reasons unrelated to its operating condition
for example, insufficient or restricted water for operating the
plant.

29 Except for the Corps in 1993, the total outage factor is the
sum of scheduled and forced outages. To compute a total outage
factor for the Corps in 1993, we subtracted the Corps'
availability factor of 89.6 percent from 100 percent.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

Figure 2.2: Total Outages Factors of the Bureau's, the Corps', and
Nonfederal Hydropower Generating Units, 1993- 97

Note: The percentages are the sum of scheduled and forced outages
factors in figures 5 and 6. Source: The Bureau, the Corps of
Engineers, and the North American Electric Reliability Council.

The Corps' Hydropower Generating Units Have Higher Forced Outages,
and the Bureau's Have Higher Scheduled Outages

Examining the types of outages that occur indicates why generating
units were not in service. Along with the availability factor, the
forced outage factor is a key indicator of decreasing reliability
because it depicts that unexpected outages occurred, thus
indicating inconsistent operations. According to the Bureau's 1996
benchmarking study, 30 the lower the forced outage factor, the
more reliable the electricity is considered. From 1993 through
1997, the average forced outage factor for the Bureau was 2.3
percent and the Corps' was 5.1 percent. The average forced outage
factor for nonfederal hydropower units was 2.3 percent the same as
the Bureau's but less than the Corps'. (See fig. 2.3.) However, it
should be noted that the Corps' forced outage factor declined from
almost 6 percent in 1995 to 4.5 percent in 1997. According to the
latest data

30 A New Era of Power, Performance, and Progress: Future
Generations U. S. Bureau of Reclamation (1996).

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

provided by the Corps, the agency's forced outage factor declined
even further to under 3.2 percent in 1998. According to a Corps
official, this improvement is the result of the agency's $500
million effort, implemented or identified for implementation from
fiscal year 1993 through 2009, to rehabilitate its hydropower
plants.

Figure 2.3: Forced Outages Factors of the Bureau's, the Corps',
and Nonfederal Hydropower Generating Units, 1993- 97

Note: The percentages are the sum of all units' forced outage
hours divided by the sum of all units' period hours. A unit's
period hours for a year, 8,760 hours, equals 24 hours multiplied
by 365 days. The Corps did not have 1993 forced outage data.

Source: The Bureau, the Corps of Engineers, and the North American
Electric Reliability Council.

Scheduled outages are, by definition, anticipated. Nevertheless,
scheduled outages factors also reflect the amount of time that a
generating unit was off- line and unable to provide a utility's
customers with electricity. According to the Bureau's 1996
benchmarking study, the longer a scheduled outage, the less
efficient the maintenance program. In our view,

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

a more efficient maintenance program would have placed the
generating unit into service faster, thereby enabling the utility
to provide its customers with more service and hence possibly earn
more revenues.

In the case of scheduled outages, from 1993 through 1997, the
Corps' average scheduled outage factor was 6.3 percent and the
Bureau's was 14.4 percent. The average scheduled outage factor for
nonfederal utilities was 6.4 percent. However, from 1993 through
1997 the Bureau's scheduled outage rate showed an improvement
decreasing from 17.1 percent in 1993 to 11.3 percent in 1997 while
the Corps' and the industry's trends in scheduled outages factors
were relatively unchanged. (See fig. 2.4.)

Figure 2.4: Scheduled Outages Factors of the Bureau's, the Corps',
and Nonfederal Hydropower Generating Units, 1993- 97

Notes: The percentages are the sum of all units' scheduled outage
hours divided by the sum of all units' period hours. A unit's
period hours for a year, 8,760 hours, equals 24 hours multiplied
by 365 days. The Corps did not have 1993 scheduled outage data.

Source: The Bureau, the Corps of Engineers, and the North American
Electric Reliability Council.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

Taking longer scheduled outages at opportune times is a management
decision that may be considered good business practice, even
though such decisions decrease a generating unit's availability to
generate electricity. For example, the Bureau and some electric
utilities extend scheduled outages to perform additional repairs
during periods when the water is not available for generating
electricity or the unit is not needed to meet demand. Also, labor
costs are minimized by avoiding the payment of overtime wages.

However, according to some Bureau, PMA, and utility officials,
these practices may change as markets evolve. Hydropower units may
need to be available to generate electricity more of the time in
order for the utility to take advantage of new market
opportunities. For example, supplying an ancillary service, such
as providing reserve capacity, may allow a utility to earn added
revenues while not actually generating electricity; however, the
unit must be in operating condition ( available) to generate
electricity.

Reliability of the Bureau's and the Corps' Hydropower Plants in
the Pacific Northwest

The reliability of the Bureau's and the Corps' hydropower plants
in Pacific Northwest is important to the overall reliability of
the Bureau and the Corps. The generating units of those plants
account for over half of the Bureau's and the Corps' total
hydropower capacity. In addition, those plants provide almost all
of the generating capacity from which Bonneville, the largest PMA,
markets electricity. However, the reliability of the Bureau's and
the Corps' plants in the Pacific Northwest was below that of
nonfederal plants in the region. 31 In addition, the reliability
of the Bureau's and Corps' plants in the region was also generally
below that of the Bureau's and Corps' plants elsewhere and below
that of nonfederal plants in other regions. 32 As shown in chapter
4, Bonneville, the Bureau, and the Corps are undertaking extensive
upgrades and rehabilitations of the federal plants. These actions
occurred, in part, as a result of the increased funding
flexibility provided by the agreements under which Bonneville
would directly pay for the operation, maintenance, and repair of
these assets.

31 The region includes the hydropower generating units of the
regional reliability council, called the Western Systems
Coordinating Council. 32 As shown in this chapter, from 1993
through 1997, nationwide, the average availability of the Bureau's
generating units was 83.3 percent of the time, and the Corps' was
about 88.8 percent, whereas the nonfederal units' was 91.3
percent.

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Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

The availability factor of the Bureau's units improved over time.
The availability of the Corps' units was slightly below that of
nonfederal plants, but it declined slightly from 1993 to 1997.
However, the Corps' units had a forced outage status over twice as
high as that of nonfederal units in the region, indicating
inconsistent plant performance, while the Bureau's units had a
scheduled outage factor that was almost three times that of
nonfederal units.

From 1993 through 1997, the Bureau's units in the Pacific
Northwest were available to generate power an average of about
78.7 percent of the time, and the Corps' units were available an
average of 85.4 percent of the time. In contrast, nonfederal
hydropower units in the region were available an average of 89.7
percent of the time. The Bureau's availability factor improved
from a level of 74 percent in 1993 to 85 percent in 1997, and the
Corps' availability factor decreased from 87.9 percent in 1993 to
85.7 percent in 1997. In contrast, the availability factors of
nonfederal units decreased slightly from 91.8 percent in 1993 to
90.3 percent in 1997.

In the Pacific Northwest, from 1993 through 1997, the Bureau's
units were in outage status an average of 21.3 percent of the
time, and the Corps' units were in outage status an average of
15.3 percent of the time, compared with an average of 10.3 percent
of the time for nonfederal units in the region. The Bureau's
outage factor decreased from about 26 percent in 1993 to 15
percent in 1997, while the Corps' increased slightly from 12.1
percent in 1993 to 14.3 percent in 1997. The outage factor for
regional nonfederal units increased from 8.2 percent in 1993 to
9.7 percent in 1997.

The Corps' units performed more inconsistently than nonfederal
units because from 1993 through 1997, the Corps' units had higher
forced outages factors (an average of 6.4 percent) than the
Bureau's units (an average of 1.9 percent) and nonfederal units
(an average of 3.1 percent). The Corps' forced outage factor in
1994 33 was about 5 percent and increased to over 7 percent in
1995 and 1996, before declining to about 5.6 in 1997. In contrast,
the Bureau's forced outage factor was lower than the nonfederal
producers' but increased from 1.3 percent in 1993 to 1.9 percent
in 1997. Nonfederal producers had a forced outage that increased
from 1.5 percent in 1993 to 3.2 percent in 1997. According to the
Corps' Hydropower Coordinator, the higher forced outage factor for
the Corps' units in the region pertained to the operation of fish
screens and other equipment designed to facilitate salmon
migrations around the Corps' units. This equipment breaks or needs
to be maintained, causing

33 The Corps did not report a forced outage factor in 1993.

GAO/RCED-99-63 Federal Power Page 31

Chapter 2 The Bureau's and Corps' Hydropower Plants Are Less
Reliable Than Nonfederal Plants

decreases in availability. During fiscal year 1998, at the Corps'
McNary and Ice Harbor plants, forced outages related to fish
passage equipment were 30 and 15 percent, respectively, of the
total hours in which the plants experienced forced outages.

