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Ms. Jo Ann Scott 

 March 10, 1993 

 Page 2 



normally would have to acquire by acquiring the output of combustion turbines. 



The VOR was based on proxy gas turbines -- the alternative source of reserves if Bonneville 

 could not restrict DSI firm power loads. 



In 1985. the value of DSI reserves was approximately $90 million, of which $89 million were 

 allocated to forced outage reserves. To this sum was added the projected cost to the DSIs of a 

 Bonneville power restriction. The two items totalled about $92 miUion. Half of this amount -- 

 $46 million - was then allocated to the DSIs as an annual credit (discount). This value escalates 

 for inflation, and is now about $59 million. 



The VOR, however, is based on two important planning assumptions, both of which now appear 

 to be out of date. 



The first is that the DSIs provide 1,288 megawatts of forced outage reserves. That was the case 

 until January 1993, when Bonneville published a new White Book, which showed that it counts 

 on the DSIs for 600 megawatts of forced outage reserves. 



Testimony in the current rate proceeding suggested that the actual figure may be slightly higher - 

 -between 700 and 800 megawatts - but even if these figures are adopted as the planning 

 assumption for fiscal years 1994-95, they are considerably lower than the 1,288 figure used in 

 1985. 



Another change that should be made in the VOR is that the gas turbine proxy (the plant that 

 would have been acquired if the DSIs did not provide reserves) is based on a 14 percent interest 

 rate. 



A 9 percent figure more accurately reflects today's market if a private entity were to build the 

 turbines, and a 6.5 percent figure us more accurate if a public entity with ability to sell tax- 

 exempt bonds were to fmance construction. 



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

 outage reserves 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, which was extended in 1990, and now expires in June 1996. 



The only was to "unlock" the values in the rate link are in a general rate proceeding, such as the 

 one that Bonneville is currently conducting. Yet Bonneville apparently refuses to do so, saying 

 that its decision in 1990 is fmal and that the IP-PF Rate Link precludes it from adjusting the 

 value of DSI reserves. 



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