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It is possible to envision a variety of approaches to tiered rates that are potentially consistent 

 with the Act. For example, one could allocate the federal base system (FBS) to the first tier and 

 new resources to the second tier. This would mean a first tier below 27 mills/kWh and a second 

 tier above that level. Revenues from first tier sales would cover the costs, including debt 

 repayment for the existing FBS, environmental impacts caused by the FBS, and any explicit 

 statutory requirements of the Power Act (for example, regional conservation research and 

 development and the low density discount). Revenues from the second tier would support the 

 development of new resources, any non-power services made necessary (like transmission 

 upgrades), and any environmental costs imposed by the new electricity resources. 



In developing a tiered rates proposal, we encourage BPA to follow these principles: 



1. Equitv and Regional Obligations 



First, tiered rates should not allow some classes of customers to escape regional 

 obligations. All customers should face some marginal price signal that provides an 

 incentive to improve efficiency, provide access to cost-effective fuel choice, and support 

 required fish and wildlife programs. Customers should not be able to avoid paying for 

 statutorily required efforts, including any explicit subsidies - such as the low density 

 discount We imderstand that this coul^ raise first tier costs and dampen the price signal 

 of the second tier. 



2. Revenues for Necessary Regional Programs 



Tiered rates should be designed - at least in the near term - to ensure BPA maintains 

 sufficient revenues to support new generation, transmission, and conservation programs. 

 Consider a second tier set at full marginal cost - for example, the cost of Tenaska H, 

 associated transmission, and external costs. Without some ability to ensure stable 

 revenues from this tier, BPA could find it very difficult to plan for resource development 



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