UNITED STATES OF AMERICA

U.S. DEPARTMENT OF ENERGY

BEFORE THE

BONNEVILLE POWER ADMINISTRATION

IN THE MATTER OF THE SAFETY- ) BPA DOCKET NO. SN-03

NET COST RECOVERY RATE )

ADJUSTMENT PROCEEDING OF THE )

BONNEVILLE POWER )

ADMINISTRATION )

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Rebuttal Testimony

OF THE

COLUMBIA RIVER INTER-TRIBAL FISH COMMISSION

AND

YAKAMA NATION

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Robert Lothrop

Columbia River Inter-Tribal Fish Commission

729 N.E. Oregon, Suite 200

Portland, Oregon 97232

\(503\) 238-0667

Fax: (503) 235-4228

Tim Weaver

##### Weaver Law Office

The Tower

402 E Yakima Ave, Ste. 190

Yakima, WA 98901

\(509\) 575-1500

Fax: (509) 575-1227

May 5, 2003 Exhibits:

SN-03-E-CR/YA-02

####  

INDEX

REBUTTAL TESTIMONY OF:

EXPERT PANEL: EDWARD SHEETS, ROY SAMPSEL

ROBERT HEINITH AND THOMAS GIESE

WITNESSES FOR:

THE COLUMBIA RIVER INTER-TRIBAL FISH COMMISSION

AND

THE YAKAMA NATION

Page

**Section 1.** **Rebuttal to Joint Customers Testimony
[1](#section-1.-rebuttal-to-joint-customers-testimony)**

Section 2. Rebuttal to the Public Power Council, PNGC, and IE Panel
[4](#section-2.-rebuttal-to-the-northwest-requirement-utilities-and-public-power-council-pngc-and-ie-panels)

Section 3. Rebuttal to the Western Public Agencies Group
[6](#section-3.-rebuttal-to-the-western-public-agencies-group)

Section 4. Rebuttal to Save Our Wild Salmon Testimony
[8](#section-4.-rebuttal-to-save-our-wild-salmon-testimony)

# **Section 1. Rebuttal to Joint Customers Testimony**

Q.  **PLEASE STATE YOUR CONCERNS WITH THIS TESTIMONY.**

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A.  SN-03-E-JC-01 raises several issues that we want to address in this
    rebuttal. First, the Joint Customers recommend that Bonneville
    incorporate certain cost savings into its revenue requirements that
    could adversely affect Bonneville's ability to meet its costs.
    Second, the Joint Customers appear to propose to limit the SN-CRAC
    if Bonneville's costs are above FY01 levels. This approach could
    affect its ability to meet its costs. Third, the Joint Customers
    have relied on Bonneville's analysis of its future costs rather than
    provide an independent evaluation. Fourth, the Joint Customers'
    AURORA analysis does not appropriately address uncertainties. Fifth
    the Joint Customers assert that the origins of Bonneville's current
    financial difficulties lie in Bonneville's sales to investor owned
    utilities.

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Q.  **WHAT IS YOUR CONCERN ABOUT INCORPORATING THE JOINT CUSTOMERS COST
    REDUCTIONS INTO THE REVENUE REQUIREMENTS?**

A. In SN-03-E-JC-01, page 12, line 18 through page 13, line 22, the
Joint Customers describe \$580 million in further cost reductions that
Bonneville is pursuing and recommend that these savings should be
incorporated in to Bonneville's revenue requirement. This approach would
force Bonneville to assume no uncertainty associated with achieving
these savings. Given Bonneville's recent history and its statutory
responsibilities this assumption is not appropriate. This recommendation
ignores the significant potential that certain of Bonneville's cost will
be higher than Bonneville has assumed. It appears from the data
responses from the Joint Customers that they have not evaluated this
issue and instead relied on the BPA Financial Choices process. *(see*
CR&YA/JC:007, herein incorporated as attachments SN-03-E-CR/YA-02C).

