oversight

Bonneville Power Administration: Obligations to Fish and Wildlife in the Pacific Northwest

Published by the Government Accountability Office on 2003-06-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Committee on Indian Affairs,
                          U.S. Senate


For Release on Delivery
Expected at
2:00 pm
June 4, 2003
                          BONNEVILLE POWER
                          ADMINISTRATION
                          Obligations to Fish and
                          Wildlife in the Pacific
                          Northwest
                          Statement of Jim Wells, Director, Natural Resources and Environment
                          Team




GAO-03-844T
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                                                June 4, 2003


                                                BONNEVILLE POWER ADMINISTRATION

                                                Obligations to Fish and Wildlife in the
Highlights of GAO-03-844T, a report to the      Pacific Northwest
Senate Committee on Indian Affairs




The Bonneville Power
                                                In accordance with the Pacific Northwest Electric Power Planning and
Administration produces a large
portion of the Pacific Northwest’s              Conservation Act of 1980, Bonneville must ensure an adequate, efficient,
electric power, largely from                    economical, and reliable power supply for the Pacific Northwest while also
hydroelectric projects in the                   protecting, mitigating and enhancing fish and wildlife. Under other laws and
Federal Columbia River Power                    presidential directives, Bonneville is also required to consult with Indian
System. Bonneville also has                     tribes and fulfill trust responsibilities for fish and wildlife. Finally,
obligations to protect, mitigate, and           Bonneville must comply with the Endangered Species Act as it pertains to
enhance fish and wildlife                       fish and wildlife that have been listed as either endangered or threatened.
populations affected by these
hydroelectric projects. In the past             Between fiscal years 1997 and 2001, Bonneville spent over $1.1 billion to
several years, Bonneville has                   support fish and wildlife programs, primarily salmon and steelhead. These
experienced financial difficulties,
                                                expenditures funded fish and wildlife projects undertaken by Bonneville,
in part because of rising costs of
providing power, lower-than-                    other federal agencies, Indian tribes, private and state entities. Bonneville
projected revenue from selling                  has also funded related operations, maintenance, and capital costs for the
surplus power, and drought                      Army Corps of Engineers, the Bureau of Reclamation, and the Fish and
conditions. Bonneville’s financial              Wildlife Service. Additionally, Bonneville estimates that spilling water from
situation may adversely affect fish             dams to enhance fish survival has resulted in over $2.2 billion in foregone
and wildlife. Stakeholders have                 revenue or increased power purchases.
expressed concern that Bonneville
has effectively reduced spending                Bonneville is currently in a financial crisis. Cash reserves have fallen and
on fish and wildlife programs.                  Bonneville estimates an increased risk that it will miss future Treasury debt
                                                payments. To avoid defaulting on Treasury debt and to cover its costs,
This testimony addresses (1)
                                                Bonneville has increased its power rates by more than 40 percent since fiscal
Bonneville’s statutory and other
obligations to support fish and                 year 2001, and is considering further increases.
wildlife programs, (2) Bonneville’s
historical spending and other                   Recent Bonneville actions appear to have caused financial difficulties for
efforts in support of fish and                  some fish and wildlife programs. Representatives of the Northwest Power
wildlife, (3) Bonneville’s current              Planning Council and some Indian tribes have pointed out that a change in
financial condition, (4) Bonneville’s           Bonneville’s budgeting approach resulted in the loss of around $40 million in
recent actions that affect fish and             fish and wildlife funding for fiscal year 2003. Bonneville described the
wildlife programs, and (5)                      change as necessary to improve management controls over fish and wildlife
challenges Bonneville faces in                  program funding. Bonneville has also placed on hold plans to acquire land
supplying electricity to the region             to be used as habitat for fish and wildlife.
while simultaneously protecting,
mitigating and enhancing fish and
wildlife.                                       Bonneville’s two roles, as supplier of economical and reliable power and as
                                                protector of fish and wildlife, inherently conflict. Bonneville spills water to
                                                benefit fish and directly funds fish and wildlife projects. These actions
                                                reduce power revenue and increase costs. On the other hand, demands on
                                                Bonneville to supply greater amounts of power put pressure on fish and
                                                wildlife, through more intensive use of generating facilities at the expense of
                                                spilling water, and reduced revenues available for funding fish and wildlife
www.gao.gov/cgi-bin/getrpt?GAO-03-844T.         programs as has occurred during the current crisis. Given Bonneville’s dual
                                                roles, conflicts are inevitable and will likely become more intense if growing
To view the full product, including the scope   power demands bump up against increased efforts to mitigate damage to fish
and methodology, click on the link above.
For more information, contact Jim Wells at      and wildlife.
(202) 512-3841 or wellsj@gao.gov.
Mr. Chairman and Members of the Committee:


