Federal Electric Power: Operating and Financial Status of DOE's Power
Marketing Administrations (Fact Sheet, 10/13/95, GAO/RCED/AIMD-96-9FS).
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED/AIMD-96-9FS
TITLE: Federal Electric Power: Operating and Financial Status of
DOE's Power Marketing Administrations
DATE: 10/13/95
SUBJECT: Electric utilities
Competition
Utility rates
Government sponsored enterprises
Appropriated funds
Electric power transmission
Electric power generation
Hydroelectric powerplants
Agency debt
Offsetting collections
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Cover
================================================================ COVER
Fact Sheet for the Honorable
Richard M. Burr, House of Representatives
October 1995
FEDERAL ELECTRIC POWER - OPERATING
AND FINANCIAL STATUS OF DOE'S
POWER MARKETING ADMINISTRATIONS
GAO/RCED/AIMD-96-9FS
Status of DOE's PMAs
(307335)
Abbreviations
=============================================================== ABBREV
APA - Alaska Power Administration
BPA - Bonneville Power Administration
DOE - Department of Energy
EIA - Energy Information Administration
GAO - General Accounting Office
IBWC - International Boundary and Water Commission
kWh - kilowatt hour
MW - megawatt
MWh - megawatt hour
PMA - power marketing administration
PP&E - property, plant, and equipment
PWUA - Provo River Water Users' Association
SEPA - Southeastern Power Administration
SRP - Salt River Project
SWPA - Southwestern Power Administration
WAPA - Western Area Power Administration
WPPSS - Washington Public Power Supply System
Letter
=============================================================== LETTER
B-265626
October 13, 1995
The Honorable Richard M. Burr
House of Representatives
Dear Mr. Burr:
This report responds to your request for information on the
Department of Energy's (DOE) five power marketing administrations
(PMAs). Specifically, we are providing you with operating and
financial information that covers fiscal years 1985 through 1994. We
are also providing information on competitive issues facing the PMAs.
The first section of this letter--operating information--includes a
description of facilities used by the PMAs to sell power and the
customers served by the PMAs. With some exceptions, the PMAs sell
and transmit electricity from multipurpose federal hydropower
facilities that are owned and operated by other federal agencies.
The PMAs give preference in the sale of power to publicly owned power
systems; such sales accounted for about 63 percent of the PMAs' power
sales in 1993.
The second section--financial information--discusses the manner in
which the PMAs finance their operations, the revenues and expenses
associated with their operations, and the manner in which they repay
their debts. The PMAs have financed all capital investments through
appropriations, other indebtedness to the U.S. Treasury, and
financial obligations to nonfederal power projects--all of which
comprise the PMAs' debt. About two-thirds of the PMAs' cumulative
debt (approximately $23 billion) was outstanding, as of September 30,
1994. The PMAs are required to repay their debt, with interest,
using revenues generated from power sales. The weighted average
interest rates on the portion of the PMAs' outstanding debt owed to
the Treasury (approximately $15 billion) are below the average rate
on the outstanding long-term debt paid by the nation's largest
investor-owned utilities.
The final section--competitive issues--describes the increasingly
competitive markets in which the PMAs operate and the potential
effect of these markets on the PMAs. In general, the PMAs remain
among the sellers of electricity at the lowest cost. Their ability
to operate as low-cost sellers stems from several factors, including
the inherent low cost of hydropower relative to other generating
sources, federal financing at relatively low interest rates,
flexibility in the repayment of principal on the Treasury portion of
the PMAs' debt, the PMAs' tax exempt status, and operating budgets
that seek to break even rather than earn a profit or a return on
investment. Because the PMAs' debt is at low interest rates, four of
the five PMAs have been able to carry high levels of debt without a
corresponding increase in financial risk. However, high levels of
debt currently pose problems for one PMA and could pose problems for
other PMAs in a more competitive environment.
OPERATING INFORMATION
------------------------------------------------------------ Letter :1
The PMAs--Alaska Power Administration (Alaska), Bonneville Power
Administration (Bonneville), Southeastern Power Administration
(Southeastern), Southwestern Power Administration (Southwestern), and
Western Area Power Administration (Western)--were established from
1937 through 1977 to sell and transmit electricity generated mainly
from federal hydropower facilities.\1 With the exception of Alaska,
the PMAs do not own or operate any of the power generation
facilities.\2 Most of these facilities were constructed and continue
to be owned and operated by the Department of the Interior's Bureau
of Reclamation (Bureau) or the U.S. Army Corps of Engineers
(Corps).\3 The Bureau and the Corps constructed these facilities as
part of a larger effort in developing multipurpose water projects
that have other functions in addition to power generation, including
flood control, irrigation, navigation, and recreation.\4
The PMAs, with the exception of Southeastern, have constructed and
continue to own and operate a combined total of nearly 33,000 miles
of transmission lines to carry out the PMAs' role in selling and
transmitting electric power. Power sold by the five PMAs accounted
for about 3 percent of all power generated in the United States in
1993.
The PMAs vary widely in their operating characteristics and scope of
activities. Alaska has 88 miles of transmission lines, and sales are
limited to two areas in the State of Alaska. Southeastern owns no
transmission facilities and relies on the transmission services of
other utilities to transmit the power that it sells to customers in
all or parts of 11 states. Southwestern is comparable to
Southeastern in terms of sales volume but owns and operates about
1,400 miles of transmission lines in all or parts of six states.
Western owns and operates over 16,000 miles of transmission lines
serving customers in all or parts of 15 states. Bonneville owns and
operates over 14,000 miles of transmission lines and sells to
customers in all or parts of eight states. In 1994, Bonneville
accounted for about 69 percent of total PMA revenues.
Figure 1 presents the service area and fiscal year 1994 operating
revenue for each PMA. In addition, table I.2 in appendix I shows
some operating statistics including the amount of generating capacity
used to generate the power sold by the PMAs, and the number of power
plants, miles of transmission lines, and employees for each PMA, as
of September 30, 1994.
Figure 1: PMAs' Service Areas
(See figure in printed
edition.)
Source: Developed by GAO from data provided by DOE and the PMAs'
1994 annual reports.
Each PMA has an administrator who is appointed by the Secretary of
Energy. Each administrator is authorized to make decisions regarding
the operation of the PMA, although the authority and duties of the
administrator are subject to the supervision and direction of the
Secretary. The administrators testify before the Congress on the
PMAs' budgets, which are submitted as part of DOE's annual federal
budget. DOE establishes each PMA's personnel limits as part of DOE's
total personnel ceiling. The administrator also has authority to
propose rate adjustments to meet projected revenue needs. Except for
Bonneville, the Deputy Secretary of Energy is responsible for
approving rate adjustments for the PMAs on an interim basis. The
Federal Energy Regulatory Commission has authority over final
approval for all of the PMAs' rates. In addition, the administrators
work with numerous federal, state, and local agencies on issues such
as flood control, fish and wildlife protection, and irrigation. For
example, Bonneville is required to work with the Pacific Northwest
Electric Power and Conservation Planning Council, which the Congress
created in 1980 to coordinate power planning and fish and wildlife
protection in the Pacific Northwest, among other things.\5
As required by law, all PMAs give preference in the sale of power to
public power customers--customer-owned cooperatives, public utility
and irrigation districts, and municipally owned utilities.\6 Public
power customers purchased about 63 percent of the power sold by the
PMAs in fiscal year 1993.\7 The remainder of the power is purchased
by state and federal agencies and nonpreference customers, such as
investor-owned utilities and industrial companies. Figure 2 shows
the percentage of power sold by all the PMAs to each type of PMA
customer during fiscal year 1993 in megawatt (MW) hours (MWh).\8
(Table I.3 of app. I shows the quantity of power sold and associated
revenues for all PMAs for each type of customer during fiscal year
1993.)
Figure 2: Percentage of Total
Power Sold by PMAs to Each Type
of Customer During Fiscal Year
1993
(See figure in printed
edition.)
Source: GAO's analysis of data
provided by DOE's Energy
Information Administration.
(See figure in printed
edition.)
As shown in figure 3, as a whole, public power customers are not
dependent on the PMAs as their sole source of power. For example, as
shown in figure 3, in fiscal year 1993, Bonneville's public power
customers obtained about 46 percent of their overall power needs from
sources other than Bonneville, while Southeastern's public power
customers obtained about 95 percent of their total power needs from
sources other than Southeastern.\9 At the same time, however, some of
the PMAs' public power customers purchase a large percentage of their
power from PMAs. For example, during fiscal year 1993, more than 80
percent of Bonneville's public power customers obtained more than 75
percent of their total power needs from Bonneville. Table I.4 of
appendix I shows the quantity of power purchased by public power
customers from PMAs and the total quantity of power obtained by the
same customers from all sources during fiscal year 1993. Table I.5
of appendix I shows the number of public power customers for each PMA
and the percentage of the customers' overall power needs that were
purchased from the PMA.
Figure 3: PMAs' Public Power
Customers' Purchases of PMA
Power Versus Total Power
Obtained From All Sources for
Fiscal Year 1993
(See figure in printed
edition.)
Note: Non-PMA sources include customers' self-generation and power
purchases from other sources.
Source: GAO's analysis of the PMAs' and the Energy Information
Administration's data.
--------------------
\1 Nuclear-fired and coal-fired power plants account for less than 5
percent of the generating capacity used to generate the power sold by
the PMAs. Table I.1 of app. I includes the generating capacity for
all PMA-related facilities.
\2 For financial reporting purposes, all power-related capital
expenditures made by the PMAs or the operating agencies are shown as
assets on the consolidated financial statements of the PMAs and the
operating agencies.
\3 In addition to the Bureau and the Corps, four other agencies are
responsible for the day-to-day operations of 5 of the 135 facilities
used for generating power that the PMAs market. These other agencies
are shown in table I.1 of app.I. We refer to these six agencies as
the operating agencies.
\4 Responsibility for all functions of the facilities resides with
the operating agencies of the hydropower facilities.
