In addition, for a Federal agency, Bonneville has unique flexibility in how it spends the money in its budget. BPA can reprogram funds within categories; Bonneville can also reprogram funds between categories after the budget has been reviewed by the Congressional committees.

A specific example of this budget flexibility illustrates the scope of BPA's discretion. In BPA's FY 85 budget, there is a brief reference to studies on additional intertie transmission between the Pacific Northwest and Pacific Southwest. At a recent Council meeting two weeks ago, Bonneville informed us that, depending on the outcome of these studies, Bonneville might later propose a change in its FY 85 budget to provide for construction of additional intertie capacity. This expansion represents a $100 million expenditure. Such an expansion could affect regional power planning, construction of regional generating resources and the sale of surplus power within the Northwest. So far as we are aware, the people of our region were not notified of BPA's decision and were not afforded an opportunity to comment on it.

This budget flexibility means that the BPA budget document, unlike other Federal agencies' budgets, is not a programmatic decision-making document. In fact, BPA appears to have no such document. BPA representatives that have told the Council the BPA budget is "a moving target. This makes it virtually impossible to use the budget to monitor the progress BPA intends to make toward implementation of the plan.

Given the volatile nature of the Northwest energy situation, it is important for the Bonneville Power Administration to have the flexibility to reprogram funds to deal with changing circumstances. However, the current process does not provide any opportunity for the Council or the public to review and influence these changes. The exercise of this budget flexibility must be visible, open and accountable to the ratepayers of the Pacific Northwest. There needs to be a better process to open to public scrutiny both Bonneville's budget and budget implementation. The Council has circulated a staff issue paper seeking public comment on ways to provide more public accountability. And the Council is consulting with BPA on specific ways to make the budget process more accountable.

We can now turn to the substance of the Bonneville budget as it relates to the Council's regional power plan and fish and wildlife program. When the Council adopted the regional power plan in April of 1983, it recognized the substantial surplus facing the Pacific Northwest. The primary focus of the Plan over the next two years is to develop and test conservation programs in all sectors of the economy so that these programs will be reliable and available when the the surplus, the plan does not or other resource solely for the two years.

region needs additional power. Because of include the acquisition of any conservation purpose of acquiring power during the next

The goal of capability building is to insure a conservation resource which is available and reliable. That means that Bonneville must have a demonstrated ability to secure a specified quantity of savings at a specified cost within a specified time.

Building capability involves. 1) information about how much conservation is available based on real world cost and performance information, including construction schedules and lead times, labor force requirements and market characteristics, 2) the development of infrastructures to deliver conservation, including a trained and experienced labor force and materials suppliers, 3) administrative systems and experience, 4) agreement on standard contracts to deliver the conservation; 5) resolution of financial considerations including the incentive levels that will be paid for conservation and an analysis of how much conservation is cost-effective, and 6) compliance with the National Environmental Policy

Act

T

5

The Council has concluded that BPA already has the capability to deliver weatherization programs in existing residential structures. The major thrust of the Plan was to build capability in the commercial, industrial, and agricultural sectors. There is an important reason for this shift in emphasis: Looking at the long-term resource potential, weatherizing existing homes provides only about 25% of the future power available from conservation in the region. Therefore, the other sectors of the economy are very important if the region is going to be in a position to meet future load growth with the lowest cost resources.

The Plan lays out a number of steps that Bonneville needs to take to build capability in the commercial, industrial, and agricultural sectors. The megawatt targets set in the plan provide a way to measure BPA's progress in diversifying its efforts into these new sectors. The megawatt targets also represent the levels of effort that will demonstrate the capability for BPA to meet the needs of a strong and growing regional economy.

This past fall, the Council conducted a thorough, detailed review of Bonneville's first six months of effort at implementing the regional plan. Based on our review, the Council, in a letter dated December 15, 1983, generally commended Bonneville on its efforts to accomplish the requirements of the action plan. We stated that with the exception of a few, but critical, action items Bonneville appeared to be on the path to successfully implementing the plan and that the BPA staff had made a good faith effort to meet the plan's requirements. Our greatest concern was that Bonneville's commitment of resources did not appear to be consistent with the regional plan's goal for Bonneville to diversify its efforts by achieving cability outside the existing residential sector. It appeared that additional budget was needed in appliances and in the commercial, industrial and agricultural sectors.

Bonneville's proposed FY 85 and FY 86-89 budget projections did not resolve the concern expressed by the Council in our December 15, 1983, letter. Stated simply, Bonneville's proposed budgets were not consistent with the plan's diversification goals.

In the December 15, 1983, letter the Council also observed that many of BPA's plan implementation problems for Fiscal Year 1984 resulted from the schedule of Bonneville's budgeting and ratemaking processes. BPA's FY 84 budget and rates, for example, were determined prior to the Council's final plan and without reference to the draft plan. To prevent future implementation problems, the Council recommended that Bonneville use the five year conservation targets in the plan to establish Fiscal Year 1986 and 1987 budgets and rates. The letter pointed out that the plan's rate of implementation in all sectors during the next five years was set to meet reasonably high economic growth. The Council also stated that the megawatt targets represented a measure of capability and diversity, and that the FY 85 megawatt targets represented the lowest reasonable progress necessary to meet the regional plan's 1988 targets.

