**TESTIMONY OF**

**STEVEN WEISS**

**Witness for**

**Save Our *Wild* Salmon Coalition/NW Energy Coalition**

*Q. Please state your name and qualifications.*

A. My name is Steven Weiss. My qualifications are contained in
SN-03-Q-SA-01.

**Section 1. Introduction and Purpose of Testimony**

*Q. What is the purpose of your testimony?*

A. The purpose of my testimony is to challenge some of the assumptions
and analysis presented in the Bonneville Power Administration\'s (BPA)
initial proposal. Without correcting these errors, the policies and
rates developed from them fail to meet the public interest standard the
Administrator must use to evaluate the proposed policies and rates being
reviewed within the scope of this ratecase.[^1] I will also offer
substitute policies more in line with that standard.

*Q. What are the particular areas of Bonneville\'s initial proposal
which are of greatest concern to the Save Our* Wild *Salmon and NW
Energy Coalitions (SOS/NWEC)?*

A. SOS/NWEC\'s chief concerns with Bonneville\'s proposal are: (1)
BPA\'s rates will not be adequate to fully fund its fish and wildlife,
conservation and renewable resource and other operation and debt
obligations without triggering US Treasury deferrals; and, (2) BPA has
not proposed policies which prevent the periodic crises of which this
Safety Net CRAC process is emblematic.

*Q. Before going into specifics, how do you view BPA\'s initial proposal
in general?*

A. SOS/NWEC is supportive of a central piece of BPA\'s SN CRAC proposal,
the idea of annual rate adjustments, but other than that element the
proposal is flawed and inadequate in most aspects. What is equally
disconcerting is that Bonneville, as part of this process, does not
propose policies which could provide longer term stability to reduce its
need for this kind of crisis-to-crisis management.

*Q. How is your testimony organized?*

A. Section 1 outlines the purpose of my testimony. Section 2 provides
some background and context which any SN CRAC proposal must take into
consideration. Section 3 discusses the inadequacy of BPA\'s proposal to
cover fully its costs and risks. Section 4 discusses how Bonneville\'s
proposal shortchanges its important funding obligations. Section 5
explains how BPA has not done the needed NEPA review to justify its
risky proposal. Section 6 describes how BPA has not provided equitable
treatment for its fish and wildlife responsibilities compared to its
other obligations. Section 7 is our counter-proposal to meet BPA\'s
funding and policy crisis. Appended to our testimony are a number of
data responses we received from Bonneville. We also refer to one
separate attachment, SN-03-E-SA-01A.

*Q. Do you support the testimony of any other party to this rate case?*

A. We support the analysis contained in the testimony of the Columbia
River Inter-Tribal Fish Commission (CR).

**Section 2. Setting the context for this SN CRAC process**

*Q. Should the region be surprised that Bonneville is in financial
trouble so soon after instituting its rates little more than a year ago
and that it faces a high probability of not being able to meet its
FY\'03 Treasury payment obligation?*

A. Not really, for two general reasons. First, as we and other parties
argued in the WP-02 ratecase, Bonneville\'s present rate structure is
inadequate to deal with the agency\'s risks. In particular, the LB CRAC
only adjusts for augmentation expenses but not for surplus sales revenue
shortfalls. Both these categories of costs and revenues are extremely
volatile, but BPA limited the LB CRAC to only deal with the augmentation
expenses. In addition, the SN CRAC mechanism is also severely flawed in
that it cannot trigger far enough in advance. Even if Bonneville can see
a problem coming far ahead, it cannot trigger the SN CRAC for events
that will occur in the next fiscal year. Both of these flaws are
examples of Bonneville deliberately putting limits on its ability to
react to risk. Hopefully BPA will learn from those mistakes in this
ratecase. BPA needs to design a mechanism that does not tie its hands
and does not have blinders on. There are enough unforeseeable events
that could hurt the agency: BPA should not exacerbate its problems by
purposely limiting itself from reacting, in advance, to foreseeable
events. Unfortunately, this rate Proposal does not rectify that problem.

The second reason the region should not be surprised by Bonneville\'s
problems is because the agency has failed to put into place a long-term
plan to get itself off this funding \"roller coaster.\"[^2] As a result
BPA lurches from crisis to crisis, repeatedly \"surprised\" by events
that should not be surprising.

> BPA needs to have a long-term plan to achieve its goals\--and stick to
> it. Given the volatile nature of the environment in which it must do
> business, it needs to have a [long-term strategy]{.underline} that
> has, as one important goal, the reduction of those risks. As I see it,
> Bonneville\'s largest risks include: (a) dependence upon volatile
> power markets which are governed by fossil fuel prices; (b) extremely
> variable precipitation; (c) legal and financial jeopardy for failure
> to meet fish obligations; and, (d) exposure to future CO2 mandates or
> taxes. Bonneville needs a long-term program for dealing with these
> challenges that includes a long-term sustained commitment. We will
> describe such a policy later in our testimony.

Continued and adequate funding for projects that reduce risk is
essential to solving BPA\'s problems. Instead what Bonneville
continually does is crisis management, with each \"crisis\" seen as
something extraordinary and unusual, requiring extraordinary and unusual
measures \-- often including reductions and deferrals of the very
long-term programs that would get BPA off this roller coaster.
Unfortunately for the region\'s long-term goals, including stable and
affordable rates, Bonneville has not learned that, as it scrutinizes its
costs, it must understand that [under-funding of critical programs is
just as harmful and wasteful, in the long term, as over-funding of
non-critical ones]{.underline}.

**Section 3. Bonneville\'s proposal is inadequate to cover its costs and
risks.**

*Q. Does SOS/NWEC support any parts of Bonneville\'s proposal?*

A. Yes. We believe the central element of the proposal is superior to
the existing SN CRAC. The key improvements are that it is annual and
automatic so that it does not take so long for a rate adjustment to be
made. This better protects BPA\'s ability to make its Treasury payment
on time. However, BPA\'s mechanism is still inadequate in several
respects, so we propose several changes in Section 7.

*Q. Given that BPA\'s proposal is an improvement over its existing SN
CRAC mechanism, do you still believe the proposed rates will be
inadequate to cover the agency\'s costs and risks?*

A. Yes. For two general reasons which will be discussed in more detail
below. The first is that Bonneville has set its Treasury payment
probability (TPP) too low (50%). BPA proposes to cap the amount of
recovery it can get from the SN CRAC at \$470 million per year. Doing so
means that in many of the computer scenarios, or \"games,\" run to
calculate TPP, this capped amount is inadequate to cover all of
Bonneville\'s costs. The result is the low TPP. BPA justifies this
\"relaxed\" TPP standard as necessary to protect the regional economy,
but fails to reconcile this policy call with the still-operational Fish
and Wildlife Funding Principles (\"Principles\") that govern this rate
period and require a TPP in the 80-88% range. Secondly, BPA\'s
calculation of its TPP ignores many risks that could impact the
agency\'s finances. BPA simply turned off its Non-operating Risk Model
(NORM), assuming that \"nothing can go wrong.\" Thus, even BPA\'s
already inadequate TPP target is really well below 50%.

*Q. Why are you concerned that BPA has set its TPP (and other financial
criteria) too low?*

A. For this ratecase BPA has set its target TPP at 50%. This means there
is only a 50% chance that Bonneville will be able to pay all of its
Treasury payments on time and in full for the fiscal years 2004-06. This
will come after the agency faces an even greater certainty of missing
its payment this year unless it relies heavily on various borrowing
mechanisms (\"financial tools\") that could be politically difficult to
implement. We are concerned about the low TPP for several reasons.
First, we recognize that failure to consistently pay Treasury
obligations may threaten the political viability of Bonneville. In
addition, SOS/NWEC\'s more direct concern is that a low TPP can have
serious consequences for sustained funding of conservation, renewables
and fish restoration programs. (Ironically, the very programs that can
lead BPA off its roller coaster.)

