Detailed Information on the
Bonneville Power Administration Assessment

Bonneville is improving its management of capital project costs and capital investment assessments while helping to assure long-term availability of needed capital funds.

Bonneville will establish FY 2008 adjustable power rates that reflect FY 2007 changes in weather conditions, BPA's financial performance, and fish and wildlife costs.

Bonneville is considering how third-party financing and participation in regional organizations could help lower BPA's future capital expenditures related to its transmission business.

Bonneville is moving to examine industry benchmarking techniques associated with performance and continuing to develop associated efficiency measures and targets, both short-term and long- term.

Bonneville is relating managers' and employees' performance contracts directly to organization and agency targets.

Measure: System Reliability Performance

Explanation:Attain average North American Reliability Council (NERC) compliance ratings for the following NERC Control Performance Standards (CPS) measuring the balance between power generation and load, including support for system frequency: (1) CPS-1, which measures generation/load balance on one-minute intervals (rating >=100); and (2) CPS-2, which limits any imbalance magnitude to acceptable levels (rating >=90).

Measure: Hydropower Generation Efficiency Performance

Explanation:Achieve > or = 97.5% Heavy-Load-Hour Availability (HLHA) through efficient performance of Federal hydro-system processes and assets, including joint efforts of BPA, Army Corps of Engineers, and Bureau of Reclamation.

Measure: Repayment of Federal Power Investment Performance

Explanation:Meet planned annual repayment of principal on Federal power investments.

Is the program purpose clear?

Explanation: The Bonneville Power Administration (BPA) exists to meet its public responsibilities established by Congress. Bonneville's mission is to market and reliably deliver to customers, all available Federally-owned or contracted power, at cost, giving preference to public entities, while protecting fish and wildlife, encouraging conservation, and repaying to the Treasury the full cost of producing and transmitting power, including the investment in hydrpower facilities and meeting all other financial obligations entered into to conduct Federally authorized responsibilities.

Evidence: See Attachment 1: BPA Statutes (DOE/BP-3415 February 2002). Key BPA statutory purposes include: provide electric power at its total system cost; build and maintain a reliable transmission system; provide preference to public power; share regional hydro system benefits; allow for public participation; protect mitigate, and enhance fish and wildlife; provide leadership in conservation and renewable energy; recover costs; and provide regional preference. See also the Canadian Treaty and treaties with Northwest tribes. In conjunction with its statutory responsibilities, BPA through its strategic planning efforts has developed a vision, mission statement and associated strategic business objectives (SBOs), strategic thrusts and performance measures. There is an ongoing review and evaluation process to assure that BPA's strategic direction is current.

Does the program address a specific interest, problem or need?

Explanation: Bonneville markets and transmits power generated at 31 Corps of Engineers and Bureau of Reclamation dams, a portion of a nuclear plant and several other non-Federal plants. There are many unique responsibilities placed on BPA, such as the trust responsibility related to the federal government's relationships with Columbia River Treaty Tribes and representation of the federal government in relations with Canada relating to the Columbia River. The primary program components are transmission, power, and fish and wildlife. (1) Transmission: Provide reliable transmission services to the Pacific Northwest. (2) Power: Market electric power produced by the Federal Columbia River Power System (FCRPS) at cost and improve the efficiency of power production and consumption. (BPA markets the power from thirty one Federal dams, one nuclear plant, and several nonfederal power plants.) (3) Fish and Wildlife: Mitigate effects of the FCRPS on the region's fish and wildlife resources and protect and enhance those resources.

Evidence: There is a 65 year legislative history that underlies the program. (See response to question I.1).

Is the program designed to have a significant impact in addressing the interest, problem or need?

Explanation: (1) Transmission: BPA is the mainstay of the Northwest's power grid, (2) Power: BPA carries the legal obligation to market power to any utility in the region, public or investor-owned. (Northwest Power Act, 1980) (3) Fish and Wildlife: BPA's program is designed to mitigate for damage caused by construction of the Federal hydropower system and enhance migrating salmon and in-river fish species of the Columbia and Snake rivers and restore habitat to Federal lands impacted by the system.

Evidence: (1) Transmission: BPA owns and operates about 75% of the region's transmission resources. (2) Power: BPA markets about 45% of the power consumed in the region. (3) Fish and Wildlife: In FY 2001 F&W program expenses were $221??million and associated hydro operations costs were approximately $1.5??billion. Accounting for all of BPA's costs since 1997, BPA has estimated a cost of more than $3 billion in meeting its obligations to Columbia Basin fish and wildlife, including $378 million attributed to direct program and off-site mitigation expenditures.

Is the program designed to make a unique contribution in addressing the interest, problem or need (i.e., not needlessly redundant of any other Federal, state, local or private efforts)?

