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pay for those costs in a melded rate. At the same time, many cus- 

 tomers, including ourselves, want and are willing to pay for dis- 

 crete services and products that directly benefit them and not oth- 

 ers — transmission services, load shaping, energy storage, as well as 

 new resources. And we believe that unbundling is part of the an- 

 swer to that. 



In the area of transmission, we think BPA should adopt the 

 same practices and pricing requirements for transmission access as 

 will be the norm for others. And we believe there are many oppor- 

 tunities to restructure their rates in the transmission area. 



Second, we do support tiered rates for new resources. As we see 

 it, under tiered rates the existing federal power system would be 

 priced at one rate reflecting its cost, and new acquisitions to meet 

 demand growth would be priced at a higher rate reflecting the cost 

 of those new resources. That way, only customers needing BPA to 

 provide new resources would pay for them. Plus, buyers are able 

 to determine whether BPA is their best choice for new resources 

 and the marketplace would make the determination. 



Finally, we encourage BPA to consider more innovative ap- 

 proaches to demand-side resource acquisition. We have encouraged 

 them to look at some creative financing mechanisms. Currently the 

 costs that BPA expends on conservation are spread across all cus- 

 tomers regardless of the benefits they receive. Randy indicated that 

 they could have been looking at a $3 billion conservation program 

 over the next several years. If we pay 10 percent of that bill, our 

 customers would pay $300 million, Eind yet, those conservation pro- 

 grams largely do not go to the benefit of our company and to our 

 customers. We have advocated a different approach in which the 

 customers who receive the benefits pay for them through an energy 

 service charge. It more closely aligns the cost of demand-side pro- 

 grams to the customers who receive the benefit. It is an approach 

 that we have tested, and we think it has worked particularly well 

 in the commercial and in the industrial sectors. 



I would also like to briefly comment on another area where we 

 think improvements can be made that will make BPA more effi- 

 cient and help control cost; and that is the residential exchange. 

 The current exchange methodology has worked in the past to make 

 the benefits of the federal hydrosystem available to all residential 

 and small farm customers in the Northwest. However, looking to 

 the future, the current methodology does not reward £ind may in 

 fact penalize efficiency efforts of both the utilities and BPA. For ex- 

 ample, PacifiCorp has reduced cost in real terms over the past 6 

 years at a time when BPA's costs were increasing. If we take the 

 residential exchange at today's levels and if we are able to continue 

 to control our costs better than BPA, the result will be that our 

 customers will see reduced benefits of the residential exchange. On 

 the other hand, if BPA does a good job of controlling their costs, 

 it could be penalized because it would have to pay increased ex- 

 change benefits. 



We recommend that the residential exchange should be re-exam- 

 ined to determine how efficiency can be encouraged and rewarded 

 and not inadvertently discouraged. One way to approach this would 

 be for BPA to begin collaborative discussions with residential ex- 

 change customers about a contract exchange settlement that would 



