[Audit Report on Determination of the Reimbursability of Environmental Activities Costs Associated With Glen Canyon Dam  by the Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-258

Title: Audit Report on Determination of the Reimbursability of Environmental
       Activities Costs Associated With Glen Canyon Dam  by the
       Bureau of Reclamation

     Date: February 17, 1998




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     U.S. Department of the Interior
     Office of Inspector General




     AUDIT REPORT


     DETERMINATION OF THE REIMBURSABILITY OF ENVIRONMENTAL ACTIVITIES COSTS
     ASSOCIATED WITH GLEN CANYON DAM BY THE BUREAU OF RECLAMATION


     REPORT NO. 98-I-258
     FEBRUARY 1998  MEMORANDUM
  
     TO:               The Secretary
  
     FROM:             Robert J. Williams
                       Acting Inspector General
  
     SUBJECT SUMMARY:  Final Audit Report for Your Information -
                       "Determination of the Reimbursability of Environmental
                       Activities Costs Associated With Glen Canyon Dam by the
                       Bureau of Reclamation"(No. 98-I-258)
                  

                  
  
  
     Attached for your information is a copy of the subject audit report.
     The objective of the audit was to determine whether the Bureau of
     Reclamation implemented Section 1807 of Title 18 of the Reclamation
     Projects Authorization and Adjustment Act of 1992 (Public Law 102-
     575). Section 1807 required the Bureau to determine the
     reimbursability of the costs associated with the preparation of Glen
     Canyon Dam's environmental impact statement (including supporting
     studies) and with the long-term monitoring program and activities for
     fiscal years 1993 through 1997 and to forward this determination to
     the Secretary of the Interior for reporting to the Congress.
  
     We found that, except for a net decrease of $306,526 in reimbursable
     costs, the Bureau, in general, determined the reimbursable
     environmental activities and long-term monitoring costs for Glen
     Canyon Dam for fiscal years 1993, 1994, and 1995 and reported these
     amounts to the Congress in June 1997. The Bureau, however, did not
     submit its determinations on time (January 31 of each fiscal year)
     and had not completed its report for fiscal year 1996. Specifically,
     the Bureau's determinations contained some minor omissions and
     estimates that should have been finalized. Accordingly, we
     recommended that the Bureau amend its determinations to reflect the
     omitted amounts identified by our audit for fiscal years 1993 through
     1995 and prepare determinations for fiscal years 1996 and 1997 and
     report the results to the Congress.
  
     The Bureau concurred with our recommendations, stating that it planned
     to complete all reporting to the Congress by May 1, 1998. Based on
     the response, we considered both recommendations resolved but not
     implemented.
  
     If you have any questions concerning this matter, please contact me at
     (202) 208-5745.
  
  



  
     Attachment                                                W-IN-BOR-008-96


     AUDIT REPORT
  
     Memorandum
  
     To:        Assistant Secretary for Water and Science
  
     From:      Robert J. Williams
                Acting Inspector General 
  
     Subject:   Audit Report on Determination of the Reimbursability of
                Environmental Activities Costs Associated With Glen Canyon Dam 
                by the Bureau of Reclamation (No. 98-I-258)
                


     INTRODUCTION

     report presents the results of our review of the Bureau of
     Reclamation's determination of the reimbursability of the
     environmental activities costs associated with Glen Canyon Dam. The
     initial objective of our review was to evaluate the Bureau's
     reallocation of costs required by Section 1804 of the Reclamation
     Projects Authorization and Adjustment Act of 1992 (Public Law 102
     -575). At the time of our initial review in May 1996, the Bureau
     stated that it had not performed the reallocation because the General
     Accounting Office had not issued its required audit report on the
     Bureau's final environmental impact statement on the operations of
     the Dam. As a result, we revised our objective to evaluate the
     Bureau's implementation of Section 1807 of the Act. Section 1807
     required the Bureau to determine the reimbursability of the costs
     associated with the preparation of the Dam's environmental impact
     statement (including supporting studies) and with the long-term
     monitoring programs and activities for fiscal years 1993 through 1997
     and to forward this determination to the Secretary of the Interior
     for reporting to the Congress.
  