*Q. But doesn\'t BPA fund these programs before it makes its Treasury
Payment? Why would these public purpose programs, especially fish
programs, be particularly vulnerable\--as compared to BPA\'s other
obligations\--if the agency has a low TPP?*

A. It is a commonly held belief that because BPA pays its Treasury
payment last, that its other obligations have a great assurance of being
paid, regardless of a low TPP. But it is not true for a number of
reasons. When we argued that BPA\'s rates were taking too many chances
with its TPP, Bonneville responded that regardless of its TPP, it would
meet all of its fish funding obligations: Treasury payment came after
those obligations. Thus, BPA argued, our concern with risk was
unfounded. However, in Bonneville\'s final ROD the agency redefined its
\"obligations\" to include only \"[contracted]{.underline}
[payments]{.underline} for fish and wildlife expenses.\" (WP-02-A-09
p.4-43 emphasis added) By doing so Bonneville left out its two most
important fish-related responsibilities: hydro operations (operations
aren\'t \"payments\") and commitments made to the tribes, fishery
managers and the public (commitments aren\'t \"contracts\"). These
commitments even covered the thirteen fish and wildlife options modeled
in the ratecase, since they were not contracted for either. In this way
BPA significantly narrowed what it defined as its \"obligations;\" the
result being that its non-contracted (or not-yet contracted for)
responsibilities and commitments were no longer assured the guarantee of
being met before Treasury payment.

SOS/NWEC strenuously objects to this downgrading of BPA\'s fish and
wildlife and other public purpose responsibilities. These
responsibilities are not discretionary. Indeed, the Northwest Power
Planning Council stated recently that,

Bonneville's many programs are not all equal. Some, such as the fish and
wildlife program, respond to legal obligations that cannot be abandoned,
even temporarily. Programs with such legal requirements must be viewed
differently than programs that are useful and valuable but no legally
required or unquestionably essential to Bonneville's core statutory
missions. (Council letter to BPA, 2/21/03, attachment SN-03-E-SA-01A)

Our second concern is that Bonneville treats the payment of its Treasury
obligation as essentially obligatory. While it may [say]{.underline} it
is willing to accept a 50% chance of missing its payment, its real
acceptance level is almost zero. We have seen Bonneville take
extraordinary measures to make its payments[^3], and there is no reason
to think that position has changed even though it is now \"relaxing\"
its standards.

For both these reasons, not withstanding that prompt repayment of
Treasury debt is important for taxpayers in and of itself, [SOS/NWEC are
forced to view TPP as more a measure of the agency\'s commitment to its
public purpose obligations (fish, conservation, low-income
weatherization, renewables) than to making its Treasury
payment]{.underline}. In other words, based upon recent history, a low
TPP does not really threaten Treasury payment, it threatens the
non-contracted for commitments to Bonneville\'s fish and other public
purposes. Absent another form of meaningful commitment to these
programs[^4], we need to see a healthier TPP than BPA is proposing to
give us assurance that Bonneville will meet its responsibilities.

*Q. In your opinion, does BPA\'s proposal for a 50% TPP satisfy the Fish
and Wildlife Funding Principle No. 3?*

A. Not only do I think the proposal fails to meet the Principle, but
Bonneville agrees. Principle No. 3 requires that, \"Bonneville will
demonstrate a high probability of Treasury payment in full and on time
over the 5-year rate period.\" In particular, \"at least equal to the 80
percent level\....\" BPA admits that it believes its SN CRAC proposal
will only \"\...put BPA on a path to meet the intent of the Fish and
Wildlife Funding Principles.\" (SN-03-E-BPA-04, p. 15, lines 3-4)

*Q. What is BPA\'s rationale for not meeting the requirements of the
Principles?*

A. BPA implies that it has some discretion to decide whether or not to
adhere to the Principles, \"\...[given the state of the
economy]{.underline}.\" (SN-03-E-BPA-04, p. 15, line 4, emphasis added)
This issue was followed up in some data requests (see SA-BPA-005,
006a-c, attached). In response, BPA states that it remains committed to
the Principles, but that they were \"time-specific\" and thus,
\"\...many of the Principles are no longer relevant. Therefore BPA must
take current circumstances into consideration in implementing the
Principles\" (response to SA-BPA: 006). It should also be noted that
Bonneville has not analyzed the economic and social impacts of reducing
fish and wildlife recovery activities on local communities and economies
that would result from continued failure to meet the Principles. This is
described in more detail in the testimony of the Columbia River
Inter-Tribal Fish Commission (CR).

*Q. Are the Principles, especially No. 3, no longer relevant?*

A. To the contrary. The Principles, especially No. 3, were designed
specifically to prevent BPA\'s financial problems from impinging on its
ability to fully fund its fish responsibilities. The current
circumstances, where financial pressures result in reduced fish funding
(and fish-friendly hydro operations) are the [reason]{.underline} for
the Principles, and cannot be abandoned by Bonneville just when they are
needed most. To quote the preamble to the Principles: \"These principles
will ensure that Bonneville\'s rates and power contracts give a very
high probability of meeting [all]{.underline} [post-2001 financial
obligations]{.underline}, including the future fish and wildlife budget
commitment\....\" (emphasis added) Clearly, it can be inferred that the
writers of the Principles understood the connection between BPA\'s
financial health and full funding of fish obligations: only when BPA has
adequate rates can it be trusted to fulfill its fish and wildlife
responsibilities. There would be no need for the Principles if BPA
honored its fish responsibilities on an equitable basis with its other
responsibilities, i.e., put them ahead of its Treasury payment
obligation. But the Principles are needed. Only if BPA is required to
set a high TPP can there be any assurance that the agency will meet
those responsibilities. Bonneville should not be allowed any discretion
in relaxing the Principles unless it provides some other adequate
assurance that it will meet its responsibilities to fish and other
public purposes.

*Q. Bonneville argues in its response to SA-BPA: 005 (attached) that
Fish Principles Nos. 3 and 5, when taken together, tend to balance each
other out and lend support to its contention that it has some discretion
in adhering to them. Do you agree?.*

A. Bonneville fails to read the entire Principle No. 5. While No. 5
starts out with, \"Bonneville will minimize rate impacts on \...
customers,\" which might be understood to require some sort of
\"balancing\" with the requirement of No. 3 to have an 80-88% TPP, when
one reads the entire No. 5 it is clear that this is not the case. No. 5
goes on to state that BPA\'s goal must be to keep rates low by
specifically seeking \"additional cost reduction\...in costs that are
[not fish and wildlife]{.underline} costs.\" (emphasis added) Clearly
this does not allow BPA to relax the TPP standard of Principle No.3, nor
does it allow BPA to seek further fish cost reductions as it has during
the Financial Choices process and in directives to the Power Planning
Council that have no scientific justification. It is supposed to look
only for non-fish costs for reductions that could minimize rate impacts
on customers.

*Q. The second reason you mentioned for why Bonneville\'s rate proposal
is inadequate is that BPA has underestimated its risks in its TPP
calculation. Please explain.*

A. Bonneville has assumed away all of its non-operating risk. This
includes the risk that there will be increases to the costs of BPA\'s
partners such as ENW, the Corps of Engineers and the Bureau of
Reclamation, as well as its own internal costs. BPA justifies the
assumption that there is no risk that these costs will increase on
commitments by itself and from its partners to \"rigorously manage their
expense levels.\" (SN-03-E-BPA-07 p.4, lines 3-10) While it is
commendable that each of these agencies has pledged to manage its
expenses, it is imprudent for Bonneville to assume there is absolutely
no risk that unforeseen uncontrollable events might occur in the next
three-and-a-half years that could undermine those efforts.

