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NOTICES

DEPARTMENT OF ENERGY

Bonneville Power Administration

Legal Interpretation of Section 7(b)(2) of the Pacific Northwest
Electric

Power Planning and Conservation Act

Friday, June 8, 1984 -- Vol. 49, No. 112

49 Fed. Reg. 23,998

**AGENCY:** Bonneville Power Administration (BPA), DOE.

**ACTION:** Statutory Interpretation. *BPA File No:* 7(b)(2)-84.

**SUMMARY:** On January 23, 1984, Bonneville Power Administration (BPA)
published a notice of proposed legal interpretation of section 7(b)(2)
of the Pacific Northwest Electric Power Planning and Conservation Act
(Northwest Power Act), 16 U.S.C. § 839 (1980). *See* 49 FR 2811 (Jan.
23, 1984). Under section 7(b)(2), after July l, 1985, the rates charged
for firm power sold to public body, cooperative, and Federal agency
customers, may not exceed in total, as determined by the BPA
Administrator, such customers' power costs for their general
requirements, under five specified assumptions. BPA invited comments and
reply comments to its proposed legal interpretation. BPA considered
these comments and reply comments in drafting the section 7(b)(2)
implementation methodologies released on February 29, 1984, and
published as an initial proposal in the Federal Register. 49 FR 11,235
(Mar. 26, 1984).

In this legal interpretation, BPA will explain its resolution of the
basic legal questions involved in the implementation of section 7(b)(2).
BPA currently is conducting separate hearings on the section 7(b)(2)
implementation methodology under section 7(i) of the Northwest Power
Act, 16 U.S.C. § 839e(i). Actual implementation of section 7(b)(2),
however, will not occur until BPA's 1985 wholesale power rate proceeding
conducted pursuant to section 7(i) of the Northwest Power Act in the
fall and winter of 1984 and spring of 1985.

**RESPONSIBLE OFFICIAL:** John A. Cameron, Jr., Assistant General
Counsel, is the official responsible for this legal interpretation. Ms
Shirley R. Melton, Director, Division of Rates, is the official
responsible for section 7(b)(2) implementation methodologies and their
application in the 1985 BPA rate adjustment proceeding.

**ADDRESSES:** For further information contact Ms. Donna L. Geiger,
Public Involvement Manager, Bonneville Power Administration, P.O. Box
12999, Portland, Oregon 97212; (503) 230-3478. Oregon callers outside
the Portland area may use the toll-free number (800) 452-8429; callers
in California, Idaho, Montana, Nevada, Utah, Wyoming, and Washington may
use (800) 547-6048. Information may also be obtained from:

Mr. George E. Gwinnutt, Lower Columbia Area Manager, Suite 288, 1500
Plaza Building, 1500 N.E. Irving Street, Portland, Oregon 97208,
503-230-4551.

Mr. Ladd Sutton, Eugene District Manager, Room 206, 211 East Seventh
Street, Eugene, Oregon 97401, 503-687-6952.

Mr. Ronald H. Wilkerson, Upper Columbia Area Manager, Room 561, West 920
Riverside Avenue, Spokane, Washington 99201, 509-456-2518.

Mr. Ronald K. Rodewald, Wenatchee District Manager, P.O. Box 741,
Wenatchee, Washington 98801, 509-662-4377, extension 379.

Mr. George E. Eskridge, Montana District Manager, 800 Kensington,
Missoula, Montana 59801, 406-329-3860.

Mr. Richard D. Casad, Puget Sound Area Manager, Room 250, 415 First
Avenue North, Seattle, Washington 98109, 206-442-4130.

Mr. Thomas Wagenhoffer, Snake River Area Manager, West 101 Poplar, Walla
Walla, Washington 99362, 509-525-5500, extension 701.

Mr. Robert N. Laffel, Idaho Falls District Manager, 531 Lomax Street,
Idaho Falls, Idaho 83401,208-523-2706.

Mr. Frederic D. Rettenmund, Boise District Manager, Owyhee Plaza, Suite
245, 1109 Main St., Boise, Idaho 83707, 208-334-9138.

**SUPPLEMENTARY INFORMATION:**

**I. Background**

**A. Relevant Statutory Provisions**

BPA is charged with the responsibility of implementing section 7(b)(2)
of the Northwest Power Act. An agency's interpretation of the statute it
is charged to administer is entitled to great deference; in this regard,
the Ninth Circuit Court of Appeals recently held that "\[b\]ecause BPA
helped draft and must administer the Act, we give substantial deference
to BPA's statutory interpretation." *Cent. Lincoln Peoples' Util. Dist.
v. Johnson*, No. 81-7622, *et al.*, slip op. (9th Cir. Feb. 9, 1984);
*Central Lincoln Peoples' Utility District v. Johnson*, 686 F.2d 708
(9th Cir., 1982).

Basic principles of statutory construction must be followed in
interpreting the Northwest Power Act. These principles require that
particular provisions of a statute be interpreted to give effect to its
overall purposes. *United States v. Am Trucking Ass'n*, 310 U.S. 534,
543 (1950). Wherever possible, statutory provisions should be construed
so as to be consistent with each other. *Adams v. Howerton*, 673 F.2d
1036, 1040 (9th Cir. 1982), *cert. denied*, 458 U.S. 1111 (1982). Thus,
BPA interprets the Northwest Power Act in a manner which seeks
consistency among the requirements of each section of the Northwest
Power Act.[^1]

Section 7(b)(2) is interpreted, therefore, in a manner which avoids
conflict with the criteria of section 7(a)(1), under which the
Administrator must establish rates to recover total system costs, and
those of section 7(a)(2), under which the Federal Energy Regulatory
Commission shall approve BPA rates only after finding that BPA rates:
(1) are sufficient to assure repayment of the Federal investment in the
Federal Columbia River Power System, (2) are based on BPA's total system
cost, and (3) equitably allocate the costs of Federal transmission
system between Federal and non-Federal users.

In addition to the Northwest Power Act, BPA is governed by the
Bonneville Project Act, 16 U.S.C. § 832, *et seq.*, the Federal Columbia
River Transmission System Act, 16 U.S.C. § 838, *et seq.*, and the Flood
Control Act of 1944, 16 U.S.C. § 825, *et seq.* These statutes require
BPA to set rates, in accordance with sound business principles, at
levels sufficient to recover BPA's total system costs, including
repayment of the Federal treasury investment in the Federal Columbia
River Power and Transmission System. All statutory provisions concerning
the timely recovery of BPA's revenue requirement are relevant to the
interpretation of the Northwest Power Act. For "\[w\]hen there are two
acts upon the same subject, the rule is to give effect to both if
possible." *Morton v. Mancari*, 417 U.S. 535, 551 (1974), quoting
*United States v. Borden Co.*, 308 U.S. 188, 198 (1939).

