117 



9 . Allocations of power must be stable and predictable. 



In order to respond to tiered rates in an orderly manner the allocations of power that would 

 occur as a result of tiered rates must be stable and predictable. If these allocations were to change 

 significantly from year-to-year, or rate case to rate case, the customers would be faced with a 

 "moving target" when it comes to evaluating utility resource development against the alternative of 

 buying from BPA. Some changes may be necessary to initial allocations over time, due to the 

 creation of new preference customers, permanent reductions in DSI loads, or long-term changes in 

 resource c^ubility. These adjustments should be limited, clearly articulated, and made only with 

 proper notice. 



10. Initial allocations of first tier power should be simple, straightforward, and 

 subject to minimal aciUustments. 



This principle applies only to the initial allocations of power to individual customers. We 

 should try to avoid complex allocation formulas that try to take into account every nuance of the 

 load/resource situation, which could lead to endless debate. When the allocation of first tier power 

 is made, simplicity will be important. Tiered rates will be a significant departure from past practice 



I- so simplicity, ease of understanding and communication of the rate will be important. The initial 

 allocations should address the "contracted for and committed to" issue prior to the adoption of 

 tiered rates. 



1 1 . Prices for each tier must be based upon the costs of the resources In each 

 tier (only actual, not theoretical, costs) 



The price assigned to each tier should track the actual costs of the resources used to serve 

 that tier, and not other kinds of costs. For example, fish and wildlife costs would presumably be 

 assigned to the Hrst tier along with the hydroelectric resources. The costs of the resources in any 

 one tier should not be allowed to migrate to another tier. This will re(juire addressing §7(g) of the 

 Northwest Power Act, which under some conditions allows certain kmds of costs to be spread 

 across all loads. This also means that the costs assiped to the tiers would not be based on a 

 theoretical calculation of marginal cost, but rather on the average total costs of the resources 

 assigned to each tier. This might require additicmal tiers in the future. 



12. BPA's rate design shall depend on the resource and load characteristics In 

 each tier. 



Just as tlK price of each tier should be based on the costs of the resources in each tier, the 

 rate design for that tier should be based upon the load and resource characteristics associated with 

 each tier. This means that each tier may have a different rate design if the load and resource 

 characteristics differ significantly. No rate design issue should be prejudged due to a shift to tiered 

 rates (e.g., classification or the availability charge). Actual billing of purchases could take many 

 fonns. Under this principle, rates based on "load characteristics" refers to the usual conq>onents of 

 wholesale rate-making, such as capacity, energy, and power factor, and does not include setting 

 rates based oa the '\alue" of end-use loads. If the federal hydro system continues to produce 

 secondary energy, that may be sold on the open marlcet, or used to displace a thennal resource in 

 BPA's second tier (e.g. Tenaska). In any case the revenues from the use of the eneray must 

 remain with the resource: e.g., if the energy is used to displace Tenaska. the price ofthe second 

 tier reflects this displacement, and the price ofthe first tier is reduced by the corresponding revenue 

 credit 



ATTACHMENT I 

 PPC Tcstimwjy before the 

 Committee on Natural Rewune 

 BPA Task Force (Page 4 of S) 



