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[Federal Register Volume 75, Number 241 (Thursday, December 16, 2010)]
[Notices]
[Pages 78694-78703]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31622]

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DEPARTMENT OF ENERGY

Bonneville Power Administration

[BPA File No.: REP-12]

Proposed Residential Exchange Program Settlement Agreement 
Proceeding (REP-12); Public Hearing and Opportunities for Public Review 
and Comment

AGENCY: Bonneville Power Administration (BPA), Department of Energy 
(DOE).

ACTION: Notice of Residential Exchange Program Settlement Agreement 
Proceeding (REP-12).

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SUMMARY: BPA is conducting the 2012 Residential Exchange Program 
Settlement Agreement Proceeding (REP-12) to review the terms and 
conditions of a proposed 17-year settlement of issues regarding the 
implementation of

[[Page 78695]]

the Residential Exchange Program (REP). The REP is a statutory power 
exchange program established by section 5(c) of the Pacific Northwest 
Electric Power Planning and Conservation Act (Northwest Power Act). The 
proposed settlement under review is the 2012 REP Settlement Agreement 
(2012 REP Settlement). If adopted, BPA will include in its power rates 
for FY 2012-2028 the REP benefits stated in the proposed 2012 REP 
Settlement.
    In addition to reviewing the terms of the proposed 2012 REP 
Settlement, BPA's REP-12 initial proposal will describe BPA's proposed 
implementation of the REP for its FY 2012-2013 rates in the event the 
2012 REP Settlement is not adopted. The REP-12 initial proposal will 
include studies and testimony supporting BPA's proposed implementation 
of the section 7(b)(2) rate test for the FY 2012-2013 rate period, the 
section 7(b)(3) surcharge allocation, Average System Cost (ASC) 
forecasts, and the amount of refunds to be provided to BPA customers 
overcharged during the FY 2002-2006 rate period, (i.e., Lookback 
repayments). If, at the conclusion of the REP-12 proceeding the 
Administrator decides not to adopt the 2012 REP Settlement, BPA will 
incorporate into the BP-12 rate proceeding the studies, testimony, and 
documentation associated with the section 7(b)(2) rate test, the 
section 7(b)(3) surcharge allocation, ASC forecasts, and Lookback 
repayment and use such studies and documentation in establishing the 
BP-12 rates.

DATES: Anyone wishing to become a party to the REP-12 proceeding must 
provide written notice, via U.S. Mail or electronic mail, which must be 
received by BPA no later than 3 p.m. on December 23, 2010.
    The REP-12 proceeding begins with a prehearing conference at 9:00 
a.m. on December 17, 2010, in the BPA Rates Hearing Room, 2nd Floor, 
911 NE 11th Avenue, Portland, Oregon 97232.

ADDRESSES: 1. Petitions to intervene should be directed to: Hearing 
Clerk--L-7, Bonneville Power Administration, 905 NE 11th Avenue, 
Portland, Oregon 97232, or may be e-mailed to rateclerk@bpa.gov. In 
addition, copies of the petition must be served concurrently on BPA's 
General Counsel and directed to Mr. Kurt R. Casad, Office of General 
Counsel, 905 NE 11th Avenue, Portland, Oregon 97232, or via e-mail to 
krcasad@bpa.gov (see section III.A. for more information regarding 
interventions).
    2. Written comments by participants should be submitted to the 
Public Engagement Office, DKE-7, Bonneville Power Administration, P.O. 
Box 14428, Portland, Oregon 97293. Participants may also submit 
comments by e-mail at: http://www.bpa.gov/comment. BPA requests that 
all comments and documents intended to be part of the Official Record 
in this rate proceeding contain the designation REP-12 in the subject 
line.

FOR FURTHER INFORMATION CONTACT: Ms. Heidi Y. Helwig, DKC-7, Public 
Affairs Specialist, Bonneville Power Administration, P.O. Box 3621, 
Portland, Oregon 97208; by phone toll free at 1-800-622-4520; or via e-
mail to hyhelwig@bpa.gov.
    Responsible Official: Mr. Raymond D. Bliven, Power Rates Manager, 
is the official responsible for the development of BPA's power rates.

SUPPLEMENTARY INFORMATION: 

Table of Contents

Part I. Introduction
Part II. Procedures and Scope of Hearing
Part III. Public Participation in REP-12
Part IV. Background of REP Litigation
Part V. Summary of Proposal and Description of Major Studies
Part VI. Proposed 2012 REP Settlement Agreement

Part I. Introduction

    BPA is conducting an evidentiary hearing, Docket No. REP-12, to 
review the terms and conditions of a proposed 17-year settlement of 
issues regarding the implementation of the Residential Exchange Program 
(REP). The REP is a statutory power exchange program established by 
section 5(c) of the Northwest Power Act (Act). See 16 U.S.C. 839c(c). 
The proposed settlement under review, the 2012 REP Settlement, reflects 
the efforts of a broad group of regional parties to resolve litigation 
over BPA's implementation of the REP through a legally sustainable and 
equitable settlement agreement. If adopted by the Administrator, BPA 
will include in its power rates for FY 2012-2028 the REP benefits 
stated in the proposed 2012 REP Settlement.
    In addition to reviewing the terms of the proposed 2012 REP 
Settlement, BPA's REP-12 initial proposal will describe BPA's proposed 
implementation of the REP for its FY 2012-2013 rates in the event the 
2012 REP Settlement is not adopted. The REP-12 initial proposal will 
include studies and testimony supporting BPA's proposed implementation 
of the section 7(b)(2) rate test, the section 7(b)(3) surcharge 
allocation, ASC forecasts, and Lookback repayments for the FY 2012-2013 
rate period. Any party wishing to contest BPA's proposed implementation 
of the section 7(b)(2) rate test, allocation of section 7(b)(3) 
surcharge amounts, development of the ASC forecasts, or determination 
of Lookback refund amounts must raise such arguments in the REP-12 
proceeding. At the same time BPA is reviewing the proposed 2012 REP 
Settlement in the REP-12 proceeding, BPA is separately conducting a BP-
12 rate proceeding to establish power rates for FY 2012-2013. If, at 
the conclusion of the REP-12 proceeding, the Administrator decides not 
to adopt the 2012 REP Settlement, BPA will incorporate into the BP-12 
rate proceeding the studies, testimony, and documentation associated 
with the section 7(b)(2) rate test, the section 7(b)(3) surcharge 
allocation, ASC forecasts, and Lookback repayment, and use such studies 
and documentation in establishing the BP-12 rates.