Section 7 of the Northwest Power Act, 16 U.S.C. § 839e, contains a
number of directives that the BPA Administrator must consider in
establishing rates for the sale of electric energy and capacity and for
the transmission of non-Federal power. Section 7(b)(2), commonly
referred to as the "rate test", is one of these directives. Under
section 7(b)(2) of the Northwest Power Act, 16 U.S.C. § 839e(b)(2),
after July 1, 1985, rates charged for firm power sold to public body,
cooperative, and Federal agency customers (exclusive of amounts charged
those customers for costs specified in section 7(g) of the Northwest
Power Act) may not exceed in total, as determined by the Administrator,
such customers' power costs for general requirements, if specified
assumptions are made. Section 7(b)(2) specifies that in determining
public body and cooperative customers' power costs during any year after
July 1, 1985, and the ensuing four years, the Administrator should
assume:

> \(A\) the public body and cooperative customers' general requirements
> had included during such five-year period the direct service
> industrial customer loads which are --
>
> \(i\) served by the Administrator, and
>
> \(ii\) located within or adjacent to the geographic service boundaries
> of such public bodies and cooperatives;
>
> \(B\) public body, cooperative, and Federal agency customers were
> served, during such five-year period, with Federal base system
> resources not obligated to other entities under contracts existing as
> of the effective date of this Act (during the remaining term of such
> contracts) excluding obligations to direct service industrial customer
> loads included in subparagraph (A) of this paragraph;
>
> \(C\) no purchases or sales by the Administrator as provided in
> section 5(c) were made during such five-year period;
>
> \(D\) all resources that would have been required, during such
> five-year period, to meet remaining general requirements of the public
> body, cooperative and Federal agency customers (other than
> requirements met by the available Federal base system resources
> determined under subparagraph (B) of this paragraph) were --
>
> \(i\) purchased from such customers by the Administrator pursuant to
> section 6, or
>
> \(ii\) not committed to load pursuant to section 5(b), and were the
> least expensive resources owned or purchased by public bodies or
> cooperatives; and any additional needed resources were obtained at the
> average cost of all other new resources acquired by the Administrator;
> and
>
> \(E\) the quantifiable monetary savings, during such five-year period,
> to public body, cooperative and Federal agency customers resulting
> from --
>
> \(i\) reduced public body and cooperative financing costs as applied
> to the total amount of resources, other than Federal base system
> resources, identified under subparagraph (D) of this paragraph, and
>
> \(ii\) reserve benefits as a result of the Administrator's actions
> under this Act were not achieved. 16 U.S.C. § 839e(b)(2).

**B. Scope of Interpretation**

BPA has completed three tasks to create a methodology for implementation
of section 7(b)(2). The first task was the development of this legal
interpretation, which resolves only the basic legal issues necessary to
implement section 7(b)(2). Application of section 7(b)(2) methodologies
and any resulting^\*\*^ cost reallocation under section 7(b)(3) will be
addressed through BPA wholesale rate proceedings for periods beginning
on July l, 1985. The second task was the development of a computer model
to perform the rate test. The third task was the preparation and release
of a proposed rate test methodology. By letter of March 6, 1984, the BPA
Administrator indicated his intent to phase the 1985 hearings process so
that a section 7(i) hearing on BPA's proposed 7(b)(2) implementation
methodology could begin on April 10, 1984. This phasing of the hearings
process will BPA and the parties to address specific section 7(b)(2)
issues apart from other issues in the 1985 rate case. The purpose of the
first phase, however, is solely to provide input for BPA's general rate
proceeding.

**C. Public Comment Procedures**

On January 23, 1984, BPA published a "Notice of Proposed Legal
Interpretation of Section 7(b)(2) of the Pacific Northwest Electric
Power Planning and Conservation Act; Request for Comments." 49 FR 2811
(January 23, 1984). In the notice, BPA requested comments from the
public on the legal issues and definitions contained in the notice, and
other legal issues which the public believed to be relevant to the
statutory interpretation. BPA received comments from fourteen parties,
including representatives of the publicly-owned utilities,
investor-owned utilities (IOUs), and direct service industrial customers
(DSIs).[^2] BPA's Public Involvement Manager made these comments
available to interested parties. BPA also requested reply comments in
the proposed notice. BPA received written replies from four parties and
copies of the reply comments were reproduced and sent to interested
parties by February 29, 1984.[^3] This legal interpretation has taken
full consideration of both the first round comments and the reply
comments of interested parties.

**II. Interpretation**

**A. Definitions**

This section contains definitions applicable to section 7(b)(2). Terms
identified in the Northwest Power Act have the same meaning in this
interpretation, unless further defined.

1\. *7(b)(2) customers:* Those firm power customers of BPA that are
listed in section 7(b)(2) of the Northwest Power Act as subject to the
rate test, *viz*, public bodies, cooperatives, and Federal agencies.

2\. *Within or adjacent:* Relating to direct service industrial (DSI)
customer loads determined in accordance with section 7(b)(2)(A) to be
geographically^\*\*^ within or adjacent to the service territories of
7(b)(2) customers.

3\. *Forecast DSI loads:* Those loads of direct service industries that
are forecast to be served by BPA, during any future period, pursuant to
section 5(d)(1) of the Northwest Power Act.

4\. *Relevant rate case:* The wholesale power rate adjustment proceeding
being conducted at the time the projections for section 7(b)(2) are
made, and in which any adjustment to rates in accordance with section
7(b)(2) may be reflected.

5\. *7(b)(2) case:* The entire process of projecting rates for the
relevant five-year period under the provisions of section 7(b)(2) of the
Northwest Power Act, including specific data, assumptions, and results.

6\. *Program case:* The entire process of projecting rates to be charged
in the future under the provisions of the Northwest Power Act other than
section (7)(b)(2), including specific data, assumptions, and results.

7\. *Relevant five-year period:* The test year of the relevant rate
case, plus the ensuing four years.

8\. *7(b)(2) general requirements:* For the purpose of this methodology,
the public body, cooperative and Federal agency customers' electric
power assumed to be purchased from BPA in the 7(b)(2) case. General
requirements include power purchased from BPA only under section 5(b) of
the Northwest Power Act; section 5(c) purchases from BPA are not
included.

9\. *Applicable 7(g) costs:* the costs identified in section 7(g) of the
Northwest Power Act that are also listed in section 7(b)(2), *viz*,
costs chargeable^\*\*^ to 7(b)(2) customers[^4] for conservation,
resource and conservation credits, experimental resources and
uncontrollable events.