However, from 1993 through 1997, the Bureau's units had higher
scheduled outages factors (an average of 19.4 percent) than both
the Corps' units (an average of 8.9 percent) and nonfederal units
(an average of 7.2 percent). The Bureau's scheduled outages
factors were far higher than those of nonfederal parties but
decreased from 24.7 percent in 1993 to 13.2 percent in 1997. The
Corps' scheduled outage factor decreased from 9.6 percent in 1994
to 8.8 percent in 1997. 34 Nonfederal parties had a scheduled
outage factor that increased from 6.7 percent in 1993 to 8.4
percent in 1994 before falling to 6.5 percent in 1997.

34 The Corps did not report a scheduled outage factor in 1993.

GAO/RCED-99-63 Federal Power Page 32

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

The Bureau's and the Corps' plants were less reliable than
nonfederal plants partly because, under the federal planning and
budget cycle, they could not always obtain funding for maintenance
and repairs when needed. We found that funding for repairs can
take years to obtain and is uncertain. As a result, the agencies
delay repairs and maintenance until funds become available. In
addition, the Anti- Deficiency Act and other statutes require that
federal agencies not enter into any contracts before
appropriations become available, unless authorized by law. Such
delays can lead to maintenance backlogs and to inconsistent,
unreliable performance. The PMAs' electricity generally is priced
less than other electricity. However, because markets are becoming
more competitive, the PMAs' customers will have more suppliers
from which they can buy electricity. In some power marketing
systems for example, Bonneville's service area competition during
the mid- 1990s allowed some customers to leave or buy some of
their electricity from other sources, rather than continuing to
buy from Bonneville. Reliability is a key aspect of providing
marketable power. For example, according to Bonneville, in large
hydropower systems, the PMAs' ability to earn electricity revenues
depends, in part, on the availability of hydropower generating
units to generate power. In more competitive markets, the
reliability of the federal electricity will have to be maintained
or improved to maintain the competitiveness of federal electricity
and thus help ensure that the federal government's $22 billion
appropriated and other debt will be repaid. In addition, the
Congress, the Office of Management and Budget (OMB), and we have
been working to help ensure that the purchase and maintenance of
all assets and infrastructure have the highest and most efficient
returns to the taxpayer and the government.

Funding for Repairs Can Take Years to Obtain and Is Uncertain

The federal planning and budgeting process takes at least 2 full
years and does not guarantee that funds will be available for a
specific project. This affects the ways in which the Bureau and
the Corps plan and pay for the maintenance and repair of their
hydropower plants. The federal budgeting process is not very
responsive in accommodating the maintenance and repair of those
facilities it can take as long as 2 to 3 years before a repair is
funded, if it is funded at all. Specifically, the project and
field locations of the Bureau and the Corps identify, estimate the
costs of, and develop their budget requests, not only for
hydropower, but also for their other facilities, including dams,
navigation systems, irrigation systems, and recreational
facilities. The funding needs of these various assets compete for
the funding and repair of hydropower plants may be assigned lower
priorities than other items.

GAO/RCED-99-63 Federal Power Page 33

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

For example, officials of the Bureau's office in Billings,
Montana, described the budget process they expected to undergo to
develop a budget for fiscal year 2000. The process began in August
1997, when the regional office received initial budget proposals
from its area offices. During the ensuing months, the area
offices; the region; the Bureau's Denver office; the Bureau's
Washington State office; the Office of the Secretary of the
Interior; and OMB reviewed, discussed, and revised the proposed
area offices' and regional office's budgets, resulting in a
consolidated budget for the Bureau and the Department of the
Interior. Certainty about expected funding levels will not be
obtained until sometime between February 1999, when OMB conveys
the President's budget to the Congress, and the enactment and
approval of the Energy and Water Appropriations Act. The time that
will elapse from August 1997, when the area offices began their
budget processes, and October 1999 (the start of fiscal year 2000)
totals 26 months.

In addition, funding for the maintenance and repair of the
Bureau's and the Corps' hydropower plants is uncertain. Agency
officials and other policy makers, faced with limited and scarce
resources, especially in times of limited budgets, make decisions
about where and where not to spend funds. As shown in examples
below, funding is not always delivered to maintain and repair
hydropower plants, even if the need is demonstrated.

According to documentation that the Bureau provided us with, in
1983, detailed inspections of the generating units at the Shasta,
California, hydropower plant found that generating components were
deteriorating. The Bureau advised one of its federal power
customers that it would seek funds in fiscal year 1984 for the
repairs. However, OMB did not approve the requests because the
units were not approaching a failure mode. Later, in 1990, the
Bureau issued invitations to bid for the repairs, which, upon
receipt ranged from $9 million to $12 million. However, the
project was dropped because the Bureau had budgeted only $6
million. In 1992, after an inspection to determine how far the
deterioration had advanced, one generating unit's operations were
reduced. The inspectors also recommended repairing the other two
units because the gains in generating capacity that would be
achieved as a result of the repairs would enable Western to sell
more electricity. To fund the repairs, the Bureau requested funds
in its fiscal year 1993 budget request; however, according to the
Bureau's records, OMB eliminated the request. The Bureau's Budget
Review Committee recommended that the project not be included in
the

GAO/RCED-99-63 Federal Power Page 34

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

agency's fiscal year 1994 budget request and that the Bureau's
regional office make a concerted effort to find non- federal
financing. 35

The Corps' Northwestern Division in Portland, Oregon, has also
experienced difficulties in funding needed repairs. For example,
at the Corps' hydropower plant at The Dalles, Oregon, direct
funding by Bonneville allowed the Corps to accomplish maintenance
that, according to Corps officials, in all likelihood would not
have been funded because of the funding constraints in the federal
budget process. Beginning in late 1993, the Corps began preparing
an evaluation report that was submitted to headquarters to replace
major plant components on 14 units 36 that had exhibited many
problems over the years but were kept in service through intensive
maintenance. The Congress approved funding for the major
rehabilitation as part of the Corps' fiscal year 1997
appropriations. However, after 2 of the units were out of service
for an extended time, Bonneville and the Corps entered into an
agreement in January 1995 for Bonneville to pay for the rewinding
of the generator at unit 9. In February 1996, the rewinding of
unit 7 was added to the agreement. In addition, Bonneville, in
March 1996, agreed to fund the replacement of the excitation
systems for The Dalles' units 15 through 22, which were not
included in the major rehabilitation funded by appropriations.

Funding Difficulties Lead to Delays of Maintenance That Result in
Maintenance Backlogs

Delayed or uncertain funding leads to delays or postponements of
needed maintenance and repairs. These delays or postponements can
result in maintenance backlogs that can worsen over time. After
funding requests are identified and screened, funding may not be
made available until up to 3 years in the future. The Corps has
estimated a total maintenance backlog of about $190 million for
its power plants in Bonneville's service territory. However,
according to Bonneville and Corps officials, the extent to which
critical repair items are part of the backlog is a matter yet to
be determined. In addition, according to Bonneville and Corps
officials, the role of the approximately $190 million estimate for
purposes of planning and budgeting under Bonneville's and the
Corps' funding agreements is subject to debate. The Corps'
Hydropower Coordinator noted that carrying

35 On August 10, 1995, Western's power customers agreed to pay
about $21.5 million to repair the units. According to a Bureau
official, this cost included not only rewinding the generators but
replacing the turbine runners. Replacing the turbine runners was
not previously planned. Officials of the Sacramento Municipal
Utility District (a funding contributor) and the Bureau noted that
replacing the turbine runners allows the government to better
realize the gains in capacity that result from rewinding the
generators.