\5 All of Bonneville's proposals involving major resource decisions
must be consistent with the Council's plan--those plans that are
inconsistent must receive specific congressional authorization.
\6 The PMAs may also give preference to units of state governments
and the federal government.
\7 We focused on public power customers because (1) public power
customers generally purchase the majority of PMA-provided power, (2)
investor-owned utilities generally only supplement their power needs
with purchases from the PMAs, and (3) end users (generally state and
federal agencies and industrial customers) do not report information
to DOE on energy usage and thus data are not available to determine
whether these customers purchase power from sources other than the
PMAs.
\8 A megawatt is 1 million watts; a watt is the basic unit used to
measure electrical power. A megawatt hour is equal to 1 megawatt of
power applied for 1 hour.
\9 The amount of power purchased from the PMAs by the PMAs' customers
varies from year to year depending on conditions such as water flow
that may affect the amount of power that a PMA can sell.
FINANCIAL INFORMATION
------------------------------------------------------------ Letter :2
The Congress appropriates money each year to the PMAs for
power-related purposes and to the federal operating agencies for both
power and nonpower purposes. The PMAs, other than Bonneville,
generally receive appropriations annually to cover operations and
maintenance expenses and capital investments in their transmission
assets.\10 \11 \12 In fiscal year 1994, the PMAs received about $328
million in appropriations. The operating agencies receive
appropriations for all aspects of the multipurpose hydro projects,
including operations, maintenance, and capital expenses related to
power and also to other functions, such as irrigation and navigation.
The operating agencies expended about $409 million on power-related
operating and capital expenses and allocated these expenses to the
PMAs for repayment during fiscal year 1994. The PMAs have no control
over the amount of generation investment incurred by the operating
agencies, which, by law, becomes repayable through rates charged by
the PMAs.
PMAs, unlike most other federal agencies, are required by law to
repay their appropriations as well as appropriations expended by the
operating agencies for power-related purposes.\13 The PMAs repay
appropriations expended for operations and maintenance expenses in
the same year that the expenses are incurred. In contrast, the PMAs
repay appropriations expended for capital investments and other debt,
with interest, over the repayment period as prescribed by law and/or
DOE order.\14 Figure 4 shows the appropriations received by each PMA
for operations and maintenance expenses and for capital investments
in transmission facilities in fiscal year 1994. Figure 4 also shows
the appropriations that were expended by the operating agencies for
operations and maintenance expenses and for capital investments in
generation facilities during the same fiscal year.\15 Table II.1 of
appendix II shows this same information for fiscal years 1985-94.
Figure 4: Appropriations
Received by PMAs and
Appropriations Expended by the
Operating Agencies on
Power-Related Costs During
Fiscal Year 1994
(See figure in printed
edition.)
Source: Developed by GAO from the PMAs' data.
Legislation requires the PMAs to set their power rates at the lowest
possible level consistent with sound business principles. The PMAs
do not set their rates to earn a profit. Instead, they attempt to
generate revenues sufficient to recover all costs incurred as a
result of producing, marketing, and transmitting electric power,
including repayment of the federal investment and other debt with
interest. DOE requires each PMA to annually prepare a repayment
study to test the adequacy of their rates and to show, among other
things, estimated revenues and expenses, estimated payments on the
federal investment, and the total amount of federal investment to be
repaid.
The gross repayable investment assigned to be repaid by power
revenues totaled nearly $34 billion, as of September 30, 1994.\16
This amount includes $2.4 billion stemming from costs related to
irrigation that Bonneville and Western must repay.\17 PMAs had repaid
about $11 billion (32 percent) of the gross repayable amount leaving
more than $23 billion of outstanding debt, as of September 30, 1994.
Figure 5 shows the gross repayable investment, the amount repaid, and
the outstanding repayable investment (debt) for each PMA, as of
September 30, 1994. Table II.2 in appendix II shows this information
for fiscal years 1985-94.
Figure 5: Gross Repayable
Investment, Amount Repaid, and
Outstanding Repayable
Investment, as of September 30,
1994
(See figure in printed
edition.)
\a This debt comprises appropriated debt only.
\b Bonneville's outstanding debt comprises (1) appropriated debt
($6.8 billion), (2) Treasury bonds ($2.6 billion), (3) nonfederal
projects ($7.4 billion), and (4) irrigation expenses ($832 million).
\c Western's outstanding debt comprises (1) appropriated debt ($2.1
billion) and (2) irrigation expenses ($1.6 billion).
Source: The PMAs' data.
The federal dams from which the PMAs sell electricity also serve a
variety of nonpower purposes including flood control, irrigation,
navigation, and recreation. The PMAs seek to balance the concerns of
the authorized competing uses of the projects in scheduling and
delivering power to their customers. In addition to the $34 billion
invested in generation and transmission facilities, another $9.5
billion in appropriations has been expended to date by the operating
agencies for these nonpower purposes. Unlike the appropriations used
for power generation and transmission, appropriations expended for
nonpower purposes are not repaid through power-related revenues.
Figure 6 shows the percentage of appropriations expended by the PMAs
and the operating agencies for both power and nonpower purposes, as
of September 30, 1994. Figure II.1 and table II.6 of appendix II
show appropriations expended by the PMAs and the operating agencies.
Figure 6: Gross Appropriations
Expended for Power and Nonpower
Purposes for All PMAs, as of
September 30, 1994
(See figure in printed
edition.)
Source: The PMAs' annual reports for fiscal year 1994 and other PMA
data.
The PMAs generated about $3.2 billion in power-related revenues in
fiscal year 1994.\18 In accordance with legislation, the PMAs deposit
their annual revenues in the Treasury. These receipts are generally
applied to expenses in the following order: (1) operations and
maintenance expenses, (2) purchased and exchanged power costs, (3)
transmission service fees, (4) interest expense, and (5) any debt
service on Treasury bonds (Bonneville only). Any remaining revenues
are applied to any remaining balance due on unpaid or deferred annual
expenses, if any, and then toward the repayment on the federal
investment.\19 DOE requires the PMAs to pay their highest
interest-bearing debt first whenever possible, consistent with
applicable law.\20
The financial characteristics of the PMAs, in many respects, are a
reflection of the various statutes and DOE policies and procedures
that govern their operations. For example, except for Bonneville,
the PMAs, as described earlier, receive appropriations annually to
cover their operating and maintenance expenses and to finance capital
investments.\21
These financing methods differ from those used by investor- owned
utilities. Such utilities generally pay for their operating expenses
from operating revenue and finance capital investments by (1) issuing
debt, (2) selling common or preferred stock, or (3) using cash
generated from operations.
In addition, the PMAs' weighted average interest rates on their
outstanding debt to the Treasury ranged from 2.7 to 4.6 percent in
fiscal year 1994.\22 This compares with an average interest rate of
8.1 percent on outstanding long-term debt for the nation's 179
largest investor-owned utilities in 1993, according to a DOE
report.\23 These utilities accounted for more than 97 percent of all
revenues earned by investor-owned utilities in 1993. As a comparison
to the average cost of the PMAs' debt in relation to the average cost
of the Treasury's debt, the Treasury's weighted average interest rate
on the outstanding marketable interest-bearing public debt was 6.9
percent as of July 31, 1995.
As shown in figures 7 and 8, the PMAs' financing methods and terms of
repayment have led to a high amount of outstanding debt in comparison
to total investment. These figures present two financial ratios that
highlight the amount of debt that the PMAs have outstanding. The
first ratio--debt to gross property, plant, and equipment--shows the
outstanding portion of the PMAs' debt, as a percentage of the total
amount invested in these facilities.\24 The second ratio--debt
service to revenue--shows the amount of annual revenues used to pay
principal and interest on outstanding debt (debt service) as a
percentage of total revenues. Table II.5 of appendix II shows this
information for each PMA during the period 1985-94.
Figure 7: Debt as a Percentage
of Gross Property, Plant, and
Equipment for All PMAs, as of
September 30, 1994
(See figure in printed
edition.)
Source: The PMAs' data.
Figure 8: Debt Service as a
Percentage of Revenue for All
PMAs, as of September 30, 1994
(See figure in printed
edition.)
Source: The PMAs' data.
Because the PMAs' debt is at low interest rates, four of the five
PMAs have been able to carry high levels of debt without a
corresponding increase in financial risk. However, as explained in
the following discussion on competitive issues, high levels of debt
currently pose problems for Bonneville and could pose problems for
other PMAs in a more competitive environment.
--------------------
\10 In 1974, the Congress stopped providing Bonneville with annual
appropriations and instead provided it with a revolving fund
maintained by the Treasury and permanent Treasury borrowing
authority, now limited to $3.75 billion. However, Bonneville remains
responsible for repaying its debt stemming from appropriations
expended by Bonneville prior to 1974 and debt stemming from
appropriations expended by the operating agencies on power-related
expenses.
\11 Although most of Western's projects are funded by appropriations,
three projects--the Fort Peck Project, which is included in the
Pick-Sloan Missouri Basin Program; the Colorado River Storage
Project; and the Central Arizona Project--have revolving funds for
operational, maintenance, and replacement costs. Western's Boulder
Canyon Project has permanent authority for the same types of costs as
well as emergency expenditures. Nonfederal financing has been
obtained for the Parker Dam, the Hoover Power Plant upratings, and
the Buffalo Bill Power Plant. Nonfederal financing has been obtained
for transmission construction through participation agreements with
regional utilities.
\12 Because Alaska owns and operates its facilities, it directly
receives appropriations for capital investments in generation
facilities.
\13 In addition to appropriated debt, Bonneville's debt includes
Treasury bonds and obligations in nonfederal power projects.
Bonneville is to repay all these debts with interest.
\14 The PMAs are generally required to repay the investments in (1)
transmission assets within 35 to 45 years of initial operation, (2)
generation assets generally within 50 years of initial operation, and
(3) replacements within their estimated useful service life, but not
exceeding 50 years.