*Q. Can you give an example of such an event?*

A. Yes. (While we discuss here one very important example, there are
many others. We endorse and incorporate by reference the extensive
discussion of the failure of BPA to properly account for its
non-operating risks contained in the testimony of CRITFC (CR)). One
possibly very expensive risk is the future costs of ENW\'s Columbia
Generating Station (CGS) nuclear plant. BPA\'s methodology, which has
not changed for this rate case (WP-02-E-BPA-15, p. 11), is based on
\"[historical]{.underline} WNP-2 nuclear plant output information\" with
some modifications. (WP-02-E-BPA-01, p. 9, emphasis added) The flaw here
is that BPA assumes the future will be essentially the same as the past.
However, nuclear reactors get older, and they can have serious problems
which lead to long, expensive repairs or even premature shutdown
requiring huge decommissioning expenditures. BPA assigns the probability
of this sort of problem occurring as zero.

*Q. How should BPA have estimated the risk of expensive repairs or
premature decommissioning?*

A. BPA should consult the readily available Nuclear Regulatory
Commission statistics on the likelihood of this sort of event for plants
of this type and age. These probabilities could then be weighted by an
estimate of costs and included in the risk model. This is easily done
and should be incorporated into the rates.

*Q. Is there also a problem with the nuclear plant\'s other cost
estimates?*

A. The adequacy of the current \$4 million annual decommissioning fund
contribution is open to some question. This contribution requires an
average real rate of return on reinvestment of 6.3 percent over the
remaining license life of the plant. A 6.3 percent [real]{.underline}
return is overly optimistic.

*Q. Are there any other \"non-operating risks\" or uncertainties that
Bonneville has not accounted for?*

A. Yes. The largest uncertainty[^5] in this category is that of
increases in fish and wildlife costs (including changes in hydro
operations which reduce generating revenue). Bonneville has simply
decided that uncertainty in this area no longer exists. Given the
uncertainty inherent in the 2003 and 2005 Biological Opinion check-ins,
still to be completed ESA Recovery Planning, numerous pending court
cases, potential Clean Water Act compliance costs, incomplete sub-basin
plans and the lack of approved budgets for many new programs, the idea
that there is certainty of funding levels (\$139 million/year) for fish
programs through FY06 is simply astounding.

We must also emphasize that [not]{.underline} being able to fully fund
its fish and wildlife responsibilities entails even greater risk to
Bonneville. These risks include the financial penalties for breaching
tribal and international treaties; the economic harm to fishing and
tourism businesses and the communities which depend on them; and the
irreparable cultural loss to native tribes. To avoid repeating this
discussion, SOS/NWEC endorses and incorporates by reference the comments
of CRITFC (CR) on this issue.

*Q. But hasn\'t the Power Planning Council agreed to the \$139 million
funding level?*

A. Yes, but with some caveats whose risks BPA has not accounted for.
First, the Council made it clear that the funding level was only for
2003. Second, the Council pointed out that about \$40 million in
carry-over costs from earlier years must be honored. Finally, the
Council cautioned that Bonneville's cost cuts are "squeezing out
critical work for un-listed salmon, wildlife, and resident fish that
must be accomplished under the Northwest Power Act." BPA cannot
arbitrarily decide that there is [no]{.underline} risk that the \$139
million funding level may have to be increased due to all of these
factors. (See attachment SN-O3-E-SA-01A, 2/21/03 letter from the Council
to BPA.)

*Q. Can you estimate the TPP of BPA\'s proposal if it incorporated a
more reasonable estimate of non-operating risks?*

A. SOS/NWEC does not have the resources, to answer this question in any
detailed way. However, one small calculation using BPA\'s ToolKit can be
used to illustrate the sensitivity of BPA\'s proposal to a little more
risk. An assumption that together these risks imposed \$100 million of
additional costs for each of the next three years can be quickly
analyzed by adding -100 to each of cells H25-27. This results in a
reduction of the TPP of the initial proposal of from 50.1% to 25.1% (and
a reduction in the TRP from over 80% to 68.1%). \$100 million per year
of extra costs is hardly difficult to imagine occurring despite BPA and
its partners\' commitment to cost control.

*Q. Should Bonneville have included some risk greater than zero for
these non-operating risks?*

A. Yes. Not doing so, in my opinion, is not exercising prudent business
judgement and violates the Fish Funding Principles. Assuming that these
risks do not exist does not make them go away.

*Q. Do you believe that BPA is truly convinced that it has zero
non-operating risk?*

A. No, for the following reason. BPA is making two different and
inconsistent arguments to parties on opposite sides of this issue. To
those of us who are concerned that BPA is not adequately accounting for
its risks, the answer is that, \"\...because BPA is making a major
commitment to specific cost control targets, there is no need to reflect
risks that costs will exceed these levels.\" (SN-03-E-BPA-10 p.12, lines
16-18) In other words, Bonneville is absolutely sure it has eliminated
the possibility of error and so does not need to model any of these
risks. On the other hand, to those parties who are concerned that rates
may rise due to the SN CRAC, Bonneville delivers a different message:
Because we are so unsure that we can control these costs, we have
incorporated an annual cap on how much the SN CRAC can collect.

These are contradictory statements. Either, (a) costs are totally
controlled, so they do not need to be modeled; or, (b) these same costs
cannot be predicted, so a cap is needed. We recommend, therefore, that
if BPA is positive that these risks need not be modeled, then it should
be willing to remove the cap (or raise it significantly so as to provide
an 80-88% TPP). This would give assurance to the doubters at no cost to
customers, for surely the cap would never be needed. Or, if BPA is
unwilling to remove or raise the cap, it must model the risks which
cause it to need that cap as protection. The agency cannot have it both
ways.

*Q. Bonneville indicates it is open to some modifications in its
proposal. Please give your reactions to these ideas.*

A. The first modification BPA is considering is to preclude the SN CRAC
from recovering \"excess BPA internal operating costs\...if those costs
exceed the further-reduced limits for FY 2003-2006.\" (SN-03-E-BPA-04, p
17, lines 17-25) Bonneville staff, when asked during clarification about
where those costs would be recovered if not in the SN CRAC, speculated
that perhaps they would be deferred until post-2006.

*Q. Is there any mechanism now in place for deferring such costs?*

A. No, and none has been offered by BPA. Any excess internal operating
costs not recovered by the SN CRAC would simply lower reserve levels. If
BPA\'s proposed SN CRAC were precluded from recovering them, then it
would increase the probability of BPA missing its Treasury payment. This
proposal, if not accompanied by some sort of borrowing ability, reduces
BPA\'s TPP even further, and SOS/NWEC could not support it. Bonneville
should also not support it, because it would violate their 50% TPP
criterion.

*Q. What other modification does BPA indicate it is open to?*

A. Bonneville states it would consider a \"contingent\" rate design.
(SN-03-E-BPA-10, p. 7, line 20-p.9, line 16) BPA\'s initial proposal
calls for annually setting the SN CRAC based solely on reserve levels.
The contingent design would allow \"\...changing the amount of revenue
an SN CRAC would collect if certain favorable events occur that would
affect future costs and revenues.\" (SN-03-E-BPA-10, p.7, lines 21-23)

*Q. Would you be favorable to such a proposal?*

A. Yes, if one important modification were made. We have always
maintained that Bonneville should not intentionally put blinders on its
ability to react in a timely fashion to events it knows with relative
certainty will occur in the future. This is merely prudent business
practice. BPA rejected a similar proposal that we made in the WP-02
ratecase to allow the SN CRAC trigger to look forward into the future.
That rejection resulted in giving the agency less tools to deal with its
FY 03 problems, as we explained earlier. We were pleased, therefore, to
see that BPA was open to such an improvement, until we read the details
that followed. In its explanation of how such a proposal might work,
Bonneville makes it clear (and also in response to my question in
clarification) that any adjustment made resulting from a forward look
should not be symmetrical. That is, the agency is recommending that if
BPA forecast higher revenues and/or lower costs, the SN CRAC would be
reduced, but if instead the forecast predicted [lower revenues or higher
costs]{.underline}, that information would be ignored. We urge BPA to
adopt this type of proposal as a sensible adjustment mechanism, but
[only]{.underline} if information affecting net revenues that BPA
considers certain or perhaps highly likely to occur causes the SN CRAC
to be adjusted in [either direction]{.underline} to continue to meet the
TPP and TRP criteria for the remainder of the rate period.