36 The Dalles was originally constructed with 14 units. Units 15
through 22 were added later.

GAO/RCED-99-63 Federal Power Page 35

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

a maintenance backlog is not a bad management practice in and of
itself, as long as it can be managed through planning and
budgeting techniques.

In contrast with the Corps, Bureau officials maintain that they
have a policy of not deferring maintenance and repairs they
consider to be critical, although noncritical items may be
deferred. They added that the Bureau is free to reprogram funds
when needed to fund repairs and maintenance. However, we noted
that unfunded maintenance requirements for the Bureau exist. In
the Pacific Northwest, the Bureau has been able to address these
needs by securing new funding sources. Specifically, Bonneville
and the Bureau in the Pacific Northwest have signed an agreement
under which Bonneville's power revenues will directly pay for
about $200 million of capital repairs at the Bureau's power
plants. According to Bureau officials, some of these repairs would
likely not have been made under the existing federal planning and
budgeting processes because of limited and declining federal
budgetary resources. Therefore, it is doubtful that these
maintenance needs could have been addressed in a timely manner
without a new funding mechanism.

Delayed Repairs Lead to Inconsistent Plant Performance

Failure to fund and perform maintenance and repairs in a timely
fashion can lead to frequent and/ or extended outages. These
outages force the PMAs or their customers to purchase more
expensive power than the federal agencies provided in order to
satisfy their contractual requirements. For example, from 1990
through 1992, two or more units of the Corps' Carters hydropower
plant, in Georgia, were out of service at the same time for
periods ranging from about 3 months to almost 1 year. A
Southeastern official estimated that its wholesale customers had
purchased replacement electricity for about $15 million more than
they would have paid for power marketed by Southeastern. In
another example, Southeastern officials estimated that customers
of its Georgia- Alabama- South Carolina system had paid 22 percent
more in 1990 than in the previous year partly as a result of
extended, unplanned outages. Other factors that led to the rate
increase included a drought and increases in operation and
maintenance costs at the Corps' plants. In addition, as previously
noted in our Shasta example, the Bureau restricted the operation
of one of the plant's generators in response to deteriorating
operating conditions.

GAO/RCED-99-63 Federal Power Page 36

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

Utilities Attempt to Avoid Extended Outages by Ensuring Sufficient
Funding to Maintain and Repair Their Power Plants

Although the average nonfederal hydropower generating unit is
older (48 years) than the Bureau's (41 years) and the Corps' (33
years), the nonfederal units' availability to generate power is
greater than the Bureau's and the Corps'. This is true because,
according to utility officials, utilities ensure that sufficient
funds exist to repair and maintain their generating units and thus
promote a high level of generating availability. According to
officials from three investor- owned utilities or holding
companies 37 and four publicly owned utilities with an average of
about 2,458 MW of hydropower generating capacity, 38 their
hydropower units were available at least 90 percent of the time
sometimes in ranges approximating or exceeding 95 percent. Some
officials said they would not tolerate significant reductions in
their generating availability because their hydropower units play
key roles in meeting demand during peak times.

Under the traditional regulatory compact between states' public
utility commissions and utilities, the utilities have an
obligation to provide all existing and future loads in their
service territories with power. According to utility officials, to
comply with these obligations, utilities implement planning and
budgeting systems that ensure that they can pay for all necessary
maintenance costs as well as critical repairs and replacements in
a timely fashion.

According to some utility officials, unlike under the federal
budgeting system, utilities typically have the financial
capability to quickly obtain funding to pay for unexpected repairs
to their power plants. According to these officials, utilities are
also able to accumulate funds in reserves to meet future
contingencies, such as unexpected breakdowns and repairs of
generating units. In addition, issuing bonds but allowing work to
begin prior to the bond's issuance is another tool that utilities
use to pay for and make repairs very quickly. For example,
according to officials of the Douglas County Public Utility
District, the utility district can respond quickly to an
unexpected breakdown because (1) it has access to some reserve
funds, (2) its commissioners can approve funding via the issuance
of bonds up to 18 months after work was begun on a repair, and (3)
its budgeting process is fast and accurate. For example, the
utility district in January 1999 was completing work on the budget
for the next fiscal year that would begin in only 8 months namely,
August 1999. The budget for the utility district's hydropower
project reflects funding requirements for

37 Idaho Power, Pacific Gas and Electric, and the Southern
Company. 38 Chelan County Public Utility District, Washington
State; Douglas County Public Utility District, Washington State;
Grant County Public Utility District, Washington State; and the
New York Power Authority.

GAO/RCED-99-63 Federal Power Page 37

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

operations, maintenance, anticipated repairs, and debt service, on
the basis of the long- term operational and financial history for
the project. According to Bonneville, the agency is achieving a
similar effect by being able to quickly provide access to funds
and establish reserve funds through agreements whereby its funds
directly pay for the operation, maintenance, and repair of the
Bureau's and the Corps' hydropower plants.

Inadequate Funding for the Maintenance and Repair of Federal
Hydropower Plants May Impact Marketability of Federal Electricity

In competitive markets, the price being charged for the
electricity and the reliability of that electricity will continue
to be important factors that consumers will consider when making
purchasing decisions. On average, the electricity sold by the PMAs
has been priced less than electricity from other sources. However,
failing to adequately maintain and repair the federal hydropower
plants causes costs to increase and decreases the reliability of
the electricity. The PMAs' rates will have to be maintained at
competitive levels, and the reliability of this power will have to
be maintained or enhanced to ensure that federal electricity
remains marketable. In addition, the Congress, OMB, and we have
been working to help ensure that the purchase and maintenance of
all assets and infrastructure have the highest and most efficient
returns to the taxpayer and the government.

Delayed and unpredictable federal funding for maintenance and
repairs have contributed to the decreased availability (and
reliability) of the federal hydropower generating units as well as
to higher costs that can cause rates to increase if those costs
are included in the rates. However, in competitive markets,
increased rates decrease the marketability of federal electricity,
as nonfederal electricity rates are expected to decline. Customers
are expected to have opportunities to buy electricity from any
number of reasonably priced sources. If the PMAs' rates are higher
than prevailing market rates, customers will be less inclined to
buy power from the PMAs. According to the Department of Energy's
Energy Information Administration, retail rates nationwide by 2015
may be about 6 to 19 percent (after inflation) below the levels
that they would have been if competition had not begun. In certain
PMA systems for example, the Central Valley Project, which, as of
fiscal year 1997, had an appropriated and other debt of about $267
million the PMAs' electricity (in this case, supplied by Western)
is already facing competition from nonfederal generation. If the
price of the PMAs' electricity exceeds the market price, then its
marketability would be hampered.

GAO/RCED-99-63 Federal Power Page 38

Chapter 3 Funding Processes' Impacts on the Reliability of
Hydropower Plants

Any factors that can cause the PMAs' electricity rates to increase
or that decrease reliability decrease the marketability of federal
electricity. The marketability of the federal electricity will
need to be maintained, as markets become more competitive, in
order to ensure the repayment of the federal appropriated and
other debt. For example, in 1994, in evaluating the financial
status of Bonneville, we noted that:

. . .[ Bonneville's] financial viability would also be jeopardized
if the gap between [Bonneville's] rates and the cost of
alternative energy sources continues to narrow. Such a scenario
could cause some [Bonneville] customers to meet their energy needs
elsewhere, leaving a dwindling pool of ratepayers to pay off the
substantial debt accumulated from previous years. 39

In Bonneville's service area, during the mid- 1990s, competition
decreased nonfederal electric rates, resulting in some customers
leaving or buying power from less expensive sources, rather than
continuing to buy from Bonneville.

Similarly, in the case of the Tennessee Valley Authority (TVA) a
federally owned corporation that supplies electricity in Tennessee
and six other Southeastern states), TVA's sales to industrial
customers declined from about 25 billion kWh in 1979 to 16 billion
in 1993 after double- digit annual rate increases. 40

39 Bonneville Power Administration: Borrowing Practices and
Financial Condition (GAO/AIMD-94-67BR, Apr. 19, 1994). 40
Tennessee Valley Authority: Financial Problems Raise Questions
About Long- term Viability (GAO/ AIMD/ RCED- 95- 134, Aug. 17,
1995).

