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Bonneville Power Administration

Power Business Line

# 2003 Safety-Net Cost Recovery Adjustment Clause Draft Record of Decision

## 

Appendix A

General Rate Schedule Provisions

## 

## SN-03-A-01

## June 2003

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> **General Rate Schedule Provisions**

######### Table of Contents

###### Page

###### Financial-Based Cost Recovery Adjustment Clause A-1

###### Safety-Net Cost Recovery Adjustment Clause A-11

###### Safety-Net Cost Recovery Adjustment Clause Rebate A-24

###### Dividend Distribution Clause A-32

###### Financial-Based 

> **Cost Recovery Adjustment Clause**

**1. Financial‑Based Cost Recovery Adjustment Clause (FB CRAC)**

The FB CRAC is a temporary, upward adjustment to posted power rates for
certain Subscription sales which occurs if end‑of‑year Accumulated Net
Revenues (ANR) in the generation function are forecasted to fall below a
threshold level.

The FB CRAC applies to power customers under these firm power rate
schedules: PF \[Preference (excluding Slice), Exchange Program, and
Exchange Subscription\], Industrial Firm Power (IP‑02), \[including
under the Industrial Firm Power Targeted Adjustment Charge (IPTAC) and
Cost‑Based Index Rate\], Residential Load (RL‑02), New Resource Firm
Power (NR‑02), and Subscription purchases under Firm Power Products and
Services (FPS). The FB CRAC does not apply to power sales under
Pre‑Subscription contracts to the extent prohibited by such contracts,
purchases under the PF Slice Rate, the 900 aMW of financial benefits
provided under the financial portion of any Residential Exchange Program
(REP) Settlement or for BPA's contractual obligations for Seasonal and
Irrigation Mitigation sales, including for any eligible customer that
converts from Slice to another BPA product. The FB CRAC does apply to
the 1,000 aMW power sale portion of the REP Settlement, including where
power sales are converted to cash payments calculated pursuant to
Section 5(b) of the Residential Exchange Settlement Agreement.

> **A. Formula for Calculation of the Financial‑Based Cost Recovery
> Adjustment Clause**

As soon as practical after completing the Third Quarter Review, but not
later than August 1 of the fiscal year immediately prior to each fiscal
year of the rate period (*i.e.,* FY 2002‑2006), a forecast of that
end‑of‑year ANR will be completed. If the ANR at the end of the forecast
year falls below the FB CRAC Threshold applicable to that fiscal year,
the FB CRAC will trigger, and a FB CRAC rate increase will go into
effect beginning in October of the upcoming fiscal year.

The FB CRAC Revenue Amount will be determined by the following formula:

FB CRAC Revenue Amount is the lower of:

FB CRAC Threshold minus forecasted ANR;

or

> The annual Maximum FB CRAC Recovery Amount, shown in Table A below.

**Table A: FB CRAC\
**\[Dollars in Millions\]

+----------------+------------------+-------------+-------------------+
| >              | > ANR Calculated | > FB CRAC   | > Maximum FB CRAC |
|  Applicability | > at end of      | >           | > Recovery        |
| > to Fiscal    | > Fiscal Year    |  Thresholds | > Amounts         |
| > Year         |                  |             |                   |
+----------------+------------------+-------------+-------------------+
| > 2004         | > 2003           | > -\$374    | > \$150           |
+----------------+------------------+-------------+-------------------+
| > 2005         | > 2004           | > -\$197    | > \$150           |
+----------------+------------------+-------------+-------------------+
| > 2006         | > 2005           | > -\$150    | > \$175           |
+----------------+------------------+-------------+-------------------+

> [Where FB CRAC]{.underline} [Revenue Amount]{.underline} is the amount
> of additional revenue that an increase in rates under FB CRAC is
> intended to generate during the period that the rate increase is
> effective.
>
> [Where FB CRAC Threshold]{.underline} is the \"trigger point\" for
> invoking a rate increase under the FB CRAC. The FB CRAC Threshold is
> pre‑specified for the end of FY 2003, 2004, and 2005, in Table A.

[Where ANR]{.underline} is generation function net revenues, as
accumulated since 1999, at the end of each of the FY 2001‑2005 plus any
Cumulative Cost Adjustment Limit (CCAL) (as defined in Section 2.A.).
Audited Actual Accumulated Net Revenues plus any CCAL (as defined in
Section 2.A.) (AANR), which are ANR audited and confirmed by BPA's
independent auditing firm, will be used for FY 1999 and 2000, and any
subsequent year for which they are available. Unaudited AANR will be
used to the extent audited actuals are not available.

> The forecast of ANR through the end of each fiscal year will be
> calculated and used to determine if the FB CRAC Threshold has been
> reached, and what the FB CRAC Revenue Amount is. Net revenues for any
> given fiscal year are accrued revenues less accrued expenses, in
> accordance with Generally Accepted Accounting Practices, with the
> following three exceptions. First, for purposes of determining if the
> FB CRAC Threshold has been reached, actual and forecasted expenses
> will include BPA expenses associated with Energy Northwest debt
> service as forecasted in the WP-02 Final Studies. Second, those actual
> and forecasted expenses will include BPA expenses associated with
> payments of benefits to the Investor-Owned Utilities as forecasted in
> the SN-03 Initial Proposal.[^1] Third, the impact of adopting
> Financial Accounting Standard 133, Accounting for Derivative
> Instruments and Hedging Activities, will not be considered in
> determining if the FB CRAC Threshold has been reached. Only generation
> function revenues and expenses, that is, actual and forecasted
> revenues and expenses that are associated with the production,
> acquisition, marketing, and conservation of electric power, will be
> included in determinations under the FB CRAC. Accrued revenues and
> expenses of the transmission function are excluded. Impacts of
> forecasted revenues, positive or negative, from contractual true-up
> pursuant to the Slice Agreement shall be included in the revenue
> forecast when determining the FB CRAC. As part of BPA's annual audit
> process, BPA's independent outside auditing firm will confirm that
> BPA's AANR determination was consistent with applicable criteria. This
> confirmation will be made in accordance with additional agreed-upon
> procedures established by BPA and its independent outside auditing
> firm after consultation with interested parties.

[Where Maximum]{.underline} [FB CRAC Recovery Amount]{.underline} is the
maximum annual amount planned to be recovered through the FB CRAC.

The FB CRAC Thresholds for the ends of fiscal years 2003 through 2005
will be set to be equal to the SN CRAC Thresholds each time the SN CRAC
Thresholds are recalculated.

Once the FB CRAC Revenue Amount is determined, that amount will be
converted to the FB CRAC Percentage. The FB CRAC Percentage is the
percentage increase in customers' rates (not including any CRACs) in
each of the firm power rate schedules listed above. This percentage will
be applied to generate the additional FB CRAC revenue.

The FB CRAC Percentage will be determined by the following formula:

> FB CRAC Percentage =
>
> FB CRAC Revenue Amount
>
> Divided by
>
> FB CRAC Revenue Basis

[Where for FY 2002, the FB CRAC Revenue Basis]{.underline} is the total
generation revenue (not including LB CRAC) from firm power rate
schedules subject to FB CRAC for the fiscal year in which the FB CRAC
implementation begins, based on the then most current revenue forecast.
For FY 2003-2006, FB CRAC Revenue Basis is the total generation revenue
(not including any CRACs) from firm power rate schedules subject to FB
CRAC plus Slice loads for the fiscal year in which the FB CRAC
implementation begins, based on the then most current revenue forecast.
For every firm power rate schedule subject to the FB CRAC, the total
charge for energy, demand, and load variance will be increased by this
FB CRAC Percentage.

> Rate increases under the FB CRAC will be due in 12 monthly payments
> from November (for the October billing period) through October of the
> following year.
>
> **B. FB CRAC Adjustment Timing**

As soon as practical after completing the Third Quarter Review, but not
later than August 1 prior to the beginning of each year of the rate
period, the Administrator will determine whether the expected value of
the ANR forecast at the end of that current fiscal year is below the FB
CRAC Threshold. If the ANR is forecasted to fall below the FB CRAC
Threshold, the Administrator will propose by August 1, to assess a cost
recovery adjustment to applicable rates for power deliveries beginning
in October.

Each customer will be notified, on or about September 1st, of the
percentage increase in rates due to the FB CRAC. The rates used to
calculate the customers' bills for the following October through
September will reflect the FB CRAC increase.

> **C. FB CRAC Notification Process**

BPA shall use the following notification procedures:

> \(1\) **Financial Performance Status Reports**

Each quarter, BPA shall post on its electronic information access (World
Wide Web) site, preliminary, unaudited, year‑to‑date aggregate financial
results for generation, including ANR.

By January of each year, BPA shall post on its web site the audited AANR
attributable to the generation function for the prior fiscal year ending
September 30.

In May and August of each year, BPA shall post on its web site an
end‑of‑year forecast of ANR attributable to the generation function.