**Section 4. Bonneville\'s proposal shortchanges its important funding
obligations.**

*Q. Before getting into this topic, please justify testifying about
budget levels. Isn\'t such a discussion outside the scope of this case?*

A. BPA must establish rates that are adequate to meet its obligations.
One can not judge whether that has been accomplished without determining
what the obligations are and whether Bonneville has incorporated their
costs into its proposal.

*Q. Which funding obligations do you believe BPA has shortchanged?*

A. BPA is not funding fish and wildlife restoration at a level
sufficient to meet its obligations to recover listed salmon and
steelhead as well as other fish and wildlife under the Endangered
Species Act (ESA), the Pacific Northwest Electric Power Planning and
Conservation Act (Power Act), tribal treaties, or related laws such as
the Clean Water Act (CWA). Bonneville is also under-funding its
conservation and renewable resource programs, thus failing to meet the
clean energy requirements of the Power Act.

*Q. What should be BPA\'s level of funding to meet the Implementation
Plan of the BiOp and the Council\'s Plan?*

A. It is very difficult to determine the exact extent of Bonneville\'s
funding obligation, as so many unknowns still exist. (This uncertainty,
as discussed earlier, is not accounted for in BPA\'s TPP analysis.)
Based on the revenue requirements of the ISRP- and federally-approved
fish and wildlife projects in the Council's Provincial Review process,
the Columbia River Inter-Tribal Fish Commission has identified a minimum
of \$247 million annually for BiOp offsite mitigation and the Council\'s
fish and wildlife program through 2006. However, this figure does not
include potential additional costs identified through the 2003 or 2005
BiOp check-ins, ESA Recovery Planning, CWA expenses, or subbasin
planning. Given the uncertainties mentioned above, there would need to
be a provision that would force BPA to raise the budget when recovery
plans, subbasin plans, BiOp check ins or litigation changes the funding
needs. We endorse and incorporate by reference the testimony of CRITFC
for a more detailed discussion and background on this issue so as to
avoid duplicate comments.

*Q. Why do you state that BPA is under-funding its conservation and
renewable programs?*

A. Bonneville is required by the Power Planning Act to assure the
Northwest of an adequate, efficient, economical and reliable power
supply. The fact that we are in this SN CRAC process is evidence that
the agency has far to go in this respect. Instead, BPA has relied way
too heavily on extremely variable hydro-generation and the extremely
volatile gas-price driven power market. This has caused BPA\'s power
supply to be much less adequate, efficient, economical and reliable then
should be the case. In addition, reliance on this market for a large
portion of its power requirements also subjects Bonneville and the
region to a large future carbon mitigation risk.

*Q. Are you saying that BPA has not provided an adequate, efficient,
economical and reliable power supply to its customers?*

A. One can\'t place all the blame on BPA, but one must admit that the
region was caught short. During 2001 BPA claimed that supplies were
inadequate and reliability was threatened enough to justify the
declaration of a hydro emergency. Only by relying on this extraordinary
declaration was BPA able to ensure that the lights could be kept on.
(There is a misconception held by some in the region that fish programs
were responsible for this crisis. But in fact, fish bailed out the power
business. The emergency declaration allowed BPA to keep the lights on,
and avoid hundreds of millions of dollars in power purchases at the cost
of missed spill and flow targets that are especially important during
dry years. Failure to obtain adequate supplies and prevent market
manipulation caused the problem, not fish.) Had the West not fallen into
a recession that reduced loads drastically, BPA may have been forced to
lean on the river for several years until new resources could be brought
on line. As for economical, BPA, its customers and end users have
provided overwhelming evidence in numerous forums that the agency\'s
prices are so high that they threaten their economic well-being.
Low-income consumers have been particularly hard hit by these policies
and need immediate help.

*Q. Have BPA\'s conservation programs borne an undeserved share of cost
cuts due to the present crisis?*

A. Given the value to BPA and its consumers of cost-effective
conservation, one must conclude that the huge cuts to these programs are
\"Penny-wise, but pound-foolish.\" As with fish and wildlife cost cuts,
the cuts to these programs have been disproportionate to other
reductions, and not because they have shown cost over-runs. In fact
these are the only departments that have consistently come in under
budget. Instead, one must conclude that they are under the knife because
Bonneville considers them more \"discretionary\" than other programs.

*Q. Please give an estimate of BPA\'s cuts made as a result of the
Financial Choices process.*

A. Over the fiscal years 2003-2006, BPA is projected to cut its capital
budget from a total of \$266 million to \$124 million, or 53%, and its
expense budget from \$301 million to \$248 million, or 17%. Clearly this
is disproportionate to other cuts Bonneville is making. Of particular
concern is a projected cut of \$1 million from the already inadequate
low-income weatherization budget of \$14,4 million: a reduction of about
7%.

*Q. Has the failure to acquire an adequate supply of power and
conservation had other detrimental effects on Bonneville?*

A. Yes. BPA has been forced into what could be called a \"panic mode\"
for several years. The agency is so beset with one crises after another
that it cannot focus on long term solutions and instead has had to make
short-term decisions to save money, thus hurting its long-term
affordability and ultimate survivability. In fact, BPA has used the very
programs that can help it end this cycle\--sustained aggressive
conservation and renewables investments along with effective fish
restoration programs\--as a shock absorber for its other problems. BPA
funding for these critical public purposes has fluctuated wildly in
response to BPA\'s financial fortunes

*Q. What should BPA\'s long-term strategy be to extricate itself from
crisis management?*

A. BPA and the region must make a long-term commitment to a plan to
insulate themselves from the volatility of the market and snowpack
levels, from future carbon mitigation risk, and from legal exposure to
failure to restore salmon affected by the hydro-system. We discuss our
proposal in detail in Section 7.

**Section 5. Bonneville has not done the needed NEPA review to justify
its proposal.**

*Q. Is Bonneville going to conduct a NEPA review for its proposal?*

A. In its data response to GP-BPA-005, BPA stated that, \" BPA is still
in the process of assessing the proposed SN CRAC under NEPA, and whether
this proposal is consistent with the Market-Driven Alternative that was
evaluated in the Final Business Plan EIS and adopted by the BPA
Administrator in the Business Plan ROD.\" Thus the question still
remains open, and our comments here are in support of a review.

*Q. Do you believe that this proposal represents a significant enough
change from the alternatives analyzed in the Business Plan EIS that a
new review is needed?*

A. Yes. BPA\'s SN CRAC proposal contains a number of elements which were
not present when the Business Plan EIS was conducted; in particular: (a)
a 50% TPP; (b) the assumption that there are no non-operating risks; and
(c) the presence of Emergency Criteria which BPA claims gives it the
right to change hydro operations due to financial factors[^6].

