December 20, 2002

Stephen J. Wright
Administrator and Chief Executive Officer
Bonneville Power Administration
P.O. Box 3621
Portland, OR  97208-3621

Dear Steve:

As a result of Bonneville's current financial crisis, you have requested the Council's participation in reducing or deferring Bonneville's direct program fish and wildlife expenditures in 2003 to reach your imposed spending cap.  The Council has spent considerable time examining the funding history and future projections associated with the direct program, as well as acquiring a better understanding of Bonneville's overall financial health.  It is clear to the Council that the financial difficulties Bonneville faces are serious, and that agency-wide fiscal restraint is necessary throughout all of Bonneville, including within the fish and wildlife program.

We make the following response understanding the financial burden being shouldered by Bonneville's ratepayers during this time of financial uncertainty, and recognizing 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 will work with you to manage fish and wildlife spending levels in 2003 to ensure that an average of $139 million per year is expended, which is consistent with the commitments you made in your December 3, 2001, letter to the Council.   We cannot afford to be content, however, to simply treat the symptoms of this crisis, and will work to develop recommendations for remedial action and reforms that Bonneville can implement to prevent similar situations from occurring in the future.

We want to make it clear that Bonneville's financial crisis is not a product of the fish and wildlife program.  Obligations and expenditures associated with the program are consistent with the original agreements that were made in prior years.  The six-year agreement covering 1996 through 2001 was implemented within budget, and in the manner that was intended when it was negotiated by the Northwest congressional delegation in 1995, and later codified by the federal agencies in their 1996 Memorandum of Agreement.

The Council takes exception to suggestions that the program is ?over budget.?  Through 2002, obligations are consistent with planned levels, while expenditures are lower than expected.  We also question why funds collected from Bonneville's ratepayers in the 1996 - 2001 rate period for the fish and wildlife program were not reserved and carried over into 2002 and beyond to pay for the contract commitments made in the 1996 - 2001 rate period. 

You recently observed that the region's investment in fish and wildlife appears to be paying dividends.  We are hopeful that the recent significant increases in adult salmon and steelhead returns are the beginning of a sustained recovery.  Given these positive results, we have concern about losing ground, and do not look forward to recommending areas for program reductions or deferrals.  Many of these successes are rooted in the Council's program that has benefited significantly in recent years due to independent scientific review, which was mandated by Congress.  This program also has been crafted to meet Bonneville's legal obligations under the Endangered Species Act and the Northwest Power Act.  The Council believes that its program, as implemented in accordance with the Northwest Power Act, and in collaboration with the federal and state fish and wildlife agencies and Columbia Basin tribes, provides the suitable and appropriate forum for these decisions.

We also are concerned by statements in your December 10 letter to the Council that appear to dismiss measures associated with the program that do not address biological opinion requirements.  While we agree that biological opinion implementation is a high priority; we disagree that it takes precedence over statutory objectives of the Northwest Power Act.  It is important to recall that the biological opinions? reasonable and prudent alternatives (RPAs) were conceived as an additional layer to the Council's existing fish and wildlife program.  Funding these RPAs, to the exclusion of the goals and objectives of the fish and wildlife program would also risk invalidating the biological opinions. 

We want to stress that our Governors view the success of the biological opinions implementation as critical to the economy and the fish and wildlife resources of our states.  Such success is not solely the interest of the federal action agencies.  For the last two years, the Council has closely adhered to the four Governors? July 2000 plan to implement the federal biological opinions and the Northwest Power Act within the funding level defined by the rate case while meeting other critical state, tribal and local objectives.  The Council continues to be concerned by the lack of agreement between Bonneville and NOAA Fisheries in identifying projects to implement the biological opinions.  It is imperative that this situation be corrected to ensure that Council-recommended projects are integrated with the RPAs.

While the Council is willing to participate in reducing or deferring Bonneville's fish and wildlife expenditures in 2003, it also expects Bonneville to address several issues regarding the management of its fish and wildlife program.   One item requiring immediate attention is resolution of the controversy over eligibility of projects for the $36 million per year of capital funding to which the Administrator committed one year ago.  For Fiscal Year 2003 Bonneville reports that only one-third of the capital funds have been made available for this purpose.  Shifting fish and wildlife funding from capital to expense increases Bonneville's cash requirements to meet its annual expenditure obligations.  Bonneville also needs to be more forthcoming with regard to data requests from the Council and the region, especially regarding financial and budgetary information.  Other issues to be examined include, but may not be limited to, the absence of cash reserves to cover the obligations into which Bonneville contractually entered, project overhead rates, standard accounting practices, accurate reporting of actual project costs, project performance tracking and oversight, and defining a standardized process for how Bonneville will handle Council-approved projects in the future.

The Council believes there are long-term reforms to be made, and we expect Bonneville to commit to working with us, and others in the region, to achieve these goals.  With such a commitment we can turn to the immediate task of searching for reductions in Bonneville's 2003 program expenditures.  This will require that we re-engage with the Governors, local governments, agencies, tribes, local resource-based industries, and others to review and reprioritize the fish and wildlife projects that we recently developed with them in the provincial review process, which lays the groundwork for developing subbasin plans.  Upon completion, we expect Bonneville to accept and implement our recommended solutions to this immediate financial emergency.

Bonneville has clearly stated that while it seeks immediate reductions in fish and wildlife spending it must maintain its ability to meet its Northwest Power Act and Endangered Species Act obligations.   We are concerned that reductions beyond the approximate $40 million presently called for by Bonneville could jeopardize Bonneville's ability to meet those obligations.  Ultimately, the Council believes it is imperative that Bonneville renew the participants? confidence in the fish and wildlife program.

We will make every effort to work with you and your staff in assisting Bonneville to regain its financial stability.

Kindest personal regards,

[signed]

Frank L. Cassidy, Jr.
Chairman

cc: The Honorable Dirk Kempthorne, Governor of Idaho
     The Honorable John Kitzhaber, Governor of Oregon
     The Honorable Gary Locke, Governor of Washington
     The Honorable Judy Martz, Governor of Montana
     Members of the Northwest Congressional Delegation

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