REBUTTAL TESTIMONY OF

DAVID FADDIS, STEVE ELDRIGE,

JACK SPEER, AND LINCOLN WOLVERTON

Witnesses for Coalition Customers.

[Section]{.underline} [Page]{.underline}

SECTION 1: INTRODUCTION 1

SECTION 2: WPAG TESTIMONY 2

SECTION 3: SUB TESTIMONY 5

May 5, 2003

SECTION 1: INTRODUCTION

Q. PLEASE STATE YOUR NAMES AND QUALIFICATIONS.

A. My name is David Faddis and I am the mill manager of Kimberly-Clark's
pulp and paper mill in Everett, Washington. My qualifications are
contained in SN-03-Q-IN-01.

A. My name is Linc Wolverton and I am the owner of East Fork Economics.
My qualifications are contained in SN-03-Q-IN-02.

A. My name is Jack Speer and I am Northwest Energy Director of Alcoa
Inc. My qualifications are contained in SN-03-Q-AI-01.

A. My name is Steve Eldrige and I am the general manager of Umatilla
Electric Cooperative. Umatilla Electric Cooperative is a member of
Pacific Northwest Generating Cooperative ("PNGC"), and I am a member of
PNGC's Board of Directors. My qualifications are listed in
SN-03-Q-PN-01.

Q. HAVE YOU PREVIOUSLY FILED TESTIMONY IN THE SN-03 PROCEEDING?

A. Yes. We previously filed testimony on policy issues on behalf of the
Coalition Customers.

Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?

A. The purpose of this testimony is to describe the policy basis for the
Customer Coalition rebuttal to the direct testimony of Gary Saleba, Jon
Piliaris and Kevin Clark, sponsored by the Washington Public Agencies
Group ("WPAG") ("WPAG Testimony"), and the direct testimony of Jeff
Nelson, sponsored by the Springfield Utility Board ("SUB") ("SUB
Testimony").

SECTION 2: WPAG TESTIMONY

Q. PLEASE DESCRIBE YOUR UNDERSTANDING OF THE WPAG TESTIMONY REGARDING
THE BONNEVILLE POWER ADMINISTRATION'S ("BPA") SAFETY NET ("SN") COST
RECOVERY ADJUSTMENT CLAUSE ("CRAC").

A. We agree with some elements of the WPAG Testimony, but parts of it
are unclear. In particular, WPAG's Testimony rejecting a rate increase
appears to contradict WPAG's proposed General Rate Schedule Provisions
("GRSPs") ("Alternative Proposal"). WPAG's proposed GRSPs may provide
BPA with overly generous rate recovery.

Recognizing that the region is experiencing severe economic hardship,
WPAG recommends that "all available actions be taken at this time to
avoid a rate increase in FY 04." SN-03-E-WA-01 at 9. Despite
acknowledging the harmful impact of a rate increase, WPAG's proposal
appears to accept most of the BPA rate proposal and allows BPA to
increase rates 41% in 2004, 2005 and/or 2006 ("Alternative Approach").
The WPAG Alternative Approach would allow BPA to increase rates by
accepting: 1) BPA's calculation of a shortfall of \$920 million (as
offset by identified savings); 2) BPA's use of Accumulated Net Revenue
("ANR") that does not allow for use of the Energy Northwest ("ENW")
pre-payments and other balance-sheet fund sources; and 3) BPA's U.S.
Treasury ("Treasury") Payment Probability ("TPP") method. WPAG also
endorses a multi-year CRAC.

The WPAG Testimony appropriately seeks to restrict BPA's ability to use
cost savings in one category to shield cost over-runs in another. In
addition, the WPAG Testimony includes useful suggestions on treatment of
pre-payments in the event of a "retriggering possibility."

**Q. PLEASE SUMMARIZE THE FUNDAMENTAL DIFFERENCE BETWEEN THE WPAG
TESTIMONY AND THE COALITION CUSTOMER TESTIMONY?**

A. The Coalition Customers believe that BPA should be allowed to raise
additional revenues only if it is facing an actual risk of failure to
pay the Treasury. The Coalition Customers do not believe that the SN
CRAC allows BPA to raise rates in order to recover past losses by
producing zero net revenues over the rate period. BPA, however,
forecasts that it may need to raise rates by 41% to recover \$920
million to meet this goal. SN‑03‑E-BPA-04 at 13-14.

In contrast, the WPAG Alternative Approach appears to allow BPA to
recover \$920 million in net revenues. To its credit, WPAG would reduce
the amount BPA would recover under the SN CRAC by BPA's actual savings
or increased revenues. However, WPAG appears to allow BPA, through
savings or direct charges, to collect the full \$920 million. For
example, under the WPAG proposal, if BPA found \$100 million in savings,
then ratepayers would still be responsible for the remaining \$820
million, affirming BPA's request for \$920 million.