Bonneville, in its response to SA-BPA-009B (attached) argues that, while
it has not completed its review, it thinks that these factors were
adequately covered:

> To clarify, while the SN CRAC proposal does include a 50% TPP and the
> assumption that there are no non-operating risks, it does not include
> emergency criteria that allow BPA to change hydro operations due to
> financial factors. If these criteria exist, they operate independently
> of the current rate adjustment proposal.
>
> Regarding the 50% TPP and the assumption that there are no
> non-operating risks, it must be remembered that the Business Plan EIS
> is a policy level NEPA document that provides a programmatic
> assessment of various possible business directions. As such, its
> intent was not necessarily to provide evaluation of all specific
> elements of each alternative analyzed in the EIS. Thus, specific
> analysis of the 50% TPP and the assumption that there are no
> non-operating risks was not provided in the Business Plan EIS.
> However, the Market-Driven Alternative reflects an intent that BPA
> maintain its financial strength through a variety of means, and these
> elements appear to be consistent with this intent. Thus, while the
> precise actions to be undertaken by BPA as part of the Market-Driven
> Alternative may not have been fully known at the time the policy-level
> Business Plan EIS was prepared, the 50% TPP and the assumption that
> there are no non-operating risks appear consistent with the type of
> action that would occur under the Market-Driven Alternative, which was
> analyzed in the Business Plan EIS.
>
> Regarding emergency criteria, it is arguable these criteria were
> present in some form at the time that the Business Plan EIS was
> prepared. Impacts of potential hydro operation strategies and
> associated changes are addressed in Section 4.3.4 of the Business Plan
> EIS and throughout many sections in the System Operation Review EIS
> and ROD---the NEPA document generally covering FCRPS operations. These
> impacts would be expected to occur regardless of need for a particular
> operation.

*Q. Do you find BPA\'s above argument, that the proposal has been
adequately analyzed, convincing?*

A. No. BPA\'s response addresses each of these factors separately,
rather than as a package. Taken together, the severe risk that fish and
wildlife as well as conservation and renewable programs would not be
well funded is higher than what was anticipated in the Business Plan
EIS. In particular the deadly combination, for fish, of low and inflated
calculation of TPP (inflated because it fails to consider non-operating
risks) with BPA\'s claim to be able to declare hydro emergencies solely
for financial reasons, was certainly not considered in that EIS.
SOS/NWEC believes BPA\'s proposal requires a thorough NEPA review,
especially regarding its increased risk to fish and wildlife.

**Section 6. Bonneville provides different degrees of assurance to its
various funding responsibilities.**

*Q. What is BPA\'s \"equitable treatment\" obligation?*

A. Section 4(h)(11)(A)i of the Regional Act states that Bonneville must
\"\...adequately protect mitigate, and enhance fish and wildlife\...in a
manner that provides equitable treatment for such fish and wildlife with
the other purposes for which such system and facilities are managed and
operated.\"

*Q. In your opinion, does BPA\'s proposal provide equitable treatment
for fish?*

A. No. (We will reserve our legal arguments for the Brief, and discuss
here only the facts which lead us to this assertion.) The reason for
this conclusion is that it is clear that Bonneville provides different
levels of assurance for different purposes\--and its assurance of
meeting its many real but non-contracted for fish responsibilities,
including hydro operations, is lower than its other purposes.

First, as discussed in Section 3, BPA has decided that commitments not
specifically put into contracts are not protected by the agency\'s
payment priorities. What this means is that while other obligations are
funded before Treasury payments are made, these type of responsibilities
come *after* Treasury payment. Thus BPA\'s fish responsibilities have a
much lower assurance of being fulfilled. This is especially true for
hydro operations, which are not considered a true BPA \"obligation,\"
and are specifically subject to arbitrary termination if Bonneville
(unilaterally, without any review or recourse) decides it is in
financial trouble and makes a hydro emergency declaration.

Second, Bonneville has negotiated multi-year contracts with the Corps of
Engineers and the Bureau of Reclamation guaranteeing their budgets and
ensuring that their bills are paid regardless of BPA\'s financial
situation. Other entities and obligations have also received varied
assurances of payment superior to that given to BPA\'s not-yet
contracted for fish programs and hydro operations.[^7]

Third, BPA is \"open to the idea\" in this ratecase that any costs from
BPA\'s failure to achieve certain internal operating cost savings are
guaranteed to be uncollectable from customers and thus must be taken out
of other budgets. These other budgets then have less assurance of being
met.

**Section 7. SOS/NWEC\'s proposal to correct the flaws in BPA\'s SN
CRAC**

*Q. Please list the flaws in BPA\'s proposal that your proposal will
seek to correct.*

A. (1) BPA\'s stated TPP is too low, thus threatening the agency\'s
ability and willingness to fully fund its public purpose
responsibilities. (2) BPA fails to account in its TPP calculation for
many other risks. Therefore BPA\'s proposal actually has a much lower
TPP than 50%. (3) The proposal\'s \"contingent\" mechanism only reacts
to future good news, instead of both good and bad forecast events. (4)
Fish and wildlife responsibilities are not being met now. (5) Fish and
wildlife funding levels and hydro operations are not provided the same
assurance of being met compared to other programs, and instead have
become the \"shock absorber\" to deal with BPA\'s uncovered risks. (6)
Bonneville does not have a long-term policy in place that would, over
time, reduce its risks and allow it to avoid periodic crises. (7) BPA\'s
proposal fails to provide meaningful help to low-income consumers who
need immediate help to deal with their high electric bills.

*Q. Please describe the SOS/NWEC proposal to address these flaws. First,
what part of BPA\'s proposal do you support?*

A. We support BPA\'s proposal to automatically adjust rates each year.
We also favor a \"contingent\" mechanism to include in any yearly SN
CRAC adjustment information from changes, [both positive and
negative]{.underline}, that can be foreseen with relative certainty at
the time of the adjustment.

*Q. What TPP do you propose?*

As stated above, when Bonneville's Treasury payments are in jeopardy,
the loss in financial certainty has resulted in the loss of river
operations necessary to meet salmon requirements under the Biological
Opinion. As such we support a TPP of 80-88% as identified in the Fish
and Wildlife Funding Principles. However, to the extent that the
agency's public purposes could be effectively protected from the
increased risk associated with a lower TPP, we would not be as
concerned. To effectively insulate salmon and clean energy obligations
from the uncertainties of Bonneville's power business, we propose the
type of guaranteed, contractually enforced, multi-year arrangement such
as BPA has with the Corps of Engineers and the Bureau of Reclamation be
extended to fish and wildlife, conservation and renewables funding.
Another way to do this would be for Bonneville to have a separate
\"public purposes tariff,\" similar to the 3% charge in Oregon which
funds the Energy Trust. Our major concern with BPA\'s willingness to
take on high risk is that it does so in an unequal manner for different
programs. Some, such as Corps and BuRec budgets are protected, while
others, especially public purposes, are less so. Shielding public
purpose funding from other power risks that are totally unrelated to
those public purposes is a long-standing normal utility practice.

We believe that this proposal truly meets the intent of the Fish and
Wildlife Funding Principles. The high TPP and reserve standards mandated
by those Principles were not ends in themselves. Instead they were
intended to assure that fish funding was maintained. Our proposal meets
that goal in a way which does not require the large rate increases
needed to meet an 80-88% TPP and high ending reserves.

(In addition, we believe that the fish and wildlife funds collected by
such a mechanism should be administered in a different manner than they
are today, with a larger role for the tribes, at least equal to that of
federal managers. We understand that this proceeding is not the proper
place for such a discussion, but would suggest to BPA and the other
parties, that as a part of the Regional Dialogue, this issue be
resolved.)

*Q. If implemented, your proposal would assure continued, adequate
funding for public purposes regardless of BPA\'s financial status, but
how would fish-friendly hydro operations be similarly protected?*

A. This is a more difficult question. However, at a minimum, BPA must
foreswear the use of hydro-emergencies for financial purposes. This
action would go a long way toward assuring the region that fish are not
the \"shock absorber\" for poor planning.

