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Council Accepts BPA Challenge on Project Funding Choices

by Barry Espenson
Columbia Basin Bulletin - December 20, 2002

Tough choices are ahead for the Northwest Power Planning Council which on Thursday agreed to lead a process to cut, defer or reduce the scope of some $40 million worth of fish and wildlife work that the panel had earlier recommended, or was expected to recommend, for funding.

Council members from all four member states were unanimous in agreeing to undertake the task of bringing 2003 spending within a limit imposed last week by the Bonneville Power Administration. The federal power marketing agency estimates that a total of $180 million or more in fish and wildlife project bills will accrue during the fiscal year, far more than the annual average it used in setting the wholesale power rates that pay the Council program.

BPA's chief, Steve Wright, told the Council that the program cannot exceed the $139 million in 2003 or future years of the 2002-2006 rate case because of the agency's precarious financial condition. A variety of factors worked to eat up BPA's financial reserves and resulted in a forecast that could put the agency in a $1.2 million hole by the end of 2006. So the agency is looking for cuts across the board, not just in the fish and wildlife program.

The program, however, became a bull's eye when Wright announced the wide gap between desired and anticipated 2003 spending. Since 2001 the carry-over from previous years of contracted spending obligations has ballooned to an estimated $45 million going into the fiscal year that started Oct. 1.

Final editing was under way today on a letter from the Council to Wright, accepting his challenge to lead the budget process and outlining what it expects in return.

Montana's John Hines said the Council's choice Thursday was very narrow -- either participate in the budget cutting or let BPA do it unilaterally. He said the Council was best equipped to engage the many affected entities in the region in a public effort to make the budget choices.

"We'll come up with a better product," Hines said.

Fellow Montanan Ed Bartlett said it was not just a choice but "our obligation under the charge we have from Congress" to lead the process. The Council was created via 1980's Northwest Power Act with duties to mitigate and enhance wildlife affected by the federal hydrosystem while assuring an economical, reliable power supply.

With the Council's commitment came a call for a BPA commitment as well.

"This is a very, very very serious situation that you've brought to us," said Oregon's Eric Bloch. The successful fish and wildlife projects now ongoing in the region are "not something you can turn on and off like a light switch."

He said the envisioned cutbacks could have a serious "impact on the spirit and willingness of thousands of people we have participating across the basin in this program."

"If we do this, what commitment do we have for Bonneville that it will honor the solution we present?" Bloch asked.

BPA's Therese Lamb said that Bonneville would implement the plan if it meets Bonneville's statutory obligations. That, she said, means the end product must implement critical Endangered Species Act actions and those ongoing program actions or "investments" that bring the highest biological benefit.

Under a strategy outlined by NWPPC Fish and Wildlife Director Doug Marker, the Council and staff would immediately launch discussions with Bonneville regarding outstanding policy issues, and accounting information, that could affect the budget deliberations.

"There's a rollout of information that needs to happen," Marker said. Once the scope of the problem is better defined, the Council would likely want to reconvene the working groups that were formed over the past two-plus years of provincial reviews and project selection. Those groups would help go through the projects one by one as the Council works toward a prioritized list. Wright has asked the Council to produce by Feb. 21 recommendations for how the budget can be squeezed under the $139 million cap.

One policy issue with the potential for a big impact is BPA's policy on project capitalization. The rate case assumes average annual program obligations of $150 million (which equates to the $139 million accrual or actual expenditure figure) for expense and $36 million for capital expenditures. The capital side was barely tapped -- $6 million -- during the first year of the rate period.

The expense problem that the region will grapple with would be eased if nearly $20 million in planned 2003 land and easement acquisitions could be shifted from the expense to the capital side of the ledger, Marker said. BPA, and its accountants, say the purchases cannot be capitalized unless some concrete asset, such as a hatchery for example, is associated with the purchase. Marker said that the Council's own advisers say habitat land purchases should qualify.

The choices are tough. BPA's Lamb and Sarah McNary told the Council and audience that project spending that is deferred, rather than cut, would impinge on future year's budgets. Because of BPA's financial situation, it is unlikely the agency could fund the program beyond the $139 million cap in 2004 or 2005 either, they said. That means projects deferred to next year would count against that year's cap. Lamb is vice president for Environment, Fish and Wildlife. McNary is director of the agency's fish and wildlife division. The $139 million was intended as an average annual expense over 2002-2006 rate period.

Thursday's special Council meeting drew a standing room only crowd in the panel's large conference room in Portland. Tribal representatives from across the basin, as well as state, federal and other fish and wildlife project proponents and ratepayer groups, both listened and talked.

Tribal entities were particularly outspoken -- accusing BPA of broken fish and wildlife spending promises

BPA officials say they are poised to cut back contracts that come up for renewal by 20 percent and potentially issue only three-month contracts. The fish and wildlife contracts are often multi-year that require annual negotiation and renewal. By not committing themselves beyond March 31, the agency maintains the flexibility to make the necessary adjustments -- cutbacks, deferrals and termination of projects -- after the Council-led prioritization process is complete. Funding at full contract amount, and for a full year, could serve to evaporate the amount remaining under the $139 million cap.

Lamb said that the preliminary estimate is that from $5 million to $10 million could be reserved by trimming renewal contracts by 20 percent.