GAO/RCED-99-63 Federal Power Page 39

Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

Various actions have been used to fund the maintenance and repair
of federal hydropower facilities. If these actions work as
intended, they have the potential to deliver dollars for
maintenance and repairs faster and with more certainty than before
these actions were implemented. By enabling repairs to be made on
time, they have the potential to help improve the reliability of
the PMAs' electricity and to continue its existing rate-
competitiveness. Hence, these actions can help to secure the
continued marketability of the PMAs' electricity and promote the
repayment of the appropriated and other debt. However, these
various actions may reduce opportunities for congressional
oversight of the operation, maintenance, and repair of federal
plants and related facilities and reduce flexibility to make
trade- offs among competing and changing needs.

Direct Funding by Electricity Revenues May Pay for Over $1 Billion
for Maintenance and Repairs

Aware of the problems involved in securing funding through federal
appropriations, the Bureau, the Corps, the PMAs, and PMA customers
have begun to take actions to secure the funding that is required
to maintain and repair the federal hydropower plants and related
facilities. An example is the Bureau's, the Corps', and
Bonneville's agreements in the Pacific Northwest, concluded from
1993 to 1997 and made pursuant to the Energy Policy Act and other
statutes. According to Bureau officials, these funding
arrangements were caused by budget cuts during the 1980s. They
added that the need to perform about $200 million in electricity-
related maintenance in the near future would strain the agency's
ability for maintenance and repairs in a steady, predictable
fashion. These officials said that, as a result of these funding
shortfalls, maintenance backlogs accumulated and the generating
availability of the federal power plants in Bonneville's service
area declined from 92 to 82 percent. In response, in 1988, the
Secretary of the Interior requested that the Congress authorize
Bonneville to directly fund certain maintenance costs. Such
authority was granted in provisions of the Energy Policy Act,
which authorized the funding agreements between Bonneville, the
Bureau, and the Corps.

Under these agreements, Bonneville's electricity revenues will
directly pay for over $1 billion of routine operations and
maintenance as well as capital repairs of the Bureau's and the
Corps' electricity assets in Bonneville's service territory. The
agencies expect to be able to plan and pay for maintenance and
repairs in a systematic, predictable manner over several years.
The agencies expect that the resulting funding will allow them to
respond with greater flexibility and speed to the need to repair
hydropower plant equipment. According to Bonneville, the funding

GAO/RCED-99-63 Federal Power Page 40

Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

agreements will create opportunities for the increased
availability of hydropower, financial savings, and the increased
revenues. In addition, Bonneville believes that increased demand
for its electricity and the increased financial resources provided
by the funding agreements will improve its competitive viability
and ability to recover the full cost of the electricity system
from which it markets power. 41

The Bureau and Bonneville signed two agreements for Bonneville's
electricity revenues to pay up front for capital repairs and
improvements as well as ordinary operations and maintenance of the
Bureau's electricity assets in Bonneville's service area. In
January 1993, the Bureau and Bonneville executed an agreement that
provided for funding by Bonneville of specific capital items, as
provided by subsequent subagreements. To date, several
subagreements have been signed under which Bonneville will pay, up
front, up to about $200 million for major repairs of the Bureau's
hydropower plants in Bonneville's service territory. For example,
Bonneville will spend about $125 million from 1994 through 2007
for upgrades of the turbines of 18 generating units at the
Bureau's Grand Coulee power plant, in Washington State.

In addition, in December 1996, the Bureau and Bonneville executed
an agreement whereby Bonneville agreed to directly pay for the
Bureau's annual operations and maintenance costs as well as
selected extraordinary maintenance, replacements, and additions.
The parties anticipated that funding under terms of the agreement
would total about $243 million ranging from about $47 million to
about $50 million per year from fiscal year 1997 to fiscal 2001.

The Corps and Bonneville have also signed two agreements that
allow Bonneville's electricity funds to directly pay for the
operation, maintenance, and repair of the Corps' electricity
assets. The first agreement, signed in 1994, was implemented by a
series of subagreements, under which about $43 million in capital
improvements and emergency repairs are being funded by
Bonneville's electricity revenues. For example, under one
subagreement, about $29 million will be spent for reliability
improvements at 21 of the Corps' power plants throughout
Bonneville's service area. Bonneville is also paying for over $5
million in repairs at The Dalles, Oregon, power plant that were
requested but not approved under the appropriations process. Other
work at The Dalles is currently funded by appropriations. In
December 1997, Bonneville and the Corps signed a second agreement
under which Bonneville will directly pay for annual

41 Bonneville markets power from the Federal Columbia Rivers Power
System.

GAO/RCED-99-63 Federal Power Page 41

Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

operations and maintenance expenses, for Bonneville's share of
joint project costs allocated to electricity revenues for
repayment, and for some small replacements at the Corps' projects
from which Bonneville markets electricity. The implementation of
this agreement will begin in fiscal year 1999 with an established
budget of $553 million from fiscal 1999 through fiscal 2003 about
$110 million per year.

Pacific Northwest's Funding Initiatives Include Systematic
Planning and Budgeting Processes

Because the implementation of the Pacific Northwest funding
agreements is still relatively new, it is too early to determine
if they will result in improvements to the availability factors of
the Bureau's and the Corps' hydropower plants. At the same time,
these efforts include a comprehensive attempt, that in our view,
establishes systematic methods for identifying and budgeting for
routine operations and maintenance, as well as for capital
repairs, rehabilitations, and replacements of the federal
hydropower plants in the region. 42 For example, pursuant to the
December 1996 funding agreement, the Bureau prepares an annual
operations and maintenance budget by identifying major line items
for each project during the next fiscal year. The Bureau also
prepares 5- year budgets, on the basis of estimated budgets for
each of the years that are included. The funding totals for the 5-
year period cannot be exceeded, although any expenditures in a
year that are less than the targeted amount are carried over to
future years as accounted for in a savings account. The Bureau and
Bonneville formed a Joint Operating Committee to vote on and
approve the annual and 5- year budgets as well as any
modifications to the budgets. Similarly, the December 1997
operations and maintenance funding agreement between the Corps and
Bonneville features annual and 5- year budgets that are voted upon
and approved by the Joint Operating Committee. Five- year budget
totals cannot be exceeded without the Committee's approval, but
the reallocation of funds is possible. In addition, if savings
occur in any year, they are shared between Bonneville and the
Corps and/ or carried over to future years.

In addition, annual budgets are proposed and approved less than 1
year in advance instead of 2 to 3 years in advance as under the
traditional federal appropriations process. These budget practices
reflect more immediate considerations and, in the views of agency
officials, are more realistic than budgets that have to be
compiled 2 to 3 years ahead of time.

42 See Executive Guide: Leading Practices in Capital Decision-
Making (GAO/AIMD-99-32, Dec. 1998). That report identifies
practices used by leading organizations to make capital investment
decisions. These include evaluating and ranking capital assets on
the basis of established criteria and balancing control and
flexibility when funding capital projects.

GAO/RCED-99-63 Federal Power Page 42

Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

Enhanced Set- Aside Funds Made Available The potential advantages
of the funding agreements in the Pacific

Northwest include enhancing the agencies' ability to accumulate
funds in the savings accounts to pay for emergency repairs, as
provided by the agreement. According to Bureau officials, the
savings can be reallocated between projects on the basis of a
telephone call between the Bureau and Bonneville. The ability of
nonfederal utilities to quickly access reserve funds to meet
emergency needs was mentioned by some nonfederal utilities when
they discussed their planning and budgeting processes with us.