> \(2\) **Actions to mitigate the need for the FB CRAC**
>
> If AANR at the end of a fiscal year are within \$150 million of the FB
> CRAC Threshold for the subsequent year, BPA will prepare and post on
> its Web site an analysis for the causes of BPA's financial decline
> compared to the rate case plan, and propose a prioritized list of
> potential actions to avert or mitigate the need for FB CRAC in future
> years. BPA shall conduct a public comment period on these actions to
> avert or reduce a potential FB CRAC rate adjustment by the following
> October.
>
> \(3\) **Notice of FB CRAC Trigger**

BPA shall complete a forecast of end‑of‑year ANR and shall notify all
customers and rate case parties by August 1, in each FY 2001‑2005, if
the expected value of ANR is forecasted to fall below the FB CRAC
Threshold for that fiscal year and, if so, the extent to which BPA
intends to adjust rates under the FB CRAC. Notification will include the
audited AANR for the prior FY, the forecast of end‑of‑year ANR, the
calculation of the FB CRAC Revenue Amount, and the FB CRAC Percentage.
The notice shall also describe the data and assumptions relied upon by
BPA. Such data, assumptions, and documentation, if non‑proprietary
and/or non‑privileged, shall be made available for review at BPA upon
request. The notice shall also contain the tentative schedule for the
remainder of the FB CRAC implementation process.

For any year in which the ANR is forecasted to fall below the FB CRAC
Threshold, BPA staff shall conduct a public forum to explain the ANR
forecast, the calculation of the FB CRAC Revenue Amount and the FB CRAC
Percentage, and demonstrate that the FB CRAC has been implemented in
accordance with the GRSPs. The forum will provide an opportunity for
public comment.

On or about September 1 of any fiscal year in which the ANR is
forecasted to fall below the FB CRAC Threshold, the Administrator shall
provide all customers the calculation of the adjustment and the
resulting rate increase (as a percentage) applicable to each rate
schedule.

**D. True‑up**

There will be an opportunity for truing‑up the FB CRAC Revenue Amount
and each customer's portion of it, based on updated data. When audited
actuals are available, in January in the year subsequent to the FB CRAC
being implemented, the AANR will be compared to the ANR forecast used to
implement the FB CRAC. If the forecasted amount is within \$5 million of
the AANR (the tolerance), no true‑up will be made. If AANR differs from
the forecast by more than the tolerance, an adjustment will be made in
customer bills for the second half of the year. The adjustment will be
made as follows:

> FB CRAC Adjustment = (difference between the originally calculated FB
> CRAC Revenue Amount and FB CRAC Revenue Amount calculated using AANR)
>
> divided by
>
> generation revenue (not including LB CRACs) from firm power rate
> schedules subject to FB CRAC, as forecasted for power deliveries for
> April through September.
>
> The resulting percentage will be used to adjust the FB CRAC Percentage
> applied to each customer's bills for April through September. The
> total amount collected, however, will not exceed the Maximum FB CRAC
> Recovery Amount.

######## E. Contingent Recalculation of SN CRAC Parameters and Thresholds for FB CRAC and SN CRAC Rebate

> In August 2003, August 2004 and August 2005, the parameters of the SN
> CRAC (the annual SN CRAC Thresholds and Maximum SN CRAC Recovery
> Amounts) will be recalculated contingent on certain data updates
> listed below. The FB CRAC Thresholds will also be adjusted to be the
> same as the SN CRAC Thresholds for the FB CRAC rates collected in
> fiscal years 2004 through 2006, and the SN CRAC Rebate Thresholds in
> those three years will be set to be \$15 million above the
> contemporaneous SN CRAC Thresholds. In the Contingent Recalculation,
> BPA will reduce the expected value of the size of the SN CRAC if there
> are (compared to the SN-03 Final Studies):
>
> 1\. Reductions in BPA's forecasted budgets for FY 2003-2006 for
> Internal Operations (sum of PBL Internal Operations and Corporate
> Internal Services);
>
> 2\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Columbia Generating Station;
>
> 3\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Corps of Engineers;
>
> 4\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Bureau of Reclamation;
>
> 5\. Reductions in BPA's forecasted budgets for fiscal years 2003
> through 2006 for the BPA Fish and Wildlife Program;
>
> 6\. Actual and forecasted changes in PBL's secondary revenue for
> fiscal year 2003 due to changes in hydro conditions or market prices;
>
> 7\. Negotiated reductions in the magnitude of benefits payments to be
> made by BPA to the Investor-Owned Utilities for fiscal years 2003
> through 2006.
>
> 8\. Any other reductions the Administrator (at his or her own
> discretion) determines are appropriate.

The Contingent Recalculation of the SN CRAC parameters will meet the
following standards:

1.  At least 50 percent probability that BPA would be able to make all
    of its annual Treasury payments in fiscal years 2004 through 2006
    (TPP); and

2.  At least 80 percent probability that BPA would be able to make all
    of its FY 2006 payments to the U.S. Treasury, including repayment of
    any amounts it might miss in fiscal years 2003 through 2005 (TRP).

##### Procedure for Contingent Recalculation

> 1\. **Determining the Size of the Annual** **Maximum SN CRAC Recovery
> Amounts**
>
> A preliminary calculation will be made using the FB CRAC Thresholds
> from the June 2001 WP-02 Final Studies and data from the June 2003
> SN-03 Final Studies except for those items described above that are to
> be updated. This calculation will use three fixed (deterministic) SN
> CRAC revenue amounts to generate expected values of the sums of the FB
> CRAC and SN CRAC rate impacts (expressed as a percentage of May 2000
> base rates), that meet the TPP and TRP standards described above.
>
> The Maximum SN CRAC Recovery Amounts will be set to be equal to the
> average of the three annual SN CRAC revenue amounts from Step 1,
> rounded to the nearest \$5 million, plus \$100 million, except that
> the FY 2004 Maximum SN CRAC Recovery Amount shall be set so that the
> combined LB, FB and SN CRAC percentages for FY 2004 are not higher
> than 46 percent.
>
> 2\. **Synchronizing the SN CRAC, FB CRAC, and SN CRAC Rebate**
>
> The FB CRAC Thresholds will be set to be the same as the SN CRAC
> Thresholds, and the SN CRAC Rebate Thresholds will set to be \$15
> million higher than the SN CRAC Threshold for each year.
>
> 3\. **Calibrating the Thresholds**
>
> The SN CRAC Thresholds will be adjusted to the highest level that
> achieves the 2004 -- 2006 TPP and TRP standards with the Maximum SN
> CRAC Recovery Amounts as determined in Step 1.
>
> **F. Contingent** **Recalibration of SN CRAC Parameters due to**
> **Administrator's Determination**
>
> If the Administrator, in his sole determination, receives sufficient
> assurance, such as the signing by the IOUs of settlement contracts,
> that the benefits payable to the IOUs during fiscal years 2004 through
> 2006 will be either reduced or deferred, then the FB CRAC Thresholds,
> SN CRAC Thresholds, SN CRAC Revenue Amount and SN CRAC Rebate
> Threshold will be recalibrated. The method by which such benefit
> reductions will be incorporated depends on the timing of the
> agreement.
>
> 1\. **Agreement Reached Before Approximately August 15, 2003**
>
> If an agreement is reached with sufficient time before the Contingent
> Recalculation process described above, the cash impacts on BPA of the
> agreement will be incorporated through the Contingent Recalculation.
>
> 2\. **Agreement Reached After Approximately August 15, 2003, and by
> September 15, 2003**
>
> If an agreement is reached in this time period, a separate
> recalibration of the SN CRAC Thresholds, the FB CRAC Thresholds, and
> the SN CRAC Rebate Threshold will be made. In this Contingent
> Recalibration, the cash impacts on BPA of the agreement for fiscal
> years 2004 through 2006 will be incorporated and such Thresholds
> adjusted following the Procedure for Contingent Recalculation
> described above. The 2003 ANR projection from the second August
> workshop will be used to recalculate the 2004 SN CRAC rate increases.
> The Administrator will release the revised rates on September 15,
> 2003, or as soon as practical thereafter, but no later than
> September 22, 2003.
>
> 3\. **Agreement Reached After September 15, 2003, and by August 15,
> 2004, or After August 15, 2004, and by August 15, 2005**
>
> If an agreement is reached in one of these time periods, the SN CRAC
> Threshold, the FB CRAC Threshold and the SN CRAC Rebate Threshold for
> the remaining year(s) through FY 2006 will be adjusted downward by the
> cumulative total of the cash impacts on BPA. For an agreement reached
> by August 15, 2004, the SN CRAC Threshold, FB CRAC Threshold and SN
> CRAC Rebate Threshold for FY 2005 will be reduced by the BPA cash
> impacts for FY 2005, and such Thresholds for FY 2006 will be reduced
> by the sum of the BPA cash impacts for FY 2005 and FY 2006; for an
> agreement reached by August 15, 2005, the SN CRAC Threshold, FB CRAC
> Threshold and SN CRAC Rebate Threshold for FY 2006 will be reduced by
> the BPA cash impacts for FY 2006. Such recalibrated Thresholds will be
> released to Parties at the first of the two workshops in August of
> 2004, or at the first of the two workshops in August of 2005 if the
> agreement is reached after August 15, 2004.

