Northwest Power Planning Council Review of Bonneville’s fish and wildlife funding and cost management strategies Briefing to the Northwest Power Planning Council Fish and Wildlife Committee October 15, 2002

Northwest Power Planning Councilslide 2 Terms to understand Capital repayment Capital repayment “Expense” and “capital” “Expense” and “capital” “Obligations” vs. “accrual” “Obligations” vs. “accrual”

Northwest Power Planning Councilslide 3 Bonneville’s fish costs have four categories 1. “Integrated” program 2. Capital repayment 3. Direct funded O&M of federal programs 4. Hydrosystem operations for fish passage

Northwest Power Planning Councilslide 4 “Integrated” program The projects reviewed by the Council for implementation of the Program. Bonneville labels this category as “integrated” to demonstrate the category addresses the Council program and off-site mitigation requirements of the Biological Opinion. The projects reviewed by the Council for implementation of the Program. Bonneville labels this category as “integrated” to demonstrate the category addresses the Council program and off-site mitigation requirements of the Biological Opinion. This is the $186 million category This is the $186 million category

Northwest Power Planning Councilslide 5 Capital repayment Annual repayment of past capital investment at the dams and for large Program facilities Annual repayment of past capital investment at the dams and for large Program facilities Original funding sources are a mix of Congressional appropriations and Bonneville borrowing. Original funding sources are a mix of Congressional appropriations and Bonneville borrowing. Rate case forecast was an average of $142 million Rate case forecast was an average of $142 million

Northwest Power Planning Councilslide 6 New Corps appropriations ($80-$100 million a year) New BPA borrowing $36 million a year New capital… Previous annual payment ($77 million in 2001 $142 million in rate case) Added repayment …adds to BPA’s annual debt service

Northwest Power Planning Councilslide 7 Direct funded O&M of federal programs Combination of Corps, Bureau and Lower Snake Comp facilities Combination of Corps, Bureau and Lower Snake Comp facilities Primarily O&M of fish facilities at the dams and hatcheries Primarily O&M of fish facilities at the dams and hatcheries Also includes half of Council budget Also includes half of Council budget Rate case assumption was an average of $52 million Rate case assumption was an average of $52 million

Northwest Power Planning Councilslide 8 Operational costs Combination of two estimates Combination of two estimates 1.Power sales Bonneville could have made if fish flows and spill weren’t required 2.Power purchases Bonneville had to make to store water for fish flows.

Northwest Power Planning Councilslide Rate Case Assumptions (averages) Integrated Program - $150 expense Integrated Program - $150 expense $139 accrual $139 accrual and $36 million/year in new capital and $36 million/year in new capital Direct Funded O&M - $52 million Direct Funded O&M - $52 million Capital Repayment- $142 million Capital Repayment- $142 million Total - $333 million

Northwest Power Planning Councilslide 10 How the “Integrated” budget is calculated $150 million in expense estimated annual average on an obligations basis $150 million in expense estimated annual average on an obligations basis That is based on an estimate of $139 million in expense on an accruals basis That is based on an estimate of $139 million in expense on an accruals basis $36 million in annual capital $36 million in annual capital

Northwest Power Planning Councilslide 11 How does $150 million compare to $139 million? Obligations are contract commitments Obligations are contract commitments Accruals are contract payments Accruals are contract payments Accruals lag obligations in time Accruals lag obligations in time

Northwest Power Planning Councilslide 12 Council recommends a project budget BPA completes a contract Contractor performs work and bills BPA for performance BPA pays contractor Obligation Accrual Project budget and accounting sequence

Northwest Power Planning Councilslide 13 An obligation records a commitment of funds to a contract An obligation records a commitment of funds to a contract An accrual records the payment for the contract An accrual records the payment for the contract Bonneville estimated that a rate case average of $150 million in obligations would require only an average of $139 million in accruals Bonneville estimated that a rate case average of $150 million in obligations would require only an average of $139 million in accruals

Northwest Power Planning Councilslide 14 Obligations Accruals Accruals should lag obligations

Northwest Power Planning Councilslide 15 To date, Council manages by obligation 1996 MOA used obligations as the measure 1996 MOA used obligations as the measure Council funding decisions are based on obligations Council funding decisions are based on obligations All BPA fish and wildlife spending reports are obligations based All BPA fish and wildlife spending reports are obligations based

Northwest Power Planning Councilslide 16 Bonneville now needs to manage accruals Current financial crisis makes tracking cash flow (accruals) essential Current financial crisis makes tracking cash flow (accruals) essential All other parts of Bonneville managed by accruals accounting All other parts of Bonneville managed by accruals accounting Fish and Wildlife would need new accounting reports Fish and Wildlife would need new accounting reports Council and BPA would need to adopt forecasting methods Council and BPA would need to adopt forecasting methods