In addition to the funds in savings, a variety of funding sources
can be used to pay for maintenance and repairs, including
emergency actions. For instance, according to Bureau officials, if
unexpected repairs need to be performed, moneys to pay for them
may be obtained via a subagreement between the Bureau and
Bonneville. Work on the repairs could begin prior to Bonneville's
and the Bureau's signing of the subagreement. According to Corps
officials, some ongoing rehabilitations of the Corps' Bonneville
and The Dalles projects will continue to be funded with
appropriations; however, maintenance or repairs to be supported
under the funding agreements will no longer be included in the
Corps' budget requests for appropriations. To pay for the
maintenance and repair of the Bureau's and the Corps' hydropower
plants, Bonneville can use its cash reserves or its bonding
authority.

Pacific Northwest's Initiatives May Allow Agencies to Adapt New,
More Flexible Maintenance Practices

Because the agreements provide more secure and predictable
funding, the Bureau and the Corps have begun to exercise greater
flexibility in how they maintain and repair their hydropower
plants. Consistent with evolving market competition and with the
actions of nonfederal utilities, Bureau and the Corps officials
said their personnel will rely less on traditional, prescheduled
maintenance and rely more on newer, more flexible maintenance
philosophies, such as reliability- centered maintenance. For
example, according to Bureau officials at the agency's Pacific
Northwest region, staff at the region's electricity projects
schedule maintenance and repairs, in part, by using a database
that shows when maintenance and repairs were last performed and
when a part may need maintenance or repairs in the future. Repairs
or upgrades will be increasingly made just- in- time on the basis
of test results. Bureau officials characterized their maintenance
philosophy as evolving to be more responsive to Bonneville's
marketing requirements as well as to reduce costs.

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Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

According to these officials, because they now have funds that can
be used to pay for emergency repairs, they can take prudent risks
in managing their maintenance requirements by deferring some
repairs that perhaps can be made just in time or repairing other
items that may have higher priority. For example, according to the
managers of the Grand Coulee power plant, the new funding
flexibility allowed the Bureau to reschedule the spending of up to
about $3 million on repairs at the plant.

Initiatives for Funding by Customers Are Being Implemented

Direct contributions from customers have been suggested and
implemented as one way to improve how the Bureau, the Corps, and
the PMAs pay for repairs. Although the use of nonfederal funds to
finance federal agencies' operations is generally prohibited
unless specifically authorized by law, several forms of
alternative financing have been statutorily authorized by the
Congress. Supporters of alternative financing, among them
officials from the Bureau, the Corps, the PMAs, and the PMAs'
electricity customers, note that alternative financing allows
repairs and improvements to be made more expeditiously and
predictably than through the federal appropriations process. They
believe that alternative financing could provide more certainty in
funding repairs and help address problems such as deferred
maintenance at federal plants.

Through one type of authorized arrangement, referred to, among
other names, as advance of funds, nonfederal entities, such as
preference customers, pay up front for repairs and upgrades of the
federal hydropower facilities. 43

Under federal statutes, such funding must be ensured before work
on a project can be started. Such funding arrangements have been
proposed and/ or implemented in a variety of PMA systems, most
prominently Western's Pick- Sloan Program in Montana, North
Dakota, South Dakota, and several neighboring states; Loveland
Area Projects in Colorado and nearby states; Hoover and Parker-
Davis projects in Arizona and Nevada; and Central Valley Project
in California. For example, under an agreement executed on
November 12, 1997, by the Bureau, Western, and Western's power
customers within the Central Valley Project, the customers agreed
to pay up front for electricity- related operations and
maintenance and certain capital improvements. These activities are
specified in a funding

43 According to a Corps official, the Corps' authority to accept
outside funding is much narrower than the Bureau's. The Corps'
authority, pursuant to 33 U. S. C. 701h, allows contributions only
for flood control work and only from states and political
subdivisions. The Corps' authority to upgrade hydropower
facilities was further limited by section 216 of the Water
Resources Development Act of 1996.

GAO/RCED-99-63 Federal Power Page 44

Chapter 4 Actions Taken to Promote Faster and More Certain Funding
to Better Maintain and Repair the Bureau's and Corps' Plants

plan developed by a Governance Board that represents the Bureau,
Western, and the electricity customers. In approving spending
proposals, the Bureau and Western have veto power and two- thirds
of the customers represented on the Board must approve a proposal
for it to pass. The customers will be reimbursed for their
contributions by credits on their monthly electricity bills.

However, advance of funds agreements generally are limited in
their ability to free the funding for the maintenance and repair
of federal electricity assets from the uncertainties of the
federal budget process. They supplement rather than completely
replace federal appropriations and, therefore, may enhance the
certainty of funding for repairs and maintenance but not
necessarily provide more speed in obtaining that funding. For
example, in Bonneville's service territory, Bonneville, the
Bureau, and the Corps can budget 1 year in advance; however, under
the Central Valley Project agreement, the Governance Board
approves electricity- related operations and maintenance budgets 3
years in advance to coincide with the federal budget and
appropriation cycles for the Bureau and Western. The dovetailing
is necessary because federal appropriations are counted upon to
fund the balance of the maintenance and repairs of the federal
electricity assets.

Depending on how they are implemented, the direct funding of
maintenance and repairs by electricity revenues and agreements for
funding by customers pose the risk that opportunities for
oversight by external decisionmakers, such as the Congress, will
be diminished. Also, the lack of oversight limits Congress's
flexibility to make trade- offs among competing needs. As the
Congress and other decisionmakers examine the need for new
arrangements to fund the maintenance and repair of federal
hydropower plants, they may need to consider any reduced
opportunities for oversight, along with the potential benefits of
these funding arrangements. At this time, the Bureau, the Corps,
and the PMAs provide such information as the history and
background of their power plants; the power plants' generating
capacity and electricity produced; annual electricity revenues,
costs, and the repayment status; and related environmental and
water quality issues, to the Congress, other decisionmakers, and
to the public in general. The means of communicating this
information include the PMAs' annual reports; the PMAs'; the
Bureau's, and the Corps' Internet Websites; and letters to the
appropriate congressional committees.

GAO/RCED-99-63 Federal Power Page 45

Appendix I Objectives, Scope, and Methodology

As requested by the Chairman, Subcommittee on Water and Power,
House Committee on Resources, we examined (1) the reliability of
the Bureau's and Corps' hydropower plants in generating
electricity compared with the reliability of nonfederal hydropower
plants; 44 (2) reasons why the Bureau's and the Corps' plants may
be less reliable than nonfederal plants and the potential
implications of reduced reliability; and (3) actions taken to
obtain funding to better maintain and repair the Bureau's and the
Corps' plants.

To compare the generating reliability of the Bureau's and the
Corps' hydropower plants with that of nonfederal ones, we
obtained, analyzed, and contrasted power plant performance data,
including availability and outage factors, from the Bureau, the
Corps, and the North American Electric Reliability Council (NERC).
NERC is a membership of investor- owned, federal, rural electric
cooperatives, state/ municipal/ provincial utilities, independent
power producers, and power marketers, whose mission is to promote
the reliability of the electricity supply for North America. NERC
compiles statistics on the performance of classes of generating
units, such as fossil, nuclear, and hydro. The statistics are
calculated from data that electric utilities report voluntarily to
NERC's Generating Availability Data System. The data reported to
NERC exclude many hydropower units, which, on average, are smaller
in generating capacity than those that report to NERC. According
to the Department of Energy's Energy Information Administration,
as of January 1998, hydropower in the United States was generated
by a total of 3,493 generating units with a capacity of 91,871
megawatts (MW). As shown in table I. 1, the federal and nonfederal
hydropower generating units included in our report totaled 1,107
generating units and had a total generating capacity of 70,005 MW,
or an average generating capacity of 63.2 MW per unit. Therefore,
the nonreporting units totaled 2,386, and had a total generating
capacity of 21,866 MW, or an average generating capacity of 9.2 MW
per unit. To compare the performance of federal hydropower
generating units with that of nonfederal units, we used data on
hydropower generating units from NERC's database that excluded
federal hydropower generating units. We did not evaluate NERC's
validation of the industry's data, nor the specific input data
used to develop the database. We collected 1998 availability and
outage data for the Bureau and the Corps, but we did not present
it in our graphs because comparative data for the nonfederal units
were not available from NERC at the time we completed our study.
We also did not evaluate the specific input data used

44 Nonfederal plants include those owned by commercial utilities,
municipal utilities, electric cooperatives, public utility
districts, and other entities.

