106 



terns particularly with explosive growth. As an example, simply 

 changing the urban growth boundaries for two small mutual sys- 

 tems around Tacoma could cause 100 percent growth in 3 years for 

 those systems. Those sorts of issues have to be addressed. There 

 are many other issues that need to be addressed before tiered rates 

 can be implemented. PBC has a draft set of principles which we 

 have included in the testimony that set the framework for any 

 tiered rates proposal. There are quite a few principles in there. 

 Some of them include no new legislation. We do not believe that 

 legislation is necessary in order to implement tiered rates. 



We do need new power sales contracts and residential exchange 

 contracts in order to implement tiered rates. 



Both public preference and regional preference must be main- 

 tained. New preference customers must be accommodated. Alloca- 

 tions of power must be stable and predictable. We believe that the 

 prices for each tier must be based upon the resources in that tier, 

 not some hypothetical price. Yet to be settled is how the tiered 

 rates would apply to the direct service industries, as well as the 

 residential exchange customers of the investor-owned utilities. 

 Tiered rates hold an interesting promise, but implementation will 

 require considerable work. 



Just a few comments on unbundling. First, Bonneville is just 

 now beginning to use its cost accounting system to determine what 

 its products and services cost. Until recently, the accounting sys- 

 tem had never been used for that particular purpose. Also, there 

 has been some discussion this morning about cost-based pricing 

 versus value-based pricing. We are extremely concerned about any 

 movement toward value-based pricing, and I would suggest to you 

 that in fact competition will drive Bonneville back to cost-based 

 pricing in any event. Cost allocation has the potential to be com- 

 pletely arbitrary with unbundled products because almost all of 

 Bonneville's products and services are joint products. They are pro- 

 duced as bjrproducts or in conjunction with other products making 

 it extremely difficult to price them. 



Public preference and regional preference to unbundled products 

 must be maintained. I would add that — in response to a question 

 by Chairman DeFazio earlier — I believe that the pooling of utility 

 demands and resources is one way for smaller utilities to gain ac- 

 cess to unbundled products and services that larger utilities have 

 access to. 



Third, resource acquisition — Bonneville resource acquisition is an 

 essential component to Bonneville becoming more competitive. For 

 example, Bonneville currently has about 450 staff and contractors 

 currently working on resource acquisition. That is simply too many 

 people, perhaps by an order of magnitude. Another example, 40 

 cents of every conservation dollar — ^that is, a dollar spent to acquire 

 conservation — goes to some form of Bonneville overhead. That is 

 simply excessive, and it has to come down. The point is that Bonne- 

 ville has got to change the way it acquires resources. At the same 

 time, the current approach is unworkable in a competitive environ- 

 ment. The new power sales contracts must be sufficiently flexible 

 to enable and encourage independent resource development. 



Finally, the national performance review. Just three comments 

 on that issue. One, repayment acceleration is dead on arrival. It is 