\15 Because the operating agencies generally receive appropriations
annually to cover the costs associated with all functions of the
multipurpose projects that they operate and maintain, we were not
able to present the amount of appropriations received at the
beginning of the fiscal year for power-related purposes. Instead, in
fig. 4 we present the appropriations that were expended by the
operating agencies during the year on power-related activities.
These are the costs that are allocated by the operating agencies to
the PMA for repayment.
\16 Gross repayable investment includes (1) cumulative appropriations
expended to construct and upgrade generation and transmission
facilities, (2) certain costs related to irrigation (Bonneville and
Western only), (3) cumulative borrowings from the Treasury (Treasury
bonds)(Bonneville only), and (4) cumulative obligations in nonfederal
power projects (Bonneville only).
\17 As directed by law, in addition to the costs of the power portion
of the hydropower projects from which they sell and transmit power,
Bonneville and Western are responsible for repaying, through power
revenues, a portion of the irrigation costs associated with the
hydropower projects. Irrigation costs are to be repaid without an
interest charge.
\18 Table II.3 of app. II shows revenues, expenses, and other
financial information for each PMA for fiscal years 1985-94.
\19 Bonneville and Alaska have exceptions to this priority of revenue
application. Bonneville first makes payments on debts associated
with obligations related to its nonfederal power projects. Revenues
from Alaska's Snettisham project are first applied to the required
principal payment for the Long Lake portion of the project.
\20 As we noted in a 1983 report, the practice of paying the highest
interest-bearing debt first (rather than first paying the oldest
outstanding debt) results in a savings for the PMA but imposes an
additional cost to the Treasury. See Policies Governing Bonneville
Power Administrations' Repayment of Federal Investment Still Need
Revision (GAO/RCED-84-25, Oct. 26, 1983).
\21 Legislation directs Bonneville to deposit its revenues into a
revolving fund maintained by the Treasury and authorizes Bonneville
to use this fund to finance its operations and capital investments.
\22 Table II.4 in app. II shows interest rates on appropriated debt
for each PMA.
\23 See Financial Statistics of Major U.S. Investor-Owned Electric
Utilities, 1993 by DOE's Energy Information Administration.
\24 Gross property, plant, and equipment includes the original cost
of generation and transmission facilities and the cost of
construction work in progress. For Bonneville, we also included its
other capital investments and obligations in nonfederal projects,
such as energy conservation measures and costs associated with
operating and terminated nuclear plants.
COMPETITIVE ISSUES
------------------------------------------------------------ Letter :3
PMAs have been and generally remain among the sellers of wholesale
electric power at the lowest cost.\25 Their ability to operate as
low-cost sellers stems from several factors, including the inherent
low cost of hydropower relative to other generating sources, federal
financing at relatively low interest rates, flexibility in the
repayment of principal on the Treasury portion of the PMAs' debt, the
PMAs' tax exempt status, and operating budgets that seek to break
even rather than earn a profit or a return on investment. Partly
because of these factors, the average revenue earned per unit of
wholesale power sold by the PMAs is low in comparison to the national
average for wholesale power sold by all utilities. The average
revenue per kilowatt hour (kWh)\26 sold by each PMA ranged from 1.2
to 2.5 cents in 1993. This was less than the national average for
wholesale power in 1993 which, according to DOE's Energy Information
Administration, ranged from 3.3 to 4.1 cents, depending on the type
of electric utility. The overall average was 3.6 cents.\27 Figure 9
shows the average revenue earned per kilowatt hour of wholesale power
sold for each PMA compared with the national average for wholesale
power during fiscal year 1993. Table III.1 of appendix III shows (1)
the total kilowatt hours of wholesale power sold and the associated
power revenues by each PMA and (2) the nationwide total of kilowatt
hours of wholesale power sold and associated revenues earned during
fiscal year 1993.
Figure 9: Average Revenue
Earned per Kilowatt Hour of
Wholesale Power Sold for Each
PMA During Fiscal Year 1993
(See figure in printed
edition.)
Source: Developed by GAO from the Energy Information
Administration's and the PMAs' data.
According to PMA officials, as of June 1995, with the exception of
Bonneville, each PMA had rates that remain the lowest in its service
area. These PMAs have experienced no major problems in terms of
customers' switching to other suppliers or having to negotiate new
rates because of competition from other suppliers. On the other
hand, Bonneville has experienced financial difficulty attributable to
many factors including investments in nuclear plants.\28
These difficulties coincide with other suppliers in Bonneville's
service area offering electric power service at rates at or below the
rate at which Bonneville sells much of its power. Several of
Bonneville's customers have recently signed contracts with other
suppliers, and other customers have indicated their willingness to
negotiate with other suppliers. As noted in our 1994 report,
Bonneville's high debt and associated fixed costs and low financial
reserves provide it with little flexibility to respond to any further
operating losses, increasing the possibility that Bonneville would be
unable to make its annual Treasury payment.\29
The circumstances in which Bonneville finds itself are part of a
larger trend in the wholesale segment of the electric power industry.
This segment of the market has grown increasingly competitive in
recent years, in part, because of industry changes stemming from the
Energy Policy Act of 1992, which allows easier access to power
generation markets and promotes greater use of electric transmission
lines. As part of the trend toward competition, the Federal Energy
Regulatory Commission expects nationwide wholesale rates to decline.
Because the PMAs sell most of their power at wholesale, they could be
directly affected by this trend.
A PMA's financial condition will play a role in determining whether
it can compete with other suppliers. As mentioned earlier, a high
debt-to-gross property, plant, and equipment ratio and a high debt
service-to-revenue ratio could limit the flexibility of a PMA to
match the rates of a competitor while still meeting financial
obligations, including repayment of the federal investment. A PMA
with rates below other suppliers' rates in its service area has some
flexibility to increase rates if necessary to meet its financial
obligations. Conversely, a PMA with rates at or above the level
offered by other suppliers in its service area, combined with a high
level of debt, would have limited flexibility in reducing rates.
--------------------
\25 The wholesale segment of the electric power industry comprises
utilities and other suppliers that sell power to other utilities for
resale to the consumer. In contrast, the retail segment comprises
utilities that sell power directly to the end users including
industrial, commercial, and residential consumers. During 1993,
about 80 percent of the combined PMA sales were to wholesale
customers. The remainder of these sales was to end users, such as
federal military installations, aluminum smelters, and other
industrial customers.
\26 A kilowatt hour is 1,000 watt hours. A watt hour is equal to 1
watt of power applied for 1 hour.
\27 The Energy Information Administration cautions that average
revenue per unit of energy sold should not be used as a substitute
for the price of power. The price that any one utility charges
another for wholesale energy comprises numerous transaction-specific
factors including the fee charged for reserving a portion of
capacity, the fee for the energy actually delivered, and the fee for
the use of the facilities. These fees are influenced by factors such
as time of delivery, quantity of energy, and reliability of supply.
\28 Because, unlike the other PMAs, Bonneville is responsible for
meeting the future demands of its customers, it assumed partial
financial responsibility for investments in nuclear plants in the
early 1970s. Of Bonneville's approximately $17.6 billion in
outstanding debt, about $7.4 billion is attributable to obligations
to repay the costs of these plants. Bonneville is obligated to repay
more than $4 billion for plants that have been terminated and thus
produce no electricity.
\29 Bonneville Power Administration: Borrowing Practices and
Financial Condition (GAO/AIMD-94-67BR, Apr. 19, 1994).
AGENCY COMMENTS
------------------------------------------------------------ Letter :4
We provided copies of a draft of this report to DOE for its review
and comment. We received comments from DOE's Bonneville Power
Administration and DOE's Power Marketing Liaison Office, which is
responsible for the other four PMAs, and have included their comments
and our response in this report as appendixes IV and V, respectively.
Bonneville stated that our report was factually correct and fairly
reflected its competitive situation. For the other four PMAs, DOE
commented that our report implied that the PMAs were inefficient and
used inappropriate operating techniques that could leave the PMAs in
a precarious position in the future. We did not evaluate the
efficiency of the PMAs' operations and have drawn no such conclusion.
DOE also commented that it is inappopriate to compare investor-owned
utilities' method of operating at a profit with that of the PMAs.
Our report does not make this comparision. Rather, it compares the
PMAs' average interest rates and the PMAs' method of financing
capital investments with those of investor-owned utilities. DOE
suggested that we include several additional facts in our report that
it believed should help explain more fully how the PMAs operate. We
have expanded certain descriptive data to include facts suggested by
DOE. DOE also provided technical corrections and clarifications that
we incorporated where appropriate.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :5
To develop the financial information presented in this report, we
interviewed officials of each PMA and reviewed data from the five
PMAs' annual reports and financial statements for fiscal years 1985
through 1994.\30 To develop certain financial indicators, we used
applicable repayment studies and financial statements. As
appropriate, we interviewed officials of each PMA and used the PMAs'
data to develop operating information on the PMAs and to discuss
competitive issues. We did not independently verify the accuracy of
the PMAs' data. In developing operating information, we also used
available data from sources, such as the Congressional Research
Service, DOE, the Federal Energy Regulatory Commission, and the
National Academy of Public Administration. We used data from the
Energy Information Administration to develop information on the
extent to which the PMA's public power customers purchase
PMA-provided power.
We performed our review from April through September 1995, in
accordance with generally accepted government auditing standards.
--------------------
\30 Most of the financial statements were independently audited by
certified public accounting firms or, in the case of Alaska, DOE's
Office of Inspector General. Western's financial statements were not
audited for fiscal years 1985 through 1990. Southwestern's financial
statements were not audited for fiscal years 1988 and 1989.
---------------------------------------------------------- Letter :5.1
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 7 days after the date of this letter. At that time, we will
send copies to appropriate congressional committees, federal
agencies, and other interested parties. We will also make copies
available to others on request.
