169 



it in detail. What principles should be used in the development of 

 these rates? Can tiered rates be designed so that they do not 

 discourage development of new industry in areas served by customers 

 of Bonneville? Should the Federal Base System be allocated through a 

 tiered rate system? 



These questions about tiered rates are certainly appropriate. BPA 

 requirements customers all have similar questions. The Public Power Council 

 is well underway addressing the issues surrounding tiered rates, and we 

 support the PPC as the forum for developing a regional consensus of 

 Bonneville preference customers on this issue. If there continues to be no 

 consensus on tiered rates, Bonneville's ability to sign new contracts 

 implementing tiered rates with its customers will be impossible. 



Our members are apprehensive about the impact that a tiered rate 

 structure m?v have on economic growth in their service areas as compared 

 to neighboiiiig utilities. We also recognize that we may benefit if our 

 members can, in fact, develop new conservation and generating resources at 

 less cost than BPA. 



A potential positive effect of tiered rates is that BPA customers could 

 directly compete with BPA for new conservation and generating resources. 

 If BPA tier 2 costs are lower than costs for other resources available to a 

 customer, then the customer will elect to purchase from BPA. 



BPA requirements customers do face some difficult problems if tiered 

 rates are adopted by BPA. As opposed to the larger utilities with a large 

 existing load base and their own low cost imbedded generating resources, 

 smaller utilities will find it hard to provide attractive rates for new commercial 

 or industrial loads which would otherwise locate in their service area. In 

 addition, smaller utilities by themselves may not be able to participate in new 

 generation opportunities that allow them to remain competitive. They may 

 face few choices other than accepting a non-competitive tier 2 rate. 



The issues surrounding the allocation of tier 1 power to individual 

 utilities are particularly difficult for requirements customers. Will the 

 allocation be fixed without regard to changes in the operation of underlying 

 resources? Will new preference customers be entitled to an allocation that 

 reduces existing customers' allocations? If there are surpluses of power on 

 the Bonneville system, will tier 1 power availability be increased? pro rata? 

 Frankly, there are no easy answers to these issues and that may indeed 



Page 3 - TESTIMONY OF FERGUS A. PILON 