4\. **Conditions Occurring After September 15, 2003, and by August 15,
2004, or After August 15, 2004, and by August 15, 2005**

> In the event that in one of the time periods set forth above the
> reductions or deferrals of benefits payable to the IOUs during fiscal
> years 2004 through 2006, that have been used to recalibrate SN CRAC
> parameters, are no longer available due to events outside the control
> of BPA, then the SN CRAC Thresholds, the FB CRAC Thresholds and the SN
> CRAC Rebate Thresholds for the remaining year(s) of the SN CRAC rate
> period will be increased by the cumulative total of the cash impacts
> on BPA as a result of such elimination. For benefit reductions for
> conditions occurring by August 15, 2004, the SN CRAC Threshold, FB
> CRAC Threshold and SN CRAC Rebate Threshold for 2005 will be increased
> by the BPA cash impacts for FY 2005, and such Thresholds for 2006 will
> be increased by the sum of the BPA cash impacts for FY 2005 and 2006;
> for benefit reductions occurring after August 15, 2005, the SN CRAC
> Threshold, FB CRAC Threshold and SN CRAC Rebate Threshold for 2006
> will be increased by the BPA cash impacts for FY 2006. Such
> recalibrated Thresholds will be released to Parties at the first of
> the two workshops in August of 2004 or 2005.

###### Safety-Net 

> **Cost Recovery Adjustment Clause**

**2. Safety-Net Cost Recovery Adjustment Clause (SN CRAC)**

> The SN CRAC applies to power purchases under the following firm power
> rate schedules: PF \[Preference (excluding Slice), Exchange Program
> and Exchange Subscription\]; Industrial Firm Power (IP‑02),
> \[including purchases under the Industrial Firm Power Targeted
> Adjustment Charge (IPTAC) and Cost‑Based Index Rate\]; Residential
> Load (RL-02) (including both actual power deliveries and the 900 aMW
> of monetary benefits under the financial portion of any REP
> Settlement, buy-downs and load reduction agreements); New Resource
> Firm Power (NR‑02); and subscription purchases under Firm Power
> Products and Services (FPS). The SN CRAC does not apply to power
> purchases under Pre‑Subscription contracts to the extent prohibited by
> such contracts, to BPA's current contractual obligations for Seasonal
> and Irrigation Mitigation sales including for any eligible customer
> that converts from Slice to another BPA product; or to purchases under
> the PF Slice Rate.
>
> **A. Formula for Calculation of the Safety-Net Cost Recovery
> Adjustment Clause**
>
> The SN CRAC is an upward adjustment to the May 2000 posted power rates
> for fiscal years 2004 through 2006 that is calculated by a formula
> that compares PBL Accumulated Net Revenues (ANR) (as defined below) to
> three annual SN CRAC Thresholds, and places limits on the amount of
> revenue that can be generated each year. It is additive to any LB CRAC
> or FB CRAC adjustments.
>
> In August 2003, August 2004, and August 2005, a forecast of the ANR
> through the end of that year will be completed. BPA will compare the
> forecasted ANR to the SN CRAC Threshold applicable to that year to
> determine the SN CRAC to be implemented. If the ANR at the end of the
> forecast year falls below the SN CRAC Threshold applicable to that
> fiscal year, an SN CRAC rate adjustment will be implemented. That SN
> CRAC rate adjustment will go into effect October 1 of the upcoming
> fiscal year (FY 2004-2006).
>
> The SN CRAC Revenue Amount will be determined by the following
> formula:
>
> SN CRAC Revenue Amount is the lower of:
>
> SN CRAC Threshold minus (the sum of forecasted ANR plus forecasted FB
> CRAC revenue (including any revenues from the FB CRAC True-up
> described in section 1.D above) for the fiscal year to which these
> calculations apply);
>
> and
>
> The annual Maximum SN CRAC Recovery Amount, shown in Table B below.

**Table B: SN CRAC & Rebate Parameters\
**\[Dollars in Millions\]

+--------------+-------------+-----------+--------------+------------+
| > A          | > ANR       | > SN CRAC | > Maximum SN | > SN CRAC  |
| pplicability | >           | > T       | > CRAC       | > Rebate   |
| > to Fiscal  |  Calculated | hresholds | > Recovery   | >          |
| > Year       | > at end of |           | > Amounts    | Thresholds |
|              | > Fiscal    |           |              |            |
|              | > Year      |           |              |            |
+--------------+-------------+-----------+--------------+------------+
| > 2004       | > 2003      | > -\$374  | > \$320      | > -\$359   |
+--------------+-------------+-----------+--------------+------------+
| > 2005       | > 2004      | > -\$197  | > \$320      | > -\$182   |
+--------------+-------------+-----------+--------------+------------+
| > 2006       | > 2005      | > -\$150  | > \$320      | > -\$135   |
+--------------+-------------+-----------+--------------+------------+

> [Where SN CRAC]{.underline} [Revenue Amount]{.underline} is the amount
> of additional revenue that an adjustment in rates under SN CRAC is
> intended to generate during the one-year period that the rate
> adjustment is effective.
>
> [Where SN CRAC Threshold]{.underline} is the ANR level below which a
> rate adjustment is determined. The SN CRAC Thresholds specified for
> the end of FY 2003, 2004, and 2005 are shown in Table B above.
>
> [Where ANR]{.underline} is generation function net revenues, as
> accumulated since 1999, at the end of each of the fiscal years
> 2003‑2005 plus any Cumulative Cost Adjustment Limit (CCAL) (as defined
> below). The forecast of ANR through the end of each fiscal year will
> be calculated and used to determine if the SN CRAC Threshold has been
> reached and the SN CRAC Revenue Amount needed. Net revenues for any
> given fiscal year are accrued revenues less accrued expenses, in
> accordance with Generally Accepted Accounting Principles, with the
> following three exceptions. First, for purposes of determining if the
> SN CRAC Threshold has been reached, actual and forecasted expenses
> will include BPA expenses associated with Energy Northwest debt
> service as forecasted in the WP-02 Final Studies. Second, those actual
> and forecasted expenses will include BPA expenses associated with
> payments of benefits to the Investor-Owned Utilities as forecasted in
> the SN-03 Final Studies.[^2] Third, the impact of adopting Financial
> Accounting Standard 133, Accounting for Derivative Instruments and
> Hedging Activities, will not be considered in determining if the SN
> CRAC Threshold has been reached. Only generation function actual and
> forecasted revenues and expenses that are associated with the
> production, acquisition, marketing, and conservation of electric
> power, will be included in determinations under the SN CRAC. Accrued
> revenues and expenses of the transmission function are excluded.
> Impacts of forecasted revenues, positive or negative, from contractual
> true-up pursuant to the Slice Agreement shall be included in the
> revenue forecast when determining the SN CRAC.

[Where Maximum]{.underline} [SN CRAC Recovery Amount]{.underline} is the
maximum annual amount planned to be recovered through the SN CRAC.

> [Where Cumulative Cost Adjustment Limit (CCAL)]{.underline} for the FY
> 2004 SN CRAC (calculated late in FY 2003) is the Cost Adjustment Limit
> for FY 2003; the CCAL for the FY 2005 SN CRAC (calculated late in FY
> 2004) is the sum of the Cost Adjustment Limits for FY 2003 and 2004;
> the CCAL for the FY 2006 SN CRAC (calculated late in FY 2005) is the
> sum of the Cost Adjustment Limits for FY 2003 through 2005.
>
> The Cost Adjustment Limit is calculated annually for each of FY 2003,
> 2004 and 2005 at the time of the SN CRAC calculation. It represents
> the amounts by which expenses in defined categories have exceeded the
> forecasted amounts in the SN-03 Final Studies. *See* Table C. The Cost
> Adjustment Limit is the sum of the differences between each expense
> category as forecast in the appropriate Third Quarter Review and the
> forecast of those categories contained in the SN-03 Final Studies,
> whenever the component differences are positive. If the Third Quarter
> Review forecast for any category is less than or equal to the forecast
> for that category from the SN-03 Final Studies, the Cost Adjustment
> Limit component for that category will be \$0.

