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/. Why is it important for BPA to become more "competitive?" How likely is it that BPA will 

 become a higher cost supplier of energy to the region than other providers? Are there 

 other reasons for BPA to undertake its competitiveness initiative? What principles should 

 guide BPA in this effort? 



In our estimation, BPA is an extremely competitive provider of a complete range of electricity 

 services. Because of the hydro base, the Pacific Northwest electricity system produces the 

 cheapest bulk wholesale and retail electricity in the nation, much of it at near zero marginal 

 operating cost. BPA's 27 mills/kWh average rate is well below the 38 mills/kWh (1993$) cost of 

 new generation from the Tenaska n project. However, the very early year costs of Tenaska n 

 are quite close to BPA's average rate and could have smaller near term rate impacts than many 

 lower lifecycle cost conservation investments. This suggests a competitiveness problem. But 

 the long term cost of producing power from new generation and adding the transmission and 

 distribution to deliver it is greater than embedded costs. 



Bonneville's basic rate for wholesale power includes a wide range of power services including 

 shaping, reserves, transmission, and capacity elements. These services are necessary to tum raw 

 electricity generation into a useful and reliable product. The costs for these important services 

 are not reflected in the basic cost of electricity to be generated by the Tenaska n project. When 

 we assess the competitiveness of BPA's wholesale power prices we need to consider not only the 

 raw cost of new electric generation, but the cost of related power services necessary to tum 

 electricity generation into a product that is useful and reliable. Because of the sheer size of the 

 federal power system, the storage capacity of the hydroelectric projects, and the extent of the 

 federal transmission system, BPA is better positioned than anyone else to provide the non-power 

 services that permit raw electricity to be provided as a market product. 



aR2-02W 



