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Federal Power Marketing Work Group

Report to Comprehensive Review Steering Committee

Introduction

The Federal Power Marketing Work Group consisted of representatives of the various Bonneville customer groups, individual customers, NCAC and other public interest groups, state agencies, and other market participants. To the extent that there was general agreement on issues it will need to be qualified by noting that even within the groups represented at the table, individual members may or may not assent to the agreement.


The work group focused on proposals based upon the output of the Federal Base System being marketed at cost, and remaining competitive in the post-2001 markets. Two models emerged that define the bookends within which the predominance of the customer interests represented by the group appear to fall. The models represent a winnowing and narrowing of the range of proposals originally proposed to the group. There is an emerging consensus among the customer groups about where their preferred solution should fall within those bookends.


Other proposals were submitted based on assuring revenue recovery for Bonneville and providing sufficient funding for fish and other public purposes. The proposals were submitted by public interest groups concerned about potential limits on funding for fish restoration and public purposes in the other models. The public interest groups were asked to consolidate their proposals into a common model. There is significant disagreement between the customers and the public interest groups over key features of this proposal: 1) stranded cost mechanisms, particularly those directed at WPPSS costs, 2) market based pricing and 3) perceptions of unlimited exposure to the cost of fish restoration, exacerbated by a governance structure that focuses on fish over power.


Bonneville did not present a preferred solution to the work group, though it did describe its views on several issues. Bonneville will present a range of alternatives to the Steering Committee on July 12. The Bonneville-suggested alternatives will generally fall within the range of the bookends.

Problem Statement

Dramatic changes in the structure of the electric industry, capacity surpluses in the West, continuing low natural gas prices, a high level of fixed costs and the increasing requirements posed by the threatened and endangered status of salmon runs on the Columbia River have combined to squeeze Bonneville between rising costs and falling prices. Bonneville's actions in response to this threat to its ability to cover its costs and repay the Treasury have raised questions about its reliability as a supplier of power, its ability to exercise monopoly control over its customers, its ability to fund public purposes it had previously funded, its ability to pay for its fish-related environmental responsibilities, and, generally, its role in the deregulated, competitive power market that is rapidly developing.


The Steering Committee focused the problem on the following issues in its scope of work for the work group:



The members of the work group representing the customers of Bonneville added a focus on customer control of Bonneville costs and policies to their formulation of the problem statement, while public interest groups and state agencies concentrated on river governance and risk mitigation.

Major Points of Consensus

The work group members agreed on the following points to use in evaluating the various proposals, though there might not be consensus on the relative weight of any single point (the points are not in any particular order). The work group recommends that the Steering Committee use these criteria for its evaluation of power marketing proposals.



In consideration of the constraints associated with the major background issues, and the diverse interests expressed by the work group in its discussions, the following points of consensus were agreed to. The work group recommends to the Steering Committee the following actions:


Major Points of Disagreement

Points Requiring More Information or Time to Review

Key Decisions for the Steering Committee

Major Background Issues

There were several major issues that recurred in the work group's discussions of alternative proposals for federal power marketing. These are background issues in the sense that they are external to the particular economic interests of the various power purchasing and selling parties in the Northwest. The sections below are intended to characterize them generally rather than in legal detail. They are not intended to imply that no solutions to the issues exist, but only that the issues need to be addressed and that some solution would need to be worked out.

Legal and Financial

Third-Party Bond Security

There are two major issues relating to Bonneville's third-party debt, and particularly that of the Washington Public Power Supply System bonds, that must be addressed by any proposal to change the structure of federal power marketing. The first of these is ensuring the security of the bonds. The bonds, through a complex set of agreements among the bondholders and the bond trustee, the Supply System, the project participants and Bonneville are secured by the revenues of Bonneville. They are both ahead of repayment of Treasury obligations in priority and are paid out of the single legislatively created Bonneville fund that contains revenues from both power and transmission. The third party debt's priority of payment out of a single Bonneville fund raises an issue for legal separation of Bonneville's power marketing and transmission assets and revenues.


Several of the parties to the agreements described above have specific legal obligations to protect the security of the bonds and any proposal that is perceived to be impairing that security may risk legal challenge, up to and including requiring immediate repayment of all outstanding bonds (the value of which is approximately $7.2 billion).


Removing Bonneville from the repayment channel may be perceived as threatening the security. A federal guarantee might offset this. Defeasing the bonds would eliminate this risk but at some cost in higher interest rates, including potentially the loss of tax-exempt financing.

Tax-Exempt Status of Third-Party Bonds

Some actions could threaten the tax-exempt status of the existing bonds. If these bonds were to lose their tax-exempt status, all outstanding net billed bonds could become taxable back to the date of original issue. There are two tests that must be met to