**Table C: Cost Adjustment Limits by Category\
**\[Dollars in
Millions\]![](media/image3.wmf){width="5.996527777777778in"
height="4.573611111111111in"}

> In addition, the Cost Adjustment Limit for a fiscal year shall be
> adjusted to reflect any or all of the following situations. (1) If
> during that fiscal year, BPA experienced a *force majeure* condition
> which increases expenses in categories subject to the spending limits,
> the costs of such condition or conditions that are in the spending
> limit categories shall be subtracted from the value of the Cost
> Adjustment Limit, to the extent that BPA has made commercially
> reasonable efforts to alleviate such *force majeure* and mitigate the
> related increased expenses. For purposes of the General Rate Schedule
> Provisions, a *force majeure* condition shall be defined as (a) court
> ordered legal judgments against BPA and settlements formally accepted
> by a court in connection with dismissal of litigation; (b) additional
> security or legal obligations imposed by statute, rule or regulation;
> (c) regulatory requirements (including but not limited to Endangered
> Species Act implementation expenses) imposed by statute, rule or
> regulation; and (d) natural or man-made disasters, but not including
> BPA decisions that do not otherwise qualify as a *force majeure*
> condition. (2) If in fully allocating costs, certain "direct-charged"
> corporate expenses were moved between a category not considered in the
> Cost Adjustment Limit to one that is considered in the Cost Adjustment
> Limit, and there is no net increase in expenses charged to power
> rates, this cost shall be subtracted from the value of the Cost
> Adjustment Limit. (3) If there were any increase in the cost of
> administering the "Slice" program, this increase shall be subtracted
> from the value of the Cost Adjustment Limit. (4) If there were any
> increase in the cost allocated by an order of FERC to power rates for
> the development and implementation of a Regional Transmission
> Organization, this increase shall be subtracted from the value of the
> Cost Adjustment Limit. (5) If there were any increase in cost due to
> increases in the market development reimbursables program that are
> fully offset by increased revenues, this increase will be subtracted
> from the value of the Cost Adjustment Limit. These adjustments will be
> made, as applicable, at the time the annual SN CRAC calculation is
> made. If after all the applicable adjustments listed above are made
> the value of the Cost Adjustment Limit is equal to or less than zero,
> the Cost Adjustment Limit shall be set equal to zero.
>
> If BPA proposes to make any adjustments to the Cost Adjustment Limit
> pursuant to the preceding paragraph, it shall notify all customers and
> rate case parties in writing prior to the first August workshop
> explaining: (1) the causes of its proposed adjustments; and (2) its
> efforts to minimize the rate impact of its proposed adjustments. At
> the August workshops, BPA will receive comments on whether its
> proposed adjustments are appropriate.
>
> Once the SN CRAC Revenue Amount is determined, that amount will be
> converted to the SN CRAC Percentage. The SN CRAC Percentage is the
> percentage adjustment in customers' rates (not including LB CRAC or FB
> CRAC) in each of the firm power rate schedules listed above. This
> percentage will be applied to generate the additional SN CRAC revenue.
>
> The SN CRAC Percentage will be determined by the following formula:
>
> SN CRAC Percentage =
>
> SN CRAC Revenue Amount
>
> Divided by
>
> SN CRAC Revenue Basis
>
> [Where the SN CRAC Revenue Basis]{.underline} is the total generation
> revenue (not including LB CRAC or FB CRAC) for firm power rate
> schedules subject to SN CRAC for the fiscal year in which the SN CRAC
> implementation begins, based on the then most current revenue forecast
> adjusted to reflect: (1) the Low Density Discount; and (2) any
> contractual obligations of BPA to the Investor-Owned Utilities related
> to or triggered by the SN CRAC.
>
> For every firm power rate schedule subject to SN CRAC, the total
> charge for energy, demand, and load variance will be adjusted by this
> SN CRAC Percentage. Payment under the SN CRAC rate adjustment will be
> due monthly from November (for the October billing period) through
> October of the following year.
>
> In August prior to the beginning of each fiscal year of the rate
> period (FY 2004‑2006), the Administrator will compare the ANR forecast
> at the end of that current fiscal year to that year's SN CRAC
> Threshold. The customers will be billed in accordance with the SN CRAC
> adjustment.
>
> Each customer will be notified, on or about September 1, of the
> percentage adjustment in rates due to the SN CRAC. The rates used to
> calculate the customers' bills for the following October through
> September for\
> FY 2004-2006, will reflect the SN CRAC adjustment.
>
> **B. Contingent Recalculation of SN CRAC Parameters and Thresholds for
> FB CRAC and SN CRAC Rebate**
>
> In August 2003, August 2004 and August 2005, the parameters of the SN
> CRAC (the annual SN CRAC Thresholds and Maximum SN CRAC Recovery
> Amounts) will be recalculated contingent on certain data updates
> listed below. The FB CRAC Thresholds will also be adjusted to be the
> same as the SN CRAC Thresholds for the FB CRAC rates collected in
> fiscal years 2004 through 2006, and the SN CRAC Rebate Thresholds in
> those three years will be set to be \$15 million above the
> contemporaneous SN CRAC Thresholds. In the Contingent Recalculation,
> BPA will reduce the expected value of the size of the SN CRAC if there
> are (compared to the SN-03 Final Studies):
>
> 1\. Reductions in BPA's forecasted budgets for FY 2003-2006 for
> Internal Operations (sum of PBL Internal Operations and Corporate
> Internal Services);
>
> 2\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Columbia Generating Station;
>
> 3\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Corps of Engineers;
>
> 4\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Bureau of Reclamation;
>
> 5\. Reductions in BPA's forecasted budgets for fiscal years 2003
> through 2006 for the BPA Fish and Wildlife Program;
>
> 6\. Actual and forecasted changes in PBL's secondary revenue for
> fiscal year 2003 due to changes in hydro conditions or market prices;
>
> 7\. Negotiated reductions in the magnitude of benefits payments to be
> made by BPA to the Investor-Owned Utilities for fiscal years
> 2003-2006.
>
> 8\. Any other reductions the Administrator (at his or her own
> discretion) determines are appropriate.

The Contingent Recalculation of the SN CRAC parameters will meet the
following standards:

1.  At least 50 percent probability that BPA would be able to make each
    of its annual Treasury payments in fiscal years 2004 through 2006
    (TPP); and

2.  At least 80 percent probability that BPA would be able to make all
    of its FY 2006 payments to the U.S. Treasury, including repayment of
    any amounts it might miss in fiscal years 2003 through 2005 (TRP).

##### Procedure for Contingent Recalculation

> 1\. **Determining the Size of the Annual** **Maximum SN CRAC Recovery
> Amount**
>
> A preliminary calculation will be made using the FB CRAC Thresholds
> from the June 2001 WP-02 Final Studies and data from the June 2003
> SN-03 Final Studies except for those items described above that are to
> be updated. This calculation will use three fixed (deterministic) SN
> CRAC revenue amounts to generate expected values of the sums of the FB
> CRAC and SN CRAC rate impacts (expressed as a percentage of May 2000
> base rates), that meet the TPP and TRP standards described above.
>
> The Maximum SN CRAC Recovery Amounts will be set to be equal to the
> average of the three annual SN CRAC revenue amounts from Step 1,
> rounded to the nearest \$5 million, plus \$100million, except that the
> FY 2004 Maximum SN CRAC Recovery Amount shall be set so that the
> combined LB, FB and SN CRAC percentages for FY 2004 are not higher
> than 46 percent.
>
> 2\. **Synchronizing the SN CRAC, FB CRAC, and SN CRAC Rebate**
>
> The FB CRAC Threshold will be set to be the same as the SN CRAC
> Threshold, and the SN CRAC Rebate Threshold will set to be \$15
> million higher than the SN CRAC Threshold for each year.
>
> 3\. **Calibrating the Thresholds**
>
> The SN CRAC Thresholds will be adjusted to the highest level that
> achieves the 2004 -- 2006 three-year TPP and TRP standards with the
> Maximum SN CRAC Recovery Amounts as determined in Step 1.
>
> **C. Contingent** **Recalibration of SN CRAC Parameters due to**
> **Administrator's Determination**
>
> If the Administrator, in his sole determination, receives sufficient
> assurance, such as the signing by the IOUs of settlement contracts,
> that the benefits payable to the IOUs during fiscal years 2004 through
> 2006 will be either reduced or deferred, then the FB CRAC Thresholds,
> SN CRAC Thresholds, SN CRAC Revenue Amount and SN CRAC Rebate
> Threshold will be recalibrated. The method by which such benefit
> reductions will be incorporated depends on the timing of the
> agreement.
>
> 1\. **Agreement Reached Before Approximately August 15, 2003**
>
> If an agreement is reached with sufficient time before the Contingent
> Recalculation process described above, the cash impacts on BPA of the
> agreement will be incorporated through the Contingent Recalculation.
>
> 2\. **Agreement Reached After Approximately August 15, 2003, and by
> September 15, 2003**
>
> If an agreement is reached in this time period, a separate
> recalibration of the SN CRAC Thresholds, the FB CRAC Thresholds, and
> the SN CRAC Rebate Thresholds will be made. In this Contingent
> Recalibration, the cash impacts on BPA of the agreement for fiscal
> years 2004 through 2006 will be incorporated and such Thresholds
> adjusted following the methodology described above for use in the
> Contingent Recalculation. The 2003 ANR projection from the second
> August workshop will be used to recalculate the 2004 SN CRAC rate
> increases. The Administrator will release the revised rates on
> September 15, 2003, or as soon as practical thereafter, but no later
> than September 22, 2003.
>
> 3\. **Agreement Reached After September 15, 2003, and by August 15,
> 2004, or After August 15, 2004, and by August 15, 2005**
>
> If an agreement is reached in one of these time periods, the SN CRAC
> Thresholds, the FB CRAC Thresholds and the SN CRAC Rebate Thresholds
> for the remaining year(s) through FY 2006 will be adjusted downward by
> the cumulative total of the cash impacts on BPA. For an agreement
> reached by August 15, 2004, the SN CRAC Threshold, FB CRAC Threshold
> and SN CRAC Rebate Threshold for FY 2005 will be reduced by the BPA
> cash impacts for FY 2005, and such Thresholds for FY 2006 will be
> reduced by the sum of the BPA cash impacts for FY 2005 and FY 2006;
> for an agreement reached by August 15, 2005, the SN CRAC Threshold, FB
> CRAC Threshold and Rebate Threshold for FY 2006 will be reduced by the
> BPA cash impacts for FY 2006. Such recalibrated Thresholds will be
> released to Parties at the first of the two workshops described below
> in August of 2004, or at the first of the two workshops in August 2005
> if the agreement is reached after August 15, 2004.

