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A. The Irrigation Discount Reflects the Lower Cost of 

 Serving a Non-Growing. Off Peak (Summer Only) Loads. It is 

 impossible to say at this time what principals of rate design 

 Bonneville will ultimately adopt. In an environment of "unbundled" 

 services or "tiered rates" it may be that there will no longer be 

 a single Priority Firm ("PF") BPA rate. There may be several 

 "tiers" of different PF rates depending on the quality and quantity 

 of power purchased and differing types of firm power services. 



Notwithstanding this uncertainty, there is good reason 

 for BPA to conclude that non-growing, off-peak loads such as 

 irrigation costs BPA less to serve and they provide significant 

 system benefits. I have already mentioned that, the cost of 

 acquiring new energy and capacity resources and transmission 

 facilities to meet BPA's growing winter energy and capacity needs 

 is currently driving BPA's costs. BPA is not energy or capacity 

 constrained in the summer period. If it were not for growing 

 winter loads, BPA would be incurring very little additional cost 

 for resources. 



These basic facts about BPA's cost causation must ultimately 

 translate into significantly lower rates for power users in the 

 summer period. This is especially true as Bonneville moves from a 

 period of temporary surplus in the 1980s to a period of increasing 

 need for relatively costly new resources in the 1990s. 



1. Use of PMDAM to Price BPA Power May Distort Cost 

 Causation and Send Inappropriate Price Signals. In this regard, I 

 reiterate my earlier comments about BPA's proposal to use the PMDAM 

 model as the basis of a methodology for pricing power. To the 

 extent that using PMDAM would cause BPA rates to reflect the 

 "opportunity cost" or value of power in a west coast system, 

 including California and the Pacific Southwest, it appears to be an 

 inappropriate method for use in BPA rate design. Basing the cost 

 of power in the Northwest on its value in California could result 

 in a gross distortion of seasonal rate design. 



Depending how PMDAM is applied, it could cause BPA 

 to reverse the current seasonality of BPA rates to reflect power 

 values in a summer peaking system. This makes no sense because 

 BPA's primary statutory mission and its long term contractual 

 obligations require it to acquire and supply power and transmission 

 for Northwest loads. BPA must acquire the resources and build the 

 transmission facilities to carry out this mission. This is what 

 drives BPA costs. BPA rates should be based on cost causation for 

 serving Northwest loads, not on the value of power in California. 



2. NIU Will Support Seasonal BPA Rates. NIU has and 

 will continue to participate in BPA public processes to develop an 

 appropriate methodology for rate design in the 1990s. We believe 

 that a strongly seasonal BPA rate structure based on BPA's cost to 

 serve its Northwest customers is the appropriate methodology. 



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