GAO/RCED-99-63 Federal Power Page 46

Appendix I Objectives, Scope, and Methodology

by the Corps and the Bureau to develop their databases on the
performance of federal generating units. Table I. 1 depicts some
of the characteristics of the hydropower generating units included
in our analysis of the performance of the Bureau's, the Corps, and
industry's generating units. Data for nonfederal units is from 32
nonfederal utilities.

Table I. 1: Characteristics of Bureau, Corps, and Nonfederal
Hydropower Generating Units as of 1997

Agency Average age of

generating units (years)

Number of generating

units Nameplate

capacity of generating units (MW)

Average nameplate capacity of

generating units (MW)

Bureau 41 188 14,515 77 Corps 33 349 20,720 59 Nonfederal 48 570
34,770 61 Note: We excluded units at two of the Bureau's power
plants from our analysis The Boise River Diversion because it has
not operated in several years, and the Lewiston plant because it
is a small (less than 1 MW) station service power plant for the
Trinity power plant.

Source: U. S. Bureau of Reclamation, U. S. Army Corps of
Engineers, and NERC.

We discussed the limitations of these performance indicators with
officials from the Bureau, the Corps, the Tennessee Valley
Authority, investor- owned utilities, publicly owned utilities,
and other experts in the electric utility industry.

To explore why federal hydropower plants sometimes performed at
lower levels, we obtained and analyzed various reports on the
subject, and discussed the topic with representatives of
Bonneville, the Bureau, the Corps, various pwer maketing
administration (PMA) power customers or their associations,
investor- owned utilities, and nonfederal, publicly owned
utilities. In our analysis, we included information obtained from
the Tennessee Valley Authority, a federally owned utility with
high performance indicators and significant hydropower resources.

In addressing the implications of any reduced performance by
federal plants, we interviewed industry experts, representatives
of investor- owned and publicly owned utilities, and officials of
PMA power customers. We also examined studies about the changes in
electricity markets and contacted national and regional trade
associations. Moreover, we addressed alternative ways of ensuring
the enhanced funding of maintenance and repairs of the federal
hydropower plants and related facilities. In this regard, to the
extent possible, we relied upon previous work that we had

GAO/RCED-99-63 Federal Power Page 47

Appendix I Objectives, Scope, and Methodology

performed on federal power, especially work performed during two
prior reviews: Federal Power: Options for Selected Power Marketing
Administrations: Role in a Changing Electricity Industry
(GAO/RCED-98-43, Mar. 6, 1998) and Federal Power: Outages Reduce
the Reliability of Hydroelectric Power Plants in the Southeast
(GAO/T-RCED-96-180, July 25, 1996). Moreover, we examined the
Corps', the Bureau's, and the PMAs' efforts to make power revenues
directly finance the maintenance and repair of federal hydropower
assets. In this regard, we contacted the Bureau, the Corps,
Bonneville, Western, and the PMAs' power customers and examined
various agreements of arrangements to pay for the maintenance and
repair of the federal hydropower plants and related facilities.

Our work was performed at various locations, including the offices
of federal and nonfederal parties. Regarding the Corps, these
locations include the agency's headquarters, Washington, D. C.;
the Northwestern Division, Portland, Oregon; the Portland, Oregon,
District; and the Nashville, Tennessee, District. Because the
Corps' power operations have been affected by the need to
accommodate the migrations of salmon, we also contacted the Walla
Walla and Seattle, Washington, Districts, and the Corps'
Bonneville (Oregon) power plant. We visited the Bureau's offices
at the Department of the Interior in Washington, D. C.; Denver,
Colorado; the Central Valley Operations Office, Sacramento,
California; the Pacific Northwest Region, Boise, Idaho; and the
Grand Coulee, Washington, power plant. To gain a perspective on
how another federal electricity- generating entity operated its
hydropower program, we interviewed TVA officials in Chattanooga,
Tennessee. Moreover, we contacted the PMAs at locations including
their Power Marketing Liaison Office, U. S. Department of Energy,
Washington, D. C.; Bonneville in Portland, Oregon; Southeastern in
Elberton, Georgia; Southwestern in Tulsa, Oklahoma; and Western in
Golden and Loveland, Colorado, and Folsom, California.

Our scope included contacting several PMA customers or
associations that represent PMA customers, including the City of
Roseville, California; Colorado River Energy Distributors
Association, Tuscon, Arizona; the Midwest Electric Consumers
Association, Denver, Colorado; the Northern California Power
Agency, Roseville, California; and the Sacramento (California)
Municipal Utility District. In addition, we contacted several
investor- owned utilities, utility holding companies, and
nonfederal publicly owned utilities (other than those previously
listed) that operate significant amounts (collectively, over
17,000 MW) of hydropower -generating

GAO/RCED-99-63 Federal Power Page 48

Appendix I Objectives, Scope, and Methodology

capacity; they included the Chelan County (Washington) Public
Utility District; Idaho Power Company; Grant County (Washington)
Public Utility District; Douglas County (Washington) Public
Utility District; New York Power Authority in Niagara, New York;
Pacific Gas and Electric Company, Sacramento, California; South
Carolina Electric and Gas; and the Southern Company in Atlanta,
Georgia.

Our work was performed from July 1998 through February 1999 in
accordance with generally accepted government auditing standards.

GAO/RCED-99-63 Federal Power Page 49

Appendix II Comments From the Department of Energy

GAO/RCED-99-63 Federal Power Page 50

Appendix II Comments From the Department of Energy

On March 6, 1999, the Department of Energy provided technical
suggestions for the draft report but deferred to the comments of
the Bureau and the Corps on more substantive matters. For example,
Energy suggested that we clarify the differences between
reliability and availability. The report already discussed that
plants are viewed as reliable, within the electric utility
industry, if they can function without failure over a specific
period of time or amount of usage. The report also demonstrates
that there are several ways of measuring reliability, including
the availability factor and outage factors. Accordingly, we made
no substantive changes to the report.

GAO/RCED-99-63 Federal Power Page 51

Appendix III Comments From the Department of the Interior

Note: GAO comments supplementing those in the report text appear
at the end of this appendix.

See comment 1. See comment 2. See comment 3.

GAO/RCED-99-63 Federal Power Page 52

Appendix III Comments From the Department of the Interior

GAO/RCED-99-63 Federal Power Page 53

Appendix III Comments From the Department of the Interior

See cover letter. See cover letter. See cover letter.

GAO/RCED-99-63 Federal Power Page 54

Appendix III Comments From the Department of the Interior

Now the report cover

Now on p. 4. Now on p. 7.

Now on p. 8. Now on p. 9.

GAO/RCED-99-63 Federal Power Page 55

Appendix III Comments From the Department of the Interior

Now on pp. 10 and 11. Now on pp. 28 and 29. Now on p. 30. Now on
p. 34. Now on p. 36.

Now on p. 36. Now on p. 35.

Now on p. 40. Now on p. 42. Now on p. 42.

Now on p. 44.

GAO/RCED-99-63 Federal Power Page 56

Appendix III Comments From the Department of the Interior

The following are GAO's comments on the Department of the
Interior's (including the Bureau of Reclamation's) letter dated
March 12, 1999.

GAO's Comments Interior provided us with comments that were
intended to clarify its position regarding reliability measures,
operation and maintenance, and

funding mechanisms. 1. In its cover letter and general comments,
Interior stated that the report does a good job in recognizing the
funding needs for operating and maintaining electrical- generating
facilities. However, Interior stated the report does not
articulate in the executive summary, as it does in the body, the
initiatives undertaken by the Bureau and the Corps to identify
alternative funding sources. We believe that the executive summary
adequately addresses the issue of the initiatives undertaken by
the Bureau, the Corps, and the PMAs, particularly as they relate
to efforts in the Pacific Northwest. Therefore, we did not revise
our report.