**B. General Approach To Interpreting Section 7(b)(2)**

Section 7(b)(2), read in isolation from the rest of the Northwest Power
Act, assures that 7(b)(2) customers are charged no more for their
general requirements after July 1, 1985, than they would have been
charged if five assumptions were to be realized. These assumptions
direct BPA to hypothesize power supply arrangements between itself and
its customers that are quite different from reality.[^5] Implementation
of the five assumptions listed in section 7(b)(2) is by nature an
exercise in speculation.[^6] This interpretation was undertaken to
reduce this inherent speculation insofar as possible.

**1. Section 7(b)(2) grants the Administrator broad discretion to limit
consideration in the 7(b)(2) case to the five assumptions listed in
section 7(b)(2) and the secondary effects of those assumptions.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA proposed to interpret
section 7(b)(2) as a broad grant of discretion. BPA also proposed to
interpret section 7(b)(2) as limiting consideration in the 7(b)(2) case
to the five assumptions listed in section 7(b)(2) and the secondary
effects of those assumptions.

**(b) Summary of Comments:**

The DSIs and the ICP agree that section 7(b)(2) includes a broad grant
of discretion. The ICP, however, maintains that the Northwest Power Act
does not limit the assumptions of the "rate test" to those five
specified in section 7(b)(2).

APAC, PGP, PNGC, Snohomish and the PPC agree with BPA that the Northwest
Power Act limits the assumptions of the 7(b)(2) case to those specified
in the Northwest Power Act. These parties, however, dispute the
inclusion of secondary effects of the five assumptions in the 7(b)(2)
case. The PPC contends that "the use of 'unavoidable secondary effects'
in the calculation of the 7(b)(2) case is contrary to the Act." PPC
Comments at 3. Moreover, the PPC feels that "\[a\]dding whatever
additional considerations that may someday strike the Administrator's
fancy as 'unavoidable secondary effects' hardly seems consistent with
the House Commerce Committee's belief that all assumptions are
specifically set forth in Section 7(b)(2)." *Id.* APAC also questions
the meaning of "secondary effect", noting that the statute and
legislative history never mention the term. APAC asserts, "...it is
clear BPA is attempting to include factors not specified in section
7(b)(2) in the preference rate methodology thus bootstrapping
administrative discretion without congressional authority." APAC
Comments at 13. Snohomish contends that the modeling of secondary
impacts "would amount to the addition of new assumptions in the
statute." Snohomish comments at 3. APAC further argues that Congress
consciously refused to grant the Administrator discretion in section
7(b)(2). APAC Comments at 24-25.

**(c) Discussion:**

The statute provides that after July 1, 1985, the 7(b)(2) customers'
power costs "may not exceed ... as determined by the Administrator" the
power costs for general requirements based on the enumerated
assumptions. 16 U.S.C. § 839e(b)(2). This language is a clear grant of
discretion to the Administrator to determine the manner in which the
five assumptions of section 7(b)(2) are applied and the rate test is
implemented. However, BPA recognizes that the reasonableness of
methodologies used to implement section 7(b)(2) will be tested in the
relevant rate case.

The Administrator will exercise his discretionary authority in the
following manner. Except for the assumptions specified in section
7(b)(2), all underlying premises will remain constant between the
program case and the 7(b)(2) case. Assumptions not specified by the
statute will not be considered. The natural consequences,[^7] however,
of the 7(b)(2) assumptions will be given full recognition in the
modeling of the 7(b)(2) customers' power costs in the 7(b)(2) case. This
general approach will allow the 7(b)(2) case to be modeled under the
same accepted ratemaking techniques used in the program case. This
approach will also avoid the modeling of a hypothetical world that
attempts to reflect in extreme detail what would have occurred had the
Northwest Power Act not been enacted.

The legislative history of the Northwest Power Act supports limiting the
assumptions of the 7(b)(2) case to those specified in the statute. The
House Committee on Interstate and Foreign Commerce Report accompanying
S. 885 (the bill that became the Northwest Power Act) notes that
"\[t\]he assumptions to be made by the Administrator in establishing
this ceiling are specifically set forth." H. Rep. No. 976-I, 96th Cong.,
2d Sess., at 68 (1980). Similarly, the Report of the House Committee on
Interior and Insular Affairs declares that "\[s\]ubsection 7(b)(2)
establishes a 'rate ceiling' for BPA's preference customers, and
specifies the method of calculating this ceiling..." H. Rep. No. 976-II,
96th Cong., 2d Sess., at 52 (1980).

Legislative history also supports including the natural consequences or
unavoidable secondary effects of the assumptions listed in the Northwest
Power Act. In particular, in addressing reserve benefits, Appendix B to
the Report of the Senate Committee on Energy and Natural Resources
provides that in addition to costs specifically described in sections
7(b)(2) (B) and (D), the Administrator is to consider "\[a\]ny other
general system operating costs, including reserves..." Appendix B at 58.

As an illustration of the natural consequences referred to above, BPA
has identified three secondary effects of the five assumptions found in
section 7(b)(2). These effects involve demand elasticities, surplus
levels and nonfirm energy markets.[^8] The secondary effects must be
included in section 7(b)(2) methodologies as natural consequences of the
five assumptions in section 7(b)(2) on the results of underlying
premises that are held constant between the program case and the 7(b)(2)
case. For example, implicit in the function of section 7(b)(2) is the
possibility that electricity prices may be different under the
assumptions contained in section 7(b)(2). Therefore, it could be
appropriate to reflect the effects of different price projections in
loan forecasts used for the two cases. Ignoring these price effects
would require adopting a new assumption, not specified in the statute,
that the price elasticity or electricity demand for the 7(b)(2)
customers is zero (in effect, adding something like this to the statute:
"costs calculated pursuant to subsection (A)-(E) of this paragraph shall
give only partial effect to the assumptions in those subsections"). An
assumption of this nature is theoretically and empirically^\*\*^
unjustified and would be inconsistent with the structure of the models
used to develop load forecasts for the relevant rate case. Similarly,
surplus levels and the nonfirm energy market must change as a natural
consequence of section 7(b)(2) assumptions. As the DSIs are assumed to
shift to the private utilities and 7(b)(2) customers under section
7(b)(2), BPA's load/resource balance changes. This change will affect
the level of BPA's surplus. The nonfirm energy market will also change;
the top quartile of DSI loads will no longer be served by BPA's nonfirm
energy.

Section 7(b)(2) requires BPA to assume that the section 7(b)(2) case is
identical to the program case except for those differences required by
the five assumptions set out in section 7(b)(2)(A)-(E).[^9] Present
modeling techniques used in the program case, which will be used in the
modeling of the 7(b)(2) case, incorporate secondary effects. 49 FR 11235
(1984).