Part II. Procedures and Scope of Hearing

A. Procedures Governing the REP-12 Proceeding

    Because the proposed 2012 REP Settlement includes features that are 
directly related to BPA's rates and ratemaking, the proposed Settlement 
will be evaluated under the procedural terms of section 7(i) of the 
Act, 16 U.S.C. 839e(i). These procedures include, among other things: 
Publication of a notice of the proposed rates in the Federal Register; 
one or more hearings conducted as expeditiously as practicable by a 
Hearing Officer; public opportunity to provide both oral and written 
views related to the proposed rates; opportunity to offer refutation or 
rebuttal of submitted material; and a decision by the Administrator 
based on the record. This REP-12 proceeding is governed by Sec.  1010 
of BPA's Rules of Procedure Governing Rate Hearings, 51 FR 7611 (1986) 
(BPA Hearing Procedures). These procedures implement the statutory 
section 7(i) requirements.
    Section 1010.7 of BPA's Hearing Procedures prohibits ex parte 
communications. The ex parte rule applies to all BPA and DOE employees 
and contractors. Except as provided below, any communications with BPA 
and/or DOE personnel regarding BPA's rate proceeding by other Executive 
Branch agencies, Congress, existing or potential BPA customers 
(including Tribes), and nonprofit or public interest groups are 
considered outside communications and are subject to the ex parte rule. 
The general rule does not apply to communications relating to: (1)

[[Page 78696]]

Matters of procedure only (the status of the rate proceeding, for 
example); (2) exchanges of data in the course of business or under the 
Freedom of Information Act; (3) requests for factual information; (4) 
matters for which BPA is responsible under statutes other than the 
ratemaking provisions; or (5) matters which all parties agree may be 
made on an ex parte basis. The ex parte rule remains in effect until 
the Administrator's Final Record of Decision (ROD) is issued.
    The Flood Control Act of 1944, 16 U.S.C. 825s, the Federal Columbia 
River Transmission System Act, 16 U.S.C. 838, and the Northwest Power 
Act, 16 U.S.C. 839, provide guidance regarding BPA ratemaking. The 
Northwest Power Act requires BPA to set rates that are sufficient to 
recover, in accordance with sound business principles, the cost of 
acquiring, conserving and transmitting electric power, including 
amortization of the Federal investment in the Federal Columbia River 
Power System (FCRPS) over a reasonable period of years, and certain 
other costs and expenses incurred by the Administrator.
    BPA's proposal, study documentation, and the proposed 2012 REP 
Settlement will be available for examination beginning December 17, 
2010, on BPA's Web site at http://www.bpa.gov/corporate/ratecase/2012/rep-12.cfm. Hard copies of these documents will be available beginning 
December 17, 2010, at BPA's Public Information Center, BPA Headquarters 
Building, 1st Floor, 905 NE. 11th Avenue, Portland, Oregon.
    A formal evidentiary rate hearing will be conducted that is open to 
rate proceeding parties. Interested parties that previously intervened 
in BPA's BP-12 rate proceeding must also file petitions to intervene in 
order to take part in the REP-12 formal hearing. A proposed schedule 
for the REP-12 proceeding is stated below. A Hearing Officer will 
establish a final schedule at the prehearing conference.

------------------------------------------------------------------------
 
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Intervention Deadline....................  December 23.
Prehearing/BPA Direct Case...............  December 17.
Clarification............................  January 4-7.
Motions to Strike........................  January 11.
Data Request Deadline....................  January 11.
Answers to Motions to Strike.............  January 18.
Data Response Deadline...................  January 18.
Parties File Direct Case.................  February 8.
Clarification............................  February 14-15.
Motions to Strike........................  February 22.
Data Request Deadline....................  February 22.
Answers to Motions to Strike.............  March 1.
Data Response Deadline...................  March 1.
Close of Participant Comments............  March 8.
Litigants File Rebuttal..................  March 8.
Clarification............................  March 14-15.
Motions to Strike........................  March 17.
Data Request Deadline....................  March 17.
Answers to Motions to Strike.............  March 25.
Data Response Deadline...................  March 25.
Cross-Examination........................  March 28-April 1.
Initial Briefs Filed.....................  April 25.
Oral Argument............................  May 12.
Draft ROD Issued.........................  May 23.
Briefs on Exceptions.....................  June 6.
Final ROD--Final Studies.................  June 27.
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    No field hearings will be conducted in this proceeding.

B. Scope of the REP-12 Proceeding

    This section provides guidance to the Hearing Officer regarding the 
matters within the scope of the REP-12 proceeding and the matters not 
within the scope of this proceeding.
1. Matters Within the Scope of This Proceeding
a. Proposed 2012 REP Settlement
    All issues related to BPA's analysis, methodology, or review of the 
proposed 2012 REP Settlement, including any issues related to the 
models developed by BPA to evaluate the 2012 REP Settlement, are 
expressly within the scope of this proceeding. Parties wishing to 
challenge any aspect of the proposed 2012 REP Settlement, including but 
not limited to any term of the proposed Settlement or whether BPA 
should adopt the Settlement, must raise such arguments in this 
proceeding.
b. Section 7(b)(2) Rate Test Implementation
    All issues related to BPA's implementation, interpretation, and 
forecast of the section 7(b)(2) rate test are within the scope of this 
proceeding. Parties wishing to challenge any aspect of the 
implementation of the section 7(b)(2) rate test for either the 2012 REP 
Settlement implementation period (FY 2012-2028) or the BP-12 rate 
period (FY 2012-2013) must raise such arguments in this proceeding.
c. Section 7(b)(3) Surcharge Implementation
    All issues related to BPA's implementation, interpretation, and 
forecast of the section 7(b)(3) reallocations or surcharges are within 
the scope of this proceeding. Parties wishing to challenge any aspect 
of the implementation of section 7(b)(3) for either the 2012 REP 
Settlement implementation period (FY 2012-2028) or the BP-12 rate 
period (FY 2012-2013) must raise such arguments in this proceeding.
d. Lookback Assumptions
    All issues related to BPA's implementation, determination, 
recovery, and repayment of Lookback Amounts are within the scope of 
this proceeding. Parties wishing to challenge any aspect of BPA's 
Lookback recovery or repayment for either the 2012 REP Settlement 
implementation period (FY 2012-2028) or the BP-12 rate period (FY 2012-
2013) must raise such arguments in this proceeding.
e. ASC Forecasts
    Except as provided below in section II.B.2.h, all issues related to 
BPA's forecast of utilities' ASCs for the BP-12 rate test period (FY 
2014-2017) and the 2012 REP Settlement implementation period (FY 2012-
2028) are within the scope of this proceeding. Parties wishing to 
challenge any aspect of BPA's ASC forecasts for these periods must 
raise their arguments in this proceeding. Challenges to the ASCs 
determined in the Draft and Final ASC reports for FY 2012-2013 are 
expressly excluded from the scope of this proceeding. See Section 
II.B.2.h.
2. Matters Not Within the Scope of This Proceeding
a. BP-12 Rate Proceeding Issues
    As noted above, BPA is conducting a rate proceeding to establish 
wholesale power and transmission rates for FY 2012-2013 (BP-12) at the 
same time BPA is conducting the REP-12 proceeding. Although some of the 
information developed in the BP-12 rate proceeding will be used in the 
models in the REP-12 proceeding, parties may not raise arguments or 
issues with such data in the REP-12 proceeding. Instead, such arguments 
or issues should be raised in the BP-12 rate proceeding if and to the 
extent such issues are within the scope of that proceeding. Pursuant to 
section 1010.3(f) of BPA's Hearing Procedures, the Administrator 
directs the Hearing Officer to exclude from the record all argument, 
testimony, or other evidence that seeks in any way to address the 
appropriateness or reasonableness of any issue being addressed in the 
BP-12 rate proceeding.
b. Program Cost Estimates
    BPA began its 2010 Integrated Program Review (IPR) process in May 
2010. The IPR process is designed to allow people interested in BPA's 
program levels an opportunity to review and comment on all of BPA's 
expense and capital spending level estimates in the same forum prior to 
the use of those estimates in setting rates. Concurrent with the IPR, 
BPA held regional