The Council had a mixed reaction. Oregon's Gene Derfler, a recently retired state senator, said imposition of a 20 percent decrease could be a good exercise to force the Council, project sponsors and others to focus on the problem.

Idaho's Judi Danielson said that 20 percent across-the-board cuts would punitive for projects sponsors who have already trimmed their projects to the bone. The latter half of the Council's three-year provincial project review process has been focused on developing lean budgets, in large part because many more projects have been deemed worthy of funding than the budget target would allow.

While acknowledging that the Council needed to face the spending problem, Danielson said that the short-term contracts essentially serve as "pink slips that might change in 90 days," meaning work and workers would be lost because of the 20-percent cuts. Then, if the project survives the prioritization process, those workers would have to be replaced.

Oregon's Eric Bloch said the question of what would be saved through the 20 percent cuts must be weighed against what is lost to the integrity of each project. In many cases a 20 percent funding loss could undermine the work's effectiveness. He also said the administrative burden would be greatly increased by having to issue new contracts for such a short time period -- effectively raising internal costs.

Both Bloch and Montana Councilor John Hines said the Council and BPA need better accounting numbers -- how much would full renewals cost over the next three months and exactly how much flexibility would be gained through the cuts -- before decisions are made.

Lamb said that the BPA would make a decision soon about whether to implement the renewal plan. She promised that the agency would explore the issues brought up by the Council -- the potential administrative burden, impact on fish and wildlife projects and amount of savings that would be produced.

The Columbia River Inter-Tribal Fish Commission's executive director told the Council Thursday that BPA appears to already be implementing the 20 percent reductions. Don Sampson said that the Nez Perce Tribe, which has 14 contract renewals coming up at year's end, has been told it will have to get along with less for the next three months.

"That is the wrong message to send people that have worked so hard," Sampson said. He said that the lower Columbia treaty tribes are prepared to join the Council in seeking out efficiencies. But BPA's demands cut too deep.

"We need to stand up and tell Bonneville that you have to look at other alternatives," Sampson said. That includes the triggering of rate increases, utilizing the capital expense allowed for in the rate case. Sampson also said that BPA spent $200 million less than promised over the course of a 1996-2001 memorandum of agreement on fish and wildlife spending.

He said that even utilities are asking what happened to the money built into their power rates as fish and wildlife costs. BPA has said that it does not allow for "set asides" of funds for future used within particular programs.

If BPA ignores its treaty and trust responsibilities to the tribes, they may have to make their case elsewhere, such as Congress, Sampson said.

"There are huge investments on the line," Sampson said. He said non-ESA parts of the program were being slighted as BPA attempts to meet the terms of 2000 federal biological opinions that prescribe measures necessary to avoid jeopardizing fish stocks listed under the ESA. "Check-ins" are scheduled in 2003 and 2005 to chart federal agency's progress toward improving fish survival.

The budget announcement, as well as recent "unilateral" decisions by BPA on contract renewals, are of "grave concern" for the five Upper Columbia United Tribes, said that organization's executive director, Mary Verner.

"Since the MOA expired in 2001 the chaos has accelerated," Verner said of the project selection and funding process.

She too decried the fact that the dollar amount represented by BPA's unfulfilled MOA spending promises has apparently disappeared "when it really should be applied to expenses now being incurred."

She and numerous people complained that the BPA's fragile financial situation is being blamed, in some quarters, on fish and wildlife spending. To the contrary, the fish and wildlife programs have always come within the budgets allowed for them.

"The problems at hand are not caused by the fish or the wildlife," said Robert Matt of the Coeur d'Alene tribe. BPA over the past year has endured a financial firestorm with a 2001 drought affecting the federal hydrosystem's ability to generate power and a 3,000 megawatt over commitment to customers that required that power be purchased on a super inflated wholesale market. With plenty of water available this year, the market bottomed out. That thwarted the agency's ability to rebound financially through surplus power sales.

Matt, like other tribal spokespeople, said they did not support cuts in existing budgets. But all also said that if the cutting is necessary, BPA should not make those decisions by itself.

"I was encouraged that the Council told Bonneville the entire region has to be involved," Matt said.

The Umatilla Tribes' Ken Hall recited a list of salmon restoration successes and told of the economic boost it has given rural communities. The budget cuts could well thwart that progress, he said.

"Momentum is increasing. We now have many cost share partners in salmon restoration," Hall said. "These include state and local governments, conservation districts, irrigation districts, farmers, environmental groups and others who are contributing their time and financial resource to salmon restoration projects that receive funding from BPA.

"BPA's threats and unilateral actions will pull the rug out from decades of consensus building and hard won progress," Halls said. He urged BPA to renew promises to fund fish and wildlife projects that he said were made during its wholesale power rate case for the 2002-2006 period.

"These include capitalizing $35 million of fish and wildlife investment annually, implementing the finance-based and safety net CRACS, and if necessary carrying out its promise to defer a Treasury payment," Hall said. The CRACs or cost recovery adjustment clauses are mechanisms built into the rate decision that allow rate increases.

Related Pages:

Barry Espenson
Council Accepts BPA Challenge on Project Funding Choices
Columbia Basin Bulletin, December 20, 2002

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