Explanation: The generation and transmission of power is a well developed technology, largely provided by municipal and independently-owned utilities across the country. This function could be performed under contract or through non-federal ownership of transmission lines and generation capacity at the dams. The FCRPS resources contribute to BPA's role in balancing a large number of interests as it meets its program responsibilities. Stakeholders include power and transmission customers, environmental, Tribal, consumer, industrial and other interests. (1) Transmission: The Northwest power system is heavily reliant on long-distance, high-voltage transmission lines to connect load centers to generation sites. As new market-based models of transmission emerge that situation may change - at the margin. For example, other parties may solve some transmission congestion problems through using distributed generation. Transmission systems have been inherently unique, and that holds for BPA's system. They are too expensive to be duplicated, although BPA's transmision technology is not unique. (2) Power: BPA is the marketer for the federal hydropower that is generated in the Northwest, although it is one of many Northwest power providers. It makes that power accessible to both public-owned and investor-owned utilities. It works with its partner agencies - the Corps of Engineers and the Bureau of Reclamation - to ensure that power interests are in balance with other public interests (e.g., flood control, irrigation). As energy markets evolve BPA will re-examine its role to see how it can meet its responsibilities while being a market participant. (3) Fish and Wildlife: BPA funds almost all of the Columbia Basin's F&W program. There is no competition for this role.

Evidence: (1) Transmission: BPA owns and operates about 75 percent of the region's transmission grid. There is almost no duplication of transmission paths owned by BPA and other entities (2) Power: BPA markets about 45 percent of the power consumed in the region. (3) Fish and Wildlife: Numerous entities participate in the Columbia Basin F&W program, but BPA funds almost all of their efforts.

Is the program optimally designed to address the interest, problem or need?

Explanation: Bonneville benefits from Treasury loans whose principal value has been reduced through debt forgiveness. The reduced BPA obligation places part of the cost of the construction of the FCRPS system on the general taxpayer. In addition, the statutory application of preference in the sale of power creates administrative inefficiencies and restricts market activity. Market pricing of power and unrestricted sales would improve opportunities for more efficient operations. BPA, tries to optimize its authorized role in the region through an annual cycle of strategy review, objective and target setting, and program evaluation and feedback aimed at achieving continuous improvements throughout the agency.

Evidence: See response to question I.1 on legislative history. Various reports, GAO/AIMD-97-110 and GAO/AIMD- 00-114. Also the Bonneville Appropriations Refinancing Act, P.L. 100-134.

Does the program have a limited number of specific, ambitious long-term performance goals that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: BPA established seven "strategic business objectives" (SBOs) in 1994. They are reviewed annually, but have remained almost constant since then. These are BPA's "eternal verities" - long term objectives that it aspires to: SBO1: Achieve high and continually improving customer satisfaction. SBO2: Increase the value of its business and share the expanded benefits. SBO3: Be a low-cost provider of power and transmission services in the region. SBO4: Achieve and maintain financial integrity. SBO5: Keep the system safe, reliable, and available. SBO6: Invest in results to enhance the region's natural environment. SBO7: Continue to grow as a diverse, employee-centered, high-performing, business-oriented organization. These SBOs are in addition to the three performance measurement areas that BPA and the other power marketing agencies report on in GPRA-related reports. Those three areas are reliability (see SBO5), safety (see SBO5), and Treasury repayment (see SBO4). Those three areas reflect a good set of measures common to all PMAs taken together, but do not reflect on the breadth of BPA responsibilities.

Evidence: Annual measures for achieving these SBOs are discussed specifically in Section IV.

Does the program have a limited number of annual performance goals that demonstrate progress toward achieving the long-term goals?

Explanation: BPA annually establishes quantifiable and measurable one year targets for its strategic business objectives. It also has a nearer-term set of "strategic thrusts" (STs) that emphasize long-term results that are needed within the one to three year timeframe, and one year performance targets are also set for these. These targets are established through a cross-agency process that is led by the Chief Operating Officer.

Evidence: The SBO-related targets for FY??2002 are: SBO1: Composite Agency customer satisfaction index is in the range from 7.3 to 7.7. SBO1: SBO2: Tribal government satisfaction index is in the range from 6.1 to 6.4; composite State/Federal entities and constituent satisfaction index is in the range from 6.8 to 7.4. SBO3: Agency internally managed costs are in the range from $1,175??million to $1,105??million. SBO4: Treasury payment is made on time and in full, with Agency net revenues in the range from $75??million to $150??million. SBO5: High system reliability/sufficiency: Transmission: Outage frequency and duration for key circuits are within Control Chart limits; and Generation: No involuntary curtailments of firm load occur as a result of inadequate power supply. SBO5: Safety: Recordable, lost-time injuries are in the range from 1.6 to 1.1 per 200,000 hours worked (~100 employees) and no fatal injuries occur to BPA or contract employees working on BPA facilities. [Note: The "availability" component of SBO5 is new for FY 2003.] Wind power integration issues are resolved by end of performance year; cumulative total of 60 aMW of conservation is under ConAug contract by 9/30. Significant progress is made in BPA's Great Place to Work scores. Note: The measurement protocol for each target is specified in a "Measurement Notebook", which is developed by the Strategic Planning staff early in the year.

Do all partners (grantees, sub-grantees, contractors, etc.) support program planning efforts by committing to the annual and/or long-term goals of the program?