4\. **Conditions Occurring After September 15, 2003, and by August 15,
2004, or After August 15, 2004, and by August 15, 2005**

> In the event that in one of the time periods set forth above the
> reductions or deferrals of benefits payable to the IOUs during fiscal
> years 2004 through 2006, that have been used to recalibrate SN CRAC
> parameters, are no longer available due to events outside the control
> of BPA, then the for the SN CRAC Thresholds, the FB CRAC Thresholds
> and the SN CRAC Rebate Thresholds for the remaining year(s) of the SN
> CRAC rate period will be increased by the cumulative total of the cash
> impacts on BPA as a result of such elimination. For benefit reductions
> for conditions occurring by August 15, 2004, the SN CRAC Threshold, FB
> CRAC Threshold and SN CRAC Rebate Threshold for 2005 will be increased
> by the BPA cash impacts for FY 2005, and such Thresholds for FY 2006
> will be increased by the sum of the BPA cash impacts for FY 2005 and
> FY 2006; for benefit reductions occurring after August 15, 2005, the
> SN CRAC Threshold, FB CRAC Threshold and SN CRAC Rebate Threshold for
> FY 2006 will be increased by the BPA cash impacts for FY 2006. Such
> recalibrated Thresholds will be released to Parties at the first of
> the two workshops in August of 2004 or 2005.
>
> **D. Public Processes for the SN CRAC**

### Public Process in August 2003 (for FY 2004), August 2004 (for FY 2005), and August 2005 (for FY 2006)

### Each August, BPA will conduct a public process that will include at least two workshops. At the first workshop, held as soon as practical after completion of the Third Quarter Review, BPA will present the proposed Contingent Recalculation of the FB CRAC Thresholds, SN CRAC Thresholds, and the Maximum SN CRAC Recovery Amount. The estimated FB CRAC Revenue Amount, SN CRAC Revenue Amounts, the FB CRAC Percentage and the SN CRAC Percentage for each upcoming fiscal year will also be presented. There will be a comment period of up to two weeks to allow time for interested parties to respond to BPA's analysis. BPA will announce the final FB CRAC Thresholds, SN CRAC Thresholds, and Maximum SN CRAC Recovery Amounts applying to the remaining fiscal years through FY 2006, and the final FB and SN CRAC rates for the upcoming fiscal year at the second workshop with any adjustments accepted from feedback by interested parties. The final announcement of the rates for the next fiscal year will be on or about September 1. The Administrator may elect at his discretion, to reduce the SN CRAC rate adjustment, and shall then inform the customers of his decision during the August workshops.

### 

### The sequence of the three stages of the calculations for both the first and second workshops are described below.

### 

### Contingent Recalculation Phase

> As soon as practical after completing its Third Quarter Review but not
> later than August 1, BPA will propose FB CRAC Thresholds, SN CRAC
> Thresholds, and Maximum SN CRAC Recovery Amounts for the upcoming
> fiscal year as part of the Contingent Recalculation. This analysis
> will set such Thresholds and Maximum Recovery Amounts for the
> remaining years of the rate period (2004-2006) using the standards in
> Section B. The FB CRAC Thresholds will be the same as the SN CRAC
> Thresholds but the Maximum FB CRAC Recovery Amount will remain
> unchanged.
>
> The items that will be reflected in the Contingent Recalculation are
> shown in Section B above.

### Variable Phase -- FB CRAC Revenue And Percentages

> Following the recalculation of the FB CRAC Threshold and SN CRAC
> Threshold, a forecast of that fiscal year's PBL ANR will be presented.
> The FB CRAC rate calculations, and the forecast of revenue to be
> generated by the FB CRAC in the upcoming fiscal year, will be
> presented.

1.  Variable Phase -- SN CRAC Revenue And Percentages

> The SN CRAC rate calculations will assume the revenue generated by the
> FB CRAC rate calculated in stage 2. The SN CRAC revenue amount will be
> the SN CRAC Threshold minus the sum of the ANR forecast and the
> forecast of FB CRAC revenue (including any FB True-up Revenue) for the
> upcoming fiscal year, or the annual Maximum FB CRAC Recovery Amount
> for that upcoming fiscal year, whichever is smaller. The SN CRAC
> Percentage will be calculated so that the SN CRAC Revenue Amount is
> generated from the firm power rate schedules subject to the SN CRAC.

### If an IOU-Publics settlement is reached after the last opportunity to include the settlement information in the Contingent Recalculation phase, approximately August 15, 2003, but before September 15, 2003, there will be a brief public process to announce the results of incorporating the settlement into the FB CRAC and SN CRAC results for FY 2004. The three steps above will be performed again with the same data except for data on the annual cash flows as modified by the settlement. The annual Maximum FB CRAC Recovery Amounts and Maximum SN CRAC Recovery Amounts will not be changed. The Thresholds will be modified to meet the same standards referred to in step 1. After that, first the FB CRAC for FY 2004 will be recalculated, and then the SN CRAC for FY 2004 will be recalculated.

#### 

#### 

######## E. Retriggering of the SN CRAC

> The SN CRAC will be retriggered if the Administrator determines that,
> after implementation of the FB CRAC, the currently active SN CRAC, and
> any forecast of Augmentation True-Ups, either of the following
> conditions exists:
>
> 1\. BPA forecasts a 50 percent or greater probability that it will
> nonetheless miss a payment to the U.S. Treasury or other creditor
> before the end of the then-current fiscal year, or
>
> 2\. BPA has missed a payment to the U.S. Treasury or has satisfied its
> obligation to the U.S. Treasury but has missed a payment to any other
> creditor.
>
> A retriggering of the SN CRAC will result in hearing pursuant to
> Section 7(i) of the Northwest Power Act to determine whether an upward
> adjustment to posted power rates listed above by modifying the SN CRAC
> parameters that are currently in use is necessary. BPA will propose
> changes to the SN CRAC parameters that will, to the extent market and
> other risk factors allow, achieve a high probability that the
> remainder of Treasury payments during the FY 2002-2006 rate period
> will be made in full. BPA's proposal could include changes to the FB
> CRAC Revenue Amount, SN CRAC Revenue Amount, the Maximum SN CRAC
> Recovery Amounts, the SN CRAC Threshold, the duration (the length of
> time the SN CRAC would be in place, which could be more than one
> year), and the timing of collection. BPA may propose concomitant
> changes in the FB CRAC Thresholds. The additional revenue to be
> generated by the SN CRAC will be collected through a percentage
> adjustment in applicable rates and a commensurate decrease in the
> financial portion of the Residential Exchange Settlement. In addition
> to the revenue generated by the SN CRAC, BPA's payments for IOU load
> reductions will be reduced in accordance with contractual provisions.
>
> **a. SN CRAC Notification Process**
>
> At the time the Administrator determines that the SN CRAC has
> retriggered, BPA will send written notification of the determination
> to customers that purchase power under rates subject to the SN CRAC
> and to interested parties. Such notification shall include the
> documentation used by BPA to determine that the SN CRAC has
> retriggered, the amount of any forecast shortfall, and the time and
> location of a workshop on the SN CRAC.
>
> The purpose of the SN CRAC workshop will be to discuss with customers
> and interested parties the cause of the shortfall, whether the SN CRAC
> retrigger determination should be withdrawn, whether the shortfall can
> be alleviated by actions other than a section 7(i) proceeding to
> adjust the SN CRAC, and any proposed changes to the SN CRAC that will
> achieve a high probability that the remainder of Treasury payments
> during the FY 2002-2006 rate period will be made on time. In
> determining which proposal to include in its initial proposal in the
> SN CRAC Section 7(i) proceeding, BPA will give priority to prudent
> cost management and other options that enhance Treasury Payment
> Probability while minimizing changes to the SN CRAC.