[[Page 78697]]

conversations about risk mitigation and debt management practices.
    The 2010 IPR focused on FY 2012 and 2013 program levels for BPA's 
Power Services and Transmission Services as well as a review of FY 2011 
program levels. BPA held 19 technical workshops and two general manager 
meetings at which proposed spending levels were presented for each of 
BPA's programs. BPA carefully reviewed and considered the 26 written 
comments and numerous oral comments on FY 2012 and 2013 program levels 
that were provided during this public process.
    On October 27, 2010, BPA issued a Final Close-Out Letter and 
accompanying final report for the IPR, which summarizes the comments 
received and outlines BPA's responses. The report also summarizes 
comments and BPA's responses on the regional conversations about risk 
mitigation and debt management. In the Final Close-Out Letter and 
report, BPA established the program level cost estimates for both power 
and transmission rates that are used in the BP-12 and REP-12 Initial 
Proposals. BPA does not anticipate additional public review of proposed 
spending levels. However, an abbreviated IPR process may be held if 
conditions warrant. BPA would conduct this process separately from the 
REP-12 and BP-12 proceedings to share updates and solicit feedback from 
customers and constituents before the final program levels are 
incorporated into BPA's final rates. BPA's spending levels for 
investments and expenses are not determined or subject to review in the 
REP-12 or BP-12 proceedings.
    Pursuant to section 1010.3(f) of BPA's Hearing Procedures, the 
Administrator directs the Hearing Officer to exclude from the record 
all argument, testimony, or other evidence that seeks in any manner to 
address the appropriateness or reasonableness of the Administrator's 
decisions on cost and spending levels. If and to the extent that any 
re-examination of spending levels is necessary, such re-examination 
will occur outside of the REP-12 and BP-12 proceedings. This exclusion 
does not extend to portions of BPA's revenue requirements related to 
REP benefits, Lookback payments, or interest on Lookback payments. The 
Administrator also directs the Hearing Officer to exclude argument and 
evidence regarding BPA's debt management practices and policies.
c. Regional Dialogue Policy Decisions
    BPA's Subscription contracts expire on September 30, 2011, at the 
end of the current rate period. BPA previously engaged customers and 
interested stakeholders in an extensive Regional Dialogue process that 
led to new power sales contracts. BPA issued its Long-Term Regional 
Dialogue Final Policy and ROD on July 19, 2007; its Long-Term Regional 
Dialogue Contract Policy and ROD on October 31, 2008; the Tiered Rate 
Methodology and ROD on November 10, 2008; and the Tiered Rate 
Methodology Supplemental ROD on September 2, 2009. On or about December 
1, 2008, BPA and its customers signed new power sales contracts under 
which the customers will purchase Federal power for the FY 2012-2028 
period. Several aspects of the Regional Dialogue process are still 
ongoing, such as establishing customer contract high water marks and 
contract demand quantities, and these processes and decisions are 
outside the scope of the REP-12 proceeding.
    Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, the 
Administrator hereby directs the Hearing Officer to exclude from the 
record all argument, testimony, or other evidence that seeks in any way 
to address the appropriateness or reasonableness of BPA's decisions 
made in the Long-Term Regional Dialogue Final Policy ROD, Long-Term 
Regional Dialogue Contract Policy ROD, the Tiered Rate Methodology ROD, 
and the Tiered Rate Methodology Supplemental ROD.
d. Tiered Rate Methodology (TRM)
    BPA previously established the TRM in a section 7(i) rate hearing. 
The issues being examined in the REP-12 proceeding are not governed by 
the TRM. Modifications to the TRM are not within the scope of this 
proceeding. Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, 
the Administrator hereby directs the Hearing Officer to exclude from 
the record all argument, testimony, or other evidence that seeks in any 
way to propose to revise the TRM developed by BPA.
e. Service to the Direct Service Industries (DSIs)
    The manner and method by which BPA could provide service or 
financial payments to its DSI customers were evaluated in Pacific 
Northwest Generating Cooperative, et al., v. Bonneville Power 
Administration, 580 F.3d 792 (9th Cir. 2008) (PNGC I) and Pacific 
Northwest Generating Cooperative, et al., v. Bonneville Power 
Administration, 590 F.3d 1065 (9th Cir. 2010) (PNGC II). In BPA's BP-12 
rate proceeding, BPA has assumed that it will continue to serve Alcoa, 
Inc. (Alcoa) as well as Port Townsend Paper Corporation (Port Townsend) 
during FY 2012-2013. BPA's decisions to serve the DSIs, along with the 
method and level of service to be provided DSIs in the FY 2012-2013 
rate period, will not be determined in this proceeding.
    Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, the 
Administrator directs the Hearing Officer to exclude from the record 
all argument, testimony, or other evidence that seeks in any way to 
revisit the appropriateness or reasonableness of BPA's decisions 
regarding the service to the DSIs, including BPA's decision to offer a 
contract and the method or level of such service.
f. Potential Environmental Impacts
    Environmental impacts are addressed in a concurrent National 
Environmental Policy Act (NEPA) process. Pursuant to Sec.  1010.3(f) of 
BPA's Hearing Procedures, the Administrator directs the Hearing Officer 
to exclude from the record all argument, testimony, or other evidence 
that seeks in any way to address the potential environmental impacts of 
the rates being developed in this rate proceeding.
g. Average System Cost Methodology
    Section 5(c) of the Northwest Power Act established the REP, which 
provides benefits to residential and small-farm consumers of Pacific 
Northwest utilities based, in part, on a utility's ``average system 
cost'' (ASC) of resources. Section 5(c)(7) of the Act requires the 
Administrator to consult with regional interests to develop an ASC 
Methodology (ASCM). BPA uses the ASCM to calculate utilities' ASCs. On 
September 4, 2009, the Federal Energy Regulatory Commission 
(Commission) granted final approval of BPA's 2008 ASCM. The 2008 ASCM 
is not subject to challenge or review in a section 7(i) proceeding.
    Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, the 
Administrator hereby directs the Hearing Officer to exclude from the 
record all argument, testimony, or other evidence that seeks in any way 
to address the appropriateness or reasonableness of the 2008 ASCM.
h. Average System Cost Review Processes
    To receive REP benefits for FY 2012-2013, utilities must file 
proposed ASCs with BPA pursuant to the terms and conditions of the 2008 
ASCM. These filings are reviewed by BPA staff and other interested 
parties in ASC review processes, which are separate administrative 
proceedings conducted by BPA under the terms of the 2008 ASCM. In the 
review processes, BPA staff and other parties evaluate the ASCs