Explanation: BPA's partners in power production include hydropower from the U.S. Army Corps of Engineers (Corps) and U.S. Bureau of Reclamation (Bureau) - both providing hydropower - and Energy Northwest (Energy NW), which provides nuclear power. All partners share, support, and benefit from joint partner long-term planning for power production. BPA has dedicated staffs that work with the Corps, Bureau, and Energy NW.

Evidence: BPA staffs work directly with their partner agencies to support the identification of productivity improvements. BPA provides monetary incentives to Energy NW for increased nuclear power production efficiency, reliability, and cost reductions. BPA directly funds capital hydropower replacement projects to improve productivity. BPA's Power Business Line has annual measurable targets for Forced Outage Factor (amount of time a planned unit is down) and Capital Execution Rate (efficiency of executing planned capital projects) for Corps and Bureau generation units. See Attachment 2 for a discussion of current efforts in this area.

Does the program collaborate and coordinate effectively with related programs that share similar goals and objectives?

Explanation: Coordination occurs on a daily basis with the Corps and Bureau, and on a frequent basis with other constituents and shareholders. The Northwest Power Planning Council (Council) was created by Congress (Northwest Power Act of 1980) to give Northwest citizens a stronger voice concerning issues of electricity generated at, and fish and wildlife affected by the Columbia River Basin hydropower dams. The Council and the BPA are jointly engaging the region in a discussion of how BPA will market the power and distribute the costs and benefits of the FCRPS in the Northwest after 2006. The Western Electricity Coordinating Council (WECC) is one of the ten electricity reliability councils in North America. WECC also supports efficient competitive markets, ensures open and non-discriminatory transmission access for members, provides a forum for resolving transmission access disputes, and provides an environment for coordinating the operating and planning activities of its one hundred and forty five members.

Evidence: The joint Council/BPA regional effort is described at: www.nwcouncil.org/energy/bparole/default.htm) BPA is a WECC member and has several staff participating in various WECC committees and work groups. WECC and BPA's participation is described at: www.wecc.biz/committees/MR/committee/index.html

Are independent and quality evaluations of sufficient scope conducted on a regular basis or as needed to fill gaps in performance information to support program improvements and evaluate effectiveness?

Explanation: SBO1 (Customer satisfaction): Since 1996 BPA annually has had an independent contractor conduct a customer survey to determine customer satisfaction and other information. SBO4 (Financial integrity): BPA's accounts are reviewed by an independent outside auditor. Reliability of Transmission(SBO5): BPA uses Institute of electrical and Electronics Engineers (IEEE) standard measures of SAIFI (System Average Interruption Frequency Index) and SAIDI (System Average Interruption Duration Index) to monitor and evaluate system reliability performance as reflected in the pattern of unplanned (automatic) outages on the system. In addition, BPA participates yearly in an independent Reliability Benchmarking study conducted by SGS Statistical Services of Tucson, AZ. (SBO5): Loss of load due to inadequate generation is a highly visible occurrence. BPA and other parties are able to note this circumstance without the intervention of independent evaluation.

Evidence: SBO1 (Customer satisfaction): Since 1996 BPA annually has had an independent contractor conduct a customer survey to determine customer satisfaction and other information. SBO4 (Financial integrity): BPA's independent auditor is PricewaterhouseCoopers LLP. The recent audit opinion from Pricewaterhouse Coopers dated January 4, 2002 indicated no material weaknesses in BPA's internal control structure and noted no instances of noncompliance. BPA's Annual Report for FY??2001 is available at: www.bpa.gov/Corporate/kc/home/ar/01ar/ar2001.pdf. With SAIFI and SAIDI as the metrics, BPA uses accepted statistical quality control techniques to develop warning limits and control limits, which provide specific operational guidance to operations and field staff. BPA's reliability measures are very similar to those in use by the California Independent System Operator. Participants in the broad-based Reliability Benchmarking study account for over 1/2 of all the transmission line miles in the US. Reliability of Generation (SBO5): The vice president of Generation Supply would make any determination of loss of load due to inadequacy of Corps or Bureau generation. The power market itself is a good independent watchdog of BPA power reliability programs. The acid test of power reliability is a power outage, which is so transparent that the entire market knows when it happens. In addition, BPA has contracts for power delivery. If BPA fails to deliver power reliably, the impacted parties have legal recourse for BPA's power contract violations, and thereby serve as independent evaluators.

Is the program budget aligned with the program goals in such a way that the impact of funding, policy, and legislative changes on performance is readily known?

Explanation: BPA operates as a revolving fund and thus depends on revenue generated from the sale of power and transmission to finance its activities. BPA develops and adjusts its program budget through annual cycles of strategy review, objective and target setting, and program evaluation and feedback, working toward continuous improvements throughout the agency.

Evidence: In conjunction with its statutory responsibilities, BPA through its strategic planning efforts has developed a vision, mission statement and associated strategic business objectives (SBOs), strategic thrusts and performance measures. There is an ongoing review and evaluation process to assure that BPA's strategic direction is current.

Has the program taken meaningful steps to address its strategic planning deficiencies?

