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<br />2 <br /> <br />the participating projects allow for a great degree of flexibility in coping <br />with unpredictability. This method was established in the belief that the <br />flexibility gained from annual adjustments in the apportioned revenue payments <br />within the 50 years of each project repayment period contribute toward a more <br />stable power market by minimizing the necessity of constantly adjusting the <br />power rate. <br /> <br />Findings of the Inspector General <br /> <br />The Office of the Inspector General (IG) reviewed the established method of <br />recovering the power assistance payments for the participating projects and <br />presented on April 25, 1989, the Final Audit Report No. 89-67, The IG <br />concluded that a significant increase in revenues to the Treasury would be <br />realized if the present method were replaced with an amortization of power <br />assistance to the participating projects' irrigation repayment in equal annual <br />installments over each project's repayment period. <br /> <br />The IG's report identified two sources of revenue which generated the increase <br />in returns to the Treasury as a result of their proposal, Payments to the <br />interest bearing power portion of the project were increased by about $182 <br />million from a lengthened projected payout from the year 2000 to the year 2035. <br />The other source of revenue observed by the IG to increase as a result of the <br />proposed straightline payments were surplus revenues, or those revenues <br />collected and credited to the Basin Fund in addition to irrigation assistance <br />requirements, In summary, the IG's report states that the net present value <br />(i=8,875 percent) from implementing the recommended alternative of straightline <br />payments would be over $80 million, This return would be accumulated over a <br />period from 1987 through the year 2080. <br /> <br />Discussion of IG's Findings <br /> <br />Western Area Power Administration (WAPA) supplied us with the 1987 Power <br />Repayment Study (PRS) and the PRS with straightline payment requirements which <br />were used by the IG for their comparison, The IG compared the standard method <br />and the straightline method by examining only the differences in the payment <br />streams for interest on the electric plant, interest on additions, interest on <br />replacements and the difference in payment streams for the surplus revenues. In <br />addition to an examination of payment streams for these components, we examined <br />principle payment streams to power, replacement, mainstem unit irrigation, and <br />the stream of revenue available for and/or in addition to assistance payments. <br /> <br />Exhibit 1 and Exhibit 2 illustrate repayment for CRSP under the standard method <br />and straightline method, respectively. Note that the difference in total <br />interest payments to the electric plant and to replacement for the two methods <br />is about $182 million, as observed by the IG. However, a comparison of the <br />total present values for Exhibits 1 and 2 show a net present value increase of <br />$54 million with implementation of the IG's recommended alternative, as opposed <br />to the $80 million observed by the IG. The primary reason for this large <br />difference is the inclusion of payment streams to principle in our payment <br />analysis, By omitting these principle payments from their CRSP repayment <br />