This report was prepared under the direction of Victor S. Rezendes,
Director of Energy and Science Issues in the Resources, Community,
and Economic Development Division, who may be reached at (202)
512-3841 and Lisa Jacobson, Director of Civil Audits in the
Accounting and Information Management Division, who may be reached at
(202) 512-9508, if you have any questions. Major contributors to
this report are listed in appendix VI.
Sincerely yours,
Victor S. Rezendes
Director, Energy and
Science Issues
Lisa G. Jacobson
Director, Civil Audits
Accounting and Information
Management Division
OPERATING INFORMATION
=========================================================== Appendix I
Table I.1
Plant-Operating Characteristics, as of
September 30, 1994
Existing Generator
Operati number of Primary nameplate Fiscal year
ng generating energy capacity of initial
agency Plant's name units source (MW)\a operation
------- -------------- ------------- ------------ ------------ ------------
Alaska
--------------------------------------------------------------------------------
APA Eklutna 2 Hydro 30 1955
APA Snettisham 3 Hydro 78 1975 &
1991\b
Subtota 5 108
l
Bonneville
--------------------------------------------------------------------------------
Bureau Grand Coulee 27 Hydro 6,188 1941
Bureau Grand Coulee 6 Hydro 314 1973
#2\c
Bureau Hungry Horse 4 Hydro 392 1952
Bureau Palisades 4 Hydro 142 1957
Bureau Anderson Ranch 2 Hydro 27 1950
Bureau Minidoka 7 Hydro 13 1909
Bureau Roza 1 Hydro 11 1958
Bureau Black Canyon 2 Hydro 8 1925
Bureau Chandler 2 Hydro 12 1956
Corps Chief Joseph 27 Hydro 2,069 1955
Corps John Day 16 Hydro 2,160 1968
Corps The Dalles 22 Hydro 1,780 1957
Corps Bonneville 18 Hydro 1,050 1938
Corps McNary 14 Hydro 980 1953
Corps Lower Granite 6 Hydro 810 1975
Corps Lower 6 Hydro 810 1969
Monumental
Corps Little Goose 6 Hydro 810 1970
Corps Ice Harbor 6 Hydro 603 1961
Corps Libby 5 Hydro 525 1975
Corps Dworshak 3 Hydro 400 1974
Corps Lookout Point 3 Hydro 120 1954
Corps Detroit 2 Hydro 100 1953
Corps Green Peter 2 Hydro 80 1967
Corps Lost Creek 2 Hydro 49 1975
Corps Albeni Falls 3 Hydro 43 1955
Corps Hills Creek 2 Hydro 30 1962
Corps Cougar 2 Hydro 25 1964
Corps Foster 2 Hydro 20 1968
Corps Big Cliff 1 Hydro 18 1954
Corps Dexter 1 Hydro 15 1955
WPPSS\d Project 2 1 Nuclear 1,100 1984
Subtota 205 20,704
l
Southeastern
--------------------------------------------------------------------------------
Corps Allatoona 3 Hydro 74 1950
Corps Buford 3 Hydro 86 1957
Corps Carters 4 Hydro 500 1975
Corps J. Strom 7 Hydro 280 1953
Thurmond
Corps Walter F. 4 Hydro 130 1963
George
Corps Hartwell 5 Hydro 344 1962
Corps Robert F. 4 Hydro 68 1975
Henry
Corps Millers Ferry 3 Hydro 75 1970
Corps West Point 3 Hydro 73 1975
Corps Richard B. 4 Hydro 300 1984
Russell\e
Corps John H. Kerr 7 Hydro 204 1953
Corps Philpott 3 Hydro 14 1952
Corps Barkley 4 Hydro 130 1966
Corps J. Percy 1 Hydro 28 1970
Priest
Corps Cheatham 3 Hydro 36 1959
Corps Cordell Hull 3 Hydro 100 1973
Corps Old Hickory 4 Hydro 100 1957
Corps Center Hill 3 Hydro 135 1950
Corps Dale Hollow 3 Hydro 54 1948
Corps Wolf Creek 6 Hydro 270 1951
Corps Laurel 1 Hydro 61 1976
Corps Jim Woodruff 3 Hydro 30 1957
Subtota 81 3,092
l\f
Southwestern
--------------------------------------------------------------------------------
Corps Beaver 2 Hydro 112 1965
Corps Blakely 2 Hydro 75 1956
Mountain
Corps Broken Bow 2 Hydro 100 1970
Corps Bull Shoals 8 Hydro 340 1953
Corps Clarence 2 Hydro 58 1985
Cannon
Corps Dardanelle 4 Hydro 124 1965
Corps DeGray 2 Hydro 68 1972
Corps Denison 2 Hydro 70 1945
Corps Eufaula 3 Hydro 90 1965
Corps Ft. Gibson 4 Hydro 45 1953
Corps Greers Ferry 2 Hydro 96 1964
Corps Harry S. 2 Hydro 53 1982
Truman\g
Corps Keystone 2 Hydro 70 1968
Corps Narrows 3 Hydro 26 1950
Corps Norfork 2 Hydro 81 1944
Corps Ozark 5 Hydro 100 1973
Corps Robert D. 2 Hydro 7 1989
Willis
Corps Robert S. Kerr 4 Hydro 110 1971
Corps Sam Rayburn 2 Hydro 52 1966
Corps Stockton 1 Hydro 45 1973
Corps Table Rock 4 Hydro 200 1959
Corps Tenkiller 2 Hydro 39 1954
Ferry
Corps Webbers Falls 3 Hydro 60 1974
Corps Whitney 2 Hydro 30 1955
Subtota 67 2,051
l
Western
--------------------------------------------------------------------------------
Bureau Hoover 19 Hydro 2,074 1936
Bureau J. F. Carr 2 Hydro 154 1963
Bureau Folsom 3 Hydro 215 1955
Bureau Keswick 3 Hydro 105 1950
Bureau New Melones 2 Hydro 383 1979
Bureau Nimbus 2 Hydro 14 1955
Bureau O'Neill 6 Hydro 29 1968
Bureau W. R. Gianelli 8 Hydro 202 1968
Bureau Shasta 7 Hydro 578 1944
Bureau Spring Creek 2 Hydro 200 1964
Bureau Trinity 3 Hydro 140 1964
Bureau Mount Elbert 2 Hydro 206 1982
Bureau Big Thompson 1 Hydro 5 1969
Bureau Estes 3 Hydro 50 1950
Bureau Flatiron 3 Hydro 95 1954
Bureau Green Mountain 2 Hydro 26 1943
Bureau Mary's Lake 1 Hydro 8 1951
Bureau Pole Hill 1 Hydro 33 1954
Bureau Yellowtail 4 Hydro 288 1966
Bureau Alcova 2 Hydro 36 1955
Bureau Boysen 2 Hydro 15 1952
Bureau Buffalo Bill 3 Hydro 18 \h
Bureau Fremont Canyon 2 Hydro 66 1961
Bureau Glendo 2 Hydro 38 1959
Bureau Guernsey 2 Hydro 5 1927
Bureau Heart Mountain 1 Hydro 5 1949
Bureau Kortes 3 Hydro 36 1950
Bureau Pilot Butte 2 Hydro 2 1925
Bureau Seminoe 3 Hydro 45 1939
Bureau Shoshone 1 Hydro 3 1922\i
Bureau Canyon Ferry 3 Hydro 60 1954
Bureau Davis 5 Hydro 269 1951
Bureau Parker 4 Hydro 69 1943
Bureau Glen Canyon 8 Hydro 1,356 1964
Bureau Blue Mesa 2 Hydro 96 1967
Bureau Crystal 1 Hydro 28 1978
Bureau Flaming Gorge 3 Hydro 152 1964
Bureau McPhee 1 Hydro 1 1993
Bureau Morrow Point 2 Hydro 156 1971
Bureau Towaoc 1 Hydro 11 1993
Bureau Upper Molina 1 Hydro 9 1963
Bureau Lower Molina 1 Hydro 5 1963
Bureau Elephant Butte 3 Hydro 28 1941
Bureau Fontenelle 1 Hydro 13 1968
Bureau Stampede 1 Hydro 3 1987
Corps Fort Peck 5 Hydro 218 1943
Corps Garrison 5 Hydro 546 1956
Corps Big Bend 8 Hydro 538 1965
Corps Fort Randall 8 Hydro 387 1954
Corps Gavins Point 3 Hydro 122 1956
Corps Oahe 7 Hydro 786 1962
IBWC Amistad 2 Hydro 66 1983
IBWC Falcon 3 Hydro 32 1955
PWUA Deer Creek 2 Hydro 5 1958
SRP Navajo 3 Coal 547\j 1974
Subtota 180 10,577
l
================================================================================
Total\f 538 36,532
--------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration
IBWC = International Boundary and Water Commission
MW = megawatt
PMA = power maketing administration
PWUA = Provo River Water Users' Association
SRP = Salt River Project
WPPSS = Washington Public Power Supply System
\a The generator nameplate capacity refers to the full-load
continuous rating under specified conditions, usually indicated on a
plate attached physically to the equipment. Because water flow
largely dictates the amount of water available for generation, the
average megawatts available for power generation from a hydro
facility may differ from the nameplate capacity. These numbers are
rounded to the nearest megawatt.
\b For the Snettisham project, the Long Lake portion was placed in
service in 1975, and the Crater Lake portion was placed in service in
1991.
\c The units at Grand Coulee #2 are pump generators.
\d Bonneville acquired all or part of the generating capability of
three nuclear power plants owned by WPPSS. One plant is in
commercial operation, and two have been terminated.
\e Four additional units at the Richard B. Russell project are being
tested.
\f We do not include Southeastern's 300-kilowatt Stonewall Jackson
Project, which was energized in 1994. No power bills were issued for
this project in fiscal year 1994.
\g The Harry S. Truman project has six units installed, but only two
were commercially operable.
\h Power plant was not yet in commercial operation.
\i Power plant is being modified and tested prior to resuming
commercial operation.
\j Federal government's share (24.3 percent) of 2,250-MW plant
capability.