**(d) Decision:**

BPA interprets section 7(b)(2) as a broad grant of discretion. BPA will,
however, limit consideration in the 7(b)(2) case to the five assumptions
listed in section 7(b)(2). BPA will also consider the natural
consequences of those assumptions in a manner consistent with the
outcome of the section 7(i) hearing process for the relevant rate case.

**2. Section 7(b)(2) will be implemented in a manner that avoids
conflict with section 7(a).**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA proposed to interpret
section 7(b)(2) so that implementation of section 7(b)(2), and any
subsequent reallocation pursuant to section 7(b)(3), will not conflict
with the requirements of section 7(a).

**(b) Summary of Comments:**

Both the DSIs and the ICP support application of section 7(b)(2) in a
manner which will avoid conflict with BPA's statutory obligations to
repay the United States Treasury and meet its operating costs. The PGP
suggests that Bonneville has predetermined the results of the rate test.
PGP Comments at 2. In a similar manner, the PPC and Snohomish argue that
7(b)(2) is coequal to 7(a), and that section 7(b)(2) is not subject to
"waiver merely because of 'concerns' about revenue collection."
Snohomish Comments at 4-5; *see* PPC Comments at 3. APAC adds that "BPA
further suggests that it will disregard the section 7(b)(2) rate ceiling
if BPA finds it not 'feasible' to recover costs through the section
7(b)(3) mechanism." APAC Comments at 29-30.

**(c) Discussion:**

BPA will conscientiously follow the requirements of section 7(b)(2) to
perform the "rate test" for its public body, cooperative and Federal
agency customers. If the results of the rate test indicate that BPA must
recover costs in excess of those allowed under section 7(b)(2), BPA will
implement the section 7(b)(3) supplemental rate charge provision for
that purpose. BPA's concern is that failure to recover some, or all, of
the reallocated costs "through supplemental rate charges for all other
power sold by the Administrator to all customers" may result in BPA's
inability to meet the requirements of section 7(a). Such a
determination, if it occurs, would be rigorously documented and exposed
to careful review during the section 7(i) process for the relevant rate
case. Should this occur, BPA would be forced to resolve a possible
conflict among sections 7(b)(2), 7(b)(3), and 7(a).

Section 7(a) of the Northwest Power Act requires that BPA rates recover
the costs of the electric power and transmission systems, including the
repayment of Federal Treasury investments in those systems. Section 7(a)
reaffirms this long-standing obligation which was articulated earlier in
the Bonneville Project Act and the Federal Columbia River Transmission
System Act. Section 7(b) must be applied in a manner which enables BPA
to set rates at levels sufficient to recover costs, or the rates will
not receive confirmation and approval. *See* section 7(a)(2) of the
Northwest Power Act, 16 U.S.C. § 839e(s)(2).

The legislative history of the Northwest Power Act supports application
of section 7(b) in a manner consistent with BPA's primary statutory
obligation that its rates recover costs. The House Interior Committee
report declares that:

> Section 7 of the legislation sets out the requirements BPA must follow
> when fixing rates for the power sold its customers under this
> legislation. Subject to the general requirement (contained in section
> 7(a)) that BPA must continue to set its rates so that its total
> revenues continue to recover its total costs, BPA is required by the
> legislation to establish the following rates: \[report continues by
> setting out rate structure of the Act\]. H. Rep. No. 976-II, 96th
> Cong., 2d Sess., at 36.

Section 7(a)(2) illustrates the importance of BPA's statutory obligation
to set rates at levels sufficient to collect its costs. Section 7(a)(2)
states that FERC cannot approve BPA's rates unless the rates "are
sufficient to assure repayment of the federal investment in the Federal
Columbia River Power System over a reasonable number of years after
first meeting the Administrator's other costs," 16 U.S.C. §
839e(a)(2)(A), and "are based upon the Administrator's total system
costs..." 16 U.S.C. § 839e(a)(2)(B). Indeed,

> BPA is a self-financed agency under the terms of the Federal Columbia
> River Transmission System Act of 1974. This means that BPA receives no
> appropriations. It is required by law to cover its full costs through
> its own revenues derived from the sale of power and other services...
> The United States of America does not stand behind BPA's obligations.
> ... BPA alone must meet these obligations, and BPA's rates cannot be
> approved by FERC unless they are sufficient to meet these obligations.
> These requirements, and the lack of any Federal guarantees, are made
> explicit in sections 6(j) and 7(a) of S 885, even though they are also
> explicit in the Federal Columbia River Transmission System Act.

126 Cong. Rec. H9843 (daily ed. Sep. 29, 1980) (statement of Rep.
Ullman).

BPA is neither predetermining the results of the rate test nor
suggesting a disregard for section 7(b)(2) with this discussion. BPA is
not suggesting a solution to any problem arising from a potential
conflict among sections 7(a), 7(b)(2), and 7(b)(3). BPA is merely
attempting through this notice to alert its customers and the public to
one possible problem which may present itself in the future. By raising
the matter at this early date, BPA hopes that full discussion and
consideration of such issues will enhance resolution of the problem
when, and if, it arises in the context of the relevant rate case.

**(d) Decision:**

BPA will interpret section 7(b)(2) so that implementation of section
7(b)(2), and any subsequent reallocation pursuant to section 7(b)(3),
will not conflict with the requirements of section 7(a).

**C. Specific Statutory Interpretations**

**1. Applicable 7(g) costs should be excluded from the program case, but
not from the 7(b)(2) case.**

**(a) Proposed Interpretation**

In the Notice of Proposed Interpretation, BPA proposed that applicable
7(g) costs should be excluded from the program case, but not from the
7(b)(2) case.

**(b) Summary of the Comments:**

The DSIs and the ICP support BPA's interpretation that applicable 7(g)
costs should be excluded from the program case before comparison with
the 7(b)(2) case.

The PNGC, PPC, PGP and Northern Lights argue that applicable 7(g) costs
should be excluded from both the 7(b)(2) case and the program case. PNGC
Comments at 2; PGP Comments at 3; PPC Comments at 5; Northern Lights
Comments at 3. APAC apparently argues that 7(g) costs would be
double-counted if they were included only in the 7(b)(2) rate before
comparison with the program case, and then added back into the 7(b)(2)
rate in the event the 7(b)(2) rate was triggered. APAC Comments at
48-49. APAC also argues that "\[b\]ecause the § 7(g) exclusion occurs
before the enumeration of the differences between the program and §
7(b)(2) cases, both cases must exclude the § 7(g) costs." APAC Comments
at 49. APAC further argues that inclusion of 7(g) costs in the 7(b)(2)
cases would violate the intent and meaning of section 7(b)(2). APAC
Comments at 49-50.

