[Construction Cost Ceiling
Bonneville Unit
Central Utah Project]
[From the U.S. Government Printing Office, www.gpo.gov]

Title: ï¿½ï¿½ï¿½

Report No.  01-I-20 

Title: Construction Cost Ceiling
	Bonneville Unit
	Central Utah Project

Date: October 24, 2000


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Background                                                       

     
          Bonneville Authorized 
          in 1956

          Congress Controls Federal
          Expenditures by Cost
          Ceilings

          BOR Increases Cost
          Ceiling Annually for
          Inflation 

1In 1956, Public Law 84-485 authorized $760 million for CRSP, but did not specify the amounts
available for each of the participating water projects or include any provisions for indexing the
authorized cost ceiling for inflation.  From 1956 to 1972, BOR expended about $64.5 million for
Bonneville. 


          
Results of Review


          Cost Ceiling
               Calculations Unreliable 
          
                         1.   BOR Records Were
               Insufficient 

2The $275 million consisted of $85.8 million for earth dams, $44.4 million for tunnels, $39.7
million for powerplants, $30.6 million for concrete pipelines, $26.3 million for canals, $15.2
million for laterals and drains, $13.3 million for primary roads, $10.9 million for pumping plants,
$5.7 million for land and rights, $1.9 million for electrical switch yards and substations, and $1.2
million for general property.

                    Agency Response

                         2.   BOR Continued To
               Index Unbuilt
               Commercial Power
               And Agricultural 
               Irrigation Features  

                    Agency Response

                         3.   BOR Did Not Record
               Expenditures of
               $14.6 Million Against
               The Cost Ceiling 

                    Agency Response
     
                    OIG Reply

History of Concerns
About BOR Cost
Ceiling Calculations

Other Issues Related
to Bonneville Cost
Ceiling Reliability  

                    Agency Response and
                    OIG Reply

Recommendation

                    Agency Response
     
                    OIG Reply

Congress authorized construction of the Bonneville Unit
(Bonneville) in 1956 as part of the Central Utah Project,
which in turn is part of the larger, multistate Colorado
River Storage Project (CRSP)1 (see Glossary). 
Bonneville is a multipurpose water development,
consisting of six dams; eight major diversion dams; and
65 miles of aqueducts, tunnels, and pipelines, to supply
water for irrigation and for municipal, industrial, fish and
wildlife, and recreational uses in central and northeastern
Utah.  BOR began constructing Bonneville in 1966.

Congress controls and monitors the Federal money spent
in developing water projects, including Bonneville, by
establishing an "authorized cost ceiling," which is the
maximum amount of money that Congress will
appropriate to construct a project.  Congress bases the
amount of the authorized cost ceiling, in part, on cost
estimates prepared by the Federal agency responsible for
constructing the project, in this case BOR.  Since a water
project can take many years to come on-line, from project
authorization to completion of construction, Congress
allows the authorized cost ceiling to be updated annually
for changes resulting from economic factors, usually
inflation.  The updating process is called indexing.  

Congress authorized BOR to begin indexing Bonneville's
authorized cost ceiling in 1972 and gave BOR discretion
in establishing and applying the procedures and
methodologies to be used in the indexing process.  As
detailed in BOR regulations, BOR's procedures include:

               ï¿½    Indexing the amounts not expended based on
          BOR-developed indices for the types of project
          elements, such as land, tunnels, dams, roads, and canals,
          and

               ï¿½    Comparing the updated authorized cost ceiling with the
          total estimated Federal obligations required to complete
          the project to determine the ceiling's adequacy.  If equal
          to or greater than the estimated obligations to complete
          the project, the updated ceiling is adequate.  If less than
          the estimated obligations, the updated ceiling is
          inadequate, and BOR must either (1) restructure the
          project within the updated authorized cost ceiling
          amount or (2) inform Congress of the need for additional
          cost ceiling authorization to complete the project. 

In 1992, Congress transferred the majority of the
responsibility and funding authority for completing the
remaining planning and construction of the Central Utah
Project from BOR to the Central Utah Water Conservancy
District (CUWCD) (see Glossary).  Congress also
established the Central Utah Project Completion Act
(CUPCA) Office under the auspices of the Department of
the Interior, to oversee the completion of the Central Utah
Project.

In its Fiscal Year 1998 Annual Report, BOR stated that it
had completed its portion of Bonneville, including the
infrastructure for the municipal and industrial water and
agricultural irrigation systems and recreational facilities,
at a cost of $1.3 billion.  CUWCD is continuing
construction of Bonneville features for which it is
responsible, including the distribution infrastructure for
the agricultural irrigation system.