     BACKGROUND
  
     Glen Canyon Dam, which is located on the Colorado River in
     northwestern Arizona, was authorized by the Colorado River Storage
     Project Act of 1956 (43 U.S.C. 620). The multipurpose dam,
     constructed by the Bureau and placed into operation in 1963, stores
     and releases water from Lake Powell, which has a storage capacity of
     over 24 million acre-feet of water. Lake Powell and the nearly 1
     million acres surrounding the Dam constitute Glen Canyon National
     Recreation Area. Below the Dam, the Colorado River flows through 15
     miles of Glen Canyon and through 278 miles of Grand Canyon National
     Park before emptying into Lake Mead in southern Nevada. Since its
     completion, the power plant at the Dam has been used primarily for
     generating hydroelectric power during high demand periods (peaking
     power). The Western Area Power Administration, U.S. Department of
     Energy, markets and transmits reliable, low-cost electric power from
     the Dam. The daily fluctuations in water releases associated with the
     generation of peaking power and the resultant detrimental effects on
     downstream cultural resources, vegetation, wildlife, and other river
     resources, have been the causes of major concerns among Federal,
     state, and tribal resource management agencies; fishing and rafting
     interests; and environmental groups. Since the Dam was completed
     before the National Environmental Policy Act was enacted, no
     environmental impact statements were prepared regarding the effects
     of constructing or operating the Dam.
  
     In 1982, the Bureau initiated a multiagency effort to study the
     environmental impacts of operating the Dam and to respond to concerns
     of the general public; environmental organizations; and Federal,
     state, and tribal agencies. Phase I of the Glen Canyon environmental
     studies was completed in January 1988 and consisted of 39 technical
     studies in areas such as biology, recreation, sedimentation, and
     hydrology. While these studies provided considerable information on
     the effects of floods, they provided only limited information on the
     effects of power plant operations. Therefore, in June 1988, the
     Department initiated Phase II, which consisted of gathering
     additional information on specific operations of the power plant.
     Phase II was initially scheduled to take 4 to 5 years to complete.
     However, after the Secretary, on July 27, 1989, stated that "[i]t is
     time to gather the facts about this issue, to give all interested
     parties a chance to explain their positions, and to do so in full
     view of the American people," he directed the Bureau to prepare an
     environmental impact statement on the Dam's operations, noting that
     this issue is "an opportunity to balance energy and environmental
     needs." Thus, the Bureau began to incorporate the results of its
     environmental studies into an environmental impact statement, which
     was completed in March 1995.
  
     In 1992, the Congress passed the Reclamation Projects Authorization
     and Adjustment Act, which consists of 40 separate titles covering a
     wide variety of Bureau projects and activities. Title 18 of the Act,
     "The Grand Canyon Protection Act," requires the Secretary to (1)
     operate the Dam to "protect, mitigate adverse impacts to, and improve
     the values for which Grand Canyon National Park and Glen Canyon
     National Recreation Area were established," being consistent with
     existing compacts and laws; (2) complete a final environmental impact
     statement on the Dam's operations; (3) adopt new criteria and
     operating plans for the Dam based on the recommendations made in the
     environmental impact statement; and (4) reallocate (in consultation
     with the Secretary of Energy) the costs of construction, operation,
     maintenance, replacement, and emergency expenditures for the Dam
     among the various project purposes. In addition, Section 1807 of
     Title 18 states that for fiscal years 1993 through 1997, the costs of
     preparing the environmental impact statement on the Dam's operations
     and conducting other monitoring activities will be reimbursable if
     the Secretary determines that enactment of the Act causes a reduction
     in "net offsetting receipts" generated by all provisions of the Act.
     Section 1807 also states that the Secretary is required to report to
     the Congress by January 31 of each fiscal year, beginning in 1994, a
     detailed accounting of expenditures under the Reclamation Projects
     Authorization and Adjustment Act, the offsetting receipts generated
     by the Act, and any increase or reduction in net offsetting receipts.
     In June 1997, the Bureau filed reports detailing the Bureau's
     analysis of expenditures and offsetting receipts for fiscal years
     1993, 1994, and 1995 with the appropriate Congressional committees.
  