> According to an analysis by CRITFC, Bonneville's ratecase assumptions
> about the operation of the Federal Columbia River Hydrosystem (FCRPS)
> reveal a reduction in spring flows from current operations, thus
> increasing power production at the expense of fish survival. State,
> federal, and tribal river managers have not approved such reductions.
> (SOS/NWEC hereby incorporate CRITFC's analysis, as found in their
> testimony, into our own comments by reference.) To the extent that
> Bonneville's assumptions about changes in river operations deviate
> from the FCRPS Biological Opinion, then the agency is potentially
> overstating the power generation and revenue it is likely to
> experience, further reducing the likelihood that Bonneville will meet
> its costs. Therefore, in addition to the elimination of financially
> induced "hydro-emergencies," Bonneville should assume river operations
> that more accurately mirror federal salmon recovery efforts.

*Q. What is your estimate for the minimum fish funding level for
programs being discussed in this ratecase that should be included in
BPA\'s budget in order to meet its obligations?*

A. \$247 million per year, as we discussed in Section 4, can be used as
a starting point. Given the uncertainties mentioned elsewhere in this
testimony, there would need to be a provision that would force BPA to
raise the budget when recovery plans, subbasin plans, BiOp check ins,
litigation, etc. changes the funding needs.

*Q. What should Bonneville do to facilitate the acquisition of all
cost-effective conservation and the development of cost-competitive
renewables?*

A. As we stated, these programs are the long-term path out of
Bonneville\'s problems, and should not fluctuate on a yearly basis due
to BPA\'s crisis of the hour. We have proposed such a long-term strategy
regarding conservation and renewables in the Regional Dialogue, and
there is no need to wait until that process is concluded to make these
needed investments. These programs save money for Bonneville and
consumers and many have remarkably short payback periods. During the
current crisis, we have seen cost-effective investments unwisely
deferred and abandoned, but we are sympathetic to BPA\'s problems.

*Q. Given the cuts to BPA\'s conservation programs in the present
proposal, can you recommend any changes to get \"more bang for the
buck\"?*

A. Yes. In the background meetings leading up to this SN CRAC process,
BPA\'s conservation staff indicated that there is quite a disparity
between programs: some achieving conservation at half the cost of
others. If BPA must make some cuts, we urge the agency to direct its
knife to those programs that are most expensive and/or low
accountability. In particular, we believe some C&R Discount funds have
not achieved that \"bang for the buck\" and should be discontinued. Good
management cuts programs judiciously, rather than simply
across-the-board.

*Q. What help do low-income customers need at this time?*

A. We believe the need to weatherize sub-standard homes and to provide
low-income consumers with efficient base load measures (e.g., efficient
appliances, lighting, etc.) has increased dramatically since the last
rate case. We recommend that BPA double its current funding to
low-income agencies from approximately \$3.5 million/year to \$7
million/year. At the very least, BPA should rescind the unconscionable
projected \$250,000/year cut in this already tremendously inadequate
program. In addition we recommend that Bonneville allow the agencies
that deliver these services more flexibility, so that some portion of
the funds now restricted to weatherization be freed up for base load
measures.

*Q. What other measures would you propose to deal with BPA\'s risks,
especially that of volatile prices.*

A. We propose offering approximately 600 MWs of power to the DSIs under
a variable rate designed to ensure a presence on BPA\'s system as
\"swing\" load. We have proposed that they receive a rate discount
indexed to the market price of power. The amount of the discount should
reflect on a forecast basis both (a) the value to the system of rights
to interrupt for both short term physical emergencies and longer term
(3-6 months) periods of drought to help maintain flow and spill for
salmon; and, (b) the expected value of the difference between a
traditional IP rate and the market price. Any interruption called upon
by BPA should also include provision for worker compensation including
continued health and pension payments to continue benefits.

*Q. Would your complete proposal result in a rate increase greater than
that proposed by BPA?*

A. Only if the small additional costs were covered by an immediate rate
increase. Also our proposal for a \"contingent\" SN CRAC mechanism which
could raise the rate, as well as lower it, based on future events would
tend to raise BPA\'s TPP, but it would be hard to quantify by how much.
Our proposal increases fish spending by \$108 million/year and
low-income conservation by \$3.5 million/year. If BPA adopted our
proposal, this additional \$111.5 million/year would result in a little
more than a 1.5 mills/kwh increase (assuming about \$62 million per mill
of increase).

*Q Do you propose another mechanism to cover these additional costs?*

A. Yes. We propose that Bonneville cover the extra \$111.5 million in
critical core needs to meet the needs of low-income consumers and the
legal requirements of fish and wildlife recovery be met with \"financial
tools\" such as temporarily deferring BPA\'s proposed debt swap by using
some proceeds from ENW refinancing until post-2006.

*Q. Why do you believe using financial tools rather than raising rates
is appropriate at this time?*

A. This is an extraordinary period of high rates, and many of the causes
for that were and are not in Bonneville\'s control. We believe these are
the circumstances that a less than 100% TPP anticipated. Unless the
region decides on rates with a 100% TPP, there will occur \"games,\" or
combinations of unfortunate events, when Bonneville cannot meet its
Treasury payment. This should not be a surprise or crisis. As some
casino ads have said, \"Luck happens.\" Thus the region faces four
choices. We can miss a Treasury payment, raise rates very high, cut
programs that fulfill BPA\'s legal mandates, such as fish and wildlife,
that were not fortunate enough to have contractual protection, or borrow
money. We would argue that a non-100% TPP must not simply be a way to
shift the risk to fish and wildlife or other public purpose programs. We
also believe that BPA\'s proposed rate increase is already daunting.
Thus we are comfortable in recommending that BPA use some of its
available financial tools to defer some of its temporarily high costs
into the next rate period.

*Q. Would not your testimony also require an increase in TPP and
reserves, and thus an increase in rates, to cover the many uncertainties
in non-operating costs that you have identified?*

A. Not if BPA adopts our proposal to insulate public funds from BPA\'s
financial difficulties. To the extent that the agency's public purposes
could be effectively protected from the increased risk associated with a
lower TPP as discussed in our testimony, our proposal does not require a
higher TPP.

*Q. What recommendations would you make regarding your goal of making
Bonneville more sustainable and less subject to periodic crises?*

A. BPA can not totally budget cut its way out of its current
circumstance, and we believe that overly severe cuts will end up costing
the region many times what they save. As we have indicated in our
testimony, there is no "silver bullet" that can dig BPA out of its large
hole. However, if one never starts digging, there is no escape.
Bonneville has made significant progress, though often in fits and
starts, toward making the investments in conservation and renewables
that are its long-term salvation. The benefits of such programs are not
always immediately clear, so are often viewed as luxuries or
discretionary expenses. However, had we not made the progress we did
over the last two decades, the current crisis would be much worse. The
agency must make the long-term commitment to provide sustained funding
for such programs and not be overly influenced by each crisis. It also
must analyze its cost and revenue drivers and risks so as to design
rates with the right price signals to move its customers to make
decisions that will reduce its risk.

*Q. Does this complete your testimony?*

A. Yes.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 003

**Request**: Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 12, lines 14-16.

In this section, BPA indicates that if fish spending levels needed to
implement the Action Agencies\' Implementation Plan, as well as measures
to protect, mitigate and enhance non-ESA listed species, are changed
before the Final ROD is prepared, those changes will be reflected in the
Final ROD. How will changes, specifically [increases]{.underline} in
needed funding levels, made after the Final ROD is prepared be dealt
with?

**Response:**

First, see the correspondence between the BPA Administrator and the
Power Council at CR-BPA-046A.pdf. The challenge the Administrator has
offered the Council is to find efficiencies that would get costs no
higher than, and potentially below, the levels currently forecasted.