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


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


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



                                                                                            1
mitigating, and enhancing fish and wildlife. To meet these objectives, we relied on
                                                                                           1
information in our previous report on salmon and steelhead recovery efforts ,
interviewed officials at Bonneville, and interviewed stakeholders in Bonneville's fish and
wildlife programs, including the Northwest Electric Power and Conservation Planning
Council (Power Planning Council)2 and the Columbia River Intertribal Fish Commission.3
At the request of Chairman Hobson and Ranking Member Visclosky of House
Appropriations, Subcommittee on Energy and Water Development, we are also currently
in the process of reviewing Bonneville's financial situation. This statement includes the
preliminary findings of this effort as well.


In summary, we found that:


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

1
 U.S. General Accounting Office, Columbia Basin Salmon And Steelhead: Federal Agencies’ Recovery
Responsibilities, Expenditures and Actions, GAO-02-612 (Washington, D.C.: July 2002).
2
 The Power Planning Council was authorized by the Pacific Northwest Electric Power Planning and
Conservation Power Act of 1980 (Northwest Power Act). It consists of representatives of the states of
Idaho, Montana, Oregon, and Washington and is funded by Bonneville. The Northwest Power Act directs
the Power Planning Council to develop 1) a plan to guarantee adequate and reliable energy for the Pacific
Northwest and 2) a program to protect and rebuild populations affected by hydropower development in
the Columbia River Basin.
3
 The Columbia River Intertribal Fish Commission is the coordinating agency for fishery management
policies of the four Columbia River treaty tribes, (the Confederated Tribes of the Warm Springs
Reservation of Oregon, the Confederated Tribes and Bands of the Yakama Indian Nation, the Confederated
Tribes of the Umatilla Indian Reservation, and the Nez Perce Tribe).


                                                                                                            2
    Fisheries Service) and the Fish and Wildlife Service or as mitigation measures
    recommended in the Columbia River Fish and Wildlife Program adopted by the
    Power Planning Council. In addition, a number of fish populations in the region have
    been listed as either threatened or endangered under the Endangered Species Act.
    With these listings, Bonneville and other federal agencies became responsible for
    ensuring that operation of the Federal Columbia River Power System does not
    jeopardize the continued existence of these populations.


•   From fiscal years 1997 through 2001, Bonneville spent over $1.1 billion in support of
    fish and wildlife programs—primarily to benefit salmon and steelhead. Some of these
    expenditures have funded fish and wildlife efforts, including those undertaken by
    Bonneville, other federal agencies, Indian tribes, and the four northwest states
    (Idaho, Montana, Oregon, and Washington). Bonneville has also funded operations
    and maintenance and capital costs for the Army Corps of Engineers, Bureau of
    Reclamation, and the Fish and Wildlife Service for projects such as fish bypass
    facilities at dams and fish hatcheries. In addition, Bonneville estimates that from
    fiscal years 1997 through 2001, spilling water from dams and augmenting flows to
    enhance fish survival resulted in over $2.2 billion in forgone revenues or increased
    power purchases.


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




                                                                                              3
•   Some recent management actions by Bonneville appear to have adversely affected
    fish and wildlife programs enhancement efforts. Specifically, Power Planning
    Council staff and representatives of some Indian tribes have pointed out that a
    change in Bonneville’s approach to budgeting for fish and wildlife expenditures,
    adopted in October 2002, caused the loss of around $40 million in planned fish and
    wildlife funding for 2003. Stakeholders have also observed that the budgeting change
    was not well understood by program managers and that funding was lost when
    expenditures incurred in fiscal year 2002 were counted by Bonneville against fiscal
    year 2003 fund levels. Bonneville staff described the change as necessary to improve
    management controls over the funding of fish and wildlife programs but
    acknowledged that the change in budgeting was abrupt and not well understood by
    many of those affected by the change. Bonneville has also placed on hold its plans to
    acquire land to be used as habitat for fish and wildlife and is working with the Power
    Planning Council and constituents on how to prioritize purchases in the future.