[[Page 78698]]

filed by participating utilities for conformance with the requirements 
of the 2008 ASCM. At the conclusion of the processes, BPA issues ASC 
Reports, which formally establish the utilities' ASCs for the Exchange 
Period, which coincides with BPA's rate period.
    On June 1, 2010, ten utilities filed proposed ASCs with BPA for FY 
2012-2013. One utility subsequently withdrew its ASC filing. BPA staff 
and other parties are currently reviewing the remaining nine filings in 
the ASC review processes. Once these ASC review processes are complete, 
and BPA has issued final ASC Reports, BPA will incorporate the final 
ASCs into the administrative record of the REP-12 proceeding. Although 
these ASC determinations provide important information for setting 
BPA's rates, they are not made in section 7(i) hearings. Parties 
intending to challenge BPA's draft or final ASC determinations for FY 
2012-2013 must raise such issues in the ASC review processes according 
to the procedures established in the 2008 ASCM.
    Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, the 
Administrator hereby directs the Hearing Officer to exclude from the 
record all argument, testimony, or other evidence that seeks in any way 
to address BPA's draft or final ASC determinations for FY 2012-2013.
i. Contract High Water Mark (CHWM) Process
    Under the Tiered Rate Methodology (TRM), BPA will establish both 
CHWMs and FY 2012-2013 Rate Period High Water Mark (RHWMs) for public 
agency customers that signed contracts for firm requirements power 
service at tiered rates, referred to as CHWM contracts. The CHWMs and 
RHWMs will be established in the CHWM Process, which will occur mainly 
in Spring 2011. In this process, BPA will establish the maximum planned 
amount of power a customer is eligible to purchase at Tier 1 rates 
during the rate period. The CHWM Process provides customers an 
opportunity to review, comment, and, if necessary, challenge BPA's 
determinations regarding certain CHWM and RHWM determinations.
    Pursuant to Sec.  1010.3(f) of BPA's Hearing Procedures, the 
Administrator hereby directs the Hearing Officer to exclude from the 
record all argument, testimony, or other evidence that seeks in any way 
to address BPA's determination of a customer's CHWM or FY 2012-2013 
RHWM.

C. The National Environmental Policy Act

    BPA is in the process of assessing the potential environmental 
effects that could result from implementation of the proposed 2012 REP 
Settlement, consistent with NEPA requirements. BPA is reviewing this 
proposal for consistency with BPA's Business Plan Environmental Impact 
Statement (Business Plan EIS), completed in June 1995 (DOE/EIS-0183). 
This policy-level EIS evaluates the environmental impacts of a range of 
business plan alternatives for BPA and is intended to support a wide 
range of subsequent BPA business-related decisions. In the Record of 
Decision for the Business Plan ROD (Business Plan ROD, August 1995), 
the BPA Administrator adopted the Market-Driven Alternative from the 
Business Plan EIS. This alternative was selected because, among other 
reasons, it allows BPA to: (1) Recover costs through rates; (2) 
competitively market BPA's products and services; (3) develop rates 
that meet customer needs for clarity and simplicity; (4) continue to 
meet BPA's legal mandates; and (5) avoid adverse environmental impacts.
    In April 2007, BPA completed a Supplement Analysis confirming the 
Business Plan EIS's environmental analysis in light of current regional 
conditions and BPA's current business practices. The Business Plan EIS 
and ROD thus continue to provide a sound basis for making 
determinations under NEPA concerning BPA's business-related decisions.
    BPA will document its environmental evaluation for the proposed 
2012 REP Settlement as part of the Administrator's Record of Decision 
that will be prepared for this proposal. During the public review and 
comment period for the proposed 2012 REP Settlement, persons interested 
in submitting comments regarding its potential environmental effects 
may do so by submitting comments to Katherine Pierce, NEPA Compliance 
Officer, KEC-4, Bonneville Power Administration, 905 NE. 11th Avenue, 
Portland, OR 97232. Any such comments received by the Close of 
Participant Comments deadline identified in Part II.A will be 
considered by BPA's NEPA compliance staff in the NEPA evaluation that 
will be prepared for this proposal.

Part III. Public Participation in REP-12

A. Distinguishing Between ``Participants'' and ``Parties''

    BPA distinguishes between ``participants in'' and ``parties to'' 
the hearings. Apart from the formal hearing process, BPA will receive 
written comments, views, opinions, and information from 
``participants,'' who may submit comments without being subject to the 
duties of, or having the privileges of, parties. Participants' written 
comments will be made part of the official record and considered by the 
Administrator. Participants are not entitled to participate in the 
prehearing conference; may not cross-examine parties' witnesses, seek 
discovery, or serve or be served with documents; and are not subject to 
the same procedural requirements as parties. BPA customers whose rates 
are subject to this proceeding, or their affiliated customer groups, 
may not submit participant comments. Members or employees of 
organizations that have intervened in the rate proceeding may submit 
general comments as participants but may not use the comment procedures 
to address specific issues raised by their intervenor organizations.
    Written comments by participants will be included in the record if 
they are received by March 8, 2011. Written views, supporting 
information, questions, and arguments should be submitted to the 
address listed in the ADDRESSES section of this Notice.
    Entities or individuals become parties to the proceeding by filing 
petitions to intervene, which must state the name and address of the 
entity or person requesting party status and the entity's or person's 
interest in the hearing. BPA's customers and affiliated customer groups 
will be granted intervention based on petitions filed in conformance 
with BPA's Hearing Procedures. Other petitioners must explain their 
interests in sufficient detail to permit the Hearing Officer to 
determine whether the petitioners have a relevant interest in the 
hearing. Pursuant to Rule 1010.1(d) of BPA's Hearing Procedures, BPA 
waives the requirement in Rule 1010.4(d) that an opposition to an 
intervention petition be filed and served 24 hours before the 
prehearing conference. The time limit for opposing a timely 
intervention will be established at the prehearing conference. Any 
party, including BPA, may oppose a petition for intervention. All 
petitions will be ruled on by the Hearing Officer. Late interventions 
are strongly disfavored. Opposition to an untimely petition to 
intervene must be filed and received by BPA within two days after 
service of the petition.

B. Developing the Record

    The hearing record will include, among other things, the 
transcripts of the hearing, written evidence and argument entered into 
the record by BPA and the parties, written comments

[[Page 78699]]

from participants, and other material accepted into the record by the 
Hearing Officer. The Hearing Officer will then review the record and 
certify the record to the Administrator.
    The Administrator will develop the Final ROD in the REP-12 
proceeding based on the record and such other materials and information 
as may have been submitted to or developed by the Administrator. The 
Administrator will serve copies of the Final ROD on all parties. BPA 
will incorporate the Administrator's final decision in this proceeding 
into its BP-12 Final Rate Proposal.

