Inspection Report: DOE-OIG-18-38

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July 10. 2018

Western Area Power Administration’s Unobligated Balances from Various Funding Sources

Western Area Power Administration (Western) is one of the four power marketing administrations within the Department of Energy that markets and transmits wholesale electricity from multi-use water projects.  In fiscal year (FY) 2017, Western’s operations exceeded $1 billion, more than 90 percent of which was financed through customer funding.  The remaining annual requirements were provided by appropriations.  To ensure financial sustainability, including continued operations during a lapse in appropriation or severe weather conditions that affect Western’s ability to meet its contractual commitments, Western maintains balances in its Treasury accounts from year to year, referred to as “unobligated balances.”  An unobligated balance is funding that has not been obligated and is legally available to carry forward from one year to another.  Western’s unobligated balances are made up of various funding sources including appropriations, the authority to use receipts from the sale of power, as well as alternative financing, which includes customer advances.  Most recently, in FY 2017, Western’s year-end unobligated balances were $707 million, over $569 million of which resided in its Construction, Rehabilitation, Operation and Maintenance (CROM) account.  Western’s CROM account funds a majority of Western’s operations. 

During FY 2017, the House of Representatives’ Committee on Oversight and Government Reform referred concerns raised by a Western employee regarding potential improprieties in the management of Western’s unobligated balances, including whether Western appropriately retained, used, and disclosed those balances.  Due to the sensitivity surrounding this issue, we initiated an inspection on Western’s unobligated balances from various funding sources.  The objectives of the inspection were to determine whether Western: (1) Properly retained unobligated balances in its CROM account, (2) Implemented a strategy for managing unobligated balances, and (3) Adequately disclosed unobligated balances.

Nothing came to our attention to indicate that Western had mismanaged its unobligated balances.  Specifically, we found that Western had appropriately: (1) Retained and carried forward unobligated balances in its CROM account from year to year; (2) Developed and implemented a strategy for managing its unobligated balances in FY 2017, as well as established a mechanism to monitor and report the balances; and (3) Disclosed its unobligated balances to the Department’s Office of the Chief Financial Officer, the Office of Management and Budget (OMB), and Congress as part of the President’s Budget Request. 

Although Western monitored and reported its unobligated balances during FY 2017, we found that the year-end reporting mechanism may not have provided sufficient transparency of management decisions towards achieving its unobligated balance strategy.  Based on recent concerns from Congress and Western’s customers regarding the transparency of Western’s financial decisions, we determined a more detailed report would be beneficial.   As a result of discussions with Western officials, they addressed our concern and prepared a detailed report that summarized Western’s FY 2017 actions planned and taken to implement its strategy for managing unobligated balances. 

Given the importance of providing financial transparency to Congress and ratepayers alike, we suggest that the Administrator for Western Area Power Administration ensure annual reports detailing actions taken and results achieved on its unobligated balances strategy are published and made available to the public.  Western agreed with the suggestion and stated that it would publish the suggested reports annually on its website “The Source.”  This website displays operational and financial information in one convenient location.  

Topic: Management & Administration