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

BACKGROUND


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


                                                                                              4
Idaho, and Montana and into Canada. The basin contains over 250 reservoirs and about
150 hydroelectric projects, including dams on the Columbia River and its primary
tributary, the Snake River. The Columbia River Basin also provides habitat for many
species of fish and wildlife, including a number of threatened and endangered species.


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


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


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




                                                                                             5
BONNEVILLE HAS NUMEROUS FISH AND WILDLIFE RESPONSIBILITIES


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


Table 1: Legislation Defining Bonneville’s Responsibilities for Fish and Wildlife
    Bonneville Project Act        Creates the Bonneville Power Administration and authorizes it to market power
          (1937)                  produced by the Bonneville Project and to construct transmission lines to
                                  transmit electric energy. Requires Bonneville to set its rates to recover the cost
                                  of producing and transmitting electric energy from the Federal Columbia River
                                  Power System, including the amortization of the capital investment. These rates
                                  must be based on the cost allocations among the project’s purposes that
                                  Congress authorized—typically power, navigation, flood control, and irrigation.
    Endangered Species Act        Directs the National Marine Fisheries Service and the United States Fish and
            (1973)                Wildlife Service to return endangered and threatened species to the point where
                                  they no longer need special protection measures by protecting threatened or
                                  endangered species and the ecosystems upon which they depend.
    Transmission System Act       Designates Bonneville as the marketing agent of all electric power generated by
           (1974)                 federal plants constructed by the Army Corps of Engineers or the Bureau of
                                  Reclamation in the Pacific Northwest, except for power required for the operation
                                  of such projects and the power from Bureau of Reclamation’s Green Springs
                                  project. Authorizes Bonneville to operate and maintain the federal transmission
                                  system within the Pacific Northwest and to construct appropriate additions and
                                  improvements. Establishes the Bonneville Fund within the United States
                                  Treasury, a revolving fund that consists of all of Bonneville’s receipts and
                                  proceeds, and from which Bonneville’s administrator may make expenditures
                                  determined to be necessary or appropriate.
    Pacific Northwest Electric    Authorizes the formation of the Pacific Northwest Electric Power and
    Power Planning and            Conservation Planning Council (Council) and directs it to develop a program to
    Conservation Act              protect, mitigate, and enhance the fish and wildlife of the Columbia River Basin.
           (1980)                 Requires Bonneville’s administrator to use Bonneville’s funding authorities to
                                  protect, mitigate, and enhance fish and wildlife affected by the development and
                                  operation of the Federal Columbia River Power System and to do so in a manner
                                  consistent with the Council’s program while ensuring the Pacific Northwest an
                                  adequate, efficient, economical, and reliable power supply. Limits Bonneville’s



                                                                                                                  6
                                     share of mitigation costs to those necessary to deal with adverse effects caused
                                     by the development and operation of the dams’ electric power facilities only.
                                     Requires federal agencies responsible for managing, operating, or regulating
                                     hydroelectric facilities in the Columbia River Basin to provide equitable treatment
                                     for fish and wildlife with the other purposes for which these facilities are operated
                                     and managed. These agencies must, at every relevant stage of their decision-
                                     making process, also consider, to the fullest extent practicable, the Council’s fish
                                     and wildlife program.

Source: GAO review of legislation.




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


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



      Clean Water Act                Authorizes the Environmental Protection Agency (EPA) to establish water quality
           (1972)                    standards and to issue permits for the discharge of pollutants from a point source
                                     to navigable waters. Authorizes EPA to approve total maximum daily loads
                                     established by states and tribes. These standards are determined by the
                                     maximum amount of a pollutant that a water body can receive and still meet
                                     water quality standards for specified uses, including fish and wildlife.
      Columbia River Treaty          Defines the relationship between the United States and Canada concerning the
            (1961)                   operation of Columbia River dams and reservoirs.
      National Environmental         Procedural act requiring federal agencies to examine the impacts of proposed
      Policy Act                     federal actions that may significantly affect the environment.
             (1969)
      Magnuson-Stevens Fishery       Requires federal agencies, in consultation with the National Marine Fisheries
      Conservation and               Service (NMFS), to promote the protection of essential fish habitat. NMFS shall
      Management Act                 provide conservation recommendations for any federal or state activity that may
      (1976)                         adversely affect essential fish habitat.
      Pacific Salmon Treaty          Treaty signed by the United States and Canada in 1985 governing the harvest of
             (1985)                  certain salmon stocks in the fisheries of the Northwest states (including Alaska)



