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Our problem is that Bonneville pays too much for these reserves, 

 that its methodology is locked into place until 1996 and that 

 Bonneville has shown no inclination to change the methodology — 

 or even to acknowledge that it is out of date. 



The best way to illustrate the problem is to start with 

 Bonneville's May 1985 Value of Reserve (VOR) analysis, which was 

 completed as part of the rate case. The VOR is included in 

 Attachment A to this testimony. 



The VOR is the only analysis Bonneville has completed on DSI 

 reserves. It establishes three types of reserves: forced outage 

 (described above); plant delay; and system stability. 



Of the three, forced outage reserves are clearly the most 

 important, and Bonneville estimated this restriction right was 

 worth about $88.9 million in 1985. The other types of reserves 

 are comparatively small, and they brought the total to 

 approximately $90.3 million. To this figure was added the cost 

 to the DSIs of a restriction. The total amount was then divided 

 by half, and the DSIs's portion was then given as a discount on 

 DSI bills (pro rata for each company). 



In 1985, the DSI annual discount for all types of reserves was 

 about $46 million. That amount was escalated for inflation, and 

 it is now worth about $59 million in fiscal year 1994. 



In the normal course of ratemaking, the VOR would have been 

 revised during general rate cases (typically every two years). 

 But the 1985 proceeding that established the VOR and a related 

 issue, the industrial margin, were quite contentious, and 

 Bonneville, with support from the DSIs, decided to "lock in" the 

 methodology for calculating the VOR. 



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