Source: The PMAs' annual reports and other data provided by the
PMAs.
Table I.2
Operating Statistics of PMAs, as of
September 30, 1994
APA BPA SEPA SWPA WAPA Totals
-------------------------------- ---- ---- ---- ---- ---- ------
Generator nameplate capacity 108 20,7 3,09 2,05 10,5 36,532
(MW) 04 2 1 77
Number of power plants\a 2 31 22 24 55 134
Transmission lines (miles) 88 14,8 0 1,38 16,7 32,992
00 0 27
Annual federal employment (full 35 3,32 41 189 1,46 5,054
time equivalent)\b 2\c 7
----------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
MW = megawatt
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
\a Power plants can include more than one generation unit.
\b Employment numbers do not include contractors.
\c As of April 27, 1995.
Source: The PMAs' annual reports for fiscal year 1994 and other data
provided by DOE.
Table I.3
PMA Sales by Customer Type for Fiscal
Year 1993
(Dollars in thousands)
Customer Revenu Revenu Revenu
type MWh Revenues MWh es MWh es MWh es
-- -------- ------ -------- ------ ------ -------- ------ -------- ------
AP Municipa 92,197 $1,500 \a \a \a \a \a \a
A lities
Public \a \a \a \a \a \a \a \a
utility
distric
ts
Cooperat 80,746 1,314 \a \a \a \a \a \a
ives
Irrigati \a \a \a \a \a \a \a \a
on
distric
ts
State \a \a 1,170 $38 \a \a \a \a
agencies
Federal \a \a \a \a \a \a \a \a
agencies
Investor \a \a \a \a 232,888 $7,265 \a \a
-owned
utiliti
es
Aluminum \a \a \a \a \a \a \a \a
compani
es
Other \a \a \a \a \a \a \a \a
industry
Counties \a \a \a \a \a \a \a \a
Outside \a \a \a \a \a \a \a \a
region
Interdep \a \a \a \a \a \a \a \a
artment
al\b
Project \a \a \a \a \a \a \a \a
use\c
==================================================================================
Totals 172,94 $2,814 1,170 $38 232,888 $7,265 \a \a
3
Total sales
for resale
(MWh)
405,831
----------------------------------------------------------------------------------
Total resale
revenues
$10,079
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.025 \
\ \
----------------------------------------------------------------------------------
BP Municipa 11,747 268,058 \a \a \a \a \a \a
A lities ,223
Public 22,821 536,253 \a \a \a \a \a \a
utility ,312
distric
ts
Cooperat 9,960, 226,875 \a \a \a \a \a \a
ives 407
Irrigati \a \a \a \a \a \a \a \a
on
distric
ts
State \a \a \a \a \a \a \a \a
agencies
Federal \a \a 1,165, 25,103 \a \a \a \a
agencies 482
Investor \a \a \a \a 7,821,53 299,95 \a \a
-owned 1 2
utiliti
es
Aluminum \a \a \a \a \a \a 19,465,0 351,17
compani 57 8
es
Other \a \a \a \a \a \a 1,358,18 31,348
industry 8
Counties \a \a \a \a \a \a \a \a
Outside \a \a \a \a 4,894,64 75,262 \a \a
region\d 3
Interdep \a \a \a \a \a \a \a \a
artment
al\b
Project \a \a \a \a \a \a \a \a
use\c
==================================================================================
Totals 44,528 $1,031,1 1,165, $25,10 12,716,1 $375,2 20,823,2 $382,5
,942 86 482 3 74 14 45 26
Total sales
for resale
(MWh)
57,245,116
----------------------------------------------------------------------------------
Total resale
revenues
$1,406,400
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.025 \
\
----------------------------------------------------------------------------------
SE Municipa 1,815, 46,453 \a \a \a \a \a \a
PA lities 260
Public \a \a \a \a \a \a \a \a
utility
distric
ts
Cooperat 4,093, 90,418 \a \a \a \a \a \a
ives 934
Irrigati \a \a \a \a \a \a \a \a
on
distric
ts
State 328,53 5,856 \a \a \a \a \a \a
agencies 0
Federal 2,451, 21,080 \a \a \a \a \a \a
agencie 401
s\e
Investor \a \a \a \a 17,588 214 \a \a
-owned
utiliti
es
Aluminum \a \a \a \a \a \a \a \a
compani
es
Other \a \a \a \a \a \a \a \a
industry
Counties 38,104 836 \a \a \a \a \a \a
Outside \a \a \a \a \a \a \a \a
region
Interdep \a \a \a \a \a \a \a \a
artment
al\b
Project \a \a \a \a \a \a \a \a
use\c
==================================================================================
Totals 8,727, $164,653 \a \a 17,588 $214 \a \a
229
==================================================================================
Total 8,744,81
sales 7
for
resale
(MWh)
Total resale
revenues
$164,867
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.019 \
\ \
----------------------------------------------------------------------------------
SW Municipa 2,227, 19,840 \a \a \1,134 \5,897 \a \a
PA lities 454
Public \a \a \a \a \a \a \a \a
utility
distric
ts
Cooperat 5,701, 70,873 \a \a \a \a \a \a
ives 043
Irrigati \a \a \a \a \a \a \a \a
on
distric
ts
State \a \a \a \a \a \a \a \a
agencies
Federal \a \a 189,11 3,722 7,030 37 \a \a
agencies 7
Investor \a \a \a \a 9,455 49 \a \a
-owned
utiliti
es
Aluminum \a \a \a \a \a \a \a \a
compani
es
Other \a \a \a \a \a \a \a \a
Industry
Counties \a \a \a \a \a \a \a \a
Outside \a \a \a \a \a \a \a \a
region
Interdep \a \a \a \a \a \a \a \a
artment
al\b
Project \a \a \a \a \a \a \a \a
use\c
==================================================================================
Totals 7,928, $90,713 189,11 $3,722 17,619 $5,983 \a \a
497 7
Total sales
for resale
(MWh)
7,946,116
----------------------------------------------------------------------------------
Total resale
revenues
$96,696
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.012 \
\ \
----------------------------------------------------------------------------------
WA Municipa 9,871, 187,912 \a \a \a \a \a \a
PA lities 704
Public 4,252, 101,605 \a \a \a \a \a \a
utility 111
distric
ts
Cooperat 7,745, 123,805 \a \a \a \a \a \a
ives 483
Irrigati 1,709, 24,116 \a \a \a \a \a \a
on 781
distric
ts
State 3,624, \55,811 566,89 9,408 \a \a \a \a
agencies 445 2
Federal \156,1 \2,270 2,116, 53,267 \a \a \a \a
agencies 31 764
Investor \a \a \a \a 1,998,71 40,040 \a \a
-owned 5
utiliti
es
Aluminum \a \a \a \a \a \a \a \a
compani
es
Other \a \a \a \a \a \a \a \a
industry
Counties \a \a \a \a \a \a \a \a
Outside \a \a \a \a \a \a \a \a
region
Interdep \a \a 14,185 0 \a \a \a \a
artment
al\b
Project \a \a 1,383, 8,085 \a \a \a \a
use\c 235
==================================================================================
Totals 27,359 $495,519 4,081, $70,76 1,998,71 $40,04 \a \a
,655 076 0 5 0
Total sales
for resale
(MWh)
29,358,370
----------------------------------------------------------------------------------
Total resale
revenues
$535,559
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.019 \
\ \
----------------------------------------------------------------------------------
Al 25,753 523,773 \a \a \1,134 \5,897 \a \a
l Municip ,838
P alities
M
A
s
Public 27,073 637,858 \a \a \a \a \a \a
utility ,423
distric
ts
Cooperat 27,581 513,285 \a \a \a \a \a \a
ives ,613
Irrigati 1,709, 24,116 \a \a \a \a \a \a
on 781
distric
ts
State 3,952, 61,667 568,06 9,446 \a \a \a \a
agencies 975 2
Federal 2,607, 23,350 3,471, 82,092 7,030 37 \a \a
agencie 532 363
s\e
Investor \a \a \a \a 10,080,1 347,52 \a \a
-owned 77 0
utiliti
es
Aluminum \a \a \a \a \a \a 19,465,0 351,17
compani 57 8
es
Other \a \a \a \a \a \a 1,358,18 31,348
industry 8
Counties 38,104 836 \a \a \a \a \a \a
Outside \a \a \a \a 4,894,64 75,262 \a \a
region\d 3
Interdep \a \a 14,185 0 \a \a \a \a
artment
al\b
Project \a \a 1,383, 8,085 \a \a \a \a
use\c 235
==================================================================================
Totals 88,717 $1,784,8 5,436, $99,62 14,981,8 $422,8 20,823,2 $382,5
,266 85 845 3 50 19 45 26
Total sales
for resale
(MWh)
103,699,116
----------------------------------------------------------------------------------
Total resale
revenues
$2,207,704
----------------------------------------------------------------------------------
Average
revenue per
kWh $0.021 \
\
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
kWh = kilowatt hour
MWh = megawatt hour
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
\a Not applicable.
\b lnterdepartmental sales are sales to the facilities that play an
integral role in the operation of WAPA's projects.
\c Project use is mainly sales of electricity necessary to pump water
at federal irrigation projects.
\d By law, BPA first serves customers located in the Pacific
Northwest (legislatively defined as Oregon, Washington, and portions
of Montana, Nevada, Utah, and Wyoming). BPA sells electricity that
is surplus to the needs of the Pacific Northwest to customers outside
the region, mainly those located in California. In 1993, these
customers included public- and investor-owned utilities and one
federal agency.
\e All of SEPA's sales to federal agencies in 1993 were to the
Tennessee Valley Authority.
Source: Derived by GAO from data provided by the PMAs.