                                                                                                                        7
                                                        and Canada.
       U.S. v. Oregon, U.S. v.                          Court decisions affirming the right of certain Indian tribes to 50 percent of the
       Washington                                       harvestable surplus of salmon.
       (1969 and 1974)
       Treaties between individual                      Establish federal agency responsibilities for trust assets, hatchery and harvest
       Indian tribes and the United                     issues, and tribal water rights.
       States


Source: GAO review of legislation, treaties, and court cases.




BONNEVILLE’S SPENDING AND OTHER EFFORTS TO PROTECT FISH AND
WILDLIFE ARE CONSIDERABLE BUT EFFECTS ARE DIFFICULT TO ISOLATE


In total, Bonneville estimates it has spent over $1.1 billion (in 2001 dollars) from 1997-
2001 on fish and wildlife efforts. Of this total, Bonneville spent over $460 million on
direct programs and funding for fish and wildlife related activities of other agencies and
entities. The bulk of Bonneville’s expenditures for fish and wildlife are spent on the 12
populations of salmon and steelhead currently listed as endangered or threatened under
                           4
the Endangered Species Act. Bonneville’s direct spending on projects as well as their
funding of other agencies and entities in support of fish and wildlife programs for 1997-
2001 are shown in table 3 below.




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




                                                                                                                                            8
Table 3: Bonneville’s Expenditures and Funding Provided to Others (in thousands of 2001 dollars)


  Group                         1997              1998               1999         2000       2001 Total
  Bonneville                 $5,533             $4,913            $5,608         $4,507     $5,444    $26,005
  Federal
  Agencies                  $12,740             $9,082            $9,150         $9,675    $16,543    $57,247
  States                    $16,249           $22,137           $21,286         $17,873    $20,011   $103,361
  Tribes                    $22,054           $21,465           $17,438         $18,126    $22,344    $95,622
  Power
  Council                       $375              $686            $1,784          $686       $353      $3,883
  Others                    $23,554           $37,527           $38,165         $32,758    $44,855   $176,858
    Total                   $80,505           $95,810           $93,429         $83,625   $109,550   $462,976

Source: GAO presentation of data provided by Bonneville Power Administration.




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


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




                                                                                                                9
Table 4: Bonneville’s Estimated Power Purchases and Forgone Revenues (in millions of 2001 dollars)



  Cost Category                       1997        1998     1999     2000       2001 Total
  Purchase
  Power costs                             $0.0     $5.7    $49.7    $66.1   $1,389.0   $1,510.5
  Foregone
  Revenues                         $115.5        $123.3   $206.4   $197.1     $115.9     $758.2
   Total                           $115.5        $129.0   $256.1   $263.2   $1,504.9   $2,268.7

Source: Bonneville Power Administration




There are some indications that Bonneville’s actions in conjunction with other agencies’
have increased fish survival.

      •     Bonneville worked with the Army Corps of Engineers and Bureau of Reclamation
            to increase fish passage survival at dams, on average, by 5 percent or more at each
            dam.
      •     Predator control throughout the Federal Columbia River Power System and the
            estuary saved approximately 7 to 12 million juvenile salmon and steelhead per
            year, an approximate 5 to 10 percent increase in juvenile fish survival.
      •     In-river survival of juveniles through the Federal Columbia River Power System is
            now higher than ever measured.


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



                                                                                                     10
benefits may take several years to materialize. For example, during the declared power
emergency brought on by the drought of 2001, barges and trucks were used to transport
juvenile fish past the dams. However, it will be 2 to 5 years before these juveniles return
as adults and uncontrollable factors like ocean temperatures will also affect how many
will eventually make it back. In the end, it will be difficult to isolate the success of the
transportation program from the impacts of uncontrollable factors.


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


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


           1,400,000

           1,200,000

           1,000,000

              800,000                                                    Salmon
              600,000                                                    Steelhead

              400,000

              200,000

                         0
                        77

                        80

                        83

                        86

                        89

                        92

                        95

                        98

                        01
                     19

                     19

                     19

                     19

                     19

                     19

                     19

                     19

                     20




         Source: GAO analysis of data from the Fish Passage Center.