2. In its cover letter and in general comments, Interior stated
that the report does not articulate the fact that the Bureau's
facilities are operated to fulfill multiple purposes, such as
providing water for irrigation, municipal and industrial uses,
fish and wildlife enhancement, and electricity generation.
According to the Bureau, if water is frequently not available for
generating electricity, the availability factor is not a good
indicator for comparing the reliability of the Bureau's
hydropower- generating units with other units that are not
operated under multipurpose requirements. Interior also suggested
that the nonfederal projects are freer to maximize power and
revenues because they are less affected by multiple purposes.

We disagree with the Bureau's position that the report does not
recognize that water is used for multiple purposes and affects how
electricity is generated. For example, the executive summary
recognizes that the Bureau and the Corps generate electricity
subject to the use of water for flood control, navigation,
irrigation, and other purposes. In addition, the report
recognizes, in chapter 2, that the Bureau and other utilities
utilize periods of low water and low demand to perform scheduled
maintenance and repairs. This would tend to decrease the
availability factors of these entities. The report also states
that this practice may be regarded as good business practices. We
further disagree that the availability factor is not a good basis
for comparing the reliability of different projects. The
availability factor is a widely accepted measure of reliability
that has

GAO/RCED-99-63 Federal Power Page 57

Appendix III Comments From the Department of the Interior

validity, as long as it is understood in terms of other factors
that affect how plants are operated. Moreover, we disagree that
other utilities necessarily operate hydropower plants that are
affected less by multiple purposes. In fact, as we have noted
previously, for other utilities, the multiple uses of the water
are regulated through conditions in the utilities' hydropower-
plant- operating licenses, which are issued by the Federal Energy
Regulatory Commission.

The Bureau contends that the availability of its plants is
affected by the fact that more of the Bureau's plants are located
on pipelines, canals, and water diversion facilities than most
nonfederal plants. We recognized this point in chapter 2.

3. In the cover letter and in its general comments, Interior
stated that the forced outages factor is a better indicator of
reliability than the availability factor for multiple purpose
facilities. In addition, in its cover letter, Interior indicated
that the Bureau's benchmarking studies indicate that its plants
compare favorably with other plants in the area of reliability.
Regarding forced outages factors, our report recognizes that there
are several indicators of reliability and the forced outages
factor is one of most meaningful. More generally, we disagree with
Interior's conclusion that the Bureau's plants are as reliable as
those of other power providers. As shown in chapter 2 of this
report, although the Bureau's forced outages factors are on par
with those of nonfederal utilities, the Bureau's availability
factor is lower, and it has been improving. Moreover, the Bureau's
scheduled outages factors are higher than nonfederal utilities.

In its general comments, Interior adds that reliability is a
measure of whether a plant can operate when it is needed, while
availability is a measure of a unit's ability to operate within a
given time period. These factors, stated the Bureau, can be
equated only when a plant is required to operate for the full time
of the period. The Bureau added that optimum availability is
unique to each plant, depending on such factors as design, time,
water supply, location, and cost. As stated in our report,
reliability is a measure of a plant's ability to operate over a
specific period or amount of usage. We further agree that the
significance of an availability factor should be understood within
the context of various factors, some of which are mentioned by the
Bureau. We revised chapter 1 to recognize that assessing the
performance of a hydropower plant or unit by examining its
availability factor calls for understanding additional variables.
We added language to reflect that the availability factor needs to
be understood in terms of such factors as the kind of demand the
plant meets (e. g., whether

GAO/RCED-99-63 Federal Power Page 58

Appendix III Comments From the Department of the Interior

it meets peak demand), the availability of water throughout the
year, and the purposes satisfied by the dam and reservoir.

4. According to Interior, the report implies that the Bureau
delays repairs and maintenance, pending the availability of funds.
The Bureau stated that it performs repairs and maintenance when
needed by reprioritizing funds. We revised the report in chapter 3
to recognize the Bureau's statement that it reprioritizes funding.
However, the example of the delayed repairs because of delayed
funding at the Bureau's Shasta, California, project, illustrates
our point that repairs and maintenance are delayed when funds are
not forthcoming.

5. Interior stated that the Bureau has undertaken a program to
improve its performance by benchmarking its electricity operations
against the rest of the industry and is continually striving to
improve, given the legal and financial constraints encountered.
Our report does not imply that these agencies are operating in an
unbusinesslike manner but shows that the Bureau's availability has
improved in the face of financial and budgeting constraints. We
revised chapter 1 to recognize the Bureau's benchmarking effort.

Specific Comments 1. Interior commented that the title of the
report implies that the Bureau has reduced its operation and
maintenance program. Interior stated the Bureau has always
implemented preventive and reliability- centered maintenance and
that adequate funding for these activities has been available.
Chapter 4 of the report recognizes that the Bureau, in particular
in the Pacific Northwest, will increasingly practice reliability-
centered maintenance and practiced preventive maintenance in the
past. However, the efforts of the Bureau's field locations to
engage in direct or advance funding arrangements serves as
evidence that faster and more predictable funding is needed.

2. We added transmission system to the report, as requested by
Interior. 3. We revised the report to indicate that the Bureau's
forced outages rate from 1993 through 1997 was the same as the
nonfederal sector's.

4. According to Interior, our comparing plants of different size
and type may distort our conclusions about the performance of the
federal and nonfederal plants. We disagree. As shown in appendix
I, the federal and nonfederal electrical- generating units in our
analysis were about same size

GAO/RCED-99-63 Federal Power Page 59

Appendix III Comments From the Department of the Interior

because our analysis of nonfederal units excluded about 2,400
smaller ones that averaged about 9 MW of generating capacity. In
addition, our decision to include both conventional generators and
pump generators in our analysis was based on the fact that the
Corps' performance data did not separate its conventional and pump
units. The Bureau itself, in its 1996 benchmarking study, included
seven pump units (about 323 MW) at its Grand Coulee and Flatiron
plants as conventional generating units. Moreover, although the
Bureau has generating units from 1 MW to 700 MW, it used only two
MW- size categories (1 to 29 MW, and 30 MW and larger) in
comparing the availability and outages factors of its plants to
the industry in its 1996 benchmarking study. In addition, our
analysis of the availability factors of the Bureau's hydropower-
generating units from 1993 through 1997 showed that among pump
generators as well as the size categories zero to 10 MW, 11 to 50
MW, 51 to 100 MW, and 101 to 200 MW, the Bureau's hydropower units
had lower availability factors than the industry as a whole.

5. According to Interior, although the customers funded up to $22
million in repairs for Shasta, the rewind contract was awarded for
$8.8 million, including total costs to replace the turbines
estimated at $12.2 million. This point is expanded upon under
comment 12.

6. Interior disagrees with the statement in the draft report that
advance or direct funding arrangements decrease opportunities for
congressional oversight. We revised the report to state that,
although these arrangements could diminish opportunities for
oversight, the Bureau, the Corps, and the PMAs provide such
information as the history and background of their power plants;
the plants' generating capacity and electricity produced; annual
electricity revenues and costs; and related environmental and
water availability issues to the Congress, other decisionmakers,
and to the public. The means of communicating this information
include the PMAs' annual reports; the PMAs', the Bureau's, and the
Corps' Internet Websites; and letters to the Congress.

7. According to Interior, our statement that the longer the
scheduled outage, the less efficient the maintenance program, is
out of place as it pertains to federal plants. The statement would
apply primarily to run- of- the- river plants, according to
Interior. The Department noted that federal plants are not allowed
to earn more revenues and outages do not have an impact on
revenues if water is not available for generating electricity.

GAO/RCED-99-63 Federal Power Page 60

Appendix III Comments From the Department of the Interior

We believe our report sufficiently addresses these points. We have
already noted that performing scheduled outages during times of
low water or low demand may constitute good business practice. In
addition, we have noted the need to understand such factors as the
kind of demand a plant meets (for instance, whether it meets peak
demand) and the availability of water for generating power. Our
report also states that, as markets evolve to become more
competitive, operating plants at higher availability factors may
allow the PMAs and utilities to take advantage of new
opportunities to earn revenue by selling ancillary services. In
addition, we continue to believe that, all things being equal,
having plants on- line for longer periods of time is also good
business practice, as stated in the Bureau's 1996 benchmarking
report. 45

8. As suggested by Interior, we revised the report to read Western
Systems Coordinating Council.

9. As suggested by Interior, we revised the report to reflect that
three of five units at Shasta were repaired. The other two were
not.

