Bonneville Power Administration

The Bonneville Power Administration (BPA), which markets and distributes power generated on the Columbia River and its tributaries, faces significant operating and financial risks because of its heavy reliance on borrowing, recent operating losses, and other uncertainties. For nearly all of its capital investments, BPA uses debt financing--that is, BPA borrows money and repays the debt, with interest, through future revenues. Almost all of BPA's new borrowing is projected to come from the U.S. Treasury. By contrast, public utilities and federal entities, such as the Tennessee Valley Authority, generally use a higher portion of their current revenues to pay for capital expenditures than BPA does. In the short term, BPA's low financial reserves provide little flexibility to respond to further operating losses, increasing the possibility that BPA would be unable to make its annual payment to Treasury. In the longer term, BPA's financial viability could also be jeopardized if the gap between BPA rates and the cost of alternative energy sources continues to narrow. Such a scenario could cause some BPA customers to meet their energy needs elsewhere, leaving a dwindling pool of ratepayers to pay off the debt burden accumulated during previous years.

GAO found that: (1) BPA currently finances all of its capital programs using debt financing; (2) all BPA new borrowing is projected to come from the Treasury Department; (3) based on current BPA projections, the bond borrowing caps will be reached in 1997 for transmission investments and in 1999 for conservation and renewable energy investments; (4) BPA faces significant operating and financial risks because of its heavy reliance on borrowing, recent operating losses, and various uncertainties; (5) although BPA has taken several steps to reduce its risks, including deferral of capital programs, increasing rates, cutting costs, and negotiating an interim rate adjustment that is triggered if reserves fall below a certain level, the risks remain; (6) low financial reserves provide little flexibility for BPA to respond to further operating losses; and (7) if the gap between BPA rates and the cost of alternative energy sources continues to narrow, some BPA customers may look elsewhere to meet their energy needs, jeopardizing BPA financial viability.