Part IV. Background of REP Litigation

A. Background on the REP

1. Section 5(c) of the Northwest Power Act
    As noted previously, section 5(c) of the Northwest Power Act 
established the REP. 16 U.S.C. 839c(c)(1). Under the REP, any Pacific 
Northwest utility may sell power to BPA at the utility's ASC. A 
utility's ASC is determined in accordance with an ASC Methodology that 
BPA develops pursuant to the requirements in the Act. In calculating a 
utility's ASC, section 5(c)(7) of the Act mandates that BPA exclude 
from ASC the cost of resources in an amount sufficient to serve a new 
large single load (NLSL), the cost of additional resources in an amount 
sufficient to meet any additional load outside the region occurring 
after the effective date of the Act, and any costs of any generating 
facility which is terminated prior to initial commercial operation. 16 
U.S.C. 839c(c)(7)(A)-(C).
    When a utility offers to sell its power to BPA at its ASC, BPA must 
purchase such power and, in return, sell an equivalent amount of power 
to the utility at BPA's rate for purchases under the REP, known as the 
``PF Exchange rate.'' The PF Exchange rate is developed in accordance 
with section 7 of the Northwest Power Act. The amount of power that is 
bought and sold under the REP is equal to the utility's qualified 
residential and small farm load (exchange load). Because the purchase 
and sale between BPA and the utility involves the same amount of power 
and is simultaneous, in almost all instances no actual power is bought 
or sold under the REP. Instead, the REP is generally implemented as a 
paper transaction where the net difference between the utility's ASC 
and BPA's PF Exchange rate is multiplied by the utility's exchange load 
and converted into a cash payment to the utility. The utility is 
required by law to pass these payments onto its residential and small 
farm consumers. 16 U.S.C. 839c(c)(3). The REP is implemented through a 
Residential Purchase and Sale Agreement (RPSA) executed by BPA and the 
utility. The REP is intended to provide regional residential and small 
farm consumers a form of access to the power produced by the FCRPS. 
Although intended primarily for the benefit of consumers located in 
investor-owned utilities' (IOUs) service areas, any utility within the 
region may participate.
2. Section 7(b)(2) of the Northwest Power Act and the PF Exchange Rate
    The PF Exchange rate is the rate at which BPA ``sells'' power to 
utilities participating in the REP. Section 7 of the Act prescribes the 
manner in which this rate is set. Under section 7(b)(1), BPA 
establishes the PF Exchange rate in much the same way BPA develops its 
PF Public rate. See 16 U.S.C. 839e(b)(1). Section 7(b)(2) of the Act, 
however, requires BPA to perform a ``rate test'' to determine whether 
the PF Public rate charged to BPA's consumer-owned utility customers 
(COUs) under the Act would be greater than a rate developed under five 
specific assumptions stated in section 7(b)(2). These five assumptions 
are:
    (A) The [COUs'] general requirements had included during such five-
year period the direct service industrial customer loads which are (i) 
served by the Administrator, and (ii) located within or adjacent to the 
geographic service boundaries of such public bodies and cooperatives;
    (B) [the COUs] were served, during such five-year period, with 
Federal base system resources not obligated to other entities under 
contracts existing as of December 5, 1980 (during the remaining term of 
such contracts) excluding obligations to direct service industrial 
customer loads included in subparagraph (A) of this paragraph;
    (C) No purchases or sales by the Administrator as provided in 
[section 5(c)] of this section were made during such five-year period;
    (D) All resources that would have been required, during such five-
year period, to meet remaining general requirements of the public body, 
cooperative and Federal agency customers (other than requirements met 
by the available Federal base system resources determined under 
subparagraph (B) of this paragraph) were (i) purchased from such 
customers by the Administrator pursuant to section 839d of this title, 
or (ii) not committed to load pursuant to section 839c(b) of this 
section and were the least expensive resources owned or purchased by 
public bodies or cooperatives; and any additional needed resources were 
obtained at the average cost of all other new resources acquired by the 
Administrator; and
    (E) The quantifiable monetary savings, during such five-year 
period, to public body, cooperative and Federal agency customers 
resulting from (i) reduced public body and cooperative financing costs 
as applied to the total amount of resources, other than Federal base 
system resources, identified under subparagraph (D) of this paragraph, 
and (ii) reserve benefits as a result of the Administrator's actions 
under this chapter were not achieved.
    If BPA's proposed rates developed under section 7(b)(1) are greater 
than the rates calculated under the section 7(b)(2) assumptions, BPA 
must reduce the costs included in the 7(b)(1) rate charged to COUs by 
assessing a surcharge pursuant to section 7(b)(3) to ``all other power 
sold by the Administrator to all customers.'' 16 U.S.C. 839e(b)(3). One 
of the rates assessed this surcharge is the PF Exchange rate. 
Application of the 7(b)(3) surcharge to the PF Exchange rate has the 
effect of increasing the level of the PF Exchange rate and reducing the 
amount of REP benefits paid by COUs in their PF Public rates.

B. History of the REP

    The history of BPA's implementation of the REP is marked by 
controversy and litigation. Shortly after the passage of the Northwest 
Power Act in 1980, BPA and regional parties negotiated the terms of 
BPA's first ASC Methodology (1981 ASC Methodology) and the provisions 
of 20-year RPSAs that would be used to implement the REP. After three 
years of experience under the 1981 ASC Methodology, BPA's DSI and COU 
customers requested that a consultation process be held to consider 
revisions to the 1981 ASC Methodology. BPA granted the requests and 
commenced a consultation process in 1983. In the consultation, BPA 
determined that the source of data used in the 1981 ASC Methodology did 
not include sufficient detail to ensure that BPA was excluding 
terminated plant costs as required by section 5(c)(7) of the Northwest 
Power Act. Consequently, BPA proposed to revise the ASC Methodology by 
expanding the procedures used to review ASCs and excluding certain 
costs that BPA determined were too difficult to accurately monitor. The 
revised ASC Methodology was completed in 1984 and received approval 
from the Commission shortly thereafter.

[[Page 78700]]

    BPA's IOU customers vigorously opposed the changes to the 1981 ASC 
Methodology. Eight IOUs and four State regulatory agencies filed 
petitions with the United States Court of Appeals for the Ninth Circuit 
challenging the Commission's final approval of the revised ASC 
Methodology (1984 ASC Methodology). See PacifiCorp v. FERC, 795 F.2d 
816 (9th Cir. 1986) (PacifiCorp). In PacifiCorp, the Court affirmed the 
Commission's approval and BPA's decision to adopt the 1984 ASC 
Methodology. Id. Even though the 1984 ASC Methodology was sustained by 
the Court, litigation continued over BPA's implementation of the ASC 
Methodology. Dozens of BPA's ASC determinations were contested before 
the Commission, several of which were ultimately resolved by the Court. 
See Wash. Util. & Transp. Comm'n v. FERC, 26 F.3d 935 (9th Cir. 1994); 
CP Nat. Corp. v. Bonneville Power Admin., 928 F.2d 905 (9th Cir. 1991).
    Due to the burdensome, expensive and contentious nature of 
implementing the 1984 ASC Methodology, BPA and regional exchanging 
utilities began negotiating settlements of the implementation of the 
REP. Throughout the late 1980s and into the 1990s, BPA and regional 
exchanging utilities entered into multiple REP settlements. By the late 
1990s, BPA and five of the six exchanging IOUs executed REP settlement 
agreements that resolved the implementation of the REP until June 30, 
2001.

C. The 2000 REP Settlement Agreements

    In early 1996, the governors of Idaho, Montana, Oregon and 
Washington convened the Comprehensive Review of the Northwest Energy 
System. The goal of the review was to develop recommendations for 
changes in the region's electric utility industry, focusing on BPA, 
through an open public process involving a broad cross-section of 
regional interests. In December 1996, after over a year of intense 
study, the Comprehensive Review Steering Committee released its Final 
Report. The Final Report proposed a subscription system for purchasing 
specified amounts of power from BPA at cost with incentives for 
customers to take longer-term subscriptions (Subscription). In 
connection with its Subscription proposal, the Steering Committee 
encouraged BPA and other parties in the region to explore a settlement 
of the REP with the region's IOUs for the FY 2002-2011 period.
    In response to the Steering Committee's recommendation, BPA and 
regional IOUs developed the 2000 Residential Exchange Program 
Settlement Agreements (2000 REP Settlement Agreements). Under the 2000 
REP Settlement Agreements, the IOUs agreed to forgo their participation 
in the traditional REP for a period of ten years (FY 2002-2011) in 
return for certain payments and deliveries of firm power from BPA. To 
recover the costs of the 2000 REP Settlement Agreements for the FY 
2002-2006 rate period, BPA proposed in its WP-02 Wholesale Power Rate 
Proceeding to allocate a significant portion of the costs of the 2000 
REP Settlement Agreements to the rates charged to COUs.

