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Council Staff Proposal Brings Down Project Spending by Barry Espenson Columbia Basin Bulletin - February 14, 2003

Intensive number crunching and a reliance on the capitalization of planned land acquisitions would push Columbia Basin fish and wildlife expenses under a $139 million spending limit without the need for large-scale project terminations, according to a proposal developed by the Northwest Power and Conservation Council staff.

The Council will consider the plan when it meets Feb. 18-20 in Portland. The Council is expected to make its recommendation on fiscal 2003 program spending Wednesday following an 8:30 to 11:30 a.m. discussion of the topic.

Bonneville Power Administration Administrator Steve Wright, in a Dec. 10 letter, asked the Council to take the steps necessary to "ensure spending for the Integrated Program does not exceed $139 in expense accruals for FY 2003." He set Feb. 21 as a deadline to receive the Council's recommendation. The BPA, which markets power from the federal hydroelectric system, funds the program.

At the time, BPA estimated that "accruals" -- actual amount it would pay out during the year -- would approach $180 million. The federal agency's estimate has since been refined, and lowered, to $165 million.

The Council staff -- after a project-by-project review carried out in concert with BPA, project sponsors and Columbia Basin Fish and Wildlife Authority staff -- believe that bottom line for the "expense" side of the ledger would be $137.4 million. That figure subtracts more than $21 million in land acquisitions that had been approved by the NPCC, CBFWA and the Council's Independent Scientific Review Panel during the program's provincial review process.

"We are confident that we are below the $139 million target," NPCC fish and wildlife director Doug Marker told the Council during a special meeting Thursday. It is hoped that the land acquisitions can be funded as capital, rather than expense, projects. BPA officials have said that it would consider capitalizing land purchases but couldn't actually do it until the appropriate language is incorporated in rate case language.

Rate cases evaluate the amount of revenue that is necessary to cover BPA's expenses, including fish and wildlife costs. The agency announced last week that it is set to trigger a cost recovery adjustment clause rate case, but officials have said that it would not likely be completed until near the end of the fiscal year.

The agency is struggling financially. Last November, BPA officials said the agency was projecting a $1.2 billion revenue shortfall over the rate period that extends through September 2006. BPA has been working within its programs to cut costs to narrow the gap between revenues and expenses.

BPA insists that the $139 million limit cannot be breached because of its severe cash flow problems. BPA had $800 million in financial reserves at the start of fiscal year 2001. Since then, reserves have dropped to $200 million, the lowest in more than a decade, according to the agency. Reserves help BPA survive the ups and downs of unpredictable water and market conditions. Current estimates have BPA losing another $200 million to $300 million dollars this year.

The agency has been in a tailspin since, in 2001, it was forced to purchase power on a super-inflated market to serve a load nearly 3,000 megawatts greater than the system's capacity. Hydropower production was limited that year by drought. Power prices have since taken a steep drop. So, facing another low-water year, the agency will have fewer opportunities to bank cash by selling surplus power outside the region.

Bonneville officials told the Council that during the 2002-2006 rate period an average of $186 million would be available annually for the fish and wildlife program, $150 million for expense and $36 for capital. Under BPA's newly adopted "accrual" accounting method, the $150 million in expense or obligations equates to $139 million in accruals -- paid invoices for project contract tasks. The capital account was barely tapped, $7 million, during 2002. BPA officials have said that account is limited largely to construction projects of more than $1 million.

As the Council staff worked to balance the budget, they tried to better identify the amount of money necessary this year to fund "placeholders" projects. The result is a $22.75 million total which includes $12 million for BPA overhead, $4.3 for subbasin planning, $1.3 million for the Council Artificial Production Review and Evaluation process, $250,000 for data management and $900,000 for two scientific review panels. It also includes $4 million to fill federal biological opinion gaps -- a slate of new projects that have not been subjected to provincial review but that BPA identified as necessary meet 2003 and 2005 BiOp "check-in" requirements.

