Bureau of Reclamation: Information on Operations and Maintenance Activities and Costs at Multipurpose Water Projects

Pursuant to a congressional request, GAO reviewed the Bureau of Reclamation's operation and maintenance (O&M) of federal water projects, focusing on: (1) how the Bureau defines O&M activities; (2) what latitude the Bureau has in deciding which O&M costs to charge customers; (3) how the Bureau accounts for O&M costs; (4) how the Bureau defines overhead; (5) how the Bureau calculates the O&M costs that it charges to customers; (6) what concerns have been raised by customers about excessive O&M costs and to what extent customers have to review cost and recommend reductions; and (7) how the Bureau's cost practices compare to those of other entities.

GAO noted that: (1) the Bureau defines operations as activities related to the normal performance of the functions for which a facility or item of equipment is intended to be used, and maintenance as the upkeep of constructed facilities and structures and capitalized equipment necessary to realize the originally anticipated useful life of a fixed asset; (2) the Bureau's ability to determine which O&M costs to charge to customers is governed by general provisions of reclamation law, project-specific legislation, and specific provisions of contracts the Bureau enters into with water users; (3) Department of Interior policy requires that the Bureau classify costs into direct and indirect categories; (4) the Standard Processes of Costing Business Practices report defines direct costs as all costs which can be specifically and readily identified with an output or which can be specifically and readily identified with two or more outputs through a reasonable and economically feasible allocation; (5) the report defines indirect costs as costs that are jointly or commonly used to produce two or more outputs but are not specifically identifiable with any of the outputs in an economically feasible way or through a reasonable allocation; (6) the Bureau does not normally use the term overhead, but has developed a definition of overhead specifically for Congress as the indirect costs it identified as constituting overhead divided by total annual O&M costs; (7) the Bureau's contracts with customers for supplying water are repayment contracts or water service contracts; (8) for repayment contracts, the customer's O&M costs are generally based on the percentage of the reservoir's water supply to which the customer is entitled; (9) for water service contracts, costs are based on the amount of water delivered multiplied by the rate applicable to the particular customer; (10) some customers have stated that the Bureau's O&M report was not convincing to them and did not alleviate their concerns about Bureau costs; (11) customers felt the report concerned itself primarily with indirect costs and did not adequately address the issue of why water rates have continued to increase; (12) GAO confirmed that customers have been given increased opportunities by the Bureau to review budget data; (13) other entities have reimburseable and nonreimbursable project purposes that are similar to those the the Bureau's; and (14) differences between the Bureau and its entities are: (a) legislatively mandated exclusions; (b) cost exclusions; (c) exclusion of certain categories; and (d) recovery of full employee pensions.