D. Challenges to the 2000 REP Settlements: The Ninth Circuit's 
Decisions in Portland General Electric v. BPA, Golden Northwest 
Aluminum v. BPA, and Snohomish PUD v. BPA

    In January of 2001, certain parties filed petitions with the Ninth 
Circuit challenging BPA's statutory authority to implement the REP 
through the 2000 REP Settlement Agreements. In September of 2003, 
following final Commission confirmation and approval of BPA's WP-02 
rates, parties also filed challenges to BPA's decision to recover the 
costs of the 2000 REP Settlement Agreements from the PF rates without 
BPA's traditional manner of implementing the 7(b)(2) rate test.
    While these challenges were pending before the Court, BPA commenced 
a new rate proceeding, the 2007 Wholesale Power Rate Proceeding, to 
establish rates for the FY 2007-2009 period (WP-07 rates). In the WP-07 
rates, BPA again allocated a significant portion of the costs of the 
2000 REP Settlement Agreements to the PF rates. The WP-07 rates were 
filed with the Commission on July 28, 2006, and received interim 
approval from the Commission on September 21, 2006.
    On May 3, 2007, before final Commission approval of BPA's WP-07 
rates, the Court issued two decisions in the pending challenges to the 
2000 REP Settlement Agreements and the then-expired WP-02 rates. In 
Portland General Electric v. Bonneville Power Admin., 501 F.3d 1009 
(9th Cir. 2007) (PGE), the Court found that BPA had exceeded its 
settlement authority when it entered into the 2000 REP Settlement 
Agreements. 501 F.3d at 1037. In a companion case, Golden Northwest 
Aluminum v. Bonneville Power Admin., 501 F.3d 1037 (9th Cir. 2007) 
(Golden NW), the Court also held that BPA had improperly allocated the 
cost of the 2000 REP Settlement Agreements to rates charged to the COUs 
in violation of section 7(b)(2). 501 F.3d at 1048. The Court then 
remanded the WP-02 rates to BPA with the instruction to ``set rates in 
accordance with this opinion.'' Id. at 1053.
    After issuing the PGE and Golden NW decisions, the Court also 
reviewed challenges to certain amendments to the 2000 REP Settlement 
Agreements signed in 2004. See Pub. Util. Dist. No. 1 of Snohomish 
County, Wa. v. Bonneville Power Admin., 506 F.3d 1145 (9th Cir. 2007) 
(Snohomish). In Snohomish, the Court remanded the 2004 amendments to 
the 2000 REP Settlement Agreements and a ``Reduction of Risk'' 
provision amended by the 2004 amendments to BPA. Id. at 1154. The Court 
explained that it was remanding these amendments to BPA in order to 
permit BPA to determine ``in the first instance'' whether these 
amendments remained valid in light of the Court's opinions in PGE and 
Golden NW. Id.

E. BPA's Response to PGE, Golden NW, and Snohomish: The WP-07 
Supplemental Hearing and the Development of the 2008 RPSAs

    Following the issuance of the PGE, Golden NW, and Snohomish 
decisions, BPA ceased making payments under the 2000 REP Settlement 
Agreements. Thereafter, BPA commenced a series of public meetings to 
discuss with interested parties BPA's response to the Court's opinions. 
At the conclusion of these meetings, BPA announced that it was 
commencing a section 7(i) process to determine whether and to what 
extent the 2000 REP Settlement Agreements caused illegal costs to be 
included in rates charged to the COUs. This proceeding, referred to as 
the WP-07 Supplemental Rate Hearing, began in February of 2008. In the 
WP-07 Supplemental Rate Hearing, BPA proposed to revise its prospective 
WP-07 rates for FY 2009 (the third year of the rate period), replacing 
the costs of the 2000 REP Settlement Agreements with REP benefits 
calculated in accordance with sections 5(c) and 7(b)(2) of the 
Northwest Power Act. In addition, BPA proposed to perform an analysis, 
referred to as the ``Lookback,'' to determine whether BPA had 
overcharged the COUs during the WP-02 rate period (i.e., FY 2002-2006) 
and the first two years of the WP-07 rate period (i.e., FY 2007-2008). 
The Lookback compared the payments the IOUs received or would have 
received under the 2000 REP Settlement Agreements with the amount of 
REP benefits the IOUs would have received under a traditional 
implementation of the REP pursuant to sections 5(c) and 7(b) of the 
Northwest Power Act. For those IOUs that received more in REP benefits 
under the 2000 REP Settlement Agreements than allowed by sections

[[Page 78701]]

5(c) and 7(b)(2) of the Act, BPA assessed a refund obligation known as 
a ``Lookback Amount.'' BPA proposed to collect the Lookback Amounts 
from the IOUs by withholding future benefits owed to the IOUs under the 
REP and issuing refunds to the injured COUs.
    At the conclusion of the WP-07 Supplemental Hearing in September of 
2008, BPA presented its final findings in the WP-07 Supplemental Record 
of Decision (WP-07 Supplemental ROD). In the WP-07 Supplemental ROD, 
BPA determined that the COUs had been overcharged by approximately $1 
billion during the FY 2002-2008 period. BPA proposed to return these 
overcharges to the injured COUs with an initial lump-sum cash payment 
in 2008 and then through future reductions in REP benefit payments to 
the applicable IOUs.
    In addition to determining the refunds and overcharges caused by 
the 2000 REP Settlement Agreements, the WP-07 Supplemental ROD also 
addressed BPA's final decisions on the appropriate amount of REP 
benefits to pay the IOUs, and include in rates, for FY 2009. To make 
this determination, BPA had to address a host of controversial issues 
related to the section 7(b)(2) rate test. Over 270 pages of the WP-07 
Supplemental ROD were dedicated to addressing the issues and arguments 
presented by the parties on the section 7(b)(2) rate test.
    Because the traditional REP was being implemented for FY 2009, BPA 
also needed to negotiate and execute new RPSAs with the IOUs intending 
to participate in the REP. Thus, concurrent with the WP-07 Supplemental 
Hearing, BPA also engaged in a public process to develop a new RPSA. 
After taking public comment on a prototype RPSA, BPA published a final 
RPSA in September of 2008. Among other terms included in the RPSA, BPA 
adopted a provision that would allow BPA to recover the Lookback 
Amounts from the IOUs by reducing future REP benefit payments. BPA's 
justification for including this and other provisions in the RPSA were 
explained in the 2008 RPSA Record of Decision (2008 RPSA ROD).