As of August 1998, BOR's calculation of the $1.4 billion
construction cost ceiling for Bonneville consisted of
expenditures of about $1.3 billion and a remaining
available ceiling of about $103.5 million.  In 1999, at the
request of the Program Director of the CUPCA Office, we
reviewed BOR's computation of Bonneville's authorized
cost ceiling.  The scope of our review is detailed in
Appendix 1, and related reports are summarized in
Appendix 2. 

We concluded that BOR's calculation of a $1.4 billion
cost ceiling, consisting of expenditures of about
$1.3 billion and a remaining available ceiling of about
$103.5 million, was unreliable and should not be used as
the basis for requesting additional Congressional
appropriations for the following three reasons:  (1) BOR
records were insufficient to support historical amounts
included in and adjustments made to cost ceiling
computations over the years; (2) BOR continued to index
unbuilt power and irrigation features that it was no longer
authorized to construct after 1992, which incorrectly
increased Bonneville's cost ceiling and the amount
available for appropriation by about $63 million; and
(3) BOR did not record expenditures of $14.6 million
against Bonneville's cost ceiling, thereby overstating the
available ceiling.    

The insufficiency of records was a major problem in
evaluating BOR's cost ceiling calculations.  We found
that BOR's Upper Colorado Region, which calculates
Bonneville's cost ceiling, did not have sufficient records
to fully support historical amounts included in and
adjustments made to the cost ceiling computations for
Bonneville.  Records were no longer available to support
the following:

               ï¿½    Expenditures classified as noncontract costs from 1966
          through 1997.  Regional personnel told us that they had
          distributed these costs to numerous plant accounts and
          could no longer identify a particular transaction or
          provide the original supporting documentation.  These
          costs totaled $280 million or about 21 percent of total
          Bonneville expenditures.  This matter alone sufficiently
          restricted our testing so as to preclude us from attesting
          to the reliability of the cost ceiling.

               ï¿½    Expenditures from 1966 through 1974. 

               ï¿½    Regional cost ceiling calculations from 1972 through
          1982.

               ï¿½    The majority of adjustments made by BOR since 1996,
          which resulted in $103.5 million of reported available
          cost ceiling. 

               ï¿½    The base date used by BOR to index the $45.5 million
          cost ceiling increase authorized by Congress in 1988.   

               ï¿½    The base amounts used for indexing the $355.9 million
          increase to Bonneville's cost ceiling authorized by
          Congress in 1972.  Of this amount, Regional personnel
          allocated $275 million to 11 individual plant accounts2
          and $80.9 million to noncontract costs.  Personnel,
          however, could not provide documentation to support
          the base amounts, and as such we had no assurance that 
          the proper base amounts were used when costs for the
          individual plant accounts were indexed.   
                              (See Glossary for definition of noncontract costs and
               base date and base amount.)

The response did not comment on this issue.  
     
BOR continued to index the unbuilt commercial power and
agricultural irrigation features that BOR was not authorized to
construct.  In 1992, Congress precluded BOR from
constructing any feature that was not included in the 1988
Definite Plan Report (see Glossary) for Bonneville.  Because
commercial power was not included in the 1988 Report,
Congress, in effect, eliminated that feature.  At the same time,
Congress transferred the responsibility for constructing the
remaining irrigation facilities from BOR to CUWCD.  

BOR, however, continued to include Bonneville's unbuilt
commercial power and agricultural irrigation features in its
cost ceiling calculations and to index the amounts for inflation. 
These actions had the effect of increasing Bonneville's cost
ceiling by about $63 million.  At the end of fiscal year 1999,
the unexpended ceiling in the commercial powerplant accounts
(powerplants and electrical switch yards and substations) had
increased $27.7 million (from $135,937,000 as of October
1990 to $163,652,000), and the unexpended ceiling in the
irrigation plant accounts (canals, laterals and drains, and
pumping plants) had increased $35.2 million (from
$154,802,000 as of October 1990 to $190,005,000). 

During our review, Regional officials said they believed that
using prior cost ceiling authorizations was appropriate even
though individual project features, such as commercial power
or agricultural irrigation for which there was remaining
available ceiling, had been discontinued by subsequent
legislation.  Regional officials also said that it was BOR's
policy to continue to index plant accounts until the project
features were formally deauthorized by Congress. 