In a recent communication to the Council, BPA has indicated an intention to diversify further its conservation spending plans for FY 85. Although we need to analyze this recent submission more closely, it appears that BPA has made significant changes in commercial sector spending. We remain concerned about the inadequate level of investment in industrial and agricultural conservation. We will continue our consultations with BPA and report progress to the subcommittee.

For now, we ask the subcommittee to incorporate the following language in the report on the FY 85 BPA Budget:

"The subcommittee reaffirms the mandate of the Pacific Northwest Electric Power Planning and Conservation Act of 1980 (P.L. 96-501) and directs that Bonneville Power Administration's FY 85 spending programs be consistent with the Northwest Conservation and Electric Power Plan developed

Power Planning Council pursuant to that Act. FY 85 funds eveloping outyear program development plans shall likewise be are consistent with the regional program plans that to develop that its conservation spending proportions SPA shail nsure mate the energy conservation proportions indicated in the Council

The point of the language is to diminish BPA flexibility on these vital increase accountability to the regional areas of the agency's budget and Dam and the region's ratepayers.

ན་

The Counc

tes Stand

ans

e program.

a so has reviewed BPA's budget for fish and wildlife The Joanetle budget proposal includes a $27,100,000 item for It is the Council's understanding that and at least another $5-6 million to that amount to increase borrowing to provide additional funds for sa passage facilities in the Yakima River Basin. The eases that Bonneville has increased its spending beyond the $22 ts rate decision. The Council also is pleased with ement that it intends to use its funding authority the Council's Columbia River Basin Fish and Wildlife as indication that there is sufficient flexibility in the ve to adjust its spending to accommodate program direction The council.

we oppose the proposal to transfer responsibility for funding maintenance of the "Mitchell Act" hatcheries (including to Bonneville. That proposal is reflected in the proposed

I supports the continuation of Congressional appropriations and maintenance of the Mitchell Act hatcheries. In doing so, endorsing the present management policies and practices D those hatcheries.

eve the proposed transfer is inconsistent with Congressional a Northwest Power Act.

يدي

4(h) (10) (A) of the Act states that the Bonneville ww's expenditures on fish and wildlife must be "in addition to, of, other expenditures authorized or required from other wo other agreements in provisions of law." The House Interior explained that this meant that "[o]ther fisheries efforts outside w example, are expected to continue and to be funded separately." hatcheries in question were built to deal with a variety of adverse A fish including irrigation, forest practices, pollution and flood at hydropower alone. Bonneville may address non-hydropower wly as offsite enhancement for the effects of the hydropower system Aanner consistent with the Council's program.

id, the proposed transfer is inconsistent with the Council's A River Basin Fish and Wildlife Program. It may, in fact, undermine l's program by ultimately reducing the amount of funds available ✔am measures.

mary, we believe the proposal to transfer funding of the Mitchell aries to Bonneville is inconsistent with the Northwest Power Act, want with the Council's Columbia River Basin Fish and Wildlife likely to reduce the amount of funding available for the Council awasures, and contrary to the goal of stemming the decline of the a uational resource the Council and the Congress have been working to

opportunity to testify.

PROPOSAL TO REDUCE CONSERVATION ACTIVITIES

Chairman HATFIELD. Mr. Hemmingway, do you have any remarks you wish to make?

Mr. HEMMINGWAY. No. I am here to answer questions.

Chairman HATFIELD. Mr. Colbo, would you care to comment on the natural gas industry's proposal to reduce conservation programs, par ticularly in the industrial, commercial, and agricultural sectors?

Mr. COLBO. Mr. Chairman, I would offer several observations, and am sure Mr. Hemmingway would like to comment as well.

First of all, by setting the environment that we find ourselves in as a council, having been sued and that action pending now, and as a par ticipant in that action, as a defendant, trying to resolve the issues that have been brought before this committee now, that would strike at 1 think the heart of the diversification of BPA's conservation effort. The numbers presented that we have had an opportunity to review do no surprise us, nor do they discourage us. The analysis that has been done deals with pilot projects that are intended to demonstrate the ability of the region to respond in these sectors of the economy to future con servation needs and to firm up, in other words, that resource for the region.

The initial cost of any pilot program is high. When I say "not dis couraging," I mean they are still cost effective within the term as used by the council. So the testimony does concern me.

The heart of the conservation program is the diversity. I think the programs being referred to by the previous testimony are terribly im portant to Bonneville and to the region and to the council's plan.

Mr. Hemmingway may add to that.

Mr. HEMMINGWAY. I think the gas company's position shows a fundamental misunderstanding of the plan. The plan is intended to provide the region with a basis of energy sufficiency no matter what load demand occurs in the future. Given that there is substantial uncertainty about that load demand and the resources that will be available to serve us, notably 1,600 megawatts of WPPSS 1 and WPPSS 3 which remain in doubt, the council has suggested in its plan that Bonneville direct its effort toward diversification of conservation programs out of the residen tial sector into other sectors, so that if that energy is needed, we can count on that energy being delivered from those conservation programs in those other sectors. They will be needed and needed quite rapidly in the event that load grows rapidly, in the event that WPPSS 1 and 3 cannot be completed.

These programs that are projected are cost effective. The pilot programs that are suggested in the budget are needed to get the programs going. And in my opinion there is no increase in the use of electricity caused by these programs.

Now in the case of the residential standards demonstration program, which they have suggested be deleted from the budget, Bonneville is asking for sufficient funds to be able to fund conservation homes which would be built with electric heat. The number of homes suggested to be