####### **b. SN CRAC Hearing Process**

> As soon as practicable after a determination that the SN CRAC has
> retriggered, BPA will publish a Federal Register Notice initiating an
> expedited hearing process to be conducted in accordance with Section
> 7(i) of the Northwest Power Act. The hearing shall be completed within
> 40 days, unless a different duration is agreed to by BPA and the
> parties. Upon completion of such hearing, BPA will submit the
> following documentation to FERC in support of a request for review and
> confirmation: Statements A through F from the 2002-2006 BPA Wholesale
> Power Rate Adjustment Proceedings, Separate Accounting Analyses,
> current and revised revenue tests, the proposed revisions to the SN
> CRAC parameters and the administrative record compiled by BPA in the
> SN CRAC proceeding.
>
> The changes to the SN CRAC parameters shall take effect 60 days from
> filing with FERC unless FERC orders otherwise prior to that time.

###### Safety-Net 

> **Cost Recovery Adjustment Clause Rebate**

## 3. Safety-Net Cost Recovery Adjustment Clause Rebate (SN CRAC Rebate) 

The SN CRAC Rebate is a clause establishing criteria that the
Administrator will use to decide whether funds are to be distributed to
customers, and the amount that is to be distributed. The SN CRAC Rebate
enables BPA to distribute funds to eligible firm power customers and
establishes the mechanism to be used to make a distribution.

The SN CRAC Rebate applies to power purchases under the following firm
power rate schedules: PF \[Preference (excluding Slice), Exchange
Program and Exchange Subscription\]; Industrial Firm Power (IP‑02),
\[including purchases under the Industrial Firm Power Targeted
Adjustment Charge (IPTAC) and Cost‑Based Index Rate\]; Residential Load
(RL-02) (including both actual power deliveries and the 900 aMW of
monetary benefits under the financial portion of any REP Settlement,
buy-downs and load reduction agreements); New Resource Firm Power
(NR‑02); and subscription purchases under Firm Power Products and
Services (FPS). The SN CRAC Rebate does not apply to power purchases
under Pre‑Subscription contracts to the extent prohibited by such
contracts, to BPA's current contractual obligations for Seasonal and
Irrigation Mitigation sales including for any eligible customer that
converts from Slice to another BPA product; or to purchases under the PF
Slice Rate.

> **A. Formula for the Calculation of the** **SN CRAC Rebate Amount**

The SN CRAC Rebate, for FY 2005 and FY 2006, will be implemented if
audited Actual Accumulated Net Revenues (AANR) for the end of any of the
FY 2004‑2005 are above the SN CRAC Rebate Threshold value.

[Where the AANR]{.underline} are generation function net revenues, as
accumulated since 1999, at the end of each of FY 2004 and FY 2005 plus
any CCAL (as defined in Section 2.A.). Net revenues are accrued revenues
less accrued expenses, in accordance with Generally Accepted Accounting
Practices, with the following three exceptions. First, for purposes of
determining if the SN CRAC Threshold has been reached, actual and
forecasted expenses will include BPA expenses associated with Energy
Northwest debt service as forecasted in the WP-02 Final Studies. Second,
those actual and forecasted expenses will include BPA expenses
associated with payments of benefits to the Investor-Owned Utilities as
forecasted in the SN-03 Final Studies.[^3] Third, the impact of adopting
Financial Accounting Standard 133, Accounting for Derivative Instruments
and Hedging Activities, will not be considered in determining if the SN
CRAC Threshold has been reached. Only generation function revenues and
expenses, which is to say accrued revenues and accrued expenses that are
associated with the production, acquisition, marketing, and conservation
of electric power, are included in determinations under the SN CRAC
Rebate; accrued revenues and expenses of the transmission function are
excluded. As part of BPA's annual audit process, BPA's independent
outside auditing firm will confirm that BPA's AANR determination was
consistent with applicable criteria. This confirmation will be made in
accordance with additional agreed upon procedures established by BPA and
its independent outside auditing firm after consultation with interested
parties.

[Where the]{.underline} [SN CRAC Rebate Threshold]{.underline} is the
level of AANR that must be realized before a distribution is made as
required by this section. The SN CRAC Rebate Threshold is \$15 million
higher than the SN CRAC Threshold for each of the two years to which the
SN CRAC Rebate applies.

[Where the]{.underline} [SN CRAC Rebate Amount]{.underline} is 50
percent of the aggregate amount in excess of the SN CRAC Rebate
Threshold or the total amount of SN CRAC revenue BPA has booked, by the
end of the previous fiscal year, less any previous SN CRAC Rebate
Amounts, whichever is smaller. The SN CRAC Rebate Amount may be equal to
zero but not less than zero, and will be determined by the following
formula:

SN CRAC Rebate Amount = the smaller of

0.5 \* (AANR -- SN CRAC Rebate Threshold, as adjusted),

> and

Total SN CRAC revenue booked by the end of the previous fiscal year
adjusted to reflect (as necessary) effects of the Low Density Discount
and any contractual obligations of BPA to the IOUs related to or
triggered by the SN CRAC, less any previous SN CRAC Rebate Amount. Any
reduction in an IOU's financial benefit due to the SN CRAC shall be
included in the SN CRAC Revenue Amount.

> If the SN CRAC Rebate Amount is less than \$5 million, no SN CRAC
> Rebate will be issued.
>
> The SN CRAC Rebate Amount will be returned to power customers. Any
> such amounts will be returned to customers in proportion to the SN
> CRAC Customer Revenue Amount, which is the SN CRAC revenue BPA
> received from each customer under rates subject to the SN CRAC since
> the beginning of the rate period, or since the last SN CRAC Rebate,
> whichever is later. A customer's SN CRAC Customer Revenue Amount
> excludes Slice revenues. An IOU's SN CRAC Customer Revenue Amount
> includes the amount of any reduction in the IOU financial benefit due
> to the SN CRAC.
>
> Each customer's SN CRAC Customer Revenue Amount will be adjusted to
> reflect (as necessary) effects of the Low Density Discount and any
> contractual obligations of BPA to the Investor-Owned Utilities related
> to or triggered by the SN CRAC.
>
> SN CRAC Rebate Percentage =
>
> Each customer's SN CRAC Customer Revenue Amount
>
> divided by
>
> sum of all SN CRAC Customer Revenue Amounts

Each covered power customer will receive a SN CRAC Rebate equal to its
SN CRAC Rebate Percentage times the SN CRAC Rebate Amount. One-twelfth
of each customer's share of the SN CRAC Rebate Amount will be credited
to customers, on bills for deliveries beginning April 1, and for FY
2005, remain in effect for 12 months, *i.e.*, through March 30 of the
following year. In the last year of the rate period (FY 2006), one-sixth
of each customer's share of the SN CRAC Rebate Amount will be credited
to customers, on bills for deliveries beginning April 1, through
September 30, 2006.

> **B. Determination of a Distribution**

In January of each year of the rate period (FY 2005‑2006), the
Administrator will determine whether the AANR exceeds the SN CRAC Rebate
Threshold. If the AANR exceeds the SN CRAC Rebate Threshold, customers
and rate case parties will be notified. If the SN CRAC Rebate Amount is
at least \$5 million, the Administrator will provide by March 1, details
of proposed distribution of the SN CRAC Rebate Amount. The Administrator
will issue a final decision on the proposal on or about April 15.

> **C. Distribution Notification Process**

BPA shall follow the following notification procedures:

> a\. **Financial Performance Status Reports**

By no later than August 31 of each year, BPA shall post on its
electronic information access site (World Wide Web) a forecast of AANR
attributable to the generation function for the FY ending September 30.

> b\. **Notice of SN** **CRAC Rebate Trigger**

On or about January 15, in each of the fiscal years 2005 and 2006, BPA
will notify all power customers and rate case parties if the AANR
exceeds the SN CRAC Rebate Threshold. (If the December unaudited AANR
report for the generation function indicated that the SN CRAC Rebate
Threshold might be exceeded, and the audited actuals show that it was
not exceeded, customers will also be notified.)