Explanation: BPA fundamentally revamped its strategic planning process resulting, in part, with the following selected long-term strategic business objectives. SBO1 (Customer satisfaction): The two BPA business lines use the results of each customer survey to identify where they should focus the coming year's efforts. This process benefits particularly from hundreds of verbatim comments gathered by the survey interviewers and provided to the business lines. This process sometimes results in business-line targets that aim at meeting specific needs identified in the surveys, as well as improving overall customer satisfaction. SBO4 (Financial integrity): The final test of BPA's financial integrity is its ability to make its annual payments to the U.S. Treasury. Reliability of Transmission (SBO5): The reliability of the transmission system is monitored constantly. Transmission Operations and Planning and its Network Planning function perform both real-time and long-term, strategic planning for the system. Reliability of Generation (SBO5): The conditions affecting BPA's planning for generation have changed significantly in the last ten years, with the emergence of the competitive market for wholesale power. Prior to that BPA conducted least-cost, integrated resource planning to encompass its potential long-term power supply obligations. Planning for the adequacy of power supply has now taken a different form, with reliance on power markets as well as indigenous supply. Even though the 1980 Regional Act gives BPA the authority for long-range power resource acquisition, it is not a legal mandate without BPA customer concurrence. In 1996, BPA's customers conducted a Regional Review of BPA long-term power resource acquisition, and recommended at that time that BPA should cease the acquisition of power resources. BPA has been complying with that recommendation. Thus, BPA has now concentrated on short-term actions to address any short-term needs. This includes such activities as market purchases of power, short-term conservation, and load buy-down. Planning for maintenance and enhancement of existing Federally owned generation is conducted by the Power Business Line's office of Generation Supply. Planning for market supply is conducted by PBL's office of Bulk Marketing & Transmission Services.

Evidence: Since revamping its strategic planning process and implementing independent surveys of significant parties, BPA has seen continued improvement in the areas of client, customer and employee satisfaction levels. SBO4 (Financial integrity): BPA has taken the business actions necessary to ensure that it could make its payments to the Treasury on time and in full. These actions include a more robust treatment of risk in rate cases, reducing costs as needed, careful management of third party debt, and the prudent use of all cash management tools. Reliability of Transmission (SBO5): Deficiencies in system reliability are identified in the historical record through extensive, real-time monitoring of the system. Potential deficiencies are identified using system simulation models. Planning for reliable operation of the system, including planning for system reinforcement and remedial action schemes is ongoing. Reliability of Generation (SBO5): If any power outage occurs due to inadequate power supply, it signifies a significant business failure. In order to ensure an adequate supply, BPA staff constantly plan, model, and monitor power conditions considering many time frames, from 90 and 30 days all the way to real time. Should there be a power outage, an extensive review of the planning, modeling, and monitoring process is made to identify deficiencies. In addition, BPA has contracts for power delivery. If BPA fails to deliver power, the impacted parties have legal recourse. The potential monetary impact of failure is also a powerful tool for self-correction.

Are acquisition program plans adjusted in response to performance data and changing conditions?

Explanation: BPA has a Quarterly Review that includes an assessment of performance results. Business line management committees review significant changes in timelines or project scopes during the year. This includes developing updated capital spending estimates for quarterly review and other business line or agency financial reporting requirements. In addition program needs are reviewed periodically by system planners and engineers based upon load forecasts, power-flow studies, system and equipment monitoring programs, etc. The capital program needs/acquisition plans are updated regularly to reflect changing system performance criteria, electricity market conditions, and equipment conditions.

Evidence: BPA establishes annual performance contracts for managers that are tied to financial targets in order to provide accountability. A similar process has been established for capital investments with contract and contract performance reviews undertaken at least annually. Throughout the year, BPA is responsive to unanticipated changes in the market and other areas resulting in applicable contract, budget or target amendments. Over past few years, the NERC (National Electricity Reliability Council) and the WECC (Western Electricity Coordinating Council) have issued new guideline on system reliability. BPA responded by reviewing all power-flow studies and scenario analyses to identify necessary changes to the transmission grid (capital acquisition) to comply with this requirement. Due to electricity deregulation and market conditions, many independent power producers proposed to build generating plants in the pacificnorthwest. BPA responded by identifying what is required for grid additions to bring these proposed generation resources to market. Since then, the electricity market and prices have stabilized causing the generation project developers to revise their plans and schedules. BPA is responding to this changing condition by revising capital acquisition plans and schedules.

Has the agency/program conducted a recent, meaningful, credible analysis of alternatives that includes trade-offs between cost, schedule and performance goals?

Explanation: In the budget cycle each business line performs a rigorous investment portfolio analysis that includes an analysis of trade-offs. At the very fundamental project level, program managers and sponsors identify a list of least cost alternatives that meet transmission reliability, generation, and/or other agency objective(s). For example after identification of a transmission routing problem or other requirement, agency analysts engage in a process to determine what design, including alternate routes, and/or types of facilities, would best meet agency objectives. One alternative that is always considered is the status quo and the implications of doing nothing. Analysts perform cost-effectiveness analyses for the consideration of the appropriate business line matrix team. The matrix teams use a multi-attribute criteria to balance cost-effectiveness, safety, reliability and other factors.