Our direct testimony provides numerous examples where Bonneville has not
addressed uncertainties that would increase its costs or reduce its
revenues. The Joint Customers recommendation would assume that uncertain
cost reductions are certain and ignores uncertainties that would
increase costs or reduce revenues. If Bonneville adopted this approach
it would increase the risks that its rates were not sufficient to meet
its costs and repay the Treasury. *(see* CR&YA/JC:008 and 009, herein
incorporated by reference as attachment SN-03-E-CR/YA-02A and B)

**Q. WHAT ARE YOUR CONCERNS ABOUT LIMITING THE SN CRAC IF COSTS EXCEED
FY01?**

A.  The limit proposed by the Joint Customers could affect Bonneville's
    ability to meet its costs and repay the Treasury in two ways. If
    Bonneville was unable to increase its rates in a timely fashion if
    fish and wildlife or other costs exceeded FY01 levels, this
    limitation could reduce Bonneville's ability to recover its full
    system costs. More broadly, if Bonneville was not able to raise
    rates to cover higher costs, the likelihood increases that
    Bonneville would fail to meet its costs and repay the Treasury on
    time and in full. It would further erode Bonneville's ability to
    meet the fish and wildlife funding principles, including addressing
    ending reserves *(see* PP/CR:001, herein incorporated as attachment
    SN-03-E-CR/YA-02N). In the case of Bonneville's statutory
    responsibilities concerning fish and wildlife, we are further
    concerned that the Joint Customers have not analyzed whether current
    fish and wildlife commitments or the FY01 levels were adequate to
    meet Bonneville's statutory responsibilities *(see* CR&YA/JC:006,
    herein incorporated as attachment SN-03-E-CR/YA-02O).

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Q.  **HAVE THE JOINT CUSTOMERS INDEPENDENTLY EVALUATED BONNEVILLE'S COST
    ASSUMPTIONS?**

**A.** No. In SN-03-E-JC-01, page 3, lines 15 through page 5, line 9,
the Joint Customers describe Bonneville's processes to review costs and
conclude that the Customers are willing to rely on Bonneville's
estimates. In data responses, the Joint Customers acknowledge that they
did not perform independent analysis of many of the assumptions that
Bonneville has used. *(see* CR&YA/JC:002, 003, 004, and 005, herein
incorporated as attachments SN-03-E-CR/YA-02P through S).

If the customers had performed this role in prior proceedings Bonneville
might have used more realistic estimates for its costs and revenues.
Failure to independently evaluate the current proposal increases the
risks that Bonneville will not be able to meet its costs and repay the
Treasury during the remainder of this rate period.

**Q. WHAT ARE YOUR CONCERNS ABOUT THE AURORA ANALYSIS**?

A. The joint customers conducted the AURORA analysis assuming average
gas prices, average loads, and average hydro *(see* CR-JC-014,
incorporated as attachment SN-03-E-CR/YA-02Ib). These assumptions do not
adequately address the uncertainty in the market *(see* BPA-CR/YA-003,
BPA-CR-YA-003A.ppt, BPA-CR/YA-004, BPA-CR-004A.pdf, BPA-CR-004B.pdf,
BPA-CR-004C.doc, and BPA-CR-004D.pdf, BPA-CR-008, and BPA-CR-008A.pdf,
incorporated as attachments SN-03-E-CR/YA-02T through BB).

**Q. DID THE JOINT CUSTOMERS ANALYZE ALL OF THE FACTORS THAT CREATED
BONNEVILLE'S FINANCIAL PROBLEMS?**

A No. In SN-03-E-JC-01, page 5, line 10 through page 9, line 4, the
Joint Customers discuss the changes in costs and revenues and the
primary drivers for these changes. The analysis does not include all of
the issues raised in the recent report by Bonneville entitled *What Led
to the Current BPA Financial Crisis? A BPA Report to the Region* *(see*
attachment SN-03-E-CR/YA-02BBa). This report provides considerable
detail on many of the factors that led to the current problem, including
the additional unanticipated preference loads placed on Bonneville. The
report is useful in evaluating both the Joint Customers testimony and
the Bonneville SN CRAC testimony and proposal.

