December 20, 2002

PORTLAND ? The Council agreed Thursday to help the Bonneville Power Administration reduce or defer its fish and wildlife spending this year in response to the agency's financial crisis. But the Council also made clear that the fish and wildlife budget is a victim of the financial crisis, not its cause, and that Bonneville needs to reform its fish and wildlife management practices to help ensure the long-term viability of the program.

?We recognize the need to contribute to a solution that provides near-term relief to the ratepayers, as well as long-term improvement in the management of Bonneville's fish and wildlife program,? the Council commented in a letter today to Bonneville Administrator Steve Wright.

Last week Wright told the Council he would cap fish and wildlife expenditures at $139 million in 2003, an amount that is $47 million below the annual budget target of $186 million that he committed to in December 2001. For 2003, the Council recommended projects totaling about $180 million, and so about $41 million must be cut. Wright asked the Council to forward its recommendations by February 21.

?We don't have a choice,? Council Chairman Larry Cassidy said after the Council met with Bonneville officials Thursday. ?Bonneville has a problem, and we are willing to help solve it. Although a reluctant choice, the Council is a lot better suited to make good decisions about deferrals, delays and reductions. We need to maintain the integrity of the fish and wildlife program, and Bonneville is asking us to recommend substantial funding reductions. The biggest concern I have is a pragmatic one ? that we don't make a mistake with respect to the fish. A project that really benefits fish could fall off the table in this process, and we have to be very careful that doesn't happen.?

Therese Lamb, Vice President for Environment, Fish and Wildlife, and Sarah McNary, director of Bonneville's Fish and Wildlife Division, represented the agency at Thursday's Council meeting. Lamb said Bonneville would implement the Council's recommendations as long as they ensure Bonneville can meet its obligations under the Endangered Species Act and the Northwest Power Act. Lamb said Bonneville would work with the Council to clearly define those obligations and ensure that the Council's recommendations can be implemented.

Bonneville officials acknowledged Thursday that the Council's Columbia River Basin Fish and Wildlife Program is not the reason for the current financial crisis and that the Council has managed the program within the budget targets set by Bonneville. The financial crisis results from the agency's extraordinary power purchase costs during the drought and energy crisis of 2001, when wholesale power prices jumped up to 10 times normal levels, and higher, and stayed there for months. Bonneville spent $2.9 billion on electricity in Fiscal Year 2001 to meet the demand of its customers, and this reduced the agency's cash reserves. As a result, Bonneville is working to cut its costs throughout the agency, including the cost of implementing the Council's fish and wildlife program, which Bonneville is required by law to fund.

?We cannot be content to simply treat the symptoms of this crisis, and will work to develop recommendations to implement remedial action and reforms to prevent similar situations from occurring in the future,? the Council wrote in its letter to Wright.

A key issue the Council will address is Bonneville's management of the two primary components of its fish and wildlife budget. The budget target of $186 million per year includes $150 million for ?expensed? projects (those that Bonneville funds directly with cash), and $36 million for ?capitalized? projects (those that are financed over time with money Bonneville borrows from the U.S. Treasury). Bonneville made a policy decision to expense some projects when the Council anticipated they would be capitalized. Primarily, these are land acquisitions for wildlife and fish habitat. This had the effect of reducing the amount of money available on the expense side of the budget. Bonneville has agreed to land purchases totaling nearly $20 million, but not yet paid for them. If they were funded with borrowed money, the cuts on the expense side of the budget would be lower.

Another key issue has to do with contracting. Because of the way Bonneville contracts for projects that implement the program, $150 million in annual expenses means about $139 million in annual expenditures, on average. That is because the billing for contracts often occurs several months after contracts are signed, and bills from one year are paid in the next year. When bills accumulate this way, as they did between 2001 and 2002, Bonneville relies on its cash reserves if there is not enough money to pay the bills in the current year's budget. Because of the financial crisis, Bonneville did not set aside any money in reserve for this purpose in 2003, and that exacerbates the fish and wildlife budget problem. Wright told the Council last week that it would cost $139 million just to pay for the agency's existing fish and wildlife contracts in 2003, if they were fully funded. Bonneville has proposed to renew all outstanding contracts at 80 percent of their 2002 funding.

Thursday, the Council directed its staff to work with Bonneville's staff and the region's fish and wildlife managers to identify budget cuts and deferrals and bring preliminary recommendations to the Council's next meeting, January 14-16 in Vancouver, Washington. The Council plans to make its final recommendations to Bonneville at its February 18-20 meeting in Portland.

The Council is an agency of the states of Idaho, Montana, Oregon and Washington and is directed by the Northwest Power Act of 1980 to prepare a program to protect, mitigate and enhance fish and wildlife of the Columbia River Basin affected by hydropower dams while also assuring the region an adequate, efficient, economical and reliable power supply.