A February 1976 report of the House of Representatives
Committee on Government Operations, however, was critical
of BOR's practice of continuing to index discontinued project
features and related plant accounts for inflation (Report No.
98-852, "Bureau of Reclamation's Indexing Procedures
Conceal Information That Water Resource Projects Are In
Excess of Their Authorized Cost Ceilings").  The Committee
recommended that indexing be stopped when the original
estimate for an item (plant account) as indexed was exceeded
by the expenditures or when the work on that item was
completed.  The Committee report stated that the
recommended change was necessary "to help prevent the
indexing process from increasing the authorized cost ceiling
for factors not directly related to inflation."  The Committee's
recommendation was incorporated into BOR regulations,
which state: "If the current plan and federal obligations do not
include a portion of the authorized project intent, that portion
must also be eliminated from the appropriation ceiling."

The response did not address this issue.

BOR did not record expenditures of $14.6 million against the
$214.4 million increase to Bonneville's cost ceiling authorized
by Congress in 1992.  Although BOR and the CUPCA Office
coordinated the administration of approximately $28.9 million
of fish and wildlife mitigation funds since 1994, BOR did not
ensure that mitigation expenditures of $14.6 million were
included in the annual ceiling computations.  Consequently,
BOR's reported ceiling available for appropriation was
overstated by at least an additional $14.6 million.

The comments agreed with our report finding that
$14.6 million received by the CUPCA Office had not been
applied to Bonneville's cost ceiling.  The Program Director
and BOR's Commissioner stated that the actual appropriation
amounts have now been accounted for by both the CUPCA
Office and BOR and have been included in current cost ceiling
computations.  

The actions taken are sufficient to resolve this matter.

We also noted that similar concerns about the reliability of
BOR's cost ceiling calculations had been stated in independent
GAO and Congressional reports over the last 25 years (see
Appendix 3).  In 1975, a GAO report questioned the reliability
of BOR's cost ceiling calculations.  The February 1976
Congressional committee report cited BOR's procedures as
overstating project cost ceilings.  Again in 1988 and 1992,
Congressional committee reports cited the difficulty in
obtaining reliable information on Bonneville's costs and
construction cost ceiling from BOR.  Internal BOR reviews of
Bonneville's cost ceiling in 1994 and 1996 have also resulted
in major adjustments to the ceiling that had the overall effect
of significantly increasing the amount available for
appropriation.  For example, in 1994, BOR identified a
shortfall of between $2 million to $19 million.  After making
significant adjustments, however, BOR reported an available
cost ceiling of $103.5 million in 1998.



During our review, we identified two other issues related to
adjustments to BOR's cost ceiling for Bonneville that deserve
mention (see Appendix 4).  

               ï¿½    BOR increased Bonneville's cost ceiling by
          $62.4 million for general legislation costs (see Glossary)
          for road construction.  While it is clear that BOR had the
          authority to expend funds for these roads, our research
          did not identify any authority for BOR to increase the
          authorized cost ceiling for this purpose.  

               ï¿½    BOR increased Bonneville's cost ceiling by
          $67.6 million within the authority of Public Laws 100-
          563 and 102-575.  We noted, however, that the increases
          were inconsistent with information that BOR provided to
          the Congress in support of the legislation.  

The Acting Assistant Secretary's response to these issues and
our reply are discussed in Appendix 4.

We recommend that the Program Director of the CUPCA
Office not rely on BOR's cost ceiling calculation for the
Bonneville Unit and discontinue using the ceiling amount as a
basis for requesting additional appropriations.  If the cost
ceiling calculation is used as a basis for requesting additional
appropriations, the Program Director should inform Congress
as to the unreliability of the ceiling amount.

The Acting Assistant Secretary's response disagreed with the
recommendation and stated that it was appropriate for the
Department and the CUPCA Office to use BOR's cost ceiling
calculation as a basis for requesting additional appropriations. 
The response further stated that the CUPCA Program Director
would inform Congress of the "audit report's findings," along
with the underlying disagreements of the CUPCA Office and
BOR, and of Bonneville's construction cost ceiling analysis. 

We continue to differ with the Assistant Secretary on the
reliability of the cost ceiling and on the issues raised by our
review.  Further, we believe that Congress should be informed
and make the final determination on whether the current cost
ceiling should be used as a basis for additional appropriation. 
Therefore, we will refer the recommendation to the Assistant
Secretary for Policy, Management and Budget for tracking as
unresolved until Congressional action is taken on this issue 
(Appendix 8).