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Buyers would then be in a position to determine whether the new resource 

 is their best option. This is true for both supply and demand side 

 resources. 



The real benefit of such a system is that it would let the 

 marketplace determine whether Bonneville is, In fact, the best developer 

 of resources for the future. It is in the interest of the region's electric 

 customers and the region's economy that resources be developed by the 

 low-cost producer. That could be Bonneville, a utility or an independent 

 power producer. If resources are priced to reflect their incremental 

 costs, buyers will naturally turn to their best option. 



If the marketplace determines that Bonneville is not the low-cost 

 producer, the agency will still have an important role as a facilitator of 

 transactions through the shaping, transmission, and other services it can 

 provide. Those services often will be crucial to determining whether 

 power can, in fact, be delivered at the lowest possible cost. 



V. Bonneville's residential exchange program rewards utility 

 inefficiency, sending the wrong signal in an increasingly 

 competitive marketplace. 



Regional exchange benefits to residential and farm customers of 

 investor-owned utilities are based on the difference between the utility's 

 average system cost and the rate BPA charges its public agency 

 customers. The current methodology has succeeded in making the benefits 

 of the lower cost federal based system available to residential and small 

 farm customers in the Pacific Northwest. However, looking to the future, 

 PacifiCorp believes that the current methodology for calculating the 

 exchange benefit does not reward - and in fact may penalize - 

 efficiency efforts by both the utility and Bonneville. 



PacifiCorp, for example, has reduced costs, in real terms, over the 

 past six years, with price decreases to most customers. Because 

 Bonneville's costs rose during the same period, the result is that 

 PacifiCorp's costs and BPA's rates are getting closer. If PacifiCorp 

 continues doing a better job of controlling costs than Bonneville, the 

 residential and farm customers of the company are likely to lose their 



