The federal financial accounting standard defines the full costs of an entity’s outputs as “the sum of (1) the costs of resources consumed by the segment that directly or indirectly contribute to the output, and (2) the costs of identifiable supporting services provided by other responsibility segments within the reporting entity, and by other reporting entities.” As we reported in 1996, applying these definitions of full cost, the full cost of the power marketed by the PMAs includes all direct and indirect costs incurred by the operating agencies to produce the power, the PMAs to market and transmit the power, and any other agencies to support the operating agencies and PMAs. Federal Energy Regulatory Commission

The Secretary of Energy has delegated to FERC the responsibility for reviewing and approving the final rates of the three PMAs. Ineffective Monitoring System Has Resulted in Financial Loss to the Federal Government

Audits by external auditors and GAO have identified various unrecovered power-related costs that have resulted in financial loss to the federal government. Until an effective monitoring system is implemented, the federal government will continue to be exposed to financial loss due to the under-recovery of costs. Unrecovered costs that have been identified relate to federal employee CSRS pension, postretirement health benefits, life insurance benefits, workers’ compensation benefits, and certain interest expenses related to federal appropriations. 4. Cumulatively, for fiscal years 1992 through 1996, we estimated that the net cost, in constant 1996 dollars, was about $192 million ($110 for Bonneville and $82 million for the other three PMAs). Other instances of under-recovery could exist which we did not identify as a result of the limited scope of our work. Thus, the full magnitude of the unrecovered costs is unknown. Current Monitoring Activities Are Less Extensive Than Those Performed in Prior Years

The current activities for monitoring the repayment of power-related costs and debt are less extensive than those performed in prior years. For several years prior to 1984, DOE’s Office of Power Marketing Coordination (OPMC) monitored the PMAs’ activities and reviewed their rate proposals. FERC’s review of Bonneville’s rate proposals was similarly broader before the passage of the Northwest Power Act. According to former OPMC officials, including the former director of that office, OPMC’s monitoring practices included reviewing the PMAs’ rate proposals and power repayment studies before they were sent to FERC. As previously discussed, the act limits the scope of FERC’s review of Bonneville’s rates. We do not agree. However, as our report demonstrates, progress toward resolving some of the cost recovery issues has been slow. Objectives, Scope, and Methodology

We were asked by the Chairmen of the House Budget Committee and the Subcommittee on Water and Power Resources, House Resources Committee, to examine the monitoring of the repayment of the power-related costs and debt of the Department of Energy’s (DOE) Power Marketing Administrations (PMA). Specifically, the Chairmen asked us to determine (1) if DOE or the Department of the Treasury actively monitors the amounts of debt to be repaid and the appropriateness of the annual payments and (2) if there is a potential for financial loss to the federal government due to lack of such monitoring. Assessing Monitoring Effectiveness and the Potential for Financial Loss to the Federal Government

To determine if current monitoring activities ensure that all repayments were accurate, complete, and timely, we first determined who has the legal responsibility for ensuring that the PMAs recover all power-related costs and repay debt and then obtained an understanding of the current system for monitoring the repayment. 3. 5.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the monitoring of the repayment of the power-related costs and debt of four of the Department of Energy's (DOE) power marketing administrations (PMA), focusing on determining whether: (1) DOE or the Department of the Treasury actively monitors the amount of debt to be repaid and the appropriateness of the annual payments; and (2) there is a potential for financial loss to the federal government as a result of any lack of such monitoring of the repayment.

What GAO Found

GAO noted that: (1) current monitoring activities do not ensure that the federal government recovers the full cost of its power-related activities from the beneficiaries of federal power; (2) the full cost of the power-related activities includes all direct and indirect costs incurred by the federal government in producing, transmitting, and marketing federal power; (3) audits by external auditors and GAO's own work have identified various unrecovered power-related costs that resulted in financial loss; (4) progress toward resolving cost recovery issues has been slow or nonexistent; (5) unrecovered power-related costs relate to: (a) Civil Service Retirement System (CSRS) pensions and post-retirement health benefits; (b) life insurance benefits; (c) workers' compensation benefits; and (d) interest on some of the federal appropriations used to construct certain projects; (6) GAO estimated that the federal government's unrecovered costs for CSRS pensions and post-retirement health benefits were about $37 million for fiscal year (FY) 1996 and about $192 million for FY 1992 through FY 1996; (7) the full magnitude of the under-recovery of power-related costs is unknown; (8) until an effective monitoring system is implemented, the federal government will continue to be exposed to financial loss to the under-recovery of power-related costs; (9) the current activities for monitoring the repayment of power-related costs and debt are less extensive than those undertaken in prior years; (10) previously, DOE's Office of Power Marketing Coordination (OPMC) monitored repayment and reviewed rate proposals before they were sent to the Federal Energy Regulatory Commission (FERC) for review; however, DOE disbanded OPMC in 1984 and its monitoring duties generally were not assigned to another entity; (11) OPMC assessed whether appropriate costs were included in rates, but did not review the PMAs' power repayment studies in detail; (12) the scope of FERC's review of the three PMAs' rates was limited by the Secretary of Energy's 1983 revision to the delegation order under which FERC carries out that function; (13) the scope of FERC's review of Bonneville's rates was limited by the passage of the Pacific Northwest Electric Power Planning and Conservation Act; and (14) the review procedures previously performed by DOE's OPMC and FERC provided greater assurance that repayment amounts were accurate, complete, and timely.