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Bonneville Cost Review: Summary of Initial Comments
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Introduction
The following is a synthesis of comments received by staff during a
series of phone consultations with interested parties during the month of
August. Those who took advantage of the opportunity to comment were
primarily from the utility industry with limited participation from the
tribes and environmental community. The focus of the consultations was the
draft objective, scope and work plan. People were asked there views on the
appropriateness of the objective scope and work plan, e.g., whether the
draft put things outside the scope that should be included or vice versa;
whether the approach outlined in the work plan is workable or, if not, how
it should be changed. The consultants were also asked if there were
particular areas that merited special attention during the review.
Staff has summarized the comments we heard below. We have tried to be
faithful to the thrust of the comments while distilling them considerably.
Indications that the Review is Successful:
? BPA's success will be defined by BPA committing to an objective which
is to "meet the market" between now and the year 2006.
? Success of this effort will be measured by a successful subscription
process and therefore, by definition, BPA engaging in arm's length
negotiations and offering competitively-priced products with terms and
conditions that are "no more onerous" than those associated with alternative
products that are available in the market.
? Success will mean that a stranded cost mechanism or transition cost
mechanism will not be necessary.
? Success will require a demonstration that BPA can and will reduce its
staff, especially in Portland.
? Success of the Review means the development of an objective test of
BPA's cost efficiencies, processes, functional activities, as well as a set
of well-considered recommendations that can be implemented without
jeopardizing BPA's reliability and bring the region long-term results.
Common Perceptions:
? This is a critical exercise for BPA to go through; this is timely and
hopefully constructive.
? The market is the driving force; BPA knows what level of costs can be
sustained in today's market and should welcome the assistance in getting
there.
? BPA's relatively high fixed costs (relative to other utilities)
negatively affect its competitiveness.
? BPA has an inordinately high level of staff for the activities being
handled and there appears to be real reluctance to deal with this issue. BPA
has too many high paid managers.
? Cost-cutting and efficient work habits are not rewarded, given BPA's
governmental structure. Instead, activities that expand staff and over-spend
budgets are rewarded.
? As an agency of the federal government, BPA is constrained by
hiring/firing procedures, procurement policies, etc.
? BPA's current financial situation is a mystery. The lack of information
about BPA's financial situation has created a vacuum; BPA needs to tell its
customers about its current and near-term financial future.
? The Management Committee would do the region a favor by recommending
that the next Administrator has management experience and is willing to "do
what it takes" to bring the agency's cost down without compromising
reliability and its statutory obligations.
? It is not clear that the gravity of Bonneville's situation is accepted
throughout the organization. Realization that the "wolf is at the door" is
essential if real cost cutting is to be achieved.
Procedural Reactions:
? The five month time frame for this effort is too short. It is not clear
how much work can be done in this time period, however, in may be
appropriate to focus first on "cost management" in the first phase and then
in January, include in recommendations to the Administrator, having a
follow-on or the "whatever-it-takes" second phase. In the second phase it
may make sense to perform a bench-marking exercise.
? The role of the various management committees and its interaction with
the Power Council, BPA management and staff should be clarified.
? There may be a role in the early stages of this review to hire
independent consultants to advise the management committee as to how it
should proceed.
? While the recommendations should come from the management committee,
the decision regarding "how" to implement should remain with the
Administrator. There is, however, concern that implementing the
recommendations cannot be enforced. There needs to be some assurance that
the recommendations will indeed be implemented.
BPA Themes:
? Recommendations should be on an "exception" basis.
? Focus this effort on cost-management and cost-efficiency rather than be
diverted by opportunities that could be gained via legislative and
regulatory changes.
Common Themes for Modifying the Scope:
? The objective of the Review should be more clearly stated and the scope
should identify concrete results. Focus time, early on, in the development
of challenging but ultimately doable targets.
? It is not clear why certain topics are off the table, e.g., revenue
requirements associated with repayment requirements; reserve levels;
marketing strategies; refinancing debt (given BPA's relatively large debt,
aggressive refinancing may be very cost-effective); fish & wildlife budgets;
money made available to fish and wildlife agencies, etc.; and the potential
need for changes to statutory and regulatory requirements.
? This is the most important effort that the region is involved with;
nothing should be "off the table." For example, the debate about how much
money should be spent on fish cannot be ignored given the direct affect on
BPA's competitiveness. The danger in this evaluation is limiting the scope.
? Bench-marking is an absolutely critical component for evaluating
efficiency. Benchmarking has been valuable for other organizations (Bureau,
Supply System as well as competing utilities) and should be considered for
Bonneville. However, there is a general recognition that the five-month life
of the study may simply allow for recommending that such is done.
? The Review should identify activities that the agency performs in
enough detail to enable decision-makers to assess whether BPA should or
should not perform that activity. However, it may be important to redefine
BPA's activities rather than simply look for efficiencies in the
traditionally defined activities.
? The Review should take its cue from the Comprehensive Regional Review
and start with defining the scope of BPA and then changing the agency so
that it performs the role so defined.
? The Energy Efficiency business line should be eliminated; financing
wind generation at 60 mills/kWh is inappropriate.
? Corporate overheads are out-of-line with the rest of the utility
industry.
? Recognizing that no costs are truly "fixed," the Review should classify
costs in terms of which are difficult to avoid and which can be avoided; as
well as which cost centers produce positive revenue (and how much) and which
cost centers are net losers.
? This Review should result in BPA being able to develop a usable
accounting system that allows costs to be charged directly to business lines
and specific activities so that they may be tracked. In addition, the system
should provide a usable reporting procedure that makes BPA management/staff
and customers aware of the agency's progress.
? This Review should evaluate the efficiencies associated with contract
administration including, if appropriate, instituting some procedures that
reward efficiency and cost-effective efforts and other helpful management
techniques.
? BPA's role as a governmental agency should not be used as an excuse to
justify actions. For example, claims that cost cutting "can't be done" due
to federal regulations or that an over-staffed condition is a result of
burdensome Reduction in Force procedures should be recognized as
rationalization. Staffing, procurement, maintenance activities, print shop
activities, etc. should be reviewed. If BPA's role as a federal agency gets
in its way, then maybe the question is: Should BPA remain a federal agency?
? BPA's financial responsibilities for other agencies, such as the Supply
System, the Corps and Bureau should be scrutinized. There should be a
clearly defined customer/supplier relationships established between BPA and
these various agencies.
? Cost cutting needs to take place right away so that the benefit of such
can be realized at the time when federal power subscriptions are underway.
? Cutting staff begets improved efficiency. Staff will not accept the
reality of the situation until people are actually let go. Once the reality
is accepted, people get serious about improving efficiency and eliminating
unnecessary activities, even if it puts their own jobs at risk.
Additional Comments
? Other agencies (i.e., the Corps and the Bureau) have a stake in this as
well and should be represented on the management committee.
? It is appropriate to look at Bonneville's management of its fish and
wildlife costs but not how others, e.g., fish and wildlife contractors,
manage theirs.
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