**(c) Discussion:**

Section 7(b)(2) is clear: "...the projected amounts to be charged for
firm power for the combined general requirements of public body,
cooperative and Federal agency customers, exclusive of amounts charged
such customers under subsection (g) for the costs of conservation,
resource and conservation credits, experimental resources and
uncontrollable events, may not exceed in total, ... an amount equal to
the power costs for general requirements of such customers if the
Administrator assumes..."

Section 7(b)(2) is explicit in excluding the applicable 7(g) costs from
the program case before comparison is made with the 7(b)(2) case.

Since section 7(g) costs are specifically excluded from the program
case, but not excluded from the 7(b)(2) case, it would be inappropriate
to subtract section 7(g) costs from the 7(b)(2) case for the purpose of
comparison with the program case. If Congress intended the power costs
in the 7(b)(2) case to be exclusive of conservation costs and other
section 7(g) costs, language to that effect would have been included in
the provisions.

**(d) Decision:**

The projected amounts to be charged 7(b)(2) customers for their firm
power general requirements will include the applicable 7(g) costs of
conservation, resource and conservation credits, experimental resources
and uncontrollable events, regardless of the implementation of section
7(b)(2). Section 7(b)(2), however, is explicit in excluding the
applicable 7(g) costs from the program case before comparison is made
with the 7(b)(2) case.

**2. Pertinent DSI loads are to be included in 7(b)(2) customer loads
for the entire five-year test period.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA proposed to interpret
section 7(b)(2)(A) as requiring the Administrator to assume that 7(b)(2)
customers' loads include the loads of DSIs within or adjacent to the
7(b)(2) customers' service territories for the entire five-year test
period.

**(b) Summary of the Comments:**

The DSIs and the ICP support BPA's interpretation.

Northern Lights, APAC and PPC adopted similar positions on the timing of
DSI load transfer to 7(b)(2). The PPC indicated that it "...was willing
to accept this approach \[DSI loads transfer to 7(b)(2) customers for
the entire test period) if BPA confined itself to the five specific
assumptions set out in the statute." PPC Comments at 5; *see* Northern
Lights Comments at 3-4; APAC Comments at 53. The PPC continued as
follows:

> \[h\]owever, since BPA has demonstrated its unwillingness to do so by
> proposing to examine 'unavoidable secondary effects,' the PPC contends
> that BPA's proposal here is arbitrary and capricious in that it is
> inconsistent with their \[sic\] own approach. An obviously unavoidable
> effect of assuming that DSI loads transfer to public and cooperative
> systems is the assumption that they do so only when necessary, that
> is, only when their BPA contracts expire. The PPC also disagrees with
> BPA's assertion that to include the DSI loads only from the expiration
> dates of their individual contracts would require speculation; the
> expiration dates and contract demands are listed in Appendix B, as
> well as BPA's own files, and it hardly seems speculative to look up
> the dates and amounts in a list.

PPC Comments at 5-6. The PGP echoed this comment and suggests that BPA
harmonize the timing of DSI load transfers to 7(b)(2) customers and to
IOUs by linking both to contract expirations. PGP Comments at 3-4.
Snohomish commented in a manner similar to the PGP and PPC. Snohomish
Comments at 11.

**(c) Discussion:**

Section 7(b)(2)(A) provides that BPA is to assume that "the public body
and cooperative customers' general requirements had included during such
five-year period the direct service industrial customer loads which are:
(i) Served by the Administrator, and (ii) located within or adjacent to
the geographic service boundaries of such public bodies and
cooperatives..." The plain language of section 7(b)(2)(A) requires the
Administrator to assume that 7(b)(2) customers' loads include the DSI
loads within or adjacent to the 7(b)(2) customers' service territories
for the entire five-year test period.

An alternate interpretation would require the assumption that relevant
DSI loads were transferred to 7(b)(2) customers at the expiration dates
of DSI power sales contracts in effect on December 5, 1980. However,
there is nothing in this statutory assumption that permits BPA to phase
DSI loads into 7(b)(2) customers' general requirements over time.

Section 7(b)(2)(A) has no language linking DSI load transfer to contract
expiration. Section 7(b)(2)(B), on the other hand, states that:

> Public body, cooperative, and Federal agency customers were served
> during such five-year period, with Federal base system resources not
> obligated to other entities under contracts existing as of the
> effective date of this Act (*during the remaining term of such
> contracts*)..., (Emphasis added)

It is generally understood that expression of one thing excludes
another. 24 *Sutherland, Statutes and Statutory Construction* § 47.23
(C.D. Sands ed. 4th ed. 1973); *see also City of Walla Walla v. Walla
Walla Water Co.*, 172 U.S. 1 (1898). Thus the express language in
section 7(b)(2)(B) linking DSI load transfer to the IOUs with contract
expiration, and the absence of such language in section 7(b)(2)(A),
excludes the consideration of contract expiration from section
7(b)(2)(A).

The legislative history of the Northwest Power Act also supports
Bonneville's interpretation of the statute. In the analysis of the
section 7(b)(2) directives contained in Appendix B to the Senate Report,
S. Rep. No. 272, 96th Cong. 1st Sess., at 65.79 (1979), forecasted DSI
loads were transferred from BPA to 7(b)(2) customers for the entire test
period regardless of contracts in effect as of the effective date of the
Northwest Power Act. In the projections contained in Appendix B,
calculations of public agency loads for the 7(b)(2) case included a full
85 percent of projected DSI loads beginning in 1980 (85 percent was the
amount determined to be "within or adjacent" to preference agency
service areas). Although Appendix B is not conclusive evidence of
legislative intent, S. Rep. 272, *supra*, at 58, it was "an important
part of the common understanding about how the costs of resources would
be distributed as a result of \[the Northwest Power Act\]." S. Rep. 272,
at 31. Appendix B is a useful tool for statutory construction where it
does not conflict with the language of the statute.

Contrary to the suggestions of several interested parties, section
7(b)(2)(A) regarding the timing of DSI load transfer to 7(b)(2)
customers should not allow speculation on contract negotiations. Nothing
in section 7(b)(2)(A) allows for an assumption of renegotiation of
service contracts between 7(b)(2) customers and "within or adjacent"
DSIs. Section 7(b)(2) deals with quantifiable concepts which direct the
changes in assumptions that must be made between the program case and
the 7(b)(2) case.

**(d) Decision:**

BPA will interpret section 7(b)(2)(A) as requiring the Administrator to
assume that 7(b)(2) customers' loads include the DSI loads "within or
adjacent" to the 7(b)(2) customers' service territories for the entire
five-year test period.