F. Challenges to BPA's WP-07 Supplemental ROD and RPSA Decisions: The 
Assoc. of Pub. Agency Customers v. Bonneville Power Admin., Idaho Pub. 
Util. Comm'n v. Bonneville Power Admin, and Avista Corp. v. Bonneville 
Power Admin

    BPA's decisions in the WP-07 Supplemental ROD and the 2008 RPSA ROD 
were vigorously opposed by both COUs and IOUs. The COUs and entities 
supporting the COUs' position claimed that BPA had grossly 
underestimated the IOUs' refund obligation and that the actual 
overcharge to COUs for the FY 2002-2008 period was at least $2 billion. 
The IOUs, public utility commissions, and ratepayer advocacy groups, in 
contrast, argued that no refunds were owed at all because the Court did 
not direct BPA to provide refunds and because the terms of the 2000 REP 
Settlement Agreements specifically prohibited BPA from recouping REP 
benefits paid under those agreements. The IOUs and COUs also opposed 
BPA's interpretation and implementation of the section 7(b)(2) rate 
test for both the Lookback period and for setting rates in FY 2009.
    In December 2008, fourteen petitions were filed in the Ninth 
Circuit challenging the Lookback-related findings and decisions BPA 
reached in the WP-07 Supplemental ROD. These challenges were 
consolidated into The Assoc. of Pub. Agency Customers v. Bonneville 
Power Admin., et al. (APAC). Also in December 2008, seven petitions 
were filed by a number of IOUs and public utility commissions 
challenging BPA's decision to adopt the final RPSAs. These challenges 
were consolidated into Idaho Pub. Util. Comm'n v. Bonneville Power 
Admin. (IPUC). On July 16, 2009, the Commission granted final approval 
to BPA's WP-07 rates for FY 2009. Shortly thereafter, fifteen more 
petitions challenging BPA's final WP-07 rates were filed with the Ninth 
Circuit and consolidated into Avista Corp., et al. v. Bonneville Power 
Admin. (Avista). Briefing on the issues in the APAC and IPUC cases 
began in August of 2009 and concluded in March of 2010. Briefing on the 
rate issues in Avista has yet to occur.
    Shortly after petitions were filed in the APAC and IPUC cases, BPA 
commenced a rate proceeding to establish rates for the FY 2010-2011 
period (WP-10 Rate Proceeding). In the WP-10 Rate Proceeding, BPA 
proposed to continue to implement its Lookback remedy by reducing the 
IOUs' prospective REP benefit payments and paying refunds to the COUs 
based on the determinations made in the WP-07 Supplemental ROD. BPA 
also proposed to implement the section 7(b)(2) rate test in the same 
manner as in the WP-07 Supplemental ROD. On July 21, 2009, BPA issued 
its final ROD in the WP-10 Rate Proceeding (WP-10 ROD.) In October and 
November of 2009, five IOUs filed precautionary petitions for review 
with the Ninth Circuit challenging BPA's decision to continue to 
implement the Lookback remedy in the WP-10 ROD. These appeals were 
consolidated in Portland General Elec. et al. v. Bonneville Power 
Admin. (PGE II). On August 6, 2010, the Commission granted final 
approval to BPA's WP-10 rates. Subsequently, in November of 2010, 
fifteen petitions were filed with the Ninth Circuit challenging the 
ratemaking decisions BPA reached in the WP-10 ROD. The petitions 
challenging BPA's WP-10 rate making decision have yet to be 
consolidated.
    Following the completion of the briefing in the APAC and IPUC 
cases, the litigants in APAC, IPUC, Avista, and PGE II agreed to engage 
in mediation in an attempt to resolve their numerous disputes. Because 
many of the issues in the mediation would affect the prospective 
implementation of the REP, the litigants invited regional parties not 
involved in the litigation to participate in the mediation. The 
mediation sessions commenced in early April of 2010 and continued 
through May of 2010. Over fifty litigants and other parties 
participated in the mediation. Although by the conclusion of the 
scheduled mediation sessions the litigants and parties had not achieved 
a settlement, significant progress had been made toward reaching a 
compromise on all existing claims and the future implementation of the 
REP. Principals from most of the litigants agreed to continue meeting 
through August and September in an attempt to achieve a settlement.
    In mid-September 2010, with assistance from the mediator, a large 
contingent of COUs and IOUs agreed to pursue resolution of the 
outstanding litigation and the future implementation of the REP 
pursuant to the terms of a non-binding Agreement in Principle (AIP). 
The AIP committed the negotiated parties to work in good faith on a 
final settlement of the REP that adhered to certain terms and 
conditions. From September to December of 2010, the parties worked to 
transform the AIP into a final settlement document. The final version 
of the proposed 2012 REP Settlement is expected to be completed by mid-
December.

G. Proposed 2012 REP Settlement Agreement

    The proposed 2012 REP Settlement would resolve challenges over 
BPA's implementation of the REP in return for a stream of REP benefits 
to the IOUs for a term of 17 years. The COUs' obligation to pay REP 
benefits in rates would be limited to the COUs' share of the stream of 
REP benefits as set forth in the agreement. The distribution of these 
REP payments to the IOUs would depend on each IOU's respective ASC and 
exchange load. The IOUs would continue to file ASCs with BPA

[[Page 78702]]

pursuant to the 2008 ASCM. In addition to the stream of REP benefits, 
the IOUs would receive a percentage of certain BPA Renewable Energy 
Credits (RECs) and the payment of certain outstanding interim payments 
due under the interim REP payment agreements between BPA and the IOUs.
    The 2012 REP Settlement reflects a compromise by a substantial 
majority of BPA's customers and most of the litigants to the litigation 
on the outstanding REP-related issues. It was developed after extensive 
negotiations by representatives of COU customers, IOU customers, public 
utility commissions, and ratepayer advocacy groups. Many of these 
entities signed the AIP and are expected to sign the 2012 REP 
Settlement once it is completed. These parties have requested that BPA 
review the proposed settlement, and, if consistent with law, execute 
the Agreement and set rates consistent with its terms.

Part V. Summary of Proposal and Description of Major Studies

A. Summary of Proposal

    Although BPA firmly believes that settlement of the existing REP 
litigation is in the interest of all BPA ratepayers, BPA must ensure 
that the terms and conditions in the 2012 REP Settlement are reasonable 
and comply with all relevant statutory provisions before executing the 
Agreement. BPA is conducting a section 7(i) proceeding to provide a 
forum in which BPA and other interested parties can evaluate the 
reasonableness and legal sufficiency of the proposed 2012 REP 
Settlement.
    At the conclusion of the REP-12 proceeding, the Administrator will 
determine, after reviewing all evidence and arguments contained in the 
record, whether the terms of the proposed 2012 REP Settlement comport 
with BPA's statutory duties and authorities. If the Administrator 
determines that the settlement is consistent with applicable law, and 
is broadly supported by BPA's customers and other interested parties, 
he will sign the proposed 2012 REP Settlement and set BPA's FY 2012-
2013 rates in accordance with the terms of the 2012 REP Settlement. In 
such case, the 2012 REP Settlement would replace BPA's current 
construct of withholding REP benefits due the IOUs and paying Lookback 
refund credits to eligible COUs as described in the WP-07 Supplemental 
ROD. In addition, the 2012 REP Settlement would settle the amount of 
rate protection afforded to COUs for the term of the agreement, 
obviating the need to continue the litigation over the section 7(b)(2) 
decisions BPA reached in the WP-07 Supplemental ROD and the WP-10 ROD.
    If the Administrator determines the proposed 2012 REP Settlement is 
not consistent with BPA's statutory duties or is otherwise 
unreasonable, the Administrator will not sign the 2012 REP Settlement 
but will instead continue to set rates, recover Lookback Amounts and 
issue refunds consistent with his decisions in the WP-07 Supplemental 
ROD and the WP-10 ROD.