Northwest Power Planning Councilslide 17 Integrated program capital Bonneville’s funding commitment assumed average of $36 million annual borrowing Bonneville’s funding commitment assumed average of $36 million annual borrowing Until now, Bonneville retained discretion for use of borrowing Until now, Bonneville retained discretion for use of borrowing Current audits require consistent rules to define designation of projects as capital Current audits require consistent rules to define designation of projects as capital Big question is treatment of land acquisitions Big question is treatment of land acquisitions

Northwest Power Planning Councilslide 18 Bonneville’s financial situation Current forecasts are for a deficit of over $1.2 billion in remainder of rate case unless costs are reduced and rates raised Current forecasts are for a deficit of over $1.2 billion in remainder of rate case unless costs are reduced and rates raised Cash management critical through scheduled payments for WPPSS debt and Treasury repayment Cash management critical through scheduled payments for WPPSS debt and Treasury repayment Administrator called for a target of $200 million in reductions of planned fish costs Administrator called for a target of $200 million in reductions of planned fish costs

Northwest Power Planning Councilslide 19 Observations to date Bonneville working with direct funded O&M to defer some costs in 2003 Bonneville working with direct funded O&M to defer some costs in 2003 Current capital repayment obligations are significantly less than rate case assumptions and previous forecasts Current capital repayment obligations are significantly less than rate case assumptions and previous forecasts Integrated program is well within rate case targets but closer management is possible. Integrated program is well within rate case targets but closer management is possible. Bonneville may seek some flow operation changes Bonneville may seek some flow operation changes

Northwest Power Planning Councilslide 20 Options for integrated program Bonneville has suggested certain strategies for managing costs – deferrals of some projects and restraints on new work Bonneville has suggested certain strategies for managing costs – deferrals of some projects and restraints on new work Council has managed funding recommendations to fit rate case targets. “Cuts” may not be necessary yet because actual costs are likely to be less than forecast Council has managed funding recommendations to fit rate case targets. “Cuts” may not be necessary yet because actual costs are likely to be less than forecast

Northwest Power Planning Councilslide 21 Principles for managing costs in 2003 Maintain principles for Program funding Maintain principles for Program funding Focus on common goals for improved project cost management Focus on common goals for improved project cost management Avoid broad policy declarations until actual project cost review is complete Avoid broad policy declarations until actual project cost review is complete

Northwest Power Planning Councilslide 22 Council recommends a project budget BPA completes a contract Contractor performs work and bills BPA for performance BPA pays contractor Obligation Accrual What’s left? (carry-forward) Reviewing “carry-forward”

Northwest Power Planning Councilslide 23 Specific strategies Closely review unobligated project budgets (carry-forward) Closely review unobligated project budgets (carry-forward) –Bonneville, Council and CBFWA have used common principles to avoid unwarranted augmentation of project budgets. –Principle has been that unused project budgets are reallocated for other needs unless specifically warranted by delayed implementation schedule

Northwest Power Planning Councilslide 24 Specific strategies Identify implementation issues Identify implementation issues –Some projects have not started despite previous Council approval –Some projects have contracting issues to resolve –Several large wildlife projects have not used 2002 funds

Northwest Power Planning Councilslide 25 Outcome True estimate of what’s planned for implementation in FY True estimate of what’s planned for implementation in FY Compare to rate case forecasts Compare to rate case forecasts Resolve implementation issues with Council Resolve implementation issues with Council

Northwest Power Planning Councilslide 26 Council recommends a project budget BPA completes a contract Contractor performs work and bills BPA for performance BPA pays contractor Obligation Accrual What’s left? (carry-over) Reviewing “carry-over”

Northwest Power Planning Councilslide 27 Additional strategies Review outstanding obligations (carry-over) Review outstanding obligations (carry-over) –Again, some projects may not be moving on schedule –Principle has been to use outstanding contracted funds before committing all of next year’s budget

Northwest Power Planning Councilslide 28 Outcomes “Reality check” for potential amount of accruals in 2003 “Reality check” for potential amount of accruals in 2003 Compare to previous forecasts Compare to previous forecasts

Northwest Power Planning Councilslide 29 Is capital available One additional exercise is to capitalize eligible projects One additional exercise is to capitalize eligible projects –Funding commitment was for $36 million average –Bonneville is using expense for projects that could be funded from capital –Use of capital is significantly below plan –Need to work with Bonneville on rules

Northwest Power Planning Councilslide 30 Summary of steps for managing costs using current principles 1. Review and document carry-forward 2. Resolve implementation issues 3. Review outstanding obligations 4. Resolve implementation issues 5. Review use of “carry-over 6. Review opportunities to use capital 7. Assess situation for FY 2003

Northwest Power Planning Councilslide 31 Final steps Do previous steps result in costs Bonneville can manage in 2003? Do previous steps result in costs Bonneville can manage in 2003? If not, what principles are consistent with measures taken throughout other Bonneville programs? If not, what principles are consistent with measures taken throughout other Bonneville programs? Review proposals for additional measures, if needed, with Council and region Review proposals for additional measures, if needed, with Council and region There aren’t short-cuts There aren’t short-cuts