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The ASCM employs what is known as the "jurisdictional approach." Under this 

 approach, the beginning point for BPA's review of utility costs for exchange is the 

 costs approved for recovery in rates by the state regulatory commission or, in the 

 case of consumer-owned utiUties, the local governing body. (Fully 85 percent of 

 exchange benefits are paid to investor-owned utiUties that are subject to state 

 regulation.) During the rate case process, utilities' costs are examined in great 

 detail by regulators or governing bodies and interveners. Cost-effectiveness is a 

 prime consideration. Most Northwest utiUties are also required by their regulators 

 to acquire only generation resources that are consistent with an integrated resource 

 plan (IRP), wherein a utility selects the lowest cost supply or demand resources to 

 meet its needs. 



In addition to scrutiny in rate cases, utility costs and loads proposed for inclusion 

 in ASC are subject to review by BPA and interested parties in the ASC review 

 process. Under the ASCM, BPA has the right and obligation to make an 

 independent determination of the appropriateness and reasonableness of all costs 

 and loads. BPA on numerous occasions has cited such considerations as prudence 

 and "used and usefiil" character to disallow costs for inclusion in ASC that had 

 been approved by regulatory commissions or governing bodies. For example, 

 conservation program costs not generally consistent with cost-effectiveness 

 guidelines in the Northwest Power Planning Council's Regional Power Plan have 

 been disallowed by BPA, as have certain administrative and general costs and 

 power purchase costs not adequately supported by exchanging utilities. 



The Residential Exchange Program's contractual agreements and review 

 methodology were specifically crafted to comply with the Act. The ASCM 

 provides BPA with broad legal authority to review all costs and loads for 



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