                                                                                               11
       Figure 2: Returning adult salmon and steelhead at Lower Granite Dam (1977-2001)



         300,000

         250,000

         200,000
                                                                      Salmon
         150,000
                                                                      Steelhead
         100,000

           50,000

                    0
                   77

                   80

                   83

                   86

                   89

                   92

                   95

                   98

                   01
                19

                19

                19

                19

                19

                19

                19

                19

                20

       Source: GAO analysis of data from the Fish Passage Center.



As figures 1 and 2 indicate, fish populations can vary widely from year to year. While
2001 was the best year since 1977 for salmon and steelhead overall, there is no clear
long-term trend over the entire period. Moreover, it is important to point out that while
overall salmon numbers may be improving, the situation for individual species remains
far less favorable. Further, all of the 12 populations of salmon and steelhead initially
listed as either threatened or endangered remain so despite the efforts and spending
described above.

BONNEVILLE IS FACING A FINANCIAL CRISIS


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



                                                                                              12
demand, Bonneville took a number of steps, including purchasing power in long-term
contracts at prices above current market prices and above the $22/MWh rates it initially
set for the fiscal year 2002-2006 rate period. In addition, Bonneville estimated that its
revenues will be about $1.4 billion less than were projected in 2001. A large part of the
decreased revenue estimates are the result of lower than projected market prices. These
lower than projected prices caused Bonneville to revise its expected surplus power
revenues downward by over $700 million. Drought conditions in 2001 and low water
conditions in 2002 also contributed to Bonneville’s reduction in estimated revenues. In
early 2003, Bonneville announced that it estimated a greater than 50 percent chance of
missing a payment on its outstanding debt to the Treasury this fiscal year.


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


RECENT ACTIONS BY BONNEVILLE MAY HAVE REDUCED TOTAL SPENDING ON
FISH AND WILDLIFE


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




                                                                                            13
Starting in fiscal year 2003, Bonneville eliminated the automatic carryover of funding for
fish and wildlife programs that had previously been provided under contract
management. Under the previous methods, if the funds were not spent in the year
approved, they were generally carried over and were available to be spent in the
following year. As a result, Bonneville officials stated that they did not have current and
reliable information on the cost of work performed each year. With the switch to the
new planning and budgeting system, Bonneville has requested that contractors inform
Bonneville by a certain date in the new fiscal year how much they are owed for work
actually performed in the last fiscal year. Bonneville uses the information to establish an
account that sets aside monies from that fiscal year to pay bills as they come in during
the next year. If contractors do not provide Bonneville with this information then bills
that come in for work done in the previous fiscal year must be paid for with monies from
the next fiscal year.


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


Stakeholders told us of several concerns they have about Bonneville’s funding of fish and
wildlife programs:
   •   According to Power Planning Council officials:
           •   Bonneville’s budgeting change caused a reduction in fish and wildlife
               funding. In a February 2003 letter to the Bonneville Administrator, Power
               Planning Council staff stated that over $40 million in fish and wildlife
               obligations that had been carried over from the 1997 - 2001 rate period
               were no longer available. The Power Planning Council says that its fish




                                                                                           14
           and wildlife program has had to absorb the $40 million in previous
           obligations in its 2003 budget.
       •   In December 2001, Bonneville told the Power Planning Council that it
           estimated an annual average of $150 million for the 2002 - 2006 rate period
           to fund the Power Planning Council’s fish and wildlife program and actions
           required by the biological opinion for the Federal Columbia River Power
           System. Bonneville reduced this figure to $139 million. Furthermore, in
           March 2003 Bonneville notified the Power Planning Council that this figure
           may be reduced further and asked the Power Planning Council if further
           reductions would be feasible.
       •   Although Bonneville had agreed to provide $36 million in capital funding to
           be used to purchase land or easements to protect fish and wildlife,
           Bonneville notified the Power Planning Council that all land or easement
           purchases had been placed on hold due to Bonneville’s financial condition.
           Bonneville further indicated that capitalizing land or easement purchases
           may not be appropriate, a contention the Power Planning Council disputes.
           While the Power Planning Council has agreed to Bonneville’s decision to
           place fiscal year 2003 land purchases on hold, it has also notified
           Bonneville that this issue must be resolved before the Power Planning
           Council can evaluate future program requirements.
•   According to representatives of the Columbia River Intertribal Fish Commission:
       •   Bonneville cancelled funding for the acquisition of approximately 2,500
           acres along Squaw Creek in Oregon. Habitat enhancement in the Squaw
           Creek area is administered by the Confederated Tribes of the Umatilla
           Indian Reservation.
       •   The Columbia Basin Fish and Wildlife Authority, is slated to lose half of its
           funding. The Columbia Basin Fish and Wildlife Authority coordinates the
           work of the 13 tribes and 7 fish and wildlife agencies in the Columbia River
           Basin, administers aspects of the provincial review process, coordinates
           project reviews and research, and acts as a funding vehicle for projects
           involving multiple agencies. This organization is important to the tribal