Bonneville has responsibilities as a federal "action" agency to take actions described in December 2000 U.S. Fish and Wildlife Service and NOAA Fisheries BiOps that are intended to avoid jeopardizing the survival fish protected under the of Endangered Species Act. The Northwest Power Act calls on BPA, through the Council program, to protect, mitigate and enhance fish and wildlife impacted by construction and operation of the federal hydrosystem. That includes non-listed species.

In many cases the project accrual estimates produced by BPA jibed with those produced in the recent NPCC/CBFWA/BPA re-analysis. Overall, the accrual estimate was shaved by nearly $1.2 million by making more pointed judgments about what tasks could actually be accomplished, and billed, before the end of the year for each project.

The NPCC staff proposal also recommends "constraining projects to '03 recommended levels," which reduced the accrual total by another $2.6 million. The project sponsors' own review of the initial estimates reduced the total by another $702,548 and $1.5 million that was earmarked for inactive projects was closed out.

The NPCC staff estimate trimmed $500,000 as reconciliation for delayed projects and recommended cutting nearly $2.16 million in other projects that are on the books but had not been approved by the Council. That latter category includes several projects authorized by BPA.

"With a minimum revision to the scope of work for projects we feel confident we can stay within the $139 (million)," Marker said of the staff proposal.

Marker said that the staff would spend the next week confirming its estimates with BPA and project sponsors.

Therese Lamb, BPA's acting vice president, Environment, Fish and Wildlife, said that her staff was in the process of evaluating the NPCC staff's recommendations.

"There's nothing in particular that jumps out at us," Lamb said. "At this point we still have to take a look at it to see if it is workable." The agency will look closely at the projects the Council staff suggests be constrained or cut.

Lamb and Sarah McNary, also of BPA, on Thursday outlined an "annual accrual limit concept" that they said would allow them to more aggressively manage their cash flow for at least the balance of the current fiscal year. The proposal would set an accrual limit on each individual contract.

"This tool is designed to pace rather than eliminate the work under the existing contracts," according to a Feb. 12 letter from Lamb. McNary is the agency's fish and wildlife director. Lamb insisted that the intent was not to eliminate work, but rather to control how much work on a given project could be completed, and billed, from now until Sept. 30.

While the Council staff proposal would result in few, if any, project terminations, tribal officials insist the $139 million cap is too low, and that BPA is already acting unilaterally to cut fish and wildlife spending. That trimming of projects will wreak havoc on local economies and set back fish and wildlife recovery, tribal officials say.

Tim Weaver, an attorney for the Yakama Nation, told the Council that "Bonneville is cutting work, cutting programs right now. They are not waiting for you to approve this."

"This is a shell game with no pea," Weaver said.

The Yakama Nation's Lynn Hatcher used as an example the tribes' coho salmon restoration project in the Mid-Columbia. The project was recommended by the Council for $2.1 million in funding during 2003. BPA set the 2003 accrual limited at $1.35 million, effectively limiting progress on the project, Hatcher said.

"What's going to be done for the fish will be postponed," Hatcher said. The project is reintroducing coho in areas of the Mid-Columbia where the species had long ago gone extinct.

BPA's deputy fish and wildlife director, Bob Austin, said that the agency had not begun a blanket implementation of the accrual limit concept. He and said the department's staff would investigate why the coho project's accrual estimate had been reduced by Bonneville.

Oregon Council member Melinda Eden said that before making its recommendation next week, the Council needs to know if BPA has already begun cutting back project spending as Hatcher and other project sponsors suggest. Such actions could greatly affect the NPCC staff's estimated bottom line.

"It sounds like reductions are already being made by Bonneville that the Council is not privy to," Eden said.

"I need to know from Bonneville if that's true and to what extent it is true," Eden said.

Tribal representatives from the Columbia Basin and beyond signed on Thursday a resolution that accuses BPA of shortcutting fish and wildlife responsibilities written into treaties, the Northwest Power Act, the Endangered Species Act. The resolution from the 54 tribes that make up the Affiliated Tribes of Northwest Indians says the $139 million cap would pay for only half of the high priority needs in the Columbia Basin as identified through the Council's provincial review process.