Evidence: An example of BPA's success in this area is its equipment replacement program that has transitioned from a time-based replacement schedule to a requirement based replacement schedule based on "reliability centered maintenance" principles. This is the outcome of a review of tradeoffs between costs and performance goals, and adapting to evolving industry best practices. Also, BPA's "infrastructure" program is reviewed both internally and externally. The external review included a panel of the region's technical experts, customer group representatives, and stakeholder group representatives. The review included needs, schedules, and alternatives. Both the internal and external review identified potential alternatives other than capital additions for some projects. The capital program costs and schedules are adjusted accordingly.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: BPA collects timely performance information to measure annual progress against its strategic business objectives and strategic thrusts. Where appropriate some baseline results were established many years ago and progress has been measured against them. Variances in results are discussed with senior management as needed at monthly management meetings and are considered in developing performance targets for the next fiscal year.

Evidence: BPA relies upon such information as independent third-party surveys of BPA's customers, employees, constituents and affected Tribes, standardized measures of reliability and workplace safety, and financial information produced in accordance with generally accepted accounting principles. Long-term results generally show improvements in most areas of BPA's performance.

Are Federal managers and program partners (grantees, subgrantees, contractors, etc.) held accountable for cost, schedule and performance results?

Explanation: Federal Managers. Each fiscal year BPA managers establish performance results contracts with their manager, which establish specific action items and measure(s) of results, to include cost, schedule and performance results, as appropriate. The accountable actions are also linked to agency Strategic Business Objectives and Strategic Thrusts. Program Partners (Contractors). The Bonneville Purchasing Instructions (BPI) policy prescribes shared accountability and partnership between of the federal manager and the Contracting Officer (CO) to ensure that the contract performance expectations are clearly defined, and incentives used when appropriate to achieve expected contract cost, schedule and performance results.

Evidence: Federal Managers. Performance contract results. Program Partners (Contractors). Bonneville Purchasing Instructions (BPI) policy prescribes measures for the federal manager and Contracting Officer (CO) to establish performance standards and measures to achieve cost, schedule and performance results, as follows: BPI 6.5 - Requires that federal manager (requisitioner) obtain and certify that all necessary approvals have been obtained. BPI 6.15 - Requires use by program office and CO of strategy panels to address all relevant factors necessary to develop a performance based contract to adequately define requirements of the contractor for achieving results and accountability to meet schedule and budget, including a management plan for the project. BPI 11.18 - Requires that the CO select firms on the basis of past performance, credit ratings and other relevant indicators of successful performance. BPI Part 14 - Requires that those persons with delegated authority who meet training and experience requirements, administer the contracts to ensure compliance with contract performance results, schedule and cost. BPA Appendix 4A - Prescribes approach and methodology for governance oversight of purchasing and financial assistance activities of BPA. The objective of the oversight review is to assure that adequate business systems and processes are in place, documented and supported to satisfactorily implement purchasing policy as set forth in the BPI, and financial assistance policy as contained in the Bonneville Financial Assistance Instructions (BFAI).

Are all funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: All funds spent are for their intended purposes. However, BPA as an enterprise fund does not receive annual appropriations. All aspects of BPA's programs are funded with money derived from ratepayers and debt proceeds. Since BPA is on a business-type budget, its focus is on ensuring that funds are spent prudently and are justifiable to both ratepayers and all other affected interest groups. Therefore, BPA is held accountable for the effectiveness of the results achieved by its overall spending, not the manner in which the funds are committed.

Evidence: Since BPA is operated as a business in an increasingly competitive environment, the effectiveness of its spending it vitally important for its long-term success. Money may only be spent if it can be recovered through rates. In addition, as described in the answer to Question 6, Section 1, BPA shares its financial information in public forums and on the internet.

Does the program have incentives and procedures (e.g., competitive sourcing/cost comparisons, IT improvements) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: BPA competes in a market environment. It must recover its costs through the prices (rates) that it sets. This is a spur to efficiency. As part of the annual target-setting process, BPA establishes targets for "internally managed costs" of its business units and for the agency as a whole. These targets are tied to the agency-wide "Success Share" program and business-unit-level "Team Share" programs, which provide financial incentives to all staff to perform. These targets are also incorporated in performance contracts at the executive and managerial levels.

Evidence: The agency's internally managed cost target is addressed in Section II.2. BPA's principal sub-units all have internally managed cost targets.

Does the agency estimate and budget for the full annual costs of operating the program (including all administrative costs and allocated overhead) so that program performance changes are identified with changes in funding levels?

Explanation: "Bonneville's budget is developed and managed on a fully allocated costs basis in that both business lines are responsible for the full recovery of their proper costs including administrative and pension costs. All organizations capture actual costs using activity based costing and are accountable for results through incentive targets." Bonneville utilizes a streamlined and integrated agency planning and budgeting process that sets forth outcome goals, output targets, and resources in the context of past results. Financial targets, including cost targets, are a component of agency performance targets.