# **Section 2. Rebuttal to the Northwest Requirement Utilities and Public Power Council, PNGC, and IE Panels**

Q.  **DID THE NRU OR PUBLIC POWER POLICY PANELS ADAQUATELY ADDRESS
    WHETHER THERE WERE POLITICAL OR POLICY RISKS ASSOCIATED WITH
    INCREASING THE RISK THAT BONNEVILLE WILL NOT MAKE ALL OF ITS
    TREASURY PAYMENTS ON TIME AND IN FULL OR IMPLEMENT FISH
    OPERATIONS?**

A. No. The Public Power panel did not address this issue and did not
respond to our data request on this specific issue *(see* CR-PP-001,
incorporated as SN-03-E-CR/YA-02CC). NRU testifies that it supports a
TPP of 50%, but does not support an 80% Treasury Recovery Probability or
a zero net revenue measure. SN-03-E-NR-01, page 16, lines 6-21. NRU
implies that these criteria will impose higher than needed rates. NRU
does not address political risk associated with deferral of Treasury
payments.

In 2001, the Bonneville was facing a financial crisis and proposed
elimination of spill and flows measures to protect migrating fish at all
of the federal dams. At the time, CRITFC recommended deferring a
Treasury payment so that some fish protection measures could be
implemented. This recommendation was denied by Bonneville because of the
political problems associated with a Treasury deferral. We note that
Steve Wright, the Bonneville Administrator, told federal regional
executives and tribal leaders that there would be political fallout if
the region failed to meet a Treasury payment. The minutes from the March
16, 2001 Regional Executives Meeting also indicate that he said that "We
want to operate without creating the view that taxpayers are subsidizing
the federal Columbia River system, he said. If Congress thinks there's a
subsidy, the region could lose control of the federal system, Wright
indicated." *(see* attachment SN-03-E-CR/YA-02DD). Now, BPA is facing a
financial crisis and the proposal of both Bonneville and the utilities
is to increase the risk of Treasury deferral to minimize the rate
increase. We are concerned that this strategy will shift the risk to
fish and wildlife and Bonneville will face additional political risk.
When Bonneville faces the possibility of a Treasury deferral, we have
seen in the past that it is likely to eliminate protections for fish and
wildlife, and incur risk of litigation by states, tribes, and others.
*(see* BPA-CR-002 herein incorporated as attachment SN-03-E-CR/YA-02E).
Moreover, NRU has testified that Bonneville ought to back off of flow
augmentation and supplemental spills. SN-03-E-NR-01, page 9, lines 2-5.
To respond to the NRU proposal, we have attached analysis on the impacts
of eliminating these protective measures *(see* GP/CR:1 and BPA-CR:07
herein incorporated as attachments SN-03-E-CR/YA-02EE and
SN-03-E-CR/YA-02F). Additionally, the House Appropriations Subcommittee
on Energy and Water Development has recently commissioned a GAO inquiry
into Bonneville's risk of missed payments to the Treasury in the next
several years. *(see* letter from GAO to Steve Wright dated April 2,
2003 herein attached as SN-03-E-CR/YA-02EEa.)

# **Section 3. Rebuttal to the Western Public Agencies Group** 

**Q.** **HAS WPAG EVALUATED THE POTENTIAL OF LOW INCOME ASSISTANCE
PROGRAMS TO ADDRESS THE PROBLEMS THEY RAISE REGARDING THE NUMBER OF
PEOPLE THAT HAVE HAD TROUBLE PAYING HIGHER ELECTRIC BILLS?**

A. No. The WPAG data response states "We have not performed any analyses
related to low-income assistance programs among the WPAG member
utilities, nor the percentage of their respective budgets devoted to
these programs." The tribes share WPAG's concern about consumers having
trouble paying their electric bills. Tribal communities have high
unemployment and average incomes on reservations are about half the
level in non-tribal communities. We believe that this problem could be
addressed by increasing funding for low-income weatherization and bill
assistance. Such programs can have a small impact on other consumers and
address the concerns raised by WPAG *(see* CR-WA-001, herein
incorporated as attachment SN-03-E-CR/YA-02FF).

**Q.** **THE WPAG TESTIMONY RAISES CONCERNS ABOUT HIGH UNEMPLOYMENT; HAS
WPAG COMPARED UNEMPLOYMENT IN THEIR SERVICE AREAS WITH LEVELS ON INDIAN
RESERVATIONS?**

A. No *(see* CR-WA-002, herein incorporated as attachment
SN-03-E-CR/YA-02GG). If WPAG had performed such analysis, it would have
found that unemployment in tribal communities is much higher than
non-tribal communities. Unemployment ranges from 20 percent to as high
as 80 percent in the winter when there is no fishing. The loss of fish
and wildlife has had a significant effect on tribal culture, religion,
and health *(see* SN-03-E-CR/YA-01AAA).