     SCOPE OF AUDIT
  
     Our fieldwork was conducted at the Bureau's Upper Colorado Region in
     Salt Lake City, Utah, which has jurisdiction over Glen Canyon Dam. To
     meet our revised objective, we reviewed the Grand Canyon Protection
     Act and related legal documents and interviewed (1) various program
     and budget officials from the Bureau's headquarters office in
     Washington, D.C., and the regional office in Salt Lake City and (2)
     attorneys from the Office of the Solicitor's headquarters office in
     Washington, D.C., and its field office in Phoenix, Arizona. In
     conjunction with our fieldwork, we obtained a legal interpretation
     from the Office of Inspector General's General Counsel regarding the
     requirements of Section 1807 of the Act in determining reimbursable
     costs. After we received the General Counsel's legal interpretation
     of the Act, which was agreed to by the Acting Field Solicitor and was
     provided to and discussed with Upper Colorado Regional officials, the
     Bureau revised and filed its reports for fiscal years 1993 through
     1995. At the time of our review, the Bureau had not prepared its
     final determination of the reimbursability of environmental
     activities costs for fiscal year 1996.
  
     Our audit was made in accordance with the "Government Auditing
     Standards," issued by the Comptroller General of the United States.
     Accordingly, we included such tests of records and other auditing
     procedures that were considered necessary to accomplish our
     objective. We also reviewed the Department of the Interior's Annual
     Statement and Report, which is required by the Federal Managers'
     Financial Integrity Act, for fiscal years 1993 through 1995 and
     determined that the Department did not report any material weaknesses
     related to the objective and scope of our audit. In addition, we
     evaluated the Bureau's system of internal controls related to
     implementing Title 18. While the Bureau had determined the
     reimbursability of the environmental activities costs associated with
     Glen Canyon Dam for fiscal years 1993 through 1995, it had not
     delivered the required annual reports to the appropriate
     Congressional committees on time. Further, we identified omissions
     regarding the amounts that the Bureau should have included in
     offsetting receipts and in environmental activities costs. We also
     found that some of the amounts provided to the Bureau by the Western
     Area Power Administration were estimates instead of actual amounts.
     The impact of these omissions and estimates on the annual reports is
     discussed in the Results of Audit section of this report. The
     recommendations made, if implemented, should address our concerns in
     these areas.
  
     PRIOR AUDIT COVERAGE
  
     During the past 5 years, neither the Office of Inspector General nor
     the General Accounting Office has issued any reports on the Bureau's
     determination of the reimbursability of Glen Canyon Dam environmental
     activities costs.
  
     RESULTS OF AUDIT
  
     We found that, except for a net decrease of $306,526 in reimbursable
     costs, the Bureau of Reclamation, in general, determined the
     reimbursable environmental activities costs for Glen Canyon Dam for
     fiscal years 1993, 1994, and 1995 and reported these amounts to the
     Congress in June 1997. However, the Bureau did not report the amounts
     on time (January 31 of each fiscal year) and had not completed its
     report for fiscal year 1996. Specifically, we found that there were
     some omissions in the Bureau's determinations and that some of the
     costs associated with purchasing power for fiscal years 1994 and
     1995, which were provided by the Western Area Power Administration,
     were only estimates instead of actual costs. These estimates, when
     finalized, could affect the amount of reimbursable costs in the
     fiscal years involved because of the high cost of purchasing "peak"
     power.
  