Evidence: In terms of managing its capital investments, Bonneville has developed and is implementing a capital investment review process that provides significant benefits by both improving direction on what the FCRPS invests in (tieing investments more closely to agency strategy) and by improving how those investments are made (better analysis and review of capital investments and their alternatives). As part of this process Bonneville established a Cross-Agency Capital Allocation Board. Near- term capital funding levels are based on Board decisions after extensive review. BPA will continue its efforts to refine and implement the revised capital investment review process to improve the value provided. BPA's transmission finance and estimating groups evaluate progress of capital projects relative to cost estimates and project schedules. These reviews are done monthly with formal reports to the executives also on a monthly basis. The Transmission Business Line is developing a set of net asset value measures for capital portfolio assessment to ensure the value added to the transmission system exceeds cost of capital investments. Projects that cost over $500 thousand are required to have performance measures so that once the project is completed actual performance can be measured. Actual program results are used to inform and refine funding levels. BPA regularly conducts economic and financial analyses of proposed capital investments using cost-benefit, net present value and internal rates of return analysis to assist in evaluating its program levels. Financial performance is tied to delivery on set of balanced scorecard strategic objectives aimed at maximizing the value of the FCRPS.

Does the program use strong financial management practices?

Explanation: Each year BPA's independent external auditors, currently Pricewaterhouse Coopers, perform a financial statement audit. Since 1985, BPA has received an unqualified opinion that its financial statements conform with generally accepted accounting principles and are a fair representation of BPA's operations in all material respects. The opinion also considers BPA's internal control over financial reporting and compliance with certain provisions of laws and regulations. The recent audit report noted no material weaknesses in BPA's internal control structure. The auditors classified significant internal control structures as follows: financial reporting, revenues, purchases and payables, treasury, payroll, and utility plant. The recent audit report also noted no instances of noncompliance with certain provisions of laws and regulations that are required to be reported under Government Auditing Standards. The auditors tested compliance in the following categories: debt authorization and restrictions, enabling legislation, authorizations and restrictions, environmental compliance, procurement policies and procedures, and revenues. In compliance with the CFO Act, BPA's Administrator submits an annual management report both to the President and to Congress with a statement on internal accounting and administrative control systems. The Administrator's recent report indicated that the results of the financial management system evaluation and other information indicate that BPA's financial management systems generally conform to the principles and standards developed by the Comptroller General. The Administrator's report also indicated that the systems of internal accounting and administrative control of BPA provide reasonable assurance that: programs and operational objectives are efficiently and effectively carried out consistent with BPA's mission; expenditures are in compliance with applicable law; funds, property, and other assets are safeguarded against waste, loss, mismanagement, unauthorized use, or misappropriation; and revenues and expenditures are recorded and accounted for properly, so that accounts and reliable financial and statistical reports may be prepared and accountability of assets maintained and security of the automated information system is adequate. Additionally, BPA's rate case is an official legal proceeding. Public hearings are held and rates must be approved by the Federal Energy Regulatory Commission (FERC). This public rate-setting process, which requires approval from an independent regulatory organization, provides an independent and transparent process for setting rates, which ultimately translate into BPA's revenues. Recent rate case documents indicate that the rate case included public hearings and FERC approval of rates. Therefore rates were approved by an independent party and the rate setting process took place in a transparent manner. As a participant in national capital investment markets, BPA, through its net billing arrangements with Energy Northwest (formerly Washington Public Power Supply System), is independently rated on its financial health and business strategies by the three national bond rating agencies.

Evidence: The recent audit opinion from Pricewaterhouse Coopers dated January 4, 2002 indicated no material weaknesses in BPA's internal control structure and noted no instances of noncompliance. The recent "Administrator's Statement on Internal Accounting and Administrative Controls", submitted in February 2002, that reports in compliance with the CFO Act indicated that BPA's financial management systems generally conform to the principles and standards developed by the Comptroller General. BPA's recent rate case documents of May 2000 provide confirmation that BPA follows an independent and transparent process for setting rates. Over the last several years, despite volatility in the overall energy markets, BPA backed bonds have maintained ratings at the highest levels within the utility industry. The extent to which this rating is due to BPA's status as a federal entitiy and the implied backing of the U.S. Treasury is not clear.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: In addition to monitoring and correction tools built into program activities, BPA Internal Audit provides management audits, assists managers in making process self-assessments, coordinates reviews by the DOE-IG and GAO, and tracks recommendations to completed actions, including through the DOE Department Audit and Reports Tracking System.

Evidence: Deficiencies identified through any of these means are targeted for corrective actions, managers and units are assigned responsibility for these actions, and completions are tracked. The agency works toward continuous improvement to impact measurable targets.

Does the program define the required quality, capability, and performance objectives for deliverables?

Explanation: BPA has established Strategic Business Objectives (SBO's) and program thrusts. Project sponsors propose projects that are evaluated by the matrix teams on the basis of the SBO's, program thrusts, and the cost-effectiveness, risk and other measures, described in question 10. The business line capital investment review panels determine ranking criteria for financial and non-financial factors and approve investments or classes of investments using those criteria. The criteria included: net present value, using market discount rates (described in question 10); discount rates based on market assessment of other firms with comparable risk profiles; compliance with regulatory requirements; reliability; safety; environmental impact; and the provision of public benefits.