**3. All DSI loads assumed to be placed on 7(b)(2) customers will be
treated as firm.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA interpreted section
7(b)(2) as requiring the Administrator to treat as firm the DSI loads
assumed to be placed on 7(b)(2) customers pursuant to section
7(b)(2)(A).

**(b) Summary of the Comments:**

Both the DSIs and the ICP support BPA's interpretation regarding quality
of service. The PPC, Northern Lights and APAC adopted a position
contrary to that of the DSIs and ICP. The PPC's comments are
illustrative of the approach taken by these parties.

> Again, the PPC once agreed to accept this assumption as part of a
> strict statutory interpretation of subsection (A), in accordance with
> Appendix B, if BPA confined its assumptions to the five spelled out in
> subsections (A) through (E). However, since BPA complicates the
> situation with additional assumptions or 'unavoidable secondary
> effects,' the PPC believes that only 3 quartiles should be treated as
> firm. To assume that all four quartiles transfer as firm ignores the
> obviously unavoidable effect of public agencies and cooperatives
> negotiating with the industries to secure restriction rights for
> reserves. PPC comments at 6.

**(c) Discussion:**

Section 7(b)(2)(A) provides that BPA is to assume "that the public body
and cooperative customers' general requirements had included during such
five-year period the direct service industrial customers loads..."
Section 7(b)(2)(A) does not expressly state the nature or quality of
service assumed to be provided by the public bodies and cooperatives to
the relevant DSI loads.

The DSI loads now served by BPA include three quartiles that are firm
loads and one quartile (the first quartile) that BPA does not plan or
acquire resources to serve. However, the language of the Act is
compelling that Congress intended all relevant DSI loads, assumed to be
served by public bodies and cooperatives, to be treated as firm.

Section 7(b)(2)(A) requires BPA to assume that the loads of relevant
DSIs are included in the 7(b)(2) customers' "general requirements", a
term defined by section 7(b)(4) of the Northwest Power Act as limited to
electric power purchased from the Administrator under section 5(b) of
the Act. Section 5(b) deals exclusively with firm power. In addition,
sections 7(b)(2)(B) and 7(b)(2)(D) require that Federal base system and
additional resources be assumed to serve the total general requirements
of the 7(b)(2) customers.

The legislative history of the Northwest Power Act supports interpreting
the statute to require 7(b)(2) customers' firm power general
requirements in the 7(b)(2) case to include all DSI loads served by the
Administrator, including DSI loads that under the program case BPA does
not plan or acquire resources to serve. In Appendix B to the Senate
Report, all four quartiles of DSI loads were treated as firm when
assigned to public agency customers in the 7(b)(2) case.

Moreover, BPA will not infer the renegotiation of DSI service contrasts
to allow non-firm service. To do so would result in BPA's engaging in
speculation outside the assumptions governing the rate test.

**(d) Decision:**

BPA will treat all DSI loads assumed to be transferred to the 7(b)(2)
customers as firm.

**4. BPA will use Appendix B to determine DSI loads within or adjacent
to the geographic service boundaries of public bodies and
cooperatives.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA proposed the use of
Appendix B to determine DSI loads within or adjacent to the geographic
service boundaries of 7(b)(2) customers.

**(b) Summary of the Comments:**

The DSIs and the ICP both support BPA's use of the Appendix B list of
DSIs to determine which DSIs are "within or adjacent" pursuant to
section 7(b)(2)(A)(i). The DSIs believe that "\[c\]hanges to the list
included in Appendix 'B' should be made only for changes in status which
occur after enactment of the Legislation. ... The original list included
in Appendix 'B' was developed as a political assumption which was used
to determine the overall economic basis in support of the legislation."
DSIs Comments at 4. The IOUs disagree: "\[t\]here appears to be no need
to attempt to revise the list for the 7(b)(2) case to reflect changes in
BPA service to DSI customers in the program case." ICP Comments at 3.

Northern Lights and APAC support a position similar to that of the DSIs.
Northern Lights Comments at 4. APAC Comments at 54. The PPC stated that
as a result of BPA's "abandonment of the strict statutory
interpretation", it was no longer willing to support the use of the
Appendix B list, and instead supported an approach which would require a
"new examination of which DSIs are 'within or adjacent.'" The PPC did
suggest that use of the Appendix B list would be acceptable if BPA
updated the list to reflect changes in DSI status. PPC Comments at 6.

**(c) Discussion:**

Section 7(b)(2)(A) requires the Administrator to assume that during the
relevant five-year period, "the public body and cooperative customers\`
general requirements had included ... the direct service industrial
customer loads which are ... located within or adjacent to the
geographic service boundaries of such public bodies and cooperatives..."
16 U.S.C. § 839e(b)(2)(A). It is not apparent from the statute how BPA
is to resolve the question of which DSIs are "within or adjacent to"
public body and cooperative customers\` boundaries. Therefore, BPA must
look to legislative history to resolve the ambiguity.

The legislative history of the Northwest Power Act indicates that the
determination of which DSIs are "within or adjacent" to public body and
cooperative customers' boundaries was made in Appendix B. S. Rep. No.
272, 96th Cong., 1st Sess., Appendix B, at 66. Appendix B includes a
table listing the DSIs "within BPA preference customers' service areas,"
DSIs "adjacent to BPA preference customers' service areas" and those
DSIs that "could not readily be served by BPA preference customers".
*Id.*

The "within or adjacent" table in the numerical analysis in Appendix B
is accompanied by a narrative explanation which states that the loads
for establishing resource requirements under section 7(b)(2) will
include "DSI total loads within or adjacent to the service territory of
the public bodies and cooperatives. (85 percent of existing DSIs as
shown in the attached table)." Appendix B at 58. The detailed nature of
the "within or adjacent" table and the narrative explanation in Appendix
B convince BPA that Congress intended the Appendix B table to be used in
resolving which DSIs are " within or adjacent" to the service territory
of public body and cooperative customers. The Appendix B table will be
disregarded only if service to those DSI customers changes, such as in
the case of termination of BPA service to a DSI industrial plant.

There is nothing in the statute requiring BPA to undertake a new
determination of which DSI loads were within or adjacent to 7(b)(2)
customer service territories. A determination of a DSI's being "within"
a relevant service territory poses little problem; however, adjacency
may not be capable of resolution without protracted hearings. Should
"adjacent" be defined as within one mile of a relevant service
territory, two miles, or fifteen miles? Are air miles determinative, or
should terrain be considered? What effect should size of the DSI load
have on the question? It may be economic to extend service to a large
DSI load, but not to a small one. BPA rate cases should not become
forums for competing testimony by construction engineers, surveyors and
architects. Congress could not have intended such a result and hence
provided the BPA Administrator discretionary authority to implement
section 7(b)(2) in a reasonable manner.