Table I.4
PMA Public Power Customers' Purchases of
PMA Power Versus Total Power Obtained
From All Sources for Fiscal Year 1993
Total power
Public power obtained from
customer purchases all sources\a
PMA from PMA (MWh) (MWh)
------------------------------ ------------------ ------------------
Alaska 172,943 3,416,744
Bonneville\b 43,671,980 80,902,370
Southeastern\c 5,944,700 120,457,936
Southwestern 7,662,077 59,011,084
Western 17,613,180 148,512,732
Total 75,064,880 412,300,866
----------------------------------------------------------------------
Legend
EIA = Energy Information Administration
MWh = megawatt hour
PMA = power marketing administration
\a Includes customer generated power and purchases from sources other
than the PMAs.
\b For the purpose of our analysis, we excluded 10 public power
customers located outside the Pacific Northwest. These customers
accounted for less than 1 percent of Bonneville's revenues in fiscal
year 1993.
\c For the purpose of our analysis, we excluded the Tennessee Valley
Authority from Southeastern's sales to public power customers. The
Tennessee Valley Authority accounted for about 13 percent of
Southeastern's revenues in fiscal year 1993.
Source: Developed by GAO from the PMAs' fiscal year 1993 annual
reports and EIA's data.
Table I.5
Power Purchases From PMAs by Public
Power Customers as a Percentage of Their
Total Power Obtained From All Sources in
Fiscal Year 1993
Percent Percent Percent
Total Percent of of of
number of customer customer customer
of customer s s s
public s purchasi purchasi purchasi
power purchasi ng 26- ng 51- ng 76-
customer ng 0-25 50 75 100
s\a percent percent percent percent
-------------------- -------- -------- -------- -------- --------
APA 3 100 0 0 0
BPA 119 7 1 5 87
SEPA 263 98 1 0 0
SWPA 53 36 19 13 32
WAPA 315 30 23 25 22
----------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
EIA = Energy Information Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Washington Public Power Supply System
Note: Percentages may not total 100 because of rounding.
Eleven public power customers received power from two PMAs; these
customers are included in the total number of customers for each PMA
from which they purchased power.
\a This information excludes 46 irrigation districts that purchased
power from WAPA and 1 irrigation district that purchased power from
BPA. These customers were not listed in EIA's database used to
construct this information.
Source: Derived by GAO from data provided by EIA and the PMAs.
FINANCIAL INFORMATION
========================================================== Appendix II
Figure II.1: Appropriations
Expended for Power and Nonpower
Purposes, as of September 30,
1994
(See figure in printed
edition.)
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
Note: Although we categorize appropriations expended for both power
and nonpower purposes, as appropriate, under the heading of each PMA,
the PMAs, with the exception of some costs related to irrigation, are
responsible for repaying only those costs related to power. The
operating agencies are responsible for the appropriations expended
for nonpower purposes, and these expended funds are not reimbursable
through power revenues. The accounts of BPA, SEPA, and SWPA and
their respective operating agencies are collectively referred to as
power systems or programs. BPA is part of the Federal Columbia River
Power System. SEPA is part of the Southeastern Federal Power
Program. SWPA is part of the Southwestern Federal Power System.
Percentages may not total 100 because of rounding.
Source: The PMAs' annual reports for fiscal year 1994 and other data
provided by the PMAs.
Table II.1
Appropriations Received by the PMAs and
Appropriations Expended by the Operating
Agencies on Power-Related Costs for
Fiscal Years 1985 Through 1994
(Dollars in millions)
Operat Operat
Operatin Operatin Operatin ing ing Operating Operatin Operatin Operatin Operatin
PMA PMA g agency PMA g agency PMA g agency PMA agency PMA agency PMA agency PMA g agency PMA g agency PMA g agency PMA g agency
---- ---- -------- ------ -------- ------ -------- ------ ------ ------ ------ ------ --------- ------ -------- ------ -------- ------ -------- ------ --------
APA $2 $0.6 $2 $0.7 $2 $0.7 $3 $0.7 $3 $0.0 $3 $0.0 $3 $65.3 $3 $(0.1)\c $4 $5.8 $4 $0.5
BPA 0 185.8 0 127.0 0 161.9 0 139.4 0 149.4 0 168.4 0 185.6 0 198.0 0 219.3 0 158.5
SEPA 36 97.6 (19)\a 50.6 16 61.0 24 71.3 39 57.1 18 68.5 8 57.6 24 81.8 32 79.2 30 70.5
SWPA 31 25.8 30 34.1 25 33.4 17 39.3 15 34.3 25 35.6 20 37.3 28 38.3 22 31.8 34 46.2
WAPA 218 60.6 188 121.6 215 60.0 235 163.2 250 131.1 264 239.0 266 182.8 278 143.0 312 116.0 260 133.0
\b
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
DOE = Department of Energy
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
\a In 1986 DOE transferred about $19 million of carried over
appropriations from SEPA to another DOE agency. SEPA used remaining
carried over appropriations to fund operations.
\b Operating agency appropriation amounts are estimates provided by
WAPA.
\c APA did not have documentation needed to explain the negative
balance.
Source: Developed by GAO from PMA-provided data.
Table II.2
Gross Repayable Investment, Amount
Repaid, and Total Outstanding Repayable
Investment for Fiscal Years 1985 Through
1994
(Dollars in millions)
PMA 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---------------- ------ ------ ---- ---- ---- ---- ---- ---- ---- ----
APA
Gross repayable $131 $131 $132 $133 $133 $134 $198 $200 $205 $206
investment
Amount repaid 21 22 24 27 31 34 37 38 40 42
Total 110 109 108 106 102 100 161 162 165 164
outstanding
repayable
investment
Percent repaid 16% 17% 18% 20% 23% 25% 19% 19% 20% 20%
BPA
--------------------------------------------------------------------------------
Gross repayable $19,05 $19,76 $20, $20, $21, $21, $22, $23, $24, $25,
investment 9 4 337 088 141 456 376 648 343 331
Amount repaid 4,291 4,860 5,10 5,64 5,73 5,54 6,26 7,23 7,06 7,69
0 5 3 5 3 8 4 1
Total 14,769 14,904 15,2 15,2 15,4 15,9 16,1 16,4 17,2 17,6
outstanding 37 43 09 11 13 10 79 40
repayable
investment
Percent repaid 23% 25% 25% 27% 27% 26% 28% 31% 29% 30%
SEPA
--------------------------------------------------------------------------------
Gross repayable $1,303 $1,398 $1,4 $1,4 $1,4 $1,4 $1,4 $1,4 $1,4 $1,4
investment 06 10 19 22 28 34 42 76
Amount repaid 310 306 311 289 293 316 352 387 435 468
Total 993 1,092 1,09 1,12 1,12 1,10 1,07 1,04 1,00 1,00
outstanding 5 1 6 6 6 7 7 8
repayable
investment
Percent repaid 24% 22% 22% 20% 21% 22% 25% 27% 30% 32%
SWPA
--------------------------------------------------------------------------------
Gross repayable $903 $921 $931 $941 $951 $961 $979 $993 $997 $1,0
investment 08
Amount repaid 84 114 135 155 179 203 224 252 298 330
Total 819 807 796 786 772 758 755 741 699 678
outstanding
repayable
investment
Percent repaid 9% 12% 15% 16% 19% 21% 23% 25% 30% 33%
WAPA
--------------------------------------------------------------------------------
Gross repayable $4,014 $4,032 $4,9 $4,7 $4,9 $5,0 $5,1 $5,3 $5,6 $5,8
investment 78 14 74 21 56 35 31 91
Amount repaid 1,760 1,876 2,08 2,09 2,12 2,07 2,14 2,11 2,19 2,22
0 7 0 7 3 4 8 1
Total 2,254 2,156 2,89 2,61 2,85 2,94 3,01 3,22 3,43 3,67
outstanding 8 7 4 4 3 1 3 0
repayable
investment\a
Percent repaid 44% 47% 42% 44% 43% 41% 42% 40% 39% 38%
--------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration BPA = Bonneville Power
Administration PMA = power marketing administration SEPA =
Southeastern Power Administration SWPA = Southwestern Power
Administration WAPA = Western Area Power Administration
\a The total outstanding repayable investment amounts for WAPA do not
include deferred expenses. Deferred expenses totaled $238 million,
as of September 30, 1994.
Source: Derived by GAO from data provided by the PMAs.
Table II.3
PMAs' Revenues, Expenses, and
Accumulated Net Revenue (Deficit) for
Fiscal Years 1985 Through 1994
(Dollars in millions)
PMA 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
APA\a
Revenues $7.0 $7.4 $8.3 $9.1 $9.0 $9.6 $9.4 $9.4 $10. $10.
2 2
Operating expenses 3.2 3.5 3.7 3.5 3.6 3.9 5.9 6.5 6.5 6.5
Net interest expense 2.5 3.2 3.2 3.1 3.1 3.0 2.9 4.8 4.8 4.9
Adjustments 0 0 0 0 0 0 (16. 0 (0.3 0
0) )
Net revenue 1.3 0.7 1.4 2.4 2.3 2.8 (15. (1.9 (1.4 (1.2
(deficit) 4) ) ) )
Accumulated net 13.6 14.2 15.6 18.1 20.4 23.2 7.7 5.8 4.4 3.2
revenue (deficit)
BPA
Revenues 2,88 2,62 1,67 1,94 2,06 2,08 2,22 1,92 1,94 2,19
1.9 5.8 4.0 6.9 3.9 0.8 0.2 8.8 2.5 5.9
Operating expenses 1,76 1,84 965. 1,00 1,13 1,13 1,25 1,51 1,51 1,50
0.5 1.3 3 8.0 1.5 3.6 6.4 6.8 4.6 0.0
Net interest expense 897. 849. 921. 913. 892. 670. 538. 685. 724. 756.
9 4 0 6 5 5 7 6 8 7
Adjustments 0 0 0 20.0 0 0 0 0 0 0
Net revenue 223. (64. (212 5.3 39.9 276. 425. (273 (296 (60.
