RIVER POWER SYSTEM U. S. DEPARTMENT OF THE IN Stewart L. Udall, Secretary BONNEVILLE POWER ADMINI Charles F. Luce, Administrator December 31, 1965 PURCHASED THROUGH LO. X. PROJECT Letter to the Secretary December 31, Honorable Stewart L. Udall Dear Mr. Secretary: Herewith is the Twenty-Eighth Annual Report of the Bonneville P Administration, as required by subsection 9 (c) of the Bonneville Project Act. As with last year's annual report, we have deviated somewhat fro practice of reporting events only through the June 30, 1965, end of our fiscal year. case of new Bonneville rates, the Pacific Northwest-Pacific Southwest Intertie certain other matters, we have reported important developments up to our pri deadline. BPA RATES The most important single development affecting BPA in the past yea been approval by the Federal Power Commission of a modest rate increase effe December 20, 1965. It leaves BPA with still by far the lowest wholesale power ra the nation. The rate increase will average 2.9 percent on firm power over the p period of our system, and 2.4 percent of total revenues over the same period. In the 9 years it will increase our revenues by an average $4 million per year. Ultimatel our sales increase, it will improve our revenues by about $6 million per year. Tog with power benefits from the Canadian Treaty, and revenues from the Intertie an stepped-up power marketing program, we believe it will enable us to repay the Fe investment in presently authorized power facilities within the period expected by Cong The new rates, which we discuss more fully in the Financial Section should have a beneficial effect on the volume of our sales. Embodying many ref suggested by our customers, the new rates are designed to encourage larger sa peaking capacity to both publicly and privately owned utilities. With the increase in level kept small, industries currently are negotiating with us for the purchase of than 600,000 kilowatts, either for expansion of plants already in the region or fo plants. Further, in the first 9 months of 1965, since it became certain any BPA increase would be relatively small, 25 public and cooperative systems reduced In turn, this should increase the volume of their sales and ours. Other public age which have been postponing rate reductions because of concern over a possible increase in the cost of their wholesale power can now reduce their resale rates. Thus, we believe it fair to say that our new rates will increase our revenues, stimulate greater industrial expansion throughout our marketing area, and encourage our distributors to make more resale rate reductions. The ultimate beneficiaries of all this will be the electric consumers of the Pacific Northwest. REVENUES AND PAYOUT Financial statements prepared for audit and certification by the Comptroller General are based upon depreciation cost accounting principles. Under this accounting concept, the capital investment in each project is assigned for recovery by annual charges over the service life of the components of the projects, which according to present estimates will average approximately 70 years. On that basis, we show a surplus of $6,272,000 for fiscal 1965 and a cumulative surplus of $202,791,000 since the beginning of operations. The General Accounting Office audit for fiscal year 1965 pertains to these statements, which are set forth on page This accounting and reporting technique, however, is not fully responsive to our need to demonstrate compliance under criteria presently established by the Congress for repayment of the investment in each hydroelectric project within 50 years after it is completed, a period much less than the average of component service lives. Investment in the transmission system is to be recovered over a period equal to its estimated average life, presently 40 years. We have, therefore, included on page 28, a schedule of our repayment status under those criteria. It shows that with our new rates we will be able to pay operations and maintenance, interest, provide for replacements, and fully amortize each project within 50 years after it is completed, as well as amortize the transmission system in 40 years and provide irrigation assistance in the years it falls due. Like the "basin account" analysis used by the Bureau of Reclamation in the Missouri Valley, Central Valley, and the Colorado River Storage Project, our new payout schedule does not show an annual surplus or deficit. It requires that total amortization payments be sufficient to pay out each project within 50 years, but it does not require repayment of the capital investment in fixed annual amounts. It is based on an "allowable unpaid balance" concept which takes into account projections of revenues and expenses over the period 50 years after the last project is added to the system. When a new project goes into service its capital cost is added to the allowable unpaid balance. Fifty years later this sum is subtracted from the allowable unpaid balance. As long as our actual unpaid balance is less than the allowable unpaid balance in each year of the repayment period, we are meeting our payout test. Further refinements of our payout analysis will be possible as the years go by; for example, as we accumulate more accurate data on the requirements for, and costs of, replacements at dams, and gain more experience on the service lives of components of our transmission system, we can revise the payout analysis accordingly. When we review the adequacy of our rates each five years, the impact of these refinements, as well as other new factors, will be considered. ii |