The resolution calls for a complete financial and management audit of BPA's fish and wildlife program "to increase transparency and accountability."

"This resolution demonstrates that, as Indian people, we've had it with the Bonneville Power Administration," said Justin Gould, chairman of the Columbia River Inter-Tribal Fish Commission, which includes the Warm Springs, Umatilla, Nez Perce and Yakama tribes. ATNI includes tribes from Washington, Idaho, Oregon, Montana, Nevada, Northern California and Alaska.

"Last fall, Bonneville officials crowed about large salmon returns, suggesting that fish and wildlife programs they funded deserved their due," Gould said. "Ironically, the only successful programs within this agency are the ones taking the biggest hits."

Howard Funke, representing the Upper Columbia United Tribes, said that program "cuts would be absolutely devastating to the tribal programs." That sentiment was echoed by tribal spokesmen who said their people depend on the fish for sustenance. The BPA spending on local fish and wildlife recovery projects provides jobs that have a ripple effect on the economy.

Gould said that those dollars have been put to the best, most efficient use possible.

"We have put fish first with these dollars and proven that it will work," he said.

Montana Council member Ed Bartlett asked the Council to do an assessment of the economic impacts that might be expected from the proposed limitations in the scope of projects, and elimination of projects in some cases.

"Do we have the kind of impacts that some of the tribal representatives indicated?" Bartlett asked rhetorically.

Funke, the Colville Tribe's D.R. Michel, the Kalispel Tribe's Ray Entz and others from "blocked" area's urged the Council to pressure Bonneville to make a land acquisition capitalization decision.

"Let's make sure that we have commitments," Entz said. The majority of the land acquisitions recommended for funding are for wildlife habitat in areas above dams that block salmon passage. Bonneville has said that issues regarding the type of credit the agency might get for those purchases, both under the ESA and Council program, must be settled before it could commit to their capitalization.

Lamb said Friday that effectively deferring those land acquisitions by shifting them from the expense to the capital side of the ledger this year does present some risk.

"We haven't made the ultimate policy decision" about whether those acquisitions can be capitalized.

Funke and other tribal officials said that BPA needed to look harder at itself before paring back fish and wildlife programs. Robert Matt of the Coeur d'Alene Tribes pointed out the fact that Bonneville's fish and wildlife overhead has grown from $7.4 million in 2001 to $12 million in 2003. The BPA fish and wildlife staff has grown from 53 to 67 during that time, at an average annual cost of nearly $90,000 for a full-time position.

"That's three full-time fish and wildlife biologists on the ground," Matt said of BPA's cost per staff member. He contended that much of the work done by BPA staff essentially duplicates work done by other entities such as the NPCC staff, CBFWA and the scientific review panels.

Washington Councilor Tom Karier said he was also a bit taken aback by BPA overhead increases that have amounted to 24 percent per year over the past two years.

"I would encourage you to look further," Karier said. Lamb told the Council that BPA's fish and wildlife program overhead amounted to less than 10 percent of the overall budget.

"By many standards, that is a very low level of overhead for a program of any size," Lamb wrote in her letter to the Council.

Clarifying Alleged BPA Cuts

The article, "Council Staff Proposal Brings Down Project Spending" in the Feb. 14 issue of CBB, carried statements alleging that BPA had made cuts in fish and wildlife programs without review by the Northwest Planning and Conservation Council.

Sarah McNary, BPA director for Fish And Wildlife, presented information at the Feb. 20 Council meeting showing that this is not the case and clarifying what actions the agency has taken to date. The only changes in contracting approach that BPA has engaged in is that specifically announced in the December 31, 2002, letter pending the outcome of the Council's reprioritization process.

Over the last four months, there have been two instances of non-renewal of contracts due to non-performance. A third project was terminated after it was determined that the contract had been amended without the benefit of a Council recommendation or a BPA affirmative decision.

Thank you for the opportunity to clarify our recent actions.

Therese Lamb
Bonneville Power Administration
Acting vice president, Environment, Fish and Wildlife