(deficit) 4 9) .6) 7 1 .6) .9) 7)
Accumulated net (308 (373 (586 (580 (540 (264 160. (112 (409 (470
revenue (deficit) .6) .5) .0) .8) .9) .2) 9 .7) .6) .3)
SEPA \b
--------------------------------------------------------------------------------
Revenues 94.4 106. 121. 113. 131. 140. 152. 155. 169. 158.
7 1 4 4 8 4 3 3 1
Operating expenses 61.5 80.8 82.3 100. 97.8 88.6 88.8 93.0 99.3 102.
5 6
Net interest expense 27.7 37.4 42.1 42.4 45.2 45.6 44.2 42.7 40.5 38.9
Adjustments 0 0 0 0 0 0 0 0 0 0
Net revenue 5.2 (11. (3.3 (29. (11. 6.6 19.4 19.6 29.5 16.6
(deficit) 5) ) 5) 6)
Accumulated net 214. 202. 199. 170. 20.3 26.9 46.3 65.9 95.4 112.
revenue (deficit) 3 8 5 0 0
SWPA\ c,d
--------------------------------------------------------------------------------
Revenues 110. 102. 90.8 91.2 91.0 95.5 94.9 103. 115. 109.
8 8 1 7 4
Operating expenses 54.9 54.4 51.8 57.2 52.9 60.8 66.0 66.7 63.3 70.7
Net interest expense 20.3 20.6 21.8 20.3 19.8 19.7 19.5 19.4 17.3 18.1
Adjustments 0 0 0 0 0 114. 0 0 0 0
4
Net revenue 35.6 27.8 17.2 13.7 18.3 (99. 9.4 17.0 35.1 20.6
(deficit) 4)
Accumulated net 23.0 43.8 61.1 75.6 93.8 (14. (4.9 12.0 47.1 67.8
revenue (deficit)\e 2) )
WAPA \f,g
--------------------------------------------------------------------------------
Revenues 583. 609. 627. 500. 532. 547. 586. 707. 673. 713.
4 8 4 0 9 7 0 2 9 8
Operating expenses 287. 346. 390. 395. 484. 515. 519. 555. 674. 579.
7 4 7 8 6 0 0 7 1 4
Net interest expense 56.7 52.7 49.6 47.6 60.0 74.1 89.0 131. 148. 184.
5 4 6
Adjustments 0 0 0 0 0 0 0 0 130. 0
5
Net revenue 239. 210. 187. 56.6 (11. (41. (22. 20.0 (18. (50.
(deficit) 0 7 1 7) 3) 0) 1) 2)
Accumulated net 1,29 1,45 1,68 1,77 1,76 1,71 1,56 1,45 317. 267.
revenue (deficit)\e 1.0 6.2 9.9 4.6 0.0 5.3 4.1 1.9 2 1
--------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
Notes: Financial data are rounded to the nearest hundred thousand.
Accumulated net revenue (deficit) is as of September 30, 1994.
Differences may occur in amounts as stated in the financial
statements because of rounding.
\a In fiscal year 1991, APA changed its method of computing
depreciation on utility plants from the compound-interest to the
straight-line method. The change was applied retroactively to
utility plant additions of prior years. The cumulative effect of
this change for years prior to 1991 was a decrease in the accumulated
net revenue (deficit) of about $16.0 million.
\b In fiscal year 1990, SEPA changed its method of computing
depreciation on utility plants from compound-interest to the
straight-line method. The change was applied retroactively to
utility plant additions of prior years. The cumulative effect of
this change for years prior to 1990 was a decrease in accumulated net
revenues (deficit) by $138.2 million. The 1989 financial data for
SEPA is as reflected in the 1989 financial statements. The 1989
financial data for SEPA were extracted from the 1989 financial
statements in SEPA's 1990 annual report. The financial statements
were restated to reflect the change in the method of computing
depreciation.
\c SWPA's financial data for fiscal years 1985, 1986, 1988, 1989, and
1990 were extracted from the restated financial statements in SWPA's
annual reports.
\d In fiscal year 1990, SWPA changed its method for calculating
depreciation on utility plants from the compound-interest to the
straight-line method. The change was applied retroactively to
utility plant additions of prior years. The cumulative effect of
this change for years prior to 1990 was a decrease in accumulated net
revenue (deficit) of about $114.4 million.
\e Because of prior year adjustments or revenue transfers, the
accumulated net revenues (deficit) for certain years may not equal
the prior year's balance in this account plus current year net
revenue (deficit).
\f WAPA's financial data for fiscal year 1993 were extracted from the
restated financial statements in WAPA's 1994 annual report.
\g In fiscal year 1993, WAPA changed its method of accounting for
depreciation of utility plant assets from the compound-interest
method to the straight-line method. The cumulative effect of this
change for years prior to 1993 was a decrease in accumulated net
revenues (deficit) by $1.054 billion.
Source: The PMAs' annual reports.
Table II.4
Interest Rates on Appropriated Debt for
Each PMA in Fiscal Year 1994
(Rates in percent)
APA BPA\a,b SEPA\a SWPA\c WAPA
-------------------- -------- -------- -------- -------- --------
Range of rates 2.5-8.5 2.5-8.5 2.5-9.5 2.5- 0-
7.875 12.375
Nominal weighted 2.98\d 3.5 4.6 2.7 4.45\d
average rate
----------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonnevillle Power Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
\a Obtained from BPA's 1994 annual report.
\b Does not include interest rates on Treasury bonds or nonfederal
projects.
\c Provided by the PMA, as of September 30, 1994.
\d Calculated by GAO for fiscal year 1994.
Source: The PMAs' annual reports for fiscal year 1994 or material
developed by GAO from other data provided by the PMAs.
Table II.5
Financial Ratios for PMAs, as of
September 30, 1994
(Figures in percent)
Debt Debt
servic servic Debt
Debt Debt Debt e Debt e Debt Debt Debt Debt Debt Debt Debt Debt Debt Debt Debt Debt Debt
to service to to to to to service to service to service to service to service to service to service
PM gross to gross revenu gross revenu gross to gross to gross to gross to gross to gross to gross to
A PP&E revenue PP&E e PP&E e PP&E revenue PP&E revenue PP&E revenue PP&E revenue PP&E revenue PP&E revenue PP&E revenue
-- ------ -------- ------ ------ ------ ------ ------ -------- ------ -------- ------ --------- ------ -------- ------ -------- ------ -------- ------ -------
AP 96 67 95 62 92 63 90 68 88 69 86 67 87 57 89 64 89 68 88 70
A
BP 98 58 98 73 99 66 98 61 97 54 96 44 95 34 94 55 95 55 95 48
A
SE 65 42 71 39 70 38 70 39 68 37 64 49 61 52 57 50 54 52 52 46
PA
SW 87 51 84 49 83 47 80 44 78 42 75 46 74 42 72 46 67 55 63 46
PA
WA 64 48 58 24 75 34 66 10 67 14 66 5 63 24 67 15 70 32 72 26
PA
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration BPA = Bonneville Power
Administration PMA = power marketing administration PP&E = property,
plant, and equipment SEPA = Southeastern Power Administration SWPA =
Southwestern Power Administration WAPA = Western Area Power
Administration
Note: Gross property, plant, and equipment includes the original
cost of generation and transmission facilities and the cost of
construction work in progress. For BPA, we also included other
investments and obligations such as energy conservation measures and
costs associated with operating and terminated nuclear plants.
The ratio of debt to gross property, plant, and equipment was
calculated by dividing outstanding repayable investment (debt) by
gross property, plant, and equipment.
The ratio of debt service to revenue was calculated by dividing
principal debt repayments plus net interest expense by operating
revenues.
Source: Derived by GAO from the PMAs' annual reports and other data
provided by the PMAs.
Table II.6
Gross Appropriations Expended for Power
and Nonpower Purposes, as of September
30, 1994
(Dollars in millions)
Percent Percent
Percent Percent of Percent of of Percent of
Purpose APA of total BPA of total SEPA total SWPA total WAPA total Totals total
-------- -------- -------- -------- -------- -------- --------- ------------ ------------ ------------ ---------- ------------ ------------
Power\a $206.1 100.0 $25,331. 91.9 $1,476.0 62.4 $1,007.6 37.4 $5,891.0 55.7 $33,911.7 78.1
0
Flood \b \b 559.3 2.0 244.3 10.3 910.0 33.7 0.3 0.0 1,713.9 3.9
control
Irrigati \b \b 409.2 1.5 \b \b \b \b 1,558.4 14.7 1,967.6 4.5
on
Navigati \b \b 815.8 3.0 320.9 13.6 231.7 8.6 \b \b 1,368.4 3.2
on
Recreati \b \b 113.8 0.4 291.3 12.3 402.3 14.9 28.6 0.3 836.0 1.9
on
Fish and \b \b 80.0 0.3 16.7 0.7 24.6 0.9 97.4 0.9 218.7 0.5
wildlife
Multipur \b \b \b \b \b \b \b \b 2,801.6 26.5 2,801.6 6.5
pose\c
Municipa \b \b \b \b \b \b \b \b 197.6 1.9 197.6 0.5
l and
industr
ial\d
Other \b \b 244.2 0.9 14.3 0.6 121.1 4.5 6.1 0.1 385.7 0.9
=======================================================================================================================================================
Total $206.1 100.0 $27,553. 100.0 $2,363.5 100.0 $2,697.3 100.0 $10,581.0 100.0 $43,401.2 100.0
3
-------------------------------------------------------------------------------------------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
Note: Percentages may not total 100 because of rounding.
\a Power-related costs includes all power-related and all
irrigation-related costs incurred by the PMA and the operating agency
that must be repaid to the federal government through power revenues.
\b Not applicable.
\c Multipurpose costs refer to costs incurred by the operating agency
that can be allocated to any purpose of the project. Different
multipurpose costs are allocated to each project, and the operating
agency at each project then determines how to allocate these costs to
the appropriate purposes at the project.
\d Municipal and industrial costs refer to costs associated with
providing water to cities for their use, such as for drinking
purposes.