Evidence: Quality, capability, and performance objectives of deliverables are documented in design specifications, solicitations. The project deliverables' quantity, quality, and capability are tested and documented by BPA personnel and in the case of contractors performing the project, verified documented by the COR/COTR. For transmission grid related projects, the performance goals of the deliverables are further affirmed by system Operation's acceptance of said deliverables into the operating system.

Has the program established appropriate, credible, cost and schedule goals?

Explanation: Following approval by the Business Line Capital Investment Review Panels, all capital projects are required to have a preliminary cost estimate, a "work order quality" cost estimate and schedule before a work order is issued. The costs and schedules are monitored by the project manager and reported regularly. This information is updated monthly. In the case of management-directed schedule changes (changing needs, management priorities), this is communicated to the Scheduling and Estimating group and the project managers and implemented accordingly.

Evidence: The capital program planning and review process documents costs and schedules. Project costs and schedules information reside in BPA's Business Enterprise System (BES) and updated regularly.

Has the program conducted a recent, credible, cost-benefit analysis that shows a net benefit?

Explanation: In each budget cycle BPA performs an agency-wide capital budget analysis. The analysis includes: general project information, project timeline, financial evaluation results (net present value, internal rate of return, and discounted payback period), key assumptions/treatment of uncertainty, impact of key sensitivities, non-financial benefits, and alternatives considered. Other optional criteria may be provided to each business line. For example, when it proves difficult to target and measure typical financial results such as revenue generation, the business case for each prospective project will recommend surrogate measures, such as use of pro forma financial statements to measure before and after financial results.

Evidence: One measure of projected performance that BPA uses extensively is net present value analysis (NPV). The discount rates, used in the NPV, differ by business line. Agency financial analysts review the appropriateness of these rates each year. Currently, the rates are based on the best empirical data source available, found in the "Ibbotson Yearbook", a well-recognized and often-used source of market and industry information. BPA's recent benchmarking of best practices within the utility and other industries confirmed both that Ibbotson was a good source and that our estimated discount rates were consistent with other, "best-practices" companies. The rate for the Power Business Line (PBL) is 13%. The rate for the Transmission Business Line (TBL) is 9%. The rate for Corporate is the blended rate of 11%. For PBL the rate was derived from the weighted average cost of capital (WACC) for the Telephone Communications Industry, SIC 481. This SIC was chosen because the telephone industry has moved from regulated to deregulated, similar to what is now occurring in the Power industry. For the TBL the WACC for the Electric Services Industry, SIC 491. This SIC includes generation, transmission, and distribution companies, much of which is still highly regulated. Because the Transmission Business will remain regulated, this still represents the best estimate of the return that investors would require on transmission investments.

Does the program have a comprehensive strategy for risk management that appropriately shares risk between the government and contractor?

Explanation: The Bonneville Purchasing Instructions (BPI) policy prescribes measures to make a comprehensive procurement strategy plan that identifies technical, cost, and schedule risks, and describes how these risks will be isolated, minimized, monitored, and controlled. As a result of this planning, the CO selects contract type and pricing mechanisms that provide appropriate incentives for contractors to meet cost, schedule and performance goals. From a broader perspective BPA shares its risk with rate payers through rate based credit risk adjustments that take into account financial and market changes over the rate period and has taken steps to assure a broad based agency risk assessment and management program.

Evidence: BPI 6.15 - Requires use by program office and CO of strategy panels to address all relevant factors necessary to develop a performance based contract to adequately define requirements of the contractor for achieving results and accountability to meet schedule and budget, including a management plan for the project. BPI Part 7 - Prescribes policy and direction to the CO for selection of the most appropriate contract type based on an assessment of the nature of the project and associated risks. The objective is to select a contract type that results in the best business approach for BPA, considering contractor risk and incentives for high performance. Risk management includes the establishment of an executive risk management committee with an agency wide credit risk policy, rate based credit adjustment provisions, and the agency's current enterprise risk management evaluation process.

Has the program demonstrated adequate progress in achieving its long-term outcome goal(s)?

Explanation: BPA needs to further refine its target statements. Current targets represent annual performance rather than longer term measures. BPA has made some progress toward the strategic business objectives cited earlier, while balancing the many interests that are served by the agency. SBO1 (Customer satisfaction): Up significantly since 1996. SBO4 (Financial integrity): See the answer to Question 7, Section II. SBO5 (Reliability of Transmission): BPA has maintained high levels of system reliability in the face of increasing loads, increasingly complex schedule transactions and market operations, and a more complex regulatory environment. BPA's reliability goals are not structured to necessarily improve reliability, but rather to maintain at least the same historical high levels of reliability that it has achieved in recent years. SBO5 (Reliability of Generation):

Evidence: SBO1 (Customer satisfaction): The overall customer satisfaction index score that BPA received has risen from 5.8 in 1996 to 7.4 in 2002 (on a scale of 1-10). SBO4 (Financial integrity): The annual payments to the U.S. Treasury have been made on time for almost 20 years in a row. SBO5 (Reliability): Transmission -- The record of maintaining high levels of reliability is available through the Transmission Business Line's internal web site; Generation -- Any loss of load would be determined in the Office of Generation Supply.