**Q. HAS CRITIFC AND YAKAMA PERFORMED ANY ADDITIONAL ANALYSIS ON THE
RATE IMPACTS OF ADDRESSING COST UNCERTAINTES AND IMPLEMENTING THE FISH
AND WILDLIFE FUNDING PRINCIPLES?**

A. Yes. In response to data requests, we provided additional analysis in
SA-CR-001, SA-CR-002, and IN/CR&YA:1, herein incorporated as attachments
SN-03-E-CR/YA-01HH through JJ. Our analysis shows that Bonneville could
address the uncertainties associated with it fish and wildlife costs and
meet the Fish and Wildlife Funding Principles while keeping its rates
between six and fourteen percent below the long-term market rate for
electricity.

# **Section 4. Rebuttal to Save Our Wild Salmon Testimony** 

**Q. WHAT IS YOUR OPINION OF THE PROPOSAL BY THE SAVE OUR WILD SALMON
COALITION TO GUARANTEE FUNDING FOR FISH AND WILDLIFE, CONSERVATION AND
RENEWABLE RESOURCES?**

A. While we appreciate the support for adequate funding for fish and
wildlife *(see* SN-03-E-SA-01, page 25, lines 8-17), we have a number of
concerns about whether this proposal would work.

> First, we have serious reservations that Bonneville would honor such
> guarantees if faced with a Treasury deferral. In our testimony, we
> supported TPPs that would meet the Fish and Wildlife Funding
> Principles standards. The Principles recognized that Bonneville needed
> a high probability of paying the Treasury in order to ensure that it
> could also meet its other costs.
>
> To keep rates down, Bonneville sets its rates under the assumption
> that it may defer Treasury payments. In practice, Bonneville operates
> to a 100 percent TPP. The result is that when Bonneville gets into
> financial trouble, it shifts the risk to fish and wildlife. For
> example, in 2001, Bonneville eliminated river operations designed to
> protect migration salmon and steelhead to avoid a deferral of its
> Treasury payment. In 2003, Bonneville has cut fish and wildlife
> funding to deal with its financial crisis. *(see* attachment
> SN-03-E-CR/YA-02LL) These actions took place after Bonneville
> commitments in writing to the Columbia Basin Tribes. If Bonneville has
> not honored its commitments in the past, it is difficult to support a
> strategy that relies on some future commitments that are combined with
> such a low probability of fully repaying the Treasury *(see*
> attachment SN-03-E-CR/YA-02JJa).

Second, Bonneville's proposal does not contain adequate funding to
implement the FCRPS Biological Opinions, the Council's Fish and Wildlife
Program, and its tribal trust responsibilities. *(see* BPA-CR:09,
BPA-CR:019, BPA-CR:020, BPA-CR:025, and GP-CR:2 herein incorporated as
attachments SN-03-E-CR/YA-02H-L; *see also* SN-03-E-CR/YA-02LL).
Bonneville asserts in its testimony and proposal that it based its fish
and wildlife costs on the Implementation Plan for the Biological Opinion
and the Council's Fish and Wildlife Program. It is important to
understand that neither the Implementation Plan nor the Council have
developed budgets through 2006. Therefore, Bonneville's estimates add to
the risk that it will not be able to meet its costs. A guarantee would
have to include an adequate base funding level to address our concerns.

Third, there are significant uncertainties that suggest the need for
additional fish and wildlife activities. These include uncertainties
associated with recovery planning, subbasin planning, litigation, the
Clean Water Act, and the check ins for the FCRPS Biological Opinions.
(*see* SN-03-E-CR/YA-02KK). Any guarantee would have to also address
uncertainties associated with these fish and wildlife activities.

Fourth, the Save Our Wild Salmon proposal does not address the need to
position Bonneville to remain competitive and meet higher fish and
wildlife costs after 2006 *(see* PP/CR:001, incorporated as attachment
SN-03-E-CR/YA-01MM).

> Fifth, we are concerned that failure to fully address the Fish and
> Wildlife funding Principles will not result in a financially healthy
> Bonneville that is able to remain competitive, meet its costs, and
> repay the Treasury.

**Q. DOES THIS CONCLUDE YOUR TESTIMONY?**

A.  Yes.