> \(1\) On or about February 15 in any year (FY 2005‑2006) in which the
> AANR exceeds the SN CRAC Rebate Threshold, the Administrator will
> notify all power customers and rate case parties. Notification will
> include the AANR for the prior fiscal year, the SN CRAC Rebate Amount,
> the calculation of any adjustments to the SN CRAC Rebate Threshold,
> calculation of the SN CRAC Rebate Amount, the sum of SN CRAC Customer
> Revenue Amounts, and each customer's proposed SN CRAC Rebate
> Percentage. The notice shall also describe the data and assumptions
> relied upon by BPA. Such data, assumptions, and documentation, if
> non‑proprietary and/or non‑privileged, shall be made available for
> review at BPA upon request. The notice shall also contain the
> tentative schedule for the remainder of the SN CRAC Rebate
> implementation process.
>
> Prior to March 15, BPA will conduct a public review and comment
> process on the SN CRAC Rebate proposal.
>
> \(2\) On or about April 15, in any year (FY 2005‑2006) in which the
> AANR exceeds the SN CRAC Rebate Threshold, BPA shall notify customers
> to which the SN CRAC Rebate applies of the decision on the proposal,
> the final calculation of the SN CRAC Rebate Amount, each customer's SN
> CRAC Rebate Percentage, and the sums of the SN CRAC Customer Revenue
> Amounts.
>
> **D. Contingent Recalculation of SN CRAC Parameters and Thresholds for
> FB CRAC and SN CRAC Rebate**
>
> In August 2003, August 2004 and August 2005, the parameters of the SN
> CRAC (the annual SN CRAC Thresholds and the Maximum SN CRAC Recovery
> Amounts) will be recalculated contingent on certain data updates
> listed below. The FB CRAC Thresholds will also be adjusted to be the
> same as the SN CRAC Thresholds for the FB CRAC rates collected in
> fiscal years 2004 through 2006, and the SN CRAC Rebate Thresholds in
> those three years will be set to be \$15 million above the
> contemporaneous SN CRAC Thresholds. In the Contingent Recalculation,
> BPA will reduce the expected value of the size of the SN CRAC if there
> are (compared to the SN-03 Final Studies):
>
> 1\. Reductions in BPA's forecasted budgets for FY 2003-2006 for
> Internal Operations (sum of PBL Internal Operations and Corporate
> Internal Services);
>
> 2\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Columbia Generating Station;
>
> 3\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Corps of Engineers;
>
> 4\. Reductions in BPA's forecasted O&M budgets for fiscal years 2003
> through 2006 for the Bureau of Reclamation;
>
> 5\. Reductions in BPA's forecasted budgets for fiscal years 2003
> through 2006 for the BPA Fish and Wildlife Program;
>
> 6\. Actual and forecasted changes in PBL's secondary revenue for
> fiscal year 2003 due to changes in hydro conditions or market prices;
>
> 7\. Negotiated reductions in the magnitude of benefits payments to be
> made by BPA to the Investor-Owned Utilities for fiscal years 2003
> through 2006.
>
> 8\. Any other reductions the Administrator (at his or her own
> discretion) determines are appropriate.
>
> The Contingent Recalculation of the SN CRAC parameters will meet the
> following standards:

1.  At least 50 percent probability that BPA would be able to make each
    of its annual Treasury payments in fiscal years 2004 through 2006
    (TPP); and

2.  At least 80 percent probability that BPA would be able to make all
    of its FY 2006 payments to the U.S. Treasury, including repayment of
    any amounts it might miss in fiscal years 2003 through 2005 (TRP).

##### Procedure for Contingent Recalculation

> 1\. **Determining the Size of the Annual** **Maximum SN CRAC Recovery
> Amounts**
>
> A preliminary calculation will be made using the FB CRAC Thresholds
> from the June 2001 WP-02 Final Studies and data from the June 2003
> SN-03 Final Studies except for those items described above that are to
> be updated. This calculation will use three fixed (deterministic) SN
> CRAC revenue amounts to generate expected values of the sums of the FB
> CRAC and SN CRAC rate impacts (expressed as a percentage of May 2000
> base rates), that meet the TPP and TRP standards described above.
>
> The Maximum SN CRAC Recovery Amounts will be set to be equal to the
> average of the three annual SN CRAC revenue amounts from Step 1,
> rounded to the nearest \$5 million, plus \$100 million, except that
> the FY 2004 Maximum SN CRAC Recovery Amount shall be set so that the
> combined LB, FB and SN CRAC percentages for FY 2004 are not higher
> than 46 percent.
>
> 2\. **Synchronizing the SN CRAC, FB CRAC, and SN CRAC Rebate**
>
> The FB CRAC Thresholds will be set to be the same as the SN CRAC
> Thresholds, and the SN CRAC Rebate Thresholds will set to be \$15
> million higher than the SN CRAC Threshold for each year.
>
> 3\. **Calibrating the Thresholds**
>
> The SN CRAC Thresholds will be adjusted to the highest level that
> achieves the 2004 -- 2006 three-year TPP and TRP standards with the
> Maximum SN CRAC Recovery Amounts as determined in Step 1.
>
> **E. Contingent** **Recalibration of SN CRAC Parameters due to**
> **Administrator's Determination**
>
> If the Administrator, in his sole determination, receives sufficient
> assurance, such as the signing by the IOUs of settlement contracts,
> that the benefits payable to the IOUs during fiscal years 2004 through
> 2006 will be either reduced or deferred, then the FB CRAC Thresholds,
> SN CRAC Thresholds, SN CRAC Revenue Amount and SN CRAC Rebate
> Thresholds will be recalibrated. The method by which such benefit
> reductions will be incorporated depends on the timing of the
> agreement.
>
> 1\. **Agreement reached before approximately August 15, 2003**
>
> If an agreement is reached with sufficient time before the Contingent
> Recalculation process described above, the cash impacts on BPA of the
> agreement will be incorporated through the Contingent Recalculation.
>
> 2\. **Agreement Reached After Approximately August 15, 2003, and by
> September 15, 2003**
>
> If an agreement is reached in this time period, a separate
> recalibration of the SN CRAC Thresholds, the FB CRAC Thresholds, and
> the SN CRAC Rebate Thresholds will be made. In this Contingent
> Recalibration, the cash impacts on BPA of the agreement for fiscal
> years 2004 through 2006 will be incorporated and such Thresholds
> adjusted following the methodology described above for use in the
> Contingent Recalculation. The 2003 ANR projection from the second
> August workshop will be used to recalculate the 2004 SN CRAC rate
> increases. The Administrator will release the revised rates on
> September 15, 2003, or as soon as practical thereafter, but no later
> than September 22, 2003.
>
> 3\. **Agreement Reached After September 15, 2003, and by August 15,
> 2004, or After August 15, 2004, and by August 15, 2005**
>
> If an agreement is reached in one of these time periods, the SN CRAC
> Thresholds, the FB CRAC Thresholds and the SN CRAC Rebate Thresholds
> for the remaining year(s) through FY 2006 will be adjusted downward by
> the cumulative total of the cash impacts on BPA. For an agreement
> reached by August 15, 2004, the SN CRAC Threshold, FB CRAC Threshold
> and SN CRAC Rebate Threshold for FY 2005 will be reduced by the BPA
> cash impacts for FY 2005, and such Thresholds for FY 2006 will be
> reduced by the sum of the BPA cash impacts for FY 2005 and FY 2006;
> for an agreement reached by August 15, 2005, the SN CRAC Threshold, FB
> CRAC Threshold and SN CRAC Rebate Threshold for FY 2006 will be
> reduced by the BPA cash impacts for FY 2006. Such recalibrated
> Thresholds will be released to Parties at the first of the two
> workshops in August of 2004, or at the first of the two workshops in
> August of 2005 if the agreement is reached after August 15, 2004.

4\. **Conditions Occurring After September 15, 2003, and by August 15,
2004, or After August 15, 2004, and by August 15, 2005**

> In the event that in one of the time periods set forth above the
> reductions or deferrals of benefits payable to the IOUs during fiscal
> years 2004 through 2006, that have been used to recalibrate SN CRAC
> parameters, are no longer available due to events outside the control
> of BPA, then the for the SN CRAC Thresholds, the FB CRAC Thresholds
> and the SN CRAC Rebate Thresholds for the remaining year(s) of the SN
> CRAC rate period will be increased by the cumulative total of the cash
> impacts on BPA as a result of such elimination. For benefit reductions
> for conditions occurring by August 15, 2004, the SN CRAC Threshold, FB
> CRAC Threshold and SN CRAC Rebate Threshold for 2005 will be increased
> by the BPA cash impacts for FY 2005, and such Thresholds for 2006 will
> be increased by the sum of the BPA cash impacts for FY 2005 and 2006;
> for benefit reductions occurring after August 15, 2005, the SN CRAC
> Threshold, FB CRAC Threshold and SN CRAC Rebate Threshold for 2006
> will be increased by the BPA cash impacts for FY 2006. Such
> recalibrated Thresholds will be released to Parties at the first of
> the two workshops in August of 2004 or 2005.

## 

## 

## 

## 

## Dividend Distribution Clause 

## 4. Dividend Distribution Clause (DDC)

The DDC is a clause establishing criteria that the Administrator will
use to decide whether funds are to be distributed to customers, and the
amount that is to be distributed. The DDC enables BPA to distribute
funds to eligible firm power customers and establishes the mechanism to
be used to make a distribution.

The DDC applies to purchases by power customers under these firm power
rate schedules subject to the FB CRAC, including: PF \[Preference
(excluding Slice), Exchange Program, and Exchange Subscription\],
Industrial Firm Power (IP‑02), including under the Industrial Firm Power
Targeted Adjustment Charge (IPTAC) and Cost‑Based Index Rate,
Residential Load (RL‑02) New Resource Firm Power (NR‑02), and purchases
under Firm Power Products and Services (FPS) that are subject to the FB
CRAC. The DDC also applies to the financial portion of the REP
Settlement as described herein. The DDC does not apply to power
purchases under Pre‑Subscription contracts, or purchases under the Slice
Rate.

