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Subsidies of this type induce undesirable market distortions. They may "save" - or at least 

 postpone the loss of - aluminum industry jobs. But that money comes from other 

 consumers, businesses, and industries with employees of their own. Very few uses of this 

 money and no uses of tiiis energy would create fewer jobs than aluminum smelters do. 

 Aluminum jobs belong to real people, and we are sensitive to their needs and economic 

 conditions, but we do not believe they should be favored over the more diffuse, but still 

 real economic needs of the other businesses and employees that pick up the tab for the 

 variable rate. 



Our testimony in the 1993 rate case provides a detailed analysis of the VOR and the 

 miscalculation of its value due to dated interest rate assumptions and the fact that BPA pays 

 for nearly twice tiie reserves they actually get, according to BPA's own witnesses. We 

 have provided that testimony to the Task Force. The subsidy for overpayment of the VOR 

 amounts to approximately $40 million per year. 



Questions 6 and 7: We have analyzed both the irrigation discount and the low-density 

 discount in our rate case testimony, which we have provided to Task Force staff. We 

 believe that the irrigation discount should be eliminated and the low-density discount 

 modified to eliminate disincentives for efficiency. 



Question 8: The largest subsidy is sanctioned by the Act. Section 7 (c) (1) (b) keeps the 

 rates charged to the DSIs, even without the variable rate, artificially low. The resources 

 described in the Act which serve DSI load come mainly from the purchase of power from 

 the lOUs through the exchange. This power is priced at the exchanging utilities' average 

 system cost, presenUy about 34 mills. Even without the Variable Rate, the DSIs would get 

 this power for about 27 mills. The overall subsidy amounts to hundreds of millions of 

 dollars each year. 



The framers of the Act forecast the price of service to large industrial customers of public 

 utilities to grow rapidly as New Large Single Loads came on line. This would have raised 

 rates under 7(c)(1)(b) to tiie DSIs as well - so much so that the DSIs were expected to 

 essentially pay for the cost of the exchange. However, utilities and industries have largely 

 circumvented the New Large Single Load provisions of the Act This subsidy may be 

 legal, but it is a subsidy nonetheless, since the DSIs do not pay the cost of their service. Its 

 cost is more than the irrigation, low density, and variable rate discounts combined. 



NCAC suggests that the DSIs be served with more interruptible power, as provided for in 

 Section 7(c)(2), at much lower cost to BPA's other customers. Alternatively, their 

 allocation of firm power could be allowed to shrink with the growth in preference customer 

 loads or the loss of FBS resources. BPA must take a strong role in negotiating DSI 

 contracts that are fair to the rest of the region's consumers, remembering that they are not 

 legally obligated to offer any contracts for direct service or to offer services equivalent to 

 those received by preference customers. 



Question 10: BPA should make access to the enormous benefits of the regional system 

 conditional upon recipients' good faith participation in the regional program. By 

 "program" we mean genericaJly the pursuit of the Act's purposes and the implementation of 

 the Regional Plan. Contracts should allocate the costs and benefits of the system fairly, 

 with no special deals for particular customers unless those customers provide 

 commensurate benefits. In signing long-term contracts, BPA allocates the benefits of a 

 public resource, and must do so with a keen eye toward protecting the long-term public 

 interest. We have not yet developed model contractual provisions that would serve these 

 goals, but we believe that the contracts must reflect the principles above. The contraas are 

 probably the single most important place to ensure that those who benefit from the regional 



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