Second, should costs increase, the variable SN CRAC adjustment BPA staff
has proposed would allow for the SN CRAC to be adjusted upward, within
limits. If overall costs cannot be recovered by the current SN CRAC
adjustment, BPA could potentially seek to cut costs in various
categories, and also could potentially trigger an additional SN CRAC
process.

Third, an increase in one type of cost will not necessarily present an
immediate problem, since there may be off-setting changes in other costs
and revenues, especially changes due to variation in hydro supply and
secondary marketing.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 004

**Request**: Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 11, line 22, to page12, line 16.

In this section, BPA states that fish spending levels needed to
implement the Action Agencies\' Implementation Plan, as well as measures
to protect, mitigate and enhance non-ESA listed species, may be changed
after there is an opportunity to include those changes in the Final ROD.
How has BPA incorporated the risk that its funding obligation may
increase, after the Final Rod has been issued, into its rate proposal?
Please provide any analysis BPA has done to investigate this issue.

**Response**:

Please see Response No. SA-BPA-03. More specific analyses of the
question have not been performed.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 005

**Request**: Witnesses: Keep, *et al*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 14, line 25.

Is BPA still committed to honoring the Fish and Wildlife Funding
Principles in this rate proposal?

**Response**:

To the extent issues addressed in the Fish and Wildlife Funding
Principles are still relevant, BPA is committed to meeting them. For
example, Principle No. 1 states "Bonneville will meet all of its fish
and wildlife obligations once they have been established, including its
trust and treaty responsibilities." BPA is fully committed to meeting
its trust and treaty responsibilities. As stated in the May 2000 Record
of Decision, WP-02-A-02, page 5-36, "BPA fulfills its trust
responsibility by working with the PNW region's tribes in the manner
prescribed by DOE and BPA tribal policies and by fully complying with
the laws governing its activities, including the Northwest Power Act,
ESA, and NEPA." For purposes of the SN-03 proposal, BPA is implementing
Principle No. 1 by setting rates to recover costs sufficient to meet
BPA's fish and wildlife obligations. Proposing a variable SN CRAC
mechanism and leaving open the option of triggering an additional SN
CRAC process, if necessary, accommodate the continued uncertainty with
respect to fish and wildlife costs.

However, as the principles indicate, "\[t\]he principles are intended to
"keep the options open" for future fish and wildlife decisions that are
anticipated to be made in late 1999 on reconfiguration of the
hydrosystem and in early 2000 on the Northwest Power Planning Council's
Fish and Wildlife Program." As stated in the testimony of Keep, *et
al*., SN-03-E-BPA-04 pg 11, lines 5-21, those decisions have now been
made. Therefore, BPA need not model the complete range of potential fish
and wildlife costs as described in Principle No. 2. Also, the actual
forecasts used in the SN-03 initial proposal are well within the range
anticipated in Principle No. 2. Response No. CR-YA/BPA-099, Attachment
A, a December 3, 2001, Steve Wright letter to Larry Cassidy, addresses
this issue.

BPA's proposal is designed to meet the intent of the balance that is
implied when Principles 3 and 5 are taken together.

Principles 4, 6, and 7, as well as parts of Principle 8, address BPA's
rate and contract designs, neither of which are at issue in this rate
case.

Regarding Principle 8, BPA continues to implement prudent additional
cost-reduction efforts and is implementing the SN CRAC through this 7(i)
process. As mentioned above, the portions of Principle 8 that deal with
contracts or rate design are not at issue in this SN CRAC proceeding.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 006A

**Request:** Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 14, line 24, to page15, line 4.

In this section, BPA states that its proposal will put BPA \"on a path
to meet the intent of the Fish and Wildlife Funding Principles, given
the [state of the economy]{.underline}.\" (emphasis added) Please
explain the underlined phrase. Should it be taken to mean that BPA
believes it has discretion to relax the Principles given the state of
the economy?

**Response**:

By "state of the economy", BPA meant the general economic conditions of
the Pacific Northwest. The poor state of the Pacific Northwest economy
has been well documented by the press, e.g., high unemployment rates,
companies laying off workers, 0% interest rates to spur demand, etc. BPA
also meant the concern expressed by its customers about BPA raising
rates too high. *See* Response No. Al-GN/BPA:006 for further discussion.

As BPA indicates in Response No. SA-BPA: 005, BPA remains committed to
the Fish and Wildlife Funding Principles, however, BPA believes that
some of the Principles are either no longer relevant or are not at issue
in this rate case. The Principles were time-specific ("keep the options
open" while BPA completed the Subscription and 2000 power rate case
processes). That is the reason many of the Principles are no longer
relevant. Therefore, BPA must take current circumstances into
consideration in implementing the Principles.

With respect to Principle 3, which the above-referenced testimony
discusses, BPA believes, as stated in the testimony, that the SN CRAC
proposal, including the combination of Treasury Payment Probability
(TPP), Treasury Recovery Probability (TRP), and accumulated net revenue
targets, will put BPA on a path to meet the intent of Principle 3. The
TRP, specifically, was developed to address the intent of Principle 3,
which states "Bonneville will demonstrate a high probability of Treasury
payment in full and on time over the 5-year rate period." (*See* Revenue
Requirement Study Documentation, WP-02-FS-BPA-02A, p. 344). The TRP
standard requires BPA to meet or exceed an 80 percent probability that
BPAA will be able to make all of its FY 2006 payments to the U.S.
Treasury, including repayment of any amounts missed in years FY
2003-2005.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 006B

**Request:** Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 14, line 24, to page15, line 4.

In our previous data request (SA/BPA:006A) we asked the following
question:

> In this section, BPA states that its proposal will put BPA \"on a path
> to meet the intent of the Fish and Wildlife Funding Principles, given
> the [state of the economy]{.underline}.\" (emphasis added) Please
> explain the underlined phrase. Should it be taken to mean that BPA
> believes it has discretion to relax the Principles given the state of
> the economy?

If BPA believes it does have the discretion to relax the Fish and
Wildlife Funding Principles under certain conditions, please provide
your justification for this position.

**Response:**

As BPA indicates in Response No. SA-BPA: 005, BPA remains committed to
the Fish and Wildlife Funding Principles, however, BPA believes that
some of the Principles are either no longer relevant or are not at issue
in this rate case. The Principles were time-specific ("keep the options
open" while BPA completed the Subscription and 2000 power rate case
processes). That is the reason many of the Principles are no longer
relevant. Therefore, BPA must take current circumstances into
consideration when implementing the Principles.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 006C

**Request**: Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page14, line 24 to page 15, line 4.

In our previous data request (SA/BPA:006B) we asked the following
question:

> If BPA believes it does have the discretion to relax the Fish and
> Wildlife Funding Principles under certain conditions, please provide
> your justification for this position.

Please provide any written communications or summaries of oral
communications with the Administration, etc., regarding relaxation of
the Principles and the description of any process, (public or otherwise)
that Bonneville carried out to come to this conclusion.

**Response**:

BPA has no written communications or summaries of oral communications
with the Administration, etc., regarding relaxation of the Principles.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 007A

**Request**: Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

Page(s) : Page 17, lines 17-22.

BPA indicates it will consider a mechanism such that it would be
precluded from recovering certain \"excess BPA internal operating
costs\" in the SN CRAC rate design under specified conditions. How would
Bonneville treat such non-recovery in its TPP and TRP calculations?

**Response:**

Such "non-recovery" would not affect TPP and TRP calculations. First,
TPP looks forward in time, and non-recovery can only have occurred in
the past. By the time a non-recovery could have occurred, it would be in
the past, and BPA's TPP calculations do not include past events. Second,
BPA is taking cost control very seriously. In effect, BPA is planning in
the rate case to used stiffened management resolve to mitigate the risk
of cost increases instead of modeling cost uncertainty and using Planned
Net Revenues for Risk to mitigate the risk.