10. In response to Interior's comment, we revised the report to
reflect that while the Bureau defers noncritical items, it does
not defer items it deems to be critical. Interior also notes that
unfunded maintenance requirements do not necessarily indicate a
deferred maintenance situation. In our view, any maintenance
requirements that are put off until the future are deferred.
However, we revised the report to state that deferred maintenance
is not problematic as long as it can be managed.

11. As requested by Interior, we added due to limited and
declining federal budgetary sources.

12. Interior clarified that the costs of rewinding the Shasta
units decreased from $10.5 million (low bid) in 1994 to $8.8
million in 1996. The rewind contract was executed in 1996 to
increase the rating to 142 MW per unit versus the higher- priced
rewind in 1994 to 125 MW per unit. Most importantly, the $21.5
million commitment includes the replacement of turbines in three
units that were not included in earlier cost estimates. Because of
the new information provided regarding the nature of the
additional work at Shasta, we revised our report in chapter 3 to
state that the Bureau expanded the scope of work to be performed
at the plant.

45 See U. S. Bureau of Reclamation, A New Era of Power,
Performance, and Progress: Future Generations (1996).

GAO/RCED-99-63 Federal Power Page 61

Appendix III Comments From the Department of the Interior

13. As suggested by Interior, we revised the text to state that
the funding arrangements in the Pacific Northwest were
necessitated by budget cuts during the 1980s. Also, the need to
fund about $200 million in maintenance in the near term would
limit the Bureau's ability to pay for maintenance and repairs in a
steady, predictable fashion.

14. As suggested by Interior, we deleted the word electricity from
the reference to the Bureau's operation and maintenance budget.

15. As suggested by Interior, we revised the text to eliminate
references to separate Joint Operating Committees.

16. As suggested by Interior, we changed defer spending to
reschedule.

GAO/RCED-99-63 Federal Power Page 62

Appendix IV Comments From the Department of Defense

Note: GAO comments supplementing those in the report text appear
at the end of this appendix.

GAO/RCED-99-63 Federal Power Page 63

Appendix IV Comments From the Department of Defense

On March 16, 1999, the Department of Defense (including the Army
Corps of Engineers) provided us with a letter acknowledging that
the Corps' verbal comments, discussed with us at a March 10, 1999,
meeting, had been resolved. The primary verbal comment was that we
did not reflect changes in the performance of the Corps'
hydropower plants that occurred in fiscal year 1998. The Corps
suggested that we include these data in various graphs in our
report. As discussed with Corps officials, we addressed the
changes in the Corps' performance in the text of our report,
primarily in chapter 2. However, we declined to show changes in
the graphs because the 1998 data were not available for the
nonfederal hydropower generating units at the time we completed
our review.

GAO/RCED-99-63 Federal Power Page 64

Appendix V Comments of the Bonneville Power Administration

Note: GAO comments supplementing those in the report text appear
at the end of this appendix.

See comment 1. See comment 2.

GAO/RCED-99-63 Federal Power Page 65

Appendix V Comments of the Bonneville Power Administration

Now on pp. 10, 11, and 45. See comment 3.

See comment 4. Now on p. 10.

GAO/RCED-99-63 Federal Power Page 66

Appendix V Comments of the Bonneville Power Administration

Now on p. 8. See comment 5.

Now on p. 9. See comment 6.

Now on p. 33. See comment 7.

Now on p. 38. See comment 8.

GAO/RCED-99-63 Federal Power Page 67

Appendix V Comments of the Bonneville Power Administration

The following are GAO's comments on the Department of Energy's
(including the Bonneville Power Administration's) letter dated
March 11, 1999.

GAO's Comments On March 11, 1999, Bonneville provided us with
general and specific comments regarding our draft report.
Bonneville noted that in its view, we

sought to conduct a fair assessment of the U. S. Army Corps of
Engineers (Corps) and the Bureau of Reclamation (Reclamation)
facilities during the time of the study.

1. Bonneville understood that we were not requested to evaluate
the direct- funding agreements in the Pacific Northwest. However,
Bonneville suggested that we add language to the report to reflect
that the funding agreements between itself, the Bureau, and the
Corps contain a systematic approach to maintenance planning and
investment that creates opportunities for increased hydropower
availability, financial savings, and increased revenues. We
believe that our report addresses these points. However, we added
language that Bonneville believes these enhancements will be
attained as a result of the funding agreements.

2. As noted by Bonneville, our report stated that the availability
factors of the Bureau's and the Corps' hydropower plants in the
Pacific Northwest are lower than in the rest of the nation.
Bonneville suggested that we clarify the report, in the executive
summary, by stating that Bonneville, the Bureau, and the Corps
recognized the lower reliability of the plants in the Pacific
Northwest and took action through a series of direct- funding
agreements to address the problem. Bonneville further suggested a
clarification that during the period 1993 through 1997, the
federal agencies undertook extensive upgrades and rehabilitations
of the Bureau's plants partly as a result of the increased funding
flexibility provided by the direct- funding agreements. We agreed
that these statements would clarify the report and incorporated
them.

3. Bonneville noted that the draft report stated that funding
maintenance and repair actions through direct customer
contributions or through direct payments from the PMAs' revenues
reduced opportunities for congressional oversight. According to
Bonneville, the funding arrangement in the Pacific Northwest was
specifically supported by the Senate Appropriations Committee in
1997. Bonneville also stated that its annual congressional budget
submission includes programmatic information on the operations and
maintenance funding that Bonneville plans to provide for the
Bureau

GAO/RCED-99-63 Federal Power Page 68

Appendix V Comments of the Bonneville Power Administration

and the Corps. In response to this and other comments, we revised
the executive summary and chapter 4 to show that information is
now being made available to the Congress and others about the
operation of the federal power program. For instance, the Bureau,
the Corps, and the PMAs provide such information as the history
and background of their power plants; the plants' generating
capacity and electricity produced; annual electricity revenues and
costs; and related environmental and water quality issues to the
Congress, other decisionmakers, and to the public. The means of
communicating this information include the PMAs' annual reports;
the PMAs', the Bureau's, and the Corps' Internet Websites; and
letters to the appropriate congressional committtees.

4. We revised the executive summary as recommended by Bonneville
by adding under the traditional appropriations process.

5. Bonneville believed that the location of figure 1 in the
executive summary was confusing, since it discussed national
availability factors but was positioned over the discussion of
availability in the Pacific Northwest. We agree and have relocated
the figure.

6. The draft's executive summary stated that some of Bonneville's
power customers are leaving the agency for less- expensive
sources. Bonneville stated that some customers left the power
administration in an earlier period but the situation today is
significantly different, with demand for electricity and other
products exceeding the supply. Bonneville stated that increasing
demand for its electricity as well as the increased financial
resources provided by its funding agreements with the Bureau and
the Corps will improve its competitive viability and ability to
recover the full cost of the Federal Columbia River Power System.
We agreed and revised the report in the executive summary and
chapter 4.

7. Bonneville suggested that the final report recognize that, for
large hydropower systems, the ability to earn electricity revenues
depends on the availability of water and of operable hydropower-
generating units. These conditions and other factors must be
considered to optimize the maintenance program for the plants from
which Bonneville markets electricity. We agreed and revised
chapter 3 accordingly.

8. As suggested by Bonneville, we added language to chapter 3 to
the effect that like the Douglas County Public Utility District,
Bonneville will be able to quickly provide access to funds and
establish reserved funds through agreements whereby its funds
directly pay for the operation,

GAO/RCED-99-63 Federal Power Page 69

Appendix V Comments of the Bonneville Power Administration

maintenance, and repair of the Bureau's and the Corps' hydropower
plants.

GAO/RCED-99-63 Federal Power Page 70

Appendix VI

Major Contributors to This Report

Peg Reese Philip Amon Ernie Hazera Martha Vawter

(141194) GAO/RCED-99-63 Federal Power Page 71

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