     The Bureau's reports to the Congress for fiscal years 1993, 1994, and
     1995, as required by Section 1807 of Title 18 of the Act, identified
     the offsetting receipts, the costs of the Dam's environmental
     activities, and the resultant amount of reimbursable and/or
     nonreimbursable environmental activities costs as follows:
  
  
  
  Environmental Activities Costs
  
  
  Fiscal
  Year
  
  Offsetting
   Receipts
  
  Environmental
  Activities Costs
  
  Amount
  Reimbursable*
  
  Amount Not
  Reimbursable
  
  
                            1993
                              
                         $8,771,053
                              
                        $16,088,154
                              
                         $7,317,101
                              
                         $8,771,053
                              
                              
                            1994
                              
                        $36,573,358
                              
                        $21,017,472
                              
                             0
                              
                        $21,017,472
                              
                              
                            1995
                              
                         $3,826,193
                              
                        $14,076,194
                              
                        $10,250,001
                              
                         $3,826,193






    *Environmental activities costs are considered reimbursable to the extent
     that the costs exceed offsetting receipts on a fiscal year basis.  Our
     review confirmed that these amounts were identified and applied in
     accordance with the provisions of the Act and the legal advice
     provided by our Office of General Counsel except for adjustments to
     offsetting receipts and environmental activities costs, which we
     identified, that were not properly included in the Bureau's
     determination and its reports to the Congress for fiscal years 1993,
     1994, and 1995 as follows:              - Fiscal Year 1993. Title 9,
     Section 903 (a), of the Act provided that the Secretary "is
     authorized to enter into a contract with the State of Kansas,
     accepting a payment of $365,424 . . . as full satisfaction of
     reimbursable costs associated with irrigation of the Cedar Bluff
     Unit, including the Cedar Bluff Irrigation District's obligations."
     During fiscal year 1993, the Bureau received the $365,424 payment in
     accordance with this provision. Accordingly, this amount should have
     been included as an offsetting receipt in the Bureau's fiscal year
     1993 determination. In addition, our review identified a prior year
     adjustment that reduced the Bureau's Glen Canyon Dam helicopter costs
     in the amount of $41,748 which was not included in the Bureau's
     determination. Accordingly, the environmental activities costs should
     have been reduced by $41,748 for fiscal year 1993. As a result of
     these omissions, the reimbursable amounts reported to the Congress
     for fiscal year 1993 should be reduced by    $407,172 ($365,424 plus
     $41,748).              - Fiscal Year 1994. Title 23, Section 2302(a),
     of the Act provided that the Secretary "is authorized and directed to
     . . . [a]ccept a one-time payment of $450,000" from the Conejos Water
     Conservancy District in full satisfaction of its repayment
     obligation. During fiscal year 1994, the Bureau received the $450,000
     payment in accordance with this provision. Accordingly, this amount
     less the $25,143 usually received annually under the repayment
     contract should have been included as an offsetting receipt in the
     Bureau's fiscal year 1994 determination. Furthermore, Title 29,
     Section 2901(a), provided that the Secretary "shall credit to the
     unpaid capital obligation of the San Juan Suburban Water District . .
     . an amount equal to the documented price paid by the District for
     pumps and motors provided by the District to the Bureau of
     Reclamation, in 1991 and 1992, for installation at Folsom Dam." The
     Bureau's $20,998 reduction to the District's water service charges in
     fiscal year 1994 as a partial reimbursement for the pumps and motors
     should have been included as a reduction to offsetting receipts in
     the Bureau's fiscal year 1994 determination. Therefore, an additional
     $403,859 ($450,000 less [$25,143 plus $20,998]) should have been
     included as offsetting receipts for fiscal year 1994. However, since
     other offsetting receipts already exceeded the environmental
     activities costs, these omissions did not change the reimbursable
     amounts for        fiscal year 1994.             - Fiscal Year 1995.
     For fiscal year 1995, we identified additional reductions to
     offsetting receipts associated with implementing Titles 23 and 29 of
     the Act. Under Title 23, Section 2302(a), the one-time payment of
     $450,000 from the Conejos Water Conservancy District in fiscal year
     1994 for full satisfaction of its repayment obligation had the effect
