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programs (demand or supply side), and would certainly find it difficult to run programs 

 with high fixed costs, such as conservation efforts. Even for generation resources, BPA's 

 revenues and programs could become questionable. 



High second tier rates will not necessarily lead to long term least cost results. For 

 example, utilities concerned about short term rate impacts from rate restructuring might 

 also prefer generation contracts with low first year costs to the near term rate impacts of 

 efficiency improvements that have lower long term cost. Utilities concerned about their 

 own revenue instability might retain existing retail rates even with tiered wholesale rates. 

 A complete tiered rates proposal needs to account for these possible unintended 

 consequences. 



Setting the second tier at full marginal cost could also pose a problem of scale. 

 Tenaska 11 is a small resource (about 2(X) MWa) in a 88(X) MWa federal system. Basing 

 the second tier on this resource alone would send only a small price signal to a limited 

 number of customers. To improve revenue stability, we believe EPA could meld some 

 amount of recent resource acquisitions, including exchanges and new generation, into a 

 less expensive and physically larger second block. 



3. Past Conservation Activi ties Should be Recognized 



The implementation of tiered rates should not penalize utilities that have had significant 

 population growth or aggressive conservation programs throughout the 1980s. This 

 might argue for setting a first tier allocation based on early 1980 per-capita consumption. 



aR2-02W 