Making a new determination of "within or adjacent" DSI loads would also
force BPA to decide matters of state utility law in which the agency has
no expertise. Since the DSIs are already interconnected with the Pacific
Northwest transmission grid, determination of the public or private
utility to provide new service to a given DSI would likely be a matter
of resolving questions of state law and regulations. Where two or more
utilities are in a position to serve a customer, most states have
utility laws to govern the outcome. BPA does not propose to interpret
the state laws of Oregon, Washington, Idaho and Montana as part of the
section 7(b)(2) implementation.

**(d) Decision:**

BPA will use Appendix B to determine DSI loads within or adjacent to the
geographic boundaries of 7(b)(2) customers. BPA will adjust this list to
reflect changes in the status of BPA service to the list of DSI
customers as assumed in the relevant rate case.

**5. Determination of "Federal base system resources not obligated to
other entities" necessitates reference to the contracts of pertinent
DSIs.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA interpreted section
7(b)(2)(B) to require reference to the contracts of pertinent DSIs for
the determination of "Federal base system resources not obligated to
other entities".

**(b) Summary of the Comments:**

The DSIs and Northern Lights support the interpretation adopted by
Bonneville. DSI Comments at 5; Northern Lights Comments at 4. The PPC
also supports this interpretation, "but believes BPA overstates the
difficulty of the factual determinations involved." PPC Comments at 7.
Snohomish suggests that this interpretation is "inconsistent with
Bonneville's approach to an analogous^\*\*^ issue, and is designed to
preclude the rate test from operating as Congress intended". Snohomish
Comments at 10. The PGP adopted a similar position. PGP Comments at 4.

**(c) Discussion:**

Section 7(b)(2)(B) provides that the Administrator is to assume that
7(b)(2) customers were served by FBS resources "not obligated to other
entities under contracts existing as of the effective date of this Act
(during the remaining term of such contracts) excluding obligations to
direct service industrial customer loads included in (Section
7(b)(2)(A)\]." Unlike the assumption relating to DSI loads served by
public body and cooperative customers, section 7(b)(2)(B) requires BPA
to make two factual determinations: (1) What the level of FBS resources
is, and (2) what level of FBS resources is obligated for service to
other entities, over all, or a portion, of the relevant five-year
period. The first determination is necessary because the FBS includes
resources purchased by BPA under long-term contracts. Expiration of
these contracts will likely cause a change in the size of the FBS during
the relevant five-year period.

The second determination concerns BPA power sales contracts existing as
of the effective date of the Northwest Power Act. When these contractual
obligations on FBS resources are removed through expiration of the
relevant contracts, the size of FBS resources available to 7(b)(2)
customers would increase. In the 7(b)(2) case, particular attention must
be given to DSI loads not "within or adjacent to the geographic service
boundaries" of 7(b)(2) customers, which will be assumed to transfer to
private utilities as of the expiration dates of the DSI contracts in
effect on December 5, 1980.

Legislative history supports the interpretation that DSI loads should
shift to 7(b)(2) customers without regard to existing DSI contracts,
while the size of FBS resources available for allocation to the 7(b)(2)
customers should depend on DSI contract expiration dates. Section
7(b)(2)(B) initially stated that the Administrator was to assume that
7(b)(2) customers were served by FBS resources, "less (the) firm power
contractual commitments as of the date of this Act" to DSIs "not located
within or adjacent..." S. 885, Amendment No. 134, 96th Cong., 1st Sess.
(April 15, 1979); H.R. 4150, 96th Cong., 1st Sess. (May 21, 1979). The
Senate Committee on Energy and Natural Resources amended S 885 to
incorporate language substantively identical to section 7(b)(2)(B) as
enacted. Thus, a directed legislative effort was made to incorporate
language shifting DSI loads to the IOUs only after expiration of the DSI
contracts. This same effort is absent from the development of section
7(b)(2)(A).

**(d) Decision:**

BPA interprets section 7(b)(2) as necessitating reference to the
contracts of pertinent DSIs in the determination of "Federal base system
resources not obligated to other entities."

**6. Section 7(b)(2)(D) is clear in identifying assumptions regarding
additional resources to be acquired by BPA.**

**(a) Proposed Interpretation:**

In the Notice of Proposed Interpretation, BPA proposed that section
7(b)(2)(D) identified three additional resources assumed to be acquired
to meet the 7(b)(2) customers' general requirements when FBS resources
are exhausted. The first type was identified as those resources actually
acquired by BPA from the 7(b)(2) customers in the program case. The
second type are those resources owned or purchased by the 7(b)(2)
customers, and not dedicated to their own loads. These two resources
were proposed to be stacked in order of cost and then pulled from the
stack to meet 7(b)(2) customers' loads, least expensive first. The third
resource type was proposed to consist of generic resources of whatever
size required to meet the remaining load, and to be priced at the
average cost of all new resources acquired by BPA from non-7(b)(2)
customers during the five year 7(b)(2) test period.

**(b) Summary of the Comments:**

Most of the commenters, including the DSIs, Northern Lights, APAC, the
PPC and Snohomish, support Bonneville's interpretation of section
7(b)(2)(D). DSI Comments at 5; Northern Lights at 4; APAC Comments at
54-55; PPC Comments at 7; Snohomish Comments at 11. The ICP disagrees:
"\[t\]he third resource type described by BPA is unrealistic. There is
no reason to assume that 'generic' resources will be available in the
exact size needed to serve remaining loads." ICP Comments at 3.

**(c) Discussion:**

Section 7(b)(2)(D) describes the manner in which additional resources
are assumed to be acquired to meet the 7(b)(2) customers' loads when FBS
resources are exhausted. The statute is clear in identifying assumptions
regarding additional resources.

Three types of additional resources are available in the 7(b)(2) case.
The first type of resource is described in section 7(b)(2)(D)(i) as
being resources that were "purchased from such customers by the
Administrator pursuant to section 6." These are the resources actually
acquired by BPA from the 7(b)(2) customers in the program case. Section
7(b)(2)(D)(ii) describes the second type of resource as those "not
committed to load pursuant to section 5(b)." These are resources owned
or purchased by the 7(b)(2) customers that are not dedicated to their
own loads. Together, these two provisions result in a list of resources
which were developed by 7(b)(2) customers and which are assumed to be
available to meet regional 7(b)(2) customer needs.