     of reducing offsetting receipts in subsequent years by $25,143, the
     annual amount that would have been received under the District's
     repayment contract. In addition, under Title 29, Section 2901(a), the
     San Juan Suburban Water District's unpaid capital obligation should
     be credited for the documented price paid by the District for pumps
     and motors provided to the Bureau. Accordingly, the Bureau's $44,655
     reduction to the District's water service charges in fiscal year 1995
     as partial reimbursement for the pumps and motors should have been
     included as a reduction to offsetting receipts in the Bureau's fiscal
     year 1995 determination. Further, our review identified a prior year
     adjustment that increased Glen Canyon Dam helicopter costs in the
     amount of $30,848, which was not included in the Bureau's
     determination. Accordingly, the environmental activities costs should
     have been increased by $30,848 for fiscal year 1995. As a result of
     these omissions, the reimbursable amounts reported to the Congress
     for fiscal year 1995 should be increased by $100,646 ($25,143 plus
     $44,655 plus          $30,848).              The Western Area Power
     Administration, on March 7, 1997, provided the Bureau with the
     Administration's environmental activities costs associated with Glen
     Canyon Dam for fiscal years 1983 through 1996. The costs included
     purchased power costs of $5,211,587, $5,193,935, and $3,931,440 for
     fiscal years 1993, 1994, and 1995, respectively, and miscellaneous
     costs applicable to the preparation of the environmental impact
     statement on the Dam's operations. The Bureau incorporated this cost
     information into its reports to the Congress for fiscal years 1993,
     1994, and 1995. Although actual purchased power costs were reported
     for fiscal year 1993, we found that the purchased power costs
     reported for fiscal years 1994 and 1995 were only estimates. Power
     Administration officials told us that they were in the process of
     determining the actual purchased power costs because of changes in
     the operation of the Dam for fiscal years 1994 through 1996. We
     believe that, when the actual purchased power costs for fiscal years
     1994 and 1995 are determined, the Bureau should adjust the reports to
     the Congress for these years if the actual costs affect the
     reimbursability of environmental activities costs.            
     Recommendations             We recommend that the Commissioner,
     Bureau of Reclamation:             1.  Amend the Bureau's
     determination of reimbursability or nonreimbursability of Glen Canyon
     Dam environmental activities costs in the reports to the Congress to
     reflect the additional amounts identified by our audit for fiscal
     years 1993 through 1995 and the actual Western Area Power
     Administration costs for fiscal years 1994 and 1995.              2.
     Prepare and report to the Congress the Bureau's determination of the
     reimbursability of Glen Canyon Dam environmental activities costs for
     fiscal years 1996 and 1997, which is required by Section 1807, Title
     18, of the Reclamation Projects Authorization and Adjustment Act o 
     f 1992.             Bureau of Reclamation Response and Office of
     Inspector General Reply             In the February 3, 1998, response
     (Appendix 1) to the draft report from the Commissioner, Bureau of
     Reclamation, the Bureau concurred with the two recommendations and
     identified the actions that it is taking to implement each
     recommendation. Based on the response we consider both
     recommendations resolved but not implemented. Accordingly, the
     recommendations will be referred to the Assistant Secretary for
     Policy, Management and Budget for tracking of implementation, and no
     further response to the Office of Inspector   General is required
     (see Appendix 2).             The legislation, as amended, creating
     the Office of Inspector General requires semiannual reporting to the
     Congress on all audit reports issued, the monetary impact of audit
     findings, actions taken to implement audit recommendations, and
     identification of each significant recommendation on which corrective
     action has not been taken.             We appreciate the assistance
     of personnel from the Bureau of Reclamation during the conduct
     of our audit.                                         Action
     Required
  
  
  
                                                                                APPENDIX 2
  
  
  
STATUS OF AUDIT REPORT RECOMMENDATIONS
  
  
  
                          Finding/
                       Recommendation
                         Reference
                              
                              
                           1 and 2                               
                              
                           Status
                              
  
  Resolved; not
  implemented   
  

  
  
  
       
  
     No further response to the Office of Inspector General is required.
     The recommendations will be referred to the Assistant Secretary for
     Policy, Management and Budget for tracking of implementation.