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2. Should BPA adopt tiered rates? If not, why not? If so, how should these rates 

 be structured? If there is a specific model or framework for BPA tiered rates 

 that you support, please describe it in detail. What principles should be used in 

 the development of these rates? 



The issue of whether BPA should adopt a tiered rate structure is still an open 

 question. In recognition of the considerable degree of momentum associated with the 

 concept, we have developed a set of principles to guide the formation of tiered rate 

 proposals. We have undertaken the development of these principles realizing that legal or 

 political impediments may exist that could prevent the implementation of tiered rates. 

 Attachment 1 contains the priiKiples we have developed to date. Tliis is an evolving, 

 dynamic document and there are still issues to be addressed. The key elements embodied in 

 our principles are that tiered rates should not require clianges in legislation, that public 

 preference must not be eroded and that the prices charged for the various tiers must be based 

 on actual costs and not on theoretical or modelled results. Ultimately, the basis for any 

 decision on tiered rates must be economics and soimd public policy, not politics. 



3. BPA is considering unbimdling the services it provides such as transmission, 

 storage, load-shaping, and integration services. What are the potential benefits 

 and drawbacks of unbundling? If BPA pursues imbundling, what services should 

 be imbundled and how should the price for these services be calculated? Are 

 there some BPA services that cannot be imbimdled? 



There are potential risks and benefits in unbundling. If BPA adopts tiered rates 

 and/or does not control the rate of increase in its cost of power, utilities and iixiustries in the 

 Northwest will begin to develop their own resources. Some resources will require services 

 from the federal system to be shaped economically to meet Northwest loads. For example, a 

 cogeneration resource may produce power during some months ttiat is surplus to tlie needs of 

 Ae purchasing utility. In this case, the utility would probably request "storage" service from 

 BPA or another supplier. Practically spealcing, there are probably only a few unbundled 

 services that are absolutely necessary to achieve cost-effective resource integration. 



There are some risks as well. First, BPA does not know what individual services 

 cost. Although we uitderstand Bonneville has the cost accounting system in place, it has 

 never been used for this purpose. Unbundling should not be pursued imtil the appropriate 

 cost accounting system is implemented. Second, cost assignment and thus pricing for these 

 services is likely to be coo^leteiy arbitrary because they are all "joim products" of the 

 fiederal system. BPA's unbundled services could singly be used to increase the ageiKy's 

 levenues, without any increase in efficiency. The princ^le of cost-based pricing for 

 producu and services must be maintained. Third, public aitd regional preference to 

 unbundled services must be retained. Bonneville should not create products to satisfy other 

 markets if they conflict with Ailfilling preference obligations in the Northwest. BPA has 

 ieq;>onsibiIities beyond just becoming a 'utility business." BPA provides infrastructure 

 throughout the region that benefits everyone in the Northwest. 



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PUBLIC PO\A«R COUNCIL 

 600 N E Mumonofi. Sunt n> ronuna. OR Tma 

 0031 oiitr 