> **1. Formula for the Calculation of the Dividend Distribution Amount**

The DDC, for FY 2003-2006, will be implemented if audited AANR for the
end of any of the FY 2002‑2005 are above the DDC Threshold value. DDC
calculations will be made after SN CRAC Rebate calculations in those
years in which a SN CRAC Rebate is possible (FY 2005 and 2006).

AANR are generation function net revenues, as accumulated since 1999, at
the end of each of the FY 2002‑2005 plus any Cumulative Cost Adjustment
Limit (CCAL) (as defined in Section 2.A.). Net revenues are accrued
revenues less accrued expenses, in accordance with Generally Accepted
Accounting Practices, with the following three exceptions. First, for
purposes of determining if the SN CRAC Threshold has been reached,
actual and forecasted expenses will include BPA expenses associated with
Energy Northwest debt service as forecasted in the WP-02 Final Studies.
Second, those actual and forecasted expenses will include BPA expenses
associated with payments of benefits to the Investor-Owned Utilities as
forecasted in the SN-03 Final Studies.[^4] Third, the impact of adopting
Financial Accounting Standard 133, Accounting for Derivative Instruments
and Hedging Activities, will not be considered in determining if the DDC
Threshold has been reached. Only generation function revenues and
expenses, which is to say accrued revenues and accrued expenses that are
associated with the production, acquisition, marketing, and conservation
of electric power, are included in determinations under the DDC; accrued
revenues and expenses of the transmission function are excluded. As part
of BPA's annual audit process, BPA's independent outside auditing firm
will confirm that BPA's AANR determination was consistent with
applicable criteria. This confirmation will be made in accordance with
additional agreed upon procedures established by BPA and its independent
outside auditing firm after consultation with interested parties.

DDC Threshold is the level of AANR that must be realized before a
distribution is made as required by this section. The DDC Threshold is
\$993 million for the end of FY 2002, \$735 million for the end of FY
2003, and \$401 million for the end of FY 2004 and 2005.

> The DDC Threshold for any fiscal year will be adjusted upward by the
> following:

a.  In the event that there has been a power system emergency (as
    defined in "FCRPS Protocols for Emergency Operation In Response to
    Generation or Transmission Emergencies" dated September 22, 2000, or
    replacement protocols) during the fiscal year; and BPA has agreed to
    provide additional funding to mitigate the impact of the emergency
    operations on fish and wildlife, any of the additional
    emergency-related fish and wildlife funding which BPA has not spent
    during that fiscal year will be added to the DDC Threshold for that
    year; and/or

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b.  In the event that BPA fish and wildlife operations and maintenance
    ("direct program") costs previously budgeted for expenditure in that
    fiscal year but were not spent, and for which a need continues, will
    be added to the threshold amount for that year.

DDC Amount is the aggregate amount in excess of the DDC Threshold that
is available to be distributed to customers. Amounts already scheduled
to be distributed via the SN CRAC Rebate will be deducted from this
aggregate excess before distributing the DDC. The DDC Amount may be
equal to zero and will be determined by the following formula:

DDC Amount =

AANR -- the sum of the DDC Threshold, as adjusted, and any amount to be
reimbursed to customers through the SN CRAC Rebate for the same year.

The first \$15 million of the DDC Amount, if the DDC Amount exceeds
\$15 million, or the entire DDC Amount if it equals \$15 million or
less, will be allocated to qualifying customers' participating in the
C&R Discount. The C&R Discount is a rate mechanism designed to encourage
incremental conservation and renewable resource development by BPA's
power purchasers under PF, IP, RL, and NR rate schedules. *See* C&R
Discount GRSPs, Section II.A.

> The Customer DDC Amount, which is the DDC Amount after reduction by
> the \$15 million as described in the preceding paragraph, will be
> returned to power customers. Any such amounts will be returned to
> customers in proportion to the DDC Customer Revenue Amount, which is
> the revenue BPA received from each customer under rates subject to the
> DDC since the beginning of the rate period, or since the last DDC,
> whichever is later. A customer's DDC Customer Revenue Amount excludes
> Slice revenues, and includes all Non-Slice CRAC revenues. The IOU
> financial benefit is included as revenue based on the product of each
> customer's share of 900 aMW and the sum of the RL-02 rate and the
> amount of any CRAC applied to power deliveries under such rate.
>
> DDC Percentage =
>
> Each customer's DDC Customer Revenue Amount
>
> divided by
>
> sum of all DDC Customer Revenue Amounts

Each covered power customer will receive a rebate equal to its DDC
Percentage times the Customer DDC Amount. One-twelfth of each customer's
share of the Customer DDC Amount will be credited to customers, on bills
for deliveries beginning April 1, and for any FY 2003-2005, remain in
effect for 12 months, *i.e.*, through March 30 of the following year. In
the last year of the rate period (FY 2006), one-sixth of each customer's
share of the Customer DDC Amount will be credited to customers, on bills
for deliveries beginning April 1, through September 30, 2006.

> **2. Determination of a Distribution**

In January of each year of the rate period (FY 2003‑2006), the
Administrator will determine whether the AANR exceeds the DDC Threshold.
If the AANR exceeds the DDC Threshold, customers and rate case parties
will be so notified. By March 1, the Administrator will provide
calculations of any proposed distribution of Customer DDC Amount. The
Administrator will issue a final decision on the proposal on or about
April 15.

> **3. Distribution Notification Process**

BPA shall follow the following notification procedures:

> a\. **Financial Performance Status Reports**

By no later than August 31 of each year, BPA shall post on its
electronic information access site (World Wide Web) a forecast of AANR
attributable to the generation function for the FY ending September 30.

> b\. **Notice of DDC Trigger**

On or about January 15, in each of the FY 2003‑2006, BPA will notify all
power customers and rate case parties if the AANR exceeds the DDC
Threshold. (If the December unaudited AANR report for the generation
function indicated that the DDC Threshold might be exceeded, and the
audited actuals show that it was not exceeded, customers will also be
notified.)

> \(1\) On or about February 15, of any of the FY 2003‑2006 in which the
> AANR exceeds the DDC Threshold, the Administrator will notify all
> power customers and rate case parties. Notification will include the
> AANR for the prior fiscal year, the DDC Amount, the calculation of any
> adjustments to the DDC Threshold, calculation of the DDC Amount, the
> sum of DDC Customer Revenue Amounts, and each customer's proposed DDC
> Percentage. The notice shall also describe the data and assumptions
> relied upon by BPA. Such data, assumptions, and documentation, if
> non‑proprietary and/or non‑privileged, shall be made available for
> review at BPA upon request. The notice shall also contain the
> tentative schedule for the remainder of the DDC implementation
> process.
>
> Prior to March 15, BPA will conduct a public review and comment
> process on the proposal.
>
> \(2\) On or about April 15, of any of the FY 2003‑2006 in which the
> AANR exceeds the DDC Threshold, BPA shall notify customers to which
> the DDC applies of the decision on the proposal, the final calculation
> of the DDC Amount, the allocation of the DDC Amount, and, if
> applicable, the resulting level of the power customer DDC Percentage
> to be applied to each applicable firm power rate schedule.

[^1]: This exclusion has been made so that the expense impact of any
    change to these benefits will not affect the annual calculation of
    the SN CRAC rate. (It would not be possible at the time of change,
    e.g., a settlement of the Public-IOU litigation, to be certain what
    the expense impacts would be; that could depend on an opinion of
    BPA's auditors which might not be rendered until several months
    after conclusion of such a settlement.) The impact on rates will be
    made through the Contingent Recalculation of the SN CRAC parameters.

[^2]: This exclusion has been made so that the expense impact of any
    change to these benefits will not affect the annual calculation of
    the SN CRAC rate. (It would not be possible at the time of change,
    e.g., a settlement of the Public-IOU litigation, to be certain what
    the expense impacts would be; that could depend on an opinion of
    BPA's auditors which might not be rendered until several months
    after conclusion of such a settlement.) The impact on rates will be
    made through the Contingent Recalculation or the Recalibration of
    the SN CRAC parameters.

[^3]: This exclusion has been made so that the expense impact of any
    change to these benefits will not affect the annual calculation of
    the SN CRAC rate. (It would not be possible at the time of change,
    e.g., a settlement of the Public-IOU litigation, to be certain what
    the expense impacts would be; that could depend on an opinion of
    BPA's auditors which might not be rendered until several months
    after conclusion of such a settlement.) The impact on rates will be
    made through the Contingent Recalculation or the Recalibration of
    the SN CRAC parameters.

[^4]: This exclusion has been made so that the expense impact of any
    change to these benefits will not affect the annual calculation of
    the SN CRAC rate. (It would not be possible at the time of change,
    e.g., a settlement of the Public-IOU litigation, to be certain what
    the expense impacts would be; that could depend on an opinion of
    BPA's auditors which might not be rendered until several months
    after conclusion of such a settlement.) The impact on rates will be
    made through the Contingent Recalculation or the Recalibration of
    the SN CRAC parameters.