B. 2012 REP Settlement Analysis Initial Proposal

    To test the reasonableness of the proposed 2012 REP Settlement, BPA 
will perform an analysis that will develop a range of forecast REP 
benefits reflecting the likely amount of REP benefits the IOUs would 
receive (and conversely the amount of rate protection the COUs would 
likely receive) in the absence of the 2012 REP Settlement. The range of 
REP benefits will be developed by quantifying the major issues being 
litigated by BPA, the IOUs, and the COUs in the current and pending 
litigation. Broadly speaking, the major issues being litigated today 
are the implementation of the section 7(b)(2) rate test, allocation of 
rate protection costs under section 7(b)(3), and the development and 
calculation of the Lookback Amounts. For each of these main issues, BPA 
will develop a 17-year forecast of REP benefits that is based on the 
parties' respective legal positions. The amount of REP benefits allowed 
under these various assumptions will then be compared to the REP 
benefits afforded to the IOUs under the 2012 REP Settlement to test 
whether the terms of the 2012 REP Settlement are reasonable and 
consistent with the protections provided by law.
    BPA has modified the near-term Rate Analysis Model and has 
developed a new long-term section 7(b)(2) rate test model to quantify 
the parties' various litigation positions on rates and forecast REP 
benefits. The models will be used in tandem to quantify the near-term 
and long-term financial impacts on REP benefits under a variety of 
different litigation scenarios. Specifically, the models will evaluate 
the following contested issues: Rate test treatment of conservation 
resources and their effect on loads; treatment of conservation costs in 
the rate test; rate test accounting and financing treatment of 
conservation resource costs; rate test repayment study; treatment of 
Mid-Columbia resources; treatment of secondary energy credit; 
discounting of the stream of rate projections; elasticity of DSI loads; 
and allocation of rate protection costs to surplus power sales. Other 
scenarios may be added during the course of the proceeding. In addition 
to the rate modeling, the quantitative analysis will include the effect 
of parties' positions on the amount of Lookback Amounts owed on future 
REP benefits.
    For purposes of the REP-12 Initial Proposal, BPA will use the 
above-noted issues to produce future REP benefits under different 
litigation scenarios. These scenarios are presented in the 2012 REP 
Settlement Agreement Study and Analysis. The models also quantify the 
impacts of non-litigation issues on future REP benefits, such as future 
growth in ASCs and BPA program costs.

C. Implementation of 2012 REP Settlement in Rates

    In addition to the settling of the various REP issues in 
litigation, the 2012 REP Settlement also specifies certain ratemaking 
treatment of REP-related costs. Implementing the 2012 REP Settlement in 
ratemaking will affect the PF Exchange rate, the Industrial Firm Power 
rate (IP), and the New Resources rate (NR). While these ratemaking 
treatments have been already incorporated into the initial rate 
proposal in the BP-12 proceeding, the REP-12 proceeding will be 
examining these various ratemaking specifications to test whether the 
ratemaking treatments of the 2012 REP Settlement are reasonable and 
consistent with law.

D. Initial Proposal for the Section 7(b)(2) Rate Test and Lookback 
Amount Determinations in the Absence of Settlement

    As noted above, BPA is evaluating the reasonableness and 
sustainability of the 2012 REP Settlement in the REP-12 proceeding. If 
the Administrator determines that the 2012 REP Settlement is not 
reasonable or is otherwise unlawful, the 2012 REP Settlement will not 
be executed and BPA will set rates assuming no settlement of the REP. 
Consequently, as an alternative to the 2012 REP Settlement, BPA is also 
proposing to implement the section 7(b)(2) rate test, the section 
7(b)(3) allocations and surcharges, and the Lookback recovery and 
return for FY 2012-2013 in accordance with the decisions BPA reached in 
the WP-07 Supplemental ROD and WP-10 ROD, unless otherwise stated. If 
the 2012 REP Settlement is not adopted, the final decisions BPA reaches 
on these issues in this case will be incorporated into the BP-12 rate 
proceeding.

[[Page 78703]]

E. Major Studies

1. 2012 REP Settlement Agreement Study and Analysis
    The 2012 REP Settlement Agreement Study and Analysis (REP Study) 
describes the terms of the 2012 REP Settlement and provides the 
analytical work BPA staff is performing to test the reasonableness of 
the 2012 REP Settlement. The REP Study is comprised of two major parts.
    Part I of the REP Study reviews the history of the REP and the 
background underlying the current litigation. This portion of the REP 
Study also contains an overview of the section 7(b)(2) rate test and a 
description of how rate protection works in BPA ratemaking. Part I also 
describes the terms of the proposed 2012 REP Settlement and explains 
how BPA staff intends to implement the terms of the proposed settlement 
in BPA's rates.
    Part II of the REP Study contains BPA staff's evaluation and 
analysis of the 2012 REP Settlement. This portion of the REP Study 
begins with an explanation of the criteria BPA staff is using to 
evaluate the 2012 REP Settlement. This section is followed by an 
overview of the models BPA staff developed to create a variety of near- 
and long-term forecasts of REP benefits under various scenarios. Part 
II of the REP Study also describes the various factors that will have 
an effect on REP benefits, such as the current and future issues in 
litigation and issues related to ASCs and the PF Exchange rate. At the 
end of Part II of the REP Study, BPA staff presents its scenario 
analysis. In this section, BPA staff presents near- and long-term REP 
benefits under different scenarios. These scenario REP benefits are 
compared to the REP benefits provided under the proposed 2012 REP 
Settlement to determine, from an analytical perspective, whether the 
2012 REP Settlement affords rate protection to COUs and is otherwise 
reasonable.
2. FY 2012-2013 7(b)(2) Rate Test and Documentation
    This Study will be used only if the 2012 REP Settlement is not 
adopted.
    BPA has interpreted the Northwest Power Act and described how the 
section 7(b)(2) rate test will be performed in the Section 7(b)(2) 
Legal Interpretation (Legal Interpretation) and Section 7(b)(2) 
Implementation Methodology (Implementation Methodology) published in 
August, 2008. The Section 7(b)(2) Rate Test Study explains and 
documents the results of the rate test.
    The 7(b)(2) rate test triggers in this proposal if no REP 
settlement is assumed, creating rate protection for preference 
customers and causing test period costs to be reallocated to others. 
The PF Public rate applied to the general requirements of COUs has been 
reduced by the rate protection amount and reallocated to other rates 
pursuant to section 7(b)(3). BPA's other rates, the PF Exchange rate 
and the NR and IP rates, have been increased by an allocation of the 
rate protection amount. An allocation of the rate protection amount has 
also been assigned to surplus power sales.
3. FY 2012-2013 Lookback Study
    This Study will only be used if the 2012 REP Settlement is not 
adopted.
    This Study explains and documents BPA's proposed modifications to 
the amounts to be recovered from the IOUs and applied to the Lookback 
Amounts determined in the final WP-07 Supplemental Proposal. The Study 
also sets forth the accounting of the Lookback Amounts expected to be 
recovered from IOUs and repaid to COUs during the FY 2012-2013 rate 
period. BPA also explains in this Study what amount of Lookback will be 
recovered from IOUs and returned to applicable COUs for the FY 2012-
2013 rate period.

Part VI--Proposed 2012 REP Settlement Agreement

    On December 17, 2010, a draft of the proposed 2012 REP Settlement 
will be available for viewing and downloading on BPA's Web site at 
http://www.bpa.gov/corporate/ratecase/2012/rep-12.cfm. Copies of the 
draft 2012 REP Settlement will also be available for viewing in BPA's 
Public Reference Room at the BPA Headquarters, 1st Floor, 905 NE. 11th 
Avenue, Portland, OR 97232.

    Issued this 7th day of December 2010.
Stephen J. Wright,
Administrator and Chief Executive Officer.
[FR Doc. 2010-31622 Filed 12-15-10; 8:45 am]
BILLING CODE P
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