Does the program (including program partners) achieve its annual performance goals?

Explanation: BPA's has made an informed forecast of performance in FY 2002 for the larger set of targets that is the basis for the Success Share program. That forecast indicates that approximately 80% of the targets will be achieved by year's end.Some final results are now in for FY 2002. SBO1 (Customer satisfaction) came in with a score of 7.6 (near the high end of the target range of 7.3 - 7.7). The previous year's result was 7.4. The 1-year results for the other two SBOs being highlighted here are not yet in for FY 2002. But BPA has annual results for targets related to those SBOs as well as the other SBOs and Strategic Thrusts. For example, in FY 2001, SBO4 (Financial integrity): BPA made its payment to the U.S. Treasury on time; but the annual net revenue milestone was not met. And for SBO5 (Reliability): the transmission and generation components were both met. BPA has a well-established system of short-term (one-year) performance targets at both the Agency and business-unit levels. These performance targets address near-term expectations for each of BPA's SBOs (the long-term goals) and Strategic Thrusts (which focus on shorter-term needs). These annual performance targets also roll down into performance contracts that BPA vice presidents have with their supervisors. The BPA Administrator's performance contract with the DOE Deputy Secretary is based on the Strategic Thrusts.BPA places great emphasis and invests considerable effort in establishing its annual performance targets and then manages to those targets. For example, at their monthly Management Committee meetings the Power Business Line and of the Transmission Business Line, report progress toward their targets.BPA does not meet all of its annual performance targets, largely because they are established to "stretch" the Agency; hence the "large extent" rating.

Evidence: At the start of each fiscal year BPA sets one-year performance targets at the Agency and business-unit levels. It then tracks performance during the year. The one-year results are important determinants of performance ratings for senior executives and determine the year's recognition payout to all employees under the Success Share program. A variety of means of documentation of results is used. SBO1 (Customer satisfaction): The index value for 2002 is 7.6, the weighted average of the results of the Transmission and Power Business Line customer surveys, as documented in the respective contractor's reports. SBO4 (Financial integrity): This is a 2-part goal. BPA' net revenue for FY 2001 is reported in its Annual Financial Report for FY 2001. Reliability of Transmission (SBO5): The measures of outage duration and frequency were within limits, as documented on TBL's internal web site. Reliability of Generation (SBO5): There was no loss of load due to inadequate power supply, as reported by the office of Generation Supply.

Does the program demonstrate improved efficiencies and cost effectiveness in achieving program goals each year?

Explanation: Since BPA recovers its costs from rates , it is under constant pressure to trim costs and demonstrate improved efficiencies. In an increasingly competitive environment, over time only those programs which are cost effective may be pursued in order to keep rates competitive.

Evidence: BPA consistently meets its internally managed costs targets year after year. The ultimate test of BPA cost effectiveness is the competitiveness of its rates. Historically, BPA's rates have been very competitive.

Does the performance of this program compare favorably to other programs with similar purpose and goals?

Explanation:  

Evidence:  

Do independent and quality evaluations of this program indicate that the program is effective and achieving results?

Explanation: BPA utilizes several independent sources to provide evaluations for a wide variety of programs and processes. For example, each year BPA's independent external auditors, Pricewaterhouse Coopers, perform a financial statement audit. The recent audit report provided an opinion that BPA's financial statements conform with generally accepted accounting principles and are a fair representation of BPA's operations in all material respects. The opinion also considers BPA's internal control over financial reporting and compliance with certain provisions of laws and regulations. BPA relies upon surveys of it customers, constituents, and affected Tribes conducted by independent parties. BPA's rate cases are official legal proceedings. Public hearings are held and rates must be approved by the FERC. On the transmission side, FERC confirms BPA's transmission rates after a finding that such rates recover BPA's costs and expenses during the rate period, and are sufficient to make full and timely payments to the U.S. Treasury.

Evidence: The recent audit opinion from Pricewaterhouse Coopers dated January 4, 2002 indicated no material weaknesses in BPA's internal control structure and noted no instances of noncompliance. Long-term survey results generally show improvements in most areas of BPA's performance. Most recently, BPA's transmission rates were granted approval by FERC in May 2001 under the standards of the Northwest Power Act, and BPA's power rate proposal together with a supplemental rate proposal were granted interim approval by FERC in September 2001.

Were program goals achieved within budgeted costs and established schedules?

Explanation: BPA's capital programs have historically been implemented for less than the initial budget estimates. Schedules, however, have to remain flexible in order to accommodate changing market conditions, and environmental concerns.

Evidence: Comparisons of budget estimates to actual costs for BPA capital programs over the years consistently shows that actual costs were less. Schedules are constantly monitored and revised as necessary to accommodate changing market conditions, as well as any other new information that becomes available.