The remainder of section 7(b)(2)(D) outlines how this list of resources
is to be used to serve the 7(b)(2) customers' loads and describes the
third type of resources available to meet these loads. BPA is first to
assume for the 7(b)(2) case that any required additional resources "were
the least expensive resources owned or purchased by public bodies or
cooperatives." This means that 7(b)(2)(D)(i) and (ii) resources would be
stacked in order of cost and pulled from that stack to meet 7(b)(2)
customers' loads in order of least to greatest cost. Should these
resources be insufficient to satisfy the general requirements of 7(b)(2)
customers, section 7(b)(2)(D) provides the assumption that "\...any
additional needed resources were obtained at the average cost of all
other new resources acquired by the Administrator." This third resource
type would consist of generic resources of the size required to serve
the 7(b)(2) customers' remaining loads, the cost of which would be
determined by the average cost of all new resources acquired by BPA from
non-7(b)(2) customers during the relevant five-year period.

**(d) Decision:**

Section 7(b)(2)(D) is clear in identifying assumptions regarding the
size and type of additional resources to be acquired by BPA.

**C. Additional Issues:**

Several parties raised additional issues which are not addressed in this
legal interpretation but are being addressed in the methodology itself,
in the initial proposal or in the 1985 rate case. BPA briefly summarizes
those issues below.

**1. Section 7(b)(2)(E) issues:**

APAC noted that the Notice of Proposed Interpretation ignored "issues
raised by § 7(b)(2)(E)." APAC Comments at 40. Issues concerning
financing benefits and other benefits identified in section 7(b)(2)(E)
are discussed in the initial proposal and the methodology. *See* 49 FR
11,235 (1980).

**2. GCP 8(e):**

Fourteen of the parties suggested that the notice of statutory
interpretation violated General Contract Provision 8(e) (GCP 8(e)) of
the power sales contracts. *See*, *e.g.*, PPC Comments at 1; Snohomish
at 1-2. The requirements of GCP 8(e) are the subject of litigation. They
are not addressed in this methodology, nor need they be. This legal
interpretation is concerned only with the statutory requirements of the
Northwest Power Act.

**3. Reallocation of 7(b)(2) amount:**

Tacoma stated that BPA should address "BPA's plan for possible
implementation of cost reallocation under section 7(b)(3)..." Tacoma
Comments at l. BPA will address the reallocation of any amount by which
the program case exceeds the 7(b)(2) case in the relevant rate case. It
is unnecessary in the development of the rate test to determine the
reallocation to follow the rate test.

**4. Adequacy of BPA's Notice of Proposed Legal Interpretation:**

Several of the parties felt that BPA's statutory interpretation did not
provide adequate notice of the issues involved in the section 7(b)(2)
interpretation. *See*, *e.g.*, APAC Comments at 38. BPA's notice did
adequately inform the public of those issues BPA felt were required to
be addressed in a "legal interpretation". All commenters addressed
precisely the issues BPA proposed. All commenters replied in such a
manner as to make apparent the fact that BPA's proposed positions were
clearly understood. Naturally, there was disagreement on the issues, but
there has been full discussion and argument on various positions.

BPA maintains that the issues resolved by this legal interpretation
provide the legal determinations necessary in order to develop the
7(b)(2) implementation methodology. BPA does not deny that other issues
of fact and policy remain for resolution. These issues, however, are
appropriately developed through other forums which will eventually
result in testimony presented in a section 7(i) proceeding under the
Northwest Power Act.

Issued in Portland, Oregon, on May 30, 1984.

Robert E. Ratcliffe,

Acting Administrator, Bonneville Power Administrator.

[^1]: The Association of Public Agency Customers (APAC) argues that BPA
    will disregard section 7(b)(2) if it is not feasible to recover
    costs through section 7(b)(3), and suggests that BPA will
    subordinate section 7(b)(2) to section 7(a). APAC Comments at 29.
    The Public Power Council also suggests that by this interpretation
    BPA has established a "hierarchy of statutory obligations." PPC
    Comments at 3. The Public Generating Pool declares that "\[s\]ection
    7(b)(2) is the cornerstone of the Regional Act for Preference
    Customers." PGP Comments at 1. These arguments suggest that BPA
    properly could ignore other sections of the Northwest Power Act
    should a conflict with section 7(b)(2) arise. BPA rejects any
    approach which reads section 7(b)(2) in isolation from other
    provisions with which section 7(b)(2) must be consistent.

[^2]: The following parties responded to the first round request for
    comments: Direct Service Industrial Customers of BPA (DSIs),
    Portland General Electric (PGE) as representative for the
    Intercompany Pool (ICP), Association of Public Agency Customers
    (APAC), the Public Power Council (PPC), the Public Generating Pool
    (PGP), Snohomish County Public Utility District No. 1 (Snohomish),
    Public Utility District of Grant County (Grant), Lewis County Public
    Utility District (Lewis), Public Utility District 3 of Mason County
    (Mason), Pacific Northwest Generating Company (PNGC), Lincoln
    Electric Cooperative, Inc. (Lincoln), Benton Rural Electric
    Association (Benton), Rural Electric Company of Rupert, Idaho
    (Rupert), City of Tacoma Department of Public Utilities (Tacoma),
    Eugene Municipal Utilities (Eugene), Canby Utility Board (Canby),
    and Northern Lights, Inc. (Northern Lights). Grant, Lewis, Mason,
    PNGC, Lincoln, Benton, Rupert, Tacoma, Eugene, Canby, and the PGP
    adopted the comments submitted by the PPC. Grant and Eugene also
    adopted the comments of the PGP.

[^3]: BPA received reply comments from the PPC, DSIs, APAC and the PNGC.

[^4]: APAC, the PPC and Snohomish noted that "applicable 7(g) costs"
    should only be those 7(g) costs listed in 7(b)(2) that are
    chargeable to 7(b)(2) customers. BPA has clarified the definition to
    reflect this interpretation.

[^5]: For example, section 7(b)(2)(C) states, "no purchase or sales by
    the Administrator as provided in section 5(c) were made during such
    five-year period." In fact, there are currently 60 average system
    cost filings for establishing rates for power sold to BPA by IOUs
    and Publics participating in the residential exchange established in
    section 5(c).

[^6]: Northern Lights agreed with BPA's observation in this regard.
    Northern Lights Comments at 3. APAC argued that Congress, in section
    7(b)(2), intended to provide the Administrator with objective rate
    factors. Consistent with Congressional intent, BPA will implement
    section 7(b)(2) in an objective manner. This interpretation,
    however, was necessary in order for BPA to proceed with this
    implementation.

[^7]: These natural consequences have also been referred to as
    "secondary effects".

[^8]: This notice should not be taken as an exhaustive discussion of
    secondary effects. Other secondary effects may become clear during
    the implementation of section 7(b)(2) and the program case in the
    relevant rate case as a result of the section 7(i) process. The
    situations cited are simply examples.

[^9]: The DSIs, PPC, and APAC support this position. DSI Comments at 5;
    PPC Comments at 4; APAC Reply Comments at 3.