Source: The PMAs' fiscal year 1994 annual reports and data provided
by the PMAs.
COMPETITIVE ISSUES
========================================================= Appendix III
Table III.1
Average Revenue per Kilowatt Hour of
Wholesale Power Sold for Each PMA During
Fiscal Year 1993
Energy Average
delivered revenue (in
in Revenue cents per
kilowatt from sales kilowatt
PMA hours in dollars hour sold)
-------------------------------- ---------- ---------- ------------
APA 405,831,00 $10,079,00 2.5
0 0
BPA 57,245,116 1,406,400, 2.5
,000 000
SEPA 8,744,817, 164,867,00 1.9
000 0
SWPA 7,946,116, 96,696,000 1.2
000
WAPA 29,358,370 535,559,00 1.8
,000 0
Nationwide-wholesale 1,202,901, $43,383,57 3.6
697,000 2,000
----------------------------------------------------------------------
Legend
APA = Alaska Power Administration
BPA = Bonneville Power Administration
EIA = Energy Information Administration
PMA = power marketing administration
SEPA = Southeastern Power Administration
SWPA = Southwestern Power Administration
WAPA = Western Area Power Administration
Source: Developed by GAO from the PMAs' fiscal year 1993 annual
reports and EIA's data.
(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
ENERGY'S BONNEVILLE POWER
ADMINISTRATION
========================================================= Appendix III
(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
ENERGY'S POWER MARKETING LIAISON
OFFICE
========================================================= Appendix III
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's comments on the Power Marketing Liaison
Office's letter dated September 15, 1995.
GAO'S COMMENTS
------------------------------------------------------- Appendix III:1
1. The Power Marketing Liaison Office stated that our report implies
that the PMAs generally use inefficient and inappropriate operating
techniques that could leave them in a precarious position in the
future. We disagree. Our report notes that the PMAs embody the
various statutes and DOE policies that govern their procedures. Our
report also points out that with the exception of Alaska, the PMAs do
not own or operate the hydropower facilities from which they sell
power nor do they have control over the amount of investment incurred
by the agencies that operate and maintain the facilities. We did not
attempt to assess the efficiency or appropriateness of the current
operating techniques used by the PMAs or the operating agencies.
2. The Liaison Office stated that it is inappropriate to use
investor-owned utilities' methodology of operating for a profit as
the only standard by which to judge the PMAs' operations. Our report
did not compare the fact that investor-owned utilities use a
profit-based methodology with the fact that the PMAs' are not allowed
to earn a profit. We compared investor-owned utilities with the PMAs
in two cases, both of which we believe are appropriate. First,
concerning the manner in which the hydropower facilities and
transmission assets were financed, we compared the PMAs' cost of
borrowing from the Treasury with investor-owned utilities' cost of
borrowing from private markets. We believe that this comparison
allows the reader to independently assess the relative borrowing
costs and potential financial advantages of PMAs versus private
sector operations. Second, we explain that most capital investments
in federal hydropower and transmission facilities are made through
appropriations, which are essentially debt because they must be
repaid through power revenues. We compare the PMAs' method of
financing with that of investor-owned utilities that can issue common
or preferred stock in addition to debt. Because the PMAs cannot
issue stock, it is reasonable to expect that they would have higher
levels of debt than investor-owned utilities. We do not assess the
levels of the PMAs' debt in comparison to investor-owned utilities
but rather in terms of competitive pressures and how the PMAs' debt
may affect their competitive situation.
3. The Liaison Office suggested several items that should be
recognized in the report in order to avoid incorrect conclusions
stemming from our comparison of PMAs with investor-owned utilities.
The Liaison Office suggested that (1) the Congress never intended the
PMAs to make a profit, (2) PMAs have a lower operating cost because
their facilities were constructed at a time when construction costs
were lower and the facilities have no fuel costs, (3) the PMAs' high
debt ratio results from the capital- intensive start-up costs
associated with hydropower facilities and the longer service lives of
these facilities and resultant longer repayment periods, and (4) the
PMAs' revenues can vary from year to year depending on water flow,
and thus comparisons to nonhydro- based systems, such as those of
investor-owned utilities, are misleading. First, our report
acknowledges that the PMAs do not set their rates to earn a profit.
Rather, they attempt to generate power revenues sufficient to cover
all capital and operating costs. Second, although our report lists
several reasons why the PMAs remain among the sellers of power at the
lowest cost, our list was not intended to be exhaustive. Our intent
was to inform the reader that, for many reasons the PMAs have been
and generally remain among the sellers of power at the lowest cost.
In addition, our report notes the inherent low cost of hydropower
relative to other generating sources. Third, we do not compare the
PMAs' high levels of debt with the debt of investor-owned utilities.
Instead, we explain how the PMAs' debt, which is a fixed cost, may
constrain the PMAs from adjusting to the increasingly competitive
wholesale power markets in which they operate. Fourth, we do not
compare any particular year's revenues or generation of any of the
PMAs with a nonhydro-based system of an investor-owned utility.
Instead, our report notes that the PMAs' revenues can vary depending
on conditions, such as water flow, which may affect the amount of
power that a PMA can sell.
4. The Liaison Office commented that the PMAs operate efficiently
within congressional guidelines. The Liaison Office supported this
comment by suggesting that the PMAs (1) normally return more funds to
the Treasury than the annual congressional appropriations provided
for the operating costs of the PMAs and the power-related costs of
the operating agencies and (2) seek to balance the concerns of
authorized competing uses of the projects and scheduling and
delivering power to their customers. While PMAs may normally return
more funds to the Treasury than they receive each year in annual
appropriations, the repayment does not cover the Treasury's interest
expense associated with the PMAs' debt. Second, our report notes
that in addition to the $34 billion invested in power-related capital
investments, more than $9.5 billion has been expended by the
operating agencies for nonpower-related purposes, such as flood
control, irrigation, and navigation. We revised our report to note
that the PMAs must recognize and balance the concerns of these
competing uses against the needs of their power customers.
5. We agree with DOE that because Bonneville accounts for the
majority of the PMAs' sales and revenues, its data tend to overshadow
the other PMAs' and may lead to inappropriate conclusions about all
of the PMAs when the conclusions only apply to Bonneville. We have
limited our presentation to factual material only. Our discussion of
Bonneville's competitive situation was not meant as a reflection on
the other PMAs but instead was intended to show what can happen when
a PMA with high fixed costs faces a competitive environment. Our
report explains that as of the date of our report, the other PMAs
were the low-cost sellers of power in their areas.
6. The Liaison Office commented that our report should reinforce the
fact that the PMAs have no control over the amount of appropriations
expended by the operating agencies for power generation equipment.
We agree and have revised our report accordingly.
7. We agree with the Liaison Office that the two financial ratios we
cite in our report (debt to gross property, plant, and equipment and
debt service to revenue) should not be used alone to accurately
assess the PMAs' financial condition. We use these ratios only as
indicators of the PMAs' financial condition. However, for
Bonneville, which now faces significant competition, the high debt
service ratio is a critical indicator of its financial condition.
Bonneville's high debt and resultant fixed costs leave it with little
flexibility to respond to competitive challenges. The substantial
debt of the other PMAs is not currently a problem because they remain
the sellers of power at the lowest cost in their service areas.
However, competition is expected to result in a general decline in
wholesale rates and, if they do not remain low-cost sellers, other
PMAs could face a situation similar to Bonneville's. We agree with
the Liaison Office that the PMAs' debt is at lower interest rates
than those available today and that this has allowed PMAs to carry
higher debt ratios without a corresponding increase in financial
risk. However, as stated above, increased competition in wholesale
power markets is a relatively new development and could pose serious
challenges for each of the PMAs.
8. The scope of our review did not include an assessment of the
quality of the power equipment employed by the PMAs.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION
Bernice Steinhardt, Associate Director
Peg Reese, Project Manager
Daniel Feehan, Deputy Project Manager
Charles Hessler, Deputy Project Manager
Philip Amon
Nancy Bowser
Ken Davis
Stacey Keisling
James Kennedy
Martha Vawter
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION
Gregory Kutz, Assistant Director
Patricia Cheeseboro
Michelle Dimodica
Lori Hendrickson
Donald Neff
OFFICE OF THE GENERAL COUNSEL
Jackie Goff, Senior Attorney
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President's Private Sector Survey on Cost Control. Washington, D.C.:
Aug. 31, 1983.
Reinventing the Bonneville Power Administration. National Academy of
Public Administration. Washington, D.C.: Dec. 1993.
Scotto, D. and B. Chapman. "Electric Utilities Outlook: 1995 and
Beyond." New York: Bear Stearns, Jan. 1995.
A Study of Power Marketing Administration Selected Financial
Management Practices. U.S. Department of Energy. Washington, D.C.:
Oct. 1988.
A Study of Power Marketing Administration Selected Financial
Management Practices, Appendices. U.S. Department of Energy.
Washington, D.C.: Oct. 1988.
Subsidies and Unfair Competitive Advantages Available to
Publicly-Owned and Cooperative Utilities. Putnam, Hayes & Bartlett,
Inc. Washington, D.C.: Sept. 1994.
RELATED GAO PRODUCTS
============================================================ Chapter 1
Bonneville Power Administration's Power Sales and Exchanges
(GAO/RCED-95-257R, Sept. 19, 1995).
Bonneville Power Administration: Borrowing Practices and Financial
Condition (GAO/AIMD-94-67BR, Apr. 19, 1994).
Bonneville Power Administration: GAO Products Issued Since the
Enactment of the 1980 Pacific Northwest Power Act (GAO/RCED-93-133R,
Mar. 31, 1993).
Federal Electric Power: Views on the Sale of the Alaska Power
Administration Hydropower Assets (GAO/RCED-90-93, Feb. 22, 1990).
Policies Governing Bonneville Power Administration's Repayment of
Federal Investment Still Need Revision (GAO/RCED-84-25, Oct. 26,
1983).