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Document:
Congressional Testimony Regarding the Grand Coulee Settlement Act, 1994, Jack S. Robertson
Congressional Testimony
August 4, 1994, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1477 words
HEADLINE: TESTIMONY AUGUST 4, 1994 JACK S. ROBERTSON DEPUTY ADMINISTRATOR, BONNEVILLE POWER ADMINISTRATION UNITED STATES DEPARTMENT OF ENERGY SENATE ENERGY/WATER AND POWER WATER RESOURCES ISSUES/AND JOINT INDIAN AFFAIRS COMMITTEE; ON COLVILLE TRIBES RESERVATION SETTLEMENT
BODY:
STATEMENT OF JACK S. ROBERTSON
BONNEVILLE POWER ADMINISTRATION
UNITED STATES DEPARTMENT OF ENERGY
BEFORE THE
SENATE COMMITTEE ON INDIAN AFFAIRS AND THE SENATE
ENERGY AND NATURAL RESOURCES SUBCOMMITTEE
ON WATER AND POWER
AUGUST 4, 1994
Statement of Jack S. Robertson, Deputy Administrator
Bonneville Power Administration
August 4, 1994
Mr. Chairman, it is my pleasure to appear before the Senate Committee on Indian Affairs and Senate Energy and Natural Resources Subcommittee on Water and Power. We appreciate the historical and close working relationship we have with the Subcommittee, and look forward to a continued relationship in that vein.
My testimony today will focus on Bonneville's role as is proposed in S. 2259. The settlement agreement and subsequent draft legislation represent a sound business decision for Bonneville. The decision ends the Federal government and Bonneville ratepayer exposure to further litigation and represents a final settlement of this suit for all parties.
In my statement, I will first discuss the rationale for Bonneville's involvement in the legislation and for providing payments to the Confederated Tribes of the Colville Reservation. I will then briefly address the method used in reaching the amount of the settlement. Finally, I will discuss the partial Treasury repayment offset as proposed in the legislation.
BPA Involvement
The case arose out of statements made by Federal officials to the Colville Indian Tribes when the Grand Coulee Dam was under construction in the 1930s. Approximately 7,000 acres of land within the Colville reservation were taken for use in the Grand Coulee Project. The Federal Power Act preliminary license, issued to the State of Washington prior to the Federalization of the project would have provided for a share of the annual revenues produced by the Grand Coulee Project to go to the Tribe. The subsequent Federal statements could well be read as undertaking to meet that same obligation. In 1933, Secretary of the Interior Harold Ickes endorsed two letters indicating that, because Colville lands were within both the power site and reservoir areas, the Colvilles should receive a share of the revenue from the sale of power produced by the dam.
Other officials wrote letters attempting to assess the Tribes' appropriate share. The appropriate share was never actually determined and in 1951 the Tribe filed suit against the U.S. to bring about a resolution of this issue.
The Bonneville Power Administration (as part of the DOI and later the DOE) has marketed the power from Grand Coulee Dam since the dam began operations in 1942. Bonneville receives the revenues from power generated by the dam, and Bonneville's ratepayers have realized the benefits of Grand Coulee's low-cost power. Therefore, although Bonneville is not named a party to the litigation, Bonneville understood that its ratepayers would likely be expected to pay a significant portion of any judgment rendered in the case. As I point out later in my testimony, the Administration believes that the sharing of costs contemplated in this case between Bonneville and the Department of the Treasury's general fund revenues is reasonable.
This case will not set a precedent for future payments to other tribes or entities. It arose out of a unique set of circumstances surrounding the construction of Grand Coulee Dam. Our judgment that no precedent would be set was a significant factor in our decision to settle the case. The settlement is a reasonable decision based on the Government's exposure in litigation.
Settlement Amount
The settlement reached with the Colville Tribes contains two parts: a lump sum payment from the Judgment Fund of $53 million for past use of reservation lands, and annual payments from the Treasury's general fund revenues and Bonneville beginning in 1996 for continued use of reservation lands.
Under longstanding provisions of the Federal Power Act, private developers of hydroelectric projects who use tribal lands or water power from Federal dams must pay an annual fee fixed by the Federal Energy Regulatory Commission. Although this case did not arise under the Federal Power Act, it concerned the fixing of payments for use of tribal lands in a hydroelectric project.
Therefore, the parties looked to methodologies employed under the Federal Power Act as a means of reaching a principled settlement amount.
Under that Act, the Federal Energy Regulatory Commission traditionally has determined fees by either the net benefits method or the profitability method. Following discussions regarding both methods, the settlement was based primarily on the profitability method. Under this method, the annual cost of producing power at the pro@ is subtracted from the share of the developer's annual revenues attributable to the project. The result is the commercial value of the project, which is allocated between the landholders and the developer. Then, based on individual landholdings, each landholder is allocated a specific percentage of the value assigned to the land. The result is the landholder's contribution to the project, which equals the annual fee.
Based in part on Grand Coulee's projected revenues and costs during fiscal year 1995, the first annual payment was fixed at $15.25 million. Subsequent payments are tied to increases in Bonneville's power prices and annual generation at Grand Coulee Dam. Therefore, future payments are a function of three items: the initial payment- the change in Bonneville's rates- and the annual generation of power of Grand Coulee Dam. This formula is beneficial to Bonneville because it links the payments to the operation of the power system. If Bonneville maintains stable rates, the payments will remain stable. If power production is down because of a poor water year, the payment will be less. In good water years the payment will increase.
The settlement is intended to provide the Tribes a share of the revenues derived from Grand Coulee Dam. Tying the payments to Grand Coulee's production and Bonneville's revenues fulfills this intention.. In addition, the agreement contains floor and ceiling payments to ensure that the increase in payments does not diverge too greatly, in either direction, from the rate of inflation. This provision reduces both parties' risks over time.
Repayment Offset
Before entering into settlement discussions with the Tribes, the various Federal agencies discussed among themselves the appropriate division of responsibility for settlement payments. The Tribes were willing to agree to a settlement only if it provided for both a lump sum payment for past damages and annual payments for continuing damages. Moreover, they were most concerned with the annual payments. The Federal agencies agreed that the lump sum would be paid out of the Judgment Fund, and that Bonneville would make the annual payments. Bonneville agreed to this based on the understanding that after a settlement was reached the Federal agencies would. determine whether it resulted in an appropriate division of responsibility.
The lump sum payment is $53 million. The present value of the annual payments is approximately $513 million, or 90 percent of the settlement's total value. Under the draft legislation, beginning in fiscal year 2000 Bonneville will receive an offset on its payments to the Treasury equal to 26 percent of each annual payment to the Tribes. Together with the lump sum payment, the offset results in the Treasury's general fund revenues paying 30 percent of the total value of the settlement, with Bonneville ratepayers paying 70 percent instead of 90 percent.
The Administration believes that this division of responsibility is acceptable. The 70/30 split recognizes the interest in bringing this decades-long suit to a close. Our analysis indicates that the profitability method would have resulted in a split in the range of 70 percent future costs and 30 percent historical costs. During the settlement discussions, the parties focused initially on the annual payments. The successful negotiation of the annual payments then reduced contention over the lump sum, allowing the Administration to negotiate a smaller lump sum payment.
Conclusion
Mr. Chairman, in closing, I would reiterate that this settlement and the legislation as proposed end the Federal government's exposure to this litigation, and represents a mutually acceptable settlement and a reasonable business decision for Bonneville. Further, this case does not set a precedent for future payments to other Tribes or entities.
I would also reiterate that Bonneville believes the sharing of costs is reasonable.
I stand ready to answer any questions you may have.