Q. DOES WPAG EXPLICITLY ENDORSE BPA'S PROPOSAL TO RECOVER \$920 MILLION?

A. No. However, WPAG's proposed GRSP language, contained in Attachments
A and B, is based on BPA recovering \$920 million. The WPAG Testimony
could be read to accept: 1) the costs BPA filed in its direct case; 2)
BPA's TPP and TRP; and 3) BPA's schedule to increase its ANR. If this is
correct, then WPAG essentially endorses BPA's maximum potential revenue
request of \$920 million, which the Coalition Customers strongly oppose.

**Q. WHAT OTHER PROBLEMS DO YOU SEE WITH THE WPAG PROPOSAL?**

A. The WPAG Testimony supports use of ENW funds, but a careful reading
of the GRSPs allows the refinancing funds to be used only to determine
if the SN CRAC will "retrigger." SN-03-E-WA-01 at 7; SN-03-E-WA-01A at 6
(Attachment A). In other words, the WPAG Testimony does not allow ENW
funds to be used in its Alternative Proposal. The final BPA decision
should to be allow BPA to utilize all of its potential financial
options. *See*, *e.g.* Exhibit 1, SN-03-E-CC-02A.

Q. THE COALITION CUSTOMERS AND OTHER CUSTOMERS HAVE STRONGLY RECOMMENDED
THAT BPA'S SN CRAC DECISIONS BE MADE ONE YEAR AT A TIME. *E.G.*,
SN-03-E-CC-01 AT 24-28; SN-03-E-PP-01 AT 6. HOW DOES THE WPAG PROPOSAL
COMPARE WITH THIS RECOMMENDATION?

A. WPAG is endorsing a three-year SN CRAC that would allow BPA to
increase rates after two advisory meetings with customers in August of
2003, 2004 or 2005. SN-03-E-WA-01A at 1. WPAG's proposal is less
stringent than the requirements in BPA's current GRSPs. The GRSPs
require a 7(i) proceeding and the approval of the Federal Energy
Regulatory Commission. WPAG's proposal makes it easier for BPA to raise
rates, which the Coalition Customers oppose as unnecessary and
inconsistent with the SN CRAC.

Q. DO YOU HAVE ANY FINAL RECOMMENDATIONS?

A. BPA should not adopt any proposal that: 1) allows BPA to raise rates
to ensure that net revenues equal zero over the rate period; 2) limits
the use of ENW funds or other financial options; or 3) adopts a
multi-year SN CRAC. At a minimum, prepayments and other cost savings
should be used before BPA can raise rates and should be explicitly
recognized in modified ANR trigger criteria. This change would
substantially reduce the need for an SN CRAC in 2004, 2005 or 2006.
Overall, these recommendations would be consistent with the underlying
purposes of the WPAG Testimony: 1) recognition of the consequences a BPA
rate increase would have on the regional economy; and 2) avoiding an SN
CRAC rate increase. SN-03-E-WA-01 at 2-3.

**SECTION 3: SUB TESTIMONY**

**Q. PLEASE DESCRIBE YOUR UNDERSTANDING OF THE SUB TESTIMONY REGARDING**
**THE 7(B)(2) RATE TEST?**

A. The SUB Testimony identifies that BPA has not conducted a 7(b)(2)
rate test for this proceeding and provides the factual reasons why BPA
should have conducted a 7(b)(2) test.

**Q. DO YOU AGREE THAT BPA SHOULD HAVE PERFORMED A 7(B)(2) TEST?**

A. Yes, we agree that BPA has not performed a 7(b)(2) rate test to
consider the SN CRAC. In addition, we agree that the factual
circumstances demonstrate that BPA should have conducted a 7(b)(2) test
in this proceeding. However, we disagree with the SUB Testimony in that
"SUB suggests that BPA modify only a portion of the model from the
7(b)(2) test conducted in the WP-02 proceeding . . . ." SN-03-E-SP-01 at
10. In its testimony SUB, cited two significant changes between 2000 and
2003: 1) the amount of direct service industry load; and 2) the amount
of investor-owned utility benefits. [Id.]{.underline} at 9-10. The
Coalition Customers recommends that BPA run a new 7(b)(2) test to
evaluate [all]{.underline} factors that have changed, including new SN
CRAC revenues.

**Q. Does this Conclude your Testimony?**

A. Yes. In addition, we are sponsoring SN-03-E-CC-02A as Exhibit 1.