289 



The interest rate on the plant was set at 14 percent because that 

 was the going interest rate in 1981, when the power sales 

 contracts were signed and when, in the absence of the DSIs, 

 Bonneville would have had to acquire this resource. 



In the normal course of doing business, Bonneville routinely 

 requires developers to refinance and pass the savings from lower 

 interest rates on to Bonneville. (See the treatment of this 

 issue in Bonneville's billing credits policy, where it yequirgg a 

 developer to refinance and pass the savings on to Bonneville.*) 



Assume, for example, that Bonneville had acquired 600 megawatts 

 of gas-fired resources at 14 percent. Its standard contractual 

 agreement would allow it to require the developer to refinance 

 and pass the difference on to Bonneville and its customers. 



The IP-PF Rate Link, however, locked in both the 1,288 megawatt 

 figure for the amount of forced outage reserves and the 14 

 percent interest figure. 



That means the DSIs continue to receive a discount for a 

 significant amount of reserves that Bonneville does not need and 

 which are calculated at an interest rate substantially in excess 

 of current rates. 



The revenue impact is significant, as Table 2 on page 23 shows. 



* See BPA Billing Credits Policy, adopted August 30, 1984, 

 section 9(i), on the Administrator's Right to Request Refinancing 

 and Improvement of Billing Credit Resource, and BPA Billing 

 Credits Policy, adopted January 29, 1993, section 7(e) on the 

 same subject. 



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