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relieving short-term rate impacts and more closely matching conservation 

 costs nd benefits over time. ESCOs are willing and able to put up 

 hundreds of millions of their own dollars in conservation projects just for 

 the opportunity to be paid by BRA on the basis of actual kWh saved, in the 

 case of SESCO, over a 20-year period. 



ESCOs "have played a lesser role in the Pacific Northwest Region" because 

 BPA has refused to contract with ESCOs for conservation, and BRA dominates 

 the region. In fact, BRA appears to have put forth a policy of avoiding private 

 sector performance contractors. The BRA Administrator has spoken of the need 

 for long-term contracts that use third party financing but he seems to exclude 

 ESCOs from that category. 



This BRA attitude does not mean that ESCOs are not becoming active in other 

 local jurisdictions. Ruget Sound Power & Light Company (Puget) and Pacific 

 Rower & Light Company (PR&L) are contracting with ESCOs under competitive 

 bidding solicitations. Portland General Electric Company (PGE), to its credit, is 

 contracting with ESCOs without regulatory compulsion. To demonstrate what 

 good faith negotiations can accomplish, PGE fully negotiated a contract much 

 more complicated than our BRA offering in only three days of negotiations. 



A further complication which has stood in the way of ESCO participation in the 

 Region is that ESCOs cannot practically contract directly with BPA customer 

 utilities, independent of BRA. ESCOs cannot possibly compete with the deal 

 those utilities get from BRA. First, BRA prices its power at fiat average cost 

 (now about 2.5 cents/kWh but going up somewhat) instead of marginal cost. 

 Second, BPA offers its own centrally-designed conservation programs at zero 

 cost to those utilities. Third, BRA pays the utilities an administrative fee (over 

 $300 per house) to operate the program. Fourth, BPA now even pays those 

 some of those utilities (but apparently not Snohomish PUD) up to 20 mills/kWh 

 additional (as compensation for "lost revenue") just for allowing the BPA 

 program to operate. And this 20 mills/kWh is tied to BRA's overstatement of the 

 savings its residential weatherization program achieves (2800 annual 

 kWh/house for 40 years); it is not based on the studies showing that the 

 program actually saves only 1330 annual kWh/house in the first year and that 

 the savings then suffer substantial deterioration. Thus, BPA offers below- 

 marginal cost rates, a free conservation program, payment to operate the 

 program, and payment for "lost revenue." 



a. In practice there are massive differences in the way that BPA treats 

 conservation and generation. You need only look at the competitive 

 bidding programs. Today, 25 months following submittal of bids to BPA, 

 there is not one conservation contract signed. Even our smallest program 

 at about 2.2 aMW was rejected as being too large. But the 200+ aMW 

 Tenaska plant, a hundred times that size, has been fast tracked. Our own 



TESTIMONY OF RICHARD ESTEVES Page 18 



