Summary: The Bonneville Power Administration (BPA) provides about 45 percent of all electric power consumed in the Pacific Northwest--Idaho, Montana, Oregon, and Washington. The power that BPA markets and distributes is generated in large part at hydroelectric projects including dams in the Federal Columbia River Power System. BPA also owns and operates about 75 percent of the region's services. Under the Pacific Northwest Electric Power Planning and Conservation Act of 1980, BPA is responsible for ensuring an adequate, efficient, economical, and reliable power supply for the Pacific Northwest. To do so, BPA balances the needs of its customers against the highly variable water resources available for generating electricity. In maintaining this balance, BPA sometimes buys and sells or otherwise exchanges power with utilities with entities within and outside the Pacific Northwest. In addition to providing power, BPA is required under the 1980 act, various other laws, treaties and court cases, to "protect, mitigate, and enhance" fish and wildlife resources. Recently, BPA has witnessed a substantial deterioration in its financial condition. For example, BPA's cash reserves of $811 million at the end of fiscal year 2000 had fallen $188 million by the end of fiscal year 2002. To cope with its financial difficulties BPA has increased the rates that it charges its customers for power by over 40 percent since 2001. In 2002, BPA asked Congress to increase its ceiling on Treasury debt by about $1.4 billion to fund capital spending and, in 2003, Congress approved a smaller increase of $700 million dollars. In addition, in February 2003, BPA announced that it estimated a 74 percent chance that it would miss a Treasury payment this year. In light of BPA's deteriorating financial condition, request for increased borrowing authority, and increased risk of missing a Treasury payment, Congressional requesters asked GAO to (1) identify cost advantages, disadvantages, and challenges BPA may face in providing power and meeting its debt and other obligations; (2) identify the causes of BPA's recent financial difficulties; (3) determine how BPA plans to use its additional borrowing authority; and (4) evaluate how the risk of default to Treasury has changed over the past 5 years.
BPA has some inherent advantages that have generally enabled it to provide low-cost power to its customers in the Pacific Northwest. However, BPA also faces some inherent challenges related to meeting its obligations to provide economical power while protecting fish and wildlife. These challenges are made greater by the changing demands on its power and its fish and wildlife. These challenges are made greater by the changing demands on its power and its fish and wildlife protection resources. BPA's current financial difficulties are largely the result of decisions that caused rising costs and lower than projected revenues. BPA signed long-term contracts to buy power to serve demand that exceeds the supply capacity of the federal power system. The prices BPA agreed to in these contracts turned out to be significantly higher than recent market prices and were higher than the rates BPA initially set for selling its own power. BPA also projected revenues from its own sale of surplus power that did not materialize when market prices turned out to be lower than BPA had projected. BPA plans to use its expanded borrowing authority to upgrade and improve the transmission system and dams in the federal power system. These capital expenditures are expected to increase the reliability and efficiency of the system and may also increase generating capacity to some degree. BPA staff told us that these capital expenditures are, for the most part, not expected to solve BPA's current financial problems. We found that BPA's longer-term risk of default is greater than in recent years because of BPA's higher costs and because of uncertainty surrounding both its role as electricity provider and its obligations to protect fish and wildlife. While BPA has taken steps to improve its financial condition and deal with its long-term challenges, in the past such efforts have not entirely succeeded.