                                                                                       15
                  community because it assists tribes in coordinating with each other as well
                  as with outside fish and wildlife agencies.
   •   According to representatives of the Yakama tribe:
          •       The tribe lost between $6 and $8 million in fish and wildlife funding due
                  Bonneville’s change in the new planning and budgeting system.
          •       A deal the tribe had reached to get conservation easements, remove dams
                  impassable to fish, and upgrade irrigation systems to reopen several
                  steelhead spawning streams fell through when the funds allocated for these
                  projects became unavailable after the budgeting change.


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




                                                                                              16
    closely correlate with accrual accounting, and the agency’s planning
    method.
•   Due to difficult financial circumstances, Bonneville accelerated a change
    from an obligations to an accrual based planning and budgeting process
    for the fish and wildlife program. This approach to planning correlates
    more closely with the agency’s planning method and provides greater
    accuracy in fiscal year expenditure forecasts. In addition, Bonneville has
    initiated changes in contract management to provide Bonneville managers
    with accurate and current information to facilitate administration of
    Bonneville’s fish and wildlife program on an accrual basis.
•   In December 2002, as Bonneville’s financial concerns deepened, the
    Administrator asked the Power Planning Council to take appropriate
    steps to assure that spending for the fish and wildlife program did not
    exceed the budgeted level of $139 million in expense accruals for fiscal
    year 2003.
•   Bonneville acknowledges that these changes affected the planned
    expenditures for fiscal year 2003. However, the 2003 funding level of $139
    million is consistent with the funding commitment made in a December
    2001 letter to the Power Planning Council and is a 40 percent increase in
    program support from the previous rate period. In that letter, Bonneville
    supported a planning assumption of $150 million in expense for fish and
    wildlife; this was expected to result in an actual expense accrual of $139
    million.
•   While Bonneville has spent well over $100 million on wildlife habitat since
    1989, only one agreement has been capitalized. The Montana Trust
    resolved and indemnified Bonneville for all losses resulting from the
    construction of Libby and Hungry Horse dams and was funded with a one-
    time commitment of $12 million.
•   Bonneville instituted a temporary hold on land acquisitions until the
    Power Planning Council could make recommendations on how to
    prioritize 2003 expenditures. Upon review of the forecasted expenditures



                                                                               17
               for 2003, the Power Planning Council recommended the deferral of land
               acquisitions for the remainder of fiscal year 2003 to allow consideration
               of a change to Bonneville’s capitalization policy for fiscal year 2004. This
               allowed other projects to move forward within the $139 million budget.
               Bonneville is currently working with the Power Planning Council and
               constituents to develop a method for capitalizing land acquisitions that is
               consistent with GAAP accounting standards and Bonneville’s limited
               borrowing authority.



BONNEVILLE’S CHALLENGES STEM FROM ITS DUAL AND CONFLICTING ROLES
AND RESPONSIBILITIES


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


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



                                                                                             18
increased regulations put in place to protect the environment. Most recently, a ruling in
federal court has determined as inadequate the biological opinion developed by the
National Marine Fisheries Service (now NOAA Fisheries) to direct the protection of
endangered fish species in the Columbia River Basin. The judge has remanded the
biological opinion to NOAA Fisheries and suggested that greater certainty will be
required for specific mitigation measures before NOAA Fisheries can rely upon them for
protecting listed endangered species. The consequences of this ruling on river and dam
operations is uncertain as is any subsequent impact on the amount and timing of power
Bonneville has to sell and on fish and wildlife.


                                             -----


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


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


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




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