240 



DeFazio Hearing 

 Emerald PUD, page 13 

 September 25, 1993 



The VOR, however, is bcised on two important assumptions, both of which now 

 appear to be out of date and should be modified. The first is that the DSIs provide 

 two quartiles (atx}ut 1 ,200 megawatts) of capacity reserves for Bonneville's planning 

 purposes. That was generally believed to be the case until January 1 993, when 

 Bonneville published the new Pacific Northwest Loads and Resources Study (the 

 White Book), which showed that Bonneville now only counts one DSI quartile (about 

 600 megawatts) for reserves. This reduction should trigger a re-evaluation of the VOR 

 to ensure that it accurately reflects Bonneville's current planning assumptions. The 

 other assumption that warrants a change in the VOR is that the gas turbine proxy cost 

 (the plant that would have been acquired if the DSIs did not provide reserves) is 

 based on a 1 4 percent interest rate. A 7 percent figure more accurately reflects 

 today's market. 



Unfortunately, the VOR cannot be modified automatically to reflect either the reduction 

 in the quartiles used for planning reserves or the lower interest rate. The reason is 

 that Bonneville "locked in" the essential components of the VOR in 1987. The "lock" 

 was approved as part of the IP-PF Rate Link, a Bonneville rate proceeding; it expires 

 in mid-1996. The effect of the lock - if interpreted strictly - is to preclude testimony 

 during the 1 993 rate proceedings on the value of reserves. The idea of an 

 administrative "lock" ~ in which key elements are frozen in time and cannot change ~ 

 is a legal and policy issue that ought to be examined more closely, and we argue 

 should be changed. 



6, 7, and 8. 



Should the irrigation discount, low-density discount, or other discounts be 

 eliminated or modified? Please provide an estimate of the cost and/or 

 benefit to regional ratepayers of continuing to provide this discounts. 



The region can no longer afford to offer artificially priced power to select industrial 

 loads. There has been significant debate in the region as to the true cost and benefit 

 of maintaining the variable rate. Regardless of the costs and benefits, and regardless 

 of the rationale for the original decision to offer variable rates, the reality is that in an 

 era of energy deficit and economic hard times the region cannot afford the 

 subsidization of power for selected loads. However, Bonneville should not selectively 

 determine which subsidies have a higher social or political value and keep them, while 

 eliminating others. Bonneville should treat all of these subsidies equally and fairly. In 

 a truly competitive environment there would be no subsidies at all. 



9. Should the provisions in the power sales contract which allow some 

 utilities to be reimbursed by BPA for lost revenues when a voluntary 

 curtailment is implemented be eliminated? If so, why? If not, why not? 



Yes, in fact the concept of voluntary curtailment needs to be reevaluated in light of 

 current conditions in the region. The obligation to pay lost margins for voluntary 



