178 



from non-utility entities. Deregulation of the transmission system is also moving forward 

 rapidly. Retail wheeling and open access are becoming reality. 



Natural gas prices are at all time historical lows in real dollars and there appears 

 to be sufficient reserves to last well into the next century. The cost of power from new 

 combined cycle combustion turbines is very competitive with other alternatives, including 

 the price of BPA's preference power as new BPA rate increases become effective. 



The electricity market appears much different today than in 1980. Utilities are 

 losing their monopoly power in many of their historic strongholds. This process will 

 accelerate in the future. The wholesale power suppliers, like BPA, and utihties which 

 will siuivive into the next century will be the ones anticipating the fundamental changes 

 in the marketplace and reinventing themselves to be agile and competitive. 



TODAY'S SITUATION 



The central question of this hearing is whether BPA's current resource program is 

 working. The simple answer is no, it is not working. That is, the resource program does 

 not reflea the fundamental changes occiuring in the energy supply marketplace in the 

 Pacific Northwest. The goods news is that BPA recognizes the simation and is working 

 in pannership with its customers to fix the problem. We support this process strongly, 

 and I will address it in more detail at the next hearing of this Task Force. As a preview, 

 however, BPA is transitioning to become a much more efficient, competitive, businesslike 

 entity that can compete in a decentralized market. I believe this transition can occur 

 without new legislation, but it will need the support of your Task Force to break down 

 existing barriers to change. 



PROBLEMS 



BPA offers melded rate products to its customers. This practice masks the cost of 

 new conservation programs, new generation resources and transmission development to 

 the customers desiring to purchase these services. This leads customers to request 

 services and products from BPA that they could potentially acquire at lower cost 

 elsewhere, if BPA was not melding the rates the customers face. 



BPA continues to pay conservation incentives at levels much higher than those 

 that would keep their power rates neutral compared to the rate impacts of acquiring 

 comparable output from generation resources. This causes BPA rates to rise 

 urmecessarily and does not reflea the faa that 60 percent of BPA sales ultimately go to 

 basic industry, including agriculture. Those industries compete on the basis of price in 

 national and international markets. 



SOLUTIONS 



The region and BPA's customers need to continue to strive for ambitious 

 conservation goals. The Northwest Power Planning Coimcil and BPA can help assure 

 this occurs on a planning basis. It is very important that the question of who pays for 