# [SN-03 BPA Data Response]{.underline}

## Request No.: SA-BPA: 007B

**Request**: Witnesses: Keep, *et al.*

Exhibit: SN-03-E-BPA-04

> Page(s): Page 17, lines 17-22.

BPA indicates it will consider a mechanism such that it would be
precluded from recovering certain \"excess BPA internal operating
costs\" in the SN CRAC rate design under specified conditions. Would BPA
adopt such a mechanism if it had the effect of lowering its TPP or TRP
below the criteria the agency is proposing to use in this proceeding?

**Response:**

BPA staff would not support such a mechanism unless other rate case
parties present convincing arguments as to why BPA should use different
TPP or TRP standards.

# [SN-03 BPA Data Response]{.underline}

**Request No.:** **SA-BPA: 009A**

**Request:** Witnesses: N/A

> Exhibit: SN-03-FRN-01, Federal Register Notice

The FRN states that:

\"BPA expects that this rate proposal will fall within the scope of the
Market-Driven Alternative that was evaluated in the Final Business Plan
EIS and adopted in the Business Plan ROD, and that BPA thus may tier its
decision under NEPA for the proposed rate adjustment to the Business
Plan ROD.\"

Please provide any studies or supporting documentation that were done to
support this conclusion.

**Response:**

BPA is still in the process of assessing whether the SN CRAC proposal
falls within the scope of the Market-Driven Alternative that was
evaluated in the Final Business Plan EIS and adopted in the Business
Plan ROD. Similarly, BPA also is still considering whether it may tier
its decision under NEPA for the proposed rate adjustment to the Business
Plan ROD. Thus, BPA has not yet reached a conclusion on these NEPA
compliance aspects. The sentence quoted from the March 13, 2003, Federal
Register notice in the request reflects the results of a preliminary
review by BPA's NEPA staff of information about the proposed SN CRAC in
relation to the Business Plan EIS and ROD. No documentation of this
initial review was prepared beyond what was included in the Federal
Register notice, and no studies have been prepared to date.

April 10, 2003

# [SN-03 BPA Data Response]{.underline}

**Request No.:** **SA-BPA: 009B**

**Request:** Witnesses: N/A

Exhibit: SN-03-FRN-01, Federal Register Notice

The FRN states that:

\"BPA expects that this rate proposal will fall within the scope of the
Market-Driven Alternative that was evaluated in the Final Business Plan
EIS and adopted in the Business Plan ROD, and that BPA thus may tier its
decision under NEPA for the proposed rate adjustment to the Business
Plan ROD.\"

BPA\'s SN CRAC proposal contains a number of elements which were not
present when the Business Plan EIS was conducted; in particular: (a) a
50% TPP; (b) the assumption that there are no non-operating risks; and
(c) the presence of Emergency Criteria which allow BPA to change hydro
operations due to financial factors. Please indicate where in the
Business Plan ROD Market-Driven Alternative these, or similar, elements
were analyzed.

**Response:**

To clarify, while the SN CRAC proposal does include a 50% TPP and the
assumption that there are no non-operating risks, it does not include
emergency criteria that allow BPA to change hydro operations due to
financial factors. If these criteria exist, they operate independently
of the current rate adjustment proposal.

Regarding the 50% TPP and the assumption that there are no non-operating
risks, it must be remembered that the Business Plan EIS is a policy
level NEPA document that provides a programmatic assessment of various
possible business directions. As such, its intent was not necessarily to
provide evaluation of all specific elements of each alternative analyzed
in the EIS. Thus, specific analysis of the 50% TPP and the assumption
that there are no non-operating risks was not provided in the Business
Plan EIS. However, the Market-Driven Alternative reflects an intent that
BPA maintain its financial strength through a variety of means, and
these elements appear to be consistent with this intent. Thus, while the
precise actions to be undertaken by BPA as part of the Market-Driven
Alternative may not have been fully known at the time the policy-level
Business Plan EIS was prepared, the 50% TPP and the assumption that
there are no non-operating risks appear consistent with the type of
action that would occur under the Market-Driven Alternative, which was
analyzed in the Business Plan EIS.

Regarding emergency criteria, it is arguable these criteria were present
in some form at the time that the Business Plan EIS was prepared.
Impacts of potential hydro operation strategies and associated changes
are addressed in Section 4.3.4 of the Business Plan EIS and throughout
many sections in the System Operation Review EIS and ROD---the NEPA
document generally covering FCRPS operations. These impacts would be
expected to occur regardless of need for a particular operation.

# [SN-03 BPA Data Response]{.underline}

**Request No.: SA-BPA: 009C**

**Request:** Witnesses: N/A

Exhibit: SN-03-FRN-01, Federal Register Notice

The FRN states that:

\"BPA expects that this rate proposal will fall within the scope of the
Market-Driven Alternative that was evaluated in the Final Business Plan
EIS and adopted in the Business Plan ROD, and that BPA thus may tier its
decision under NEPA for the proposed rate adjustment to the Business
Plan ROD.\"

BPA\'s SN CRAC proposal contains a number of elements which were not
present when the Business Plan EIS was conducted; in particular: (a) a
50% TPP; (b) the assumption that there are no non-operating risks; and
(c) the presence of Emergency Criteria which allow BPA to change hydro
operations due to financial factors. If these elements were not analyzed
in the Business Plan EIS (*see* Response No. SA/BPA:009B), please
explain why their presence in your proposal now would not require
further NEPA review.

**Response:**

BPA is in the process of conducting a NEPA review of the SN CRAC
proposal. The first two elements mentioned in the request are two
aspects of the SN CRAC proposal that are being reviewed under NEPA to
determine whether the proposal falls within the scope of the
Market-Driven Alternative that was evaluated in the Final Business Plan
EIS and adopted in the Business Plan ROD, and thus whether BPA may tier
its decision under NEPA for the proposed rate adjustment to the Business
Plan ROD. As discussed in Response No. SA/BPA:009B, the third element is
not present in the SN CRAC proposal.

April 10, 2003

# 

[^1]: See, for example, the NW Power Planning and Conservation Act
    839e(a)(1): \". . . rates shall be established . . . in accordance
    with sound business principles . . . .\"

[^2]: BPA\'s Administrator used this word aptly to describe the syndrome
    whereby the agency\'s funding for a long-term goal, conservation,
    for example, rose and fell depending upon Bonneville\'s financial
    fortunes instead of being determined by long term need.

[^3]: The most recent example of this is BPA bringing extraordinary
    pressure on the Power Planning Council to cap its fish program at
    \$139 million based solely on [financial]{.underline} rather than
    scientific concerns. The most telling example, however was in FY 01
    with the declaration by BPA of a financial emergency to change hydro
    operations.

[^4]: We will discuss this issue further below, however it should be
    pointed out that a situation where BPA purposely sets its rates too
    low while refusing to foreswear the use of a hydro emergency for
    financial reasons is especially egregious.

[^5]: We substitute the term \"uncertainty\" for BPA\'s term \"risk\" in
    this discussion because the word risk carries with it a sense of a
    negative event. We do not believe that decisions to change fish and
    wildlife costs in order to improve the prospects of restoring salmon
    are negative events.

[^6]: This claim is the subject of an ongoing challenge, both on the
    legality of the Emergency Criteria themselves, and on the particular
    interpretation of the Criteria which BPA used to justify its
    emergency declarations.

[^7]: An excellent example is the assurance given to repayment of the
    ENW debt. Not only does ENW have contractual assurance from BPA,
    specifically before Treasury payment, but there is additional
    assurance provided by requiring the net billing payments to go first
    to ENW instead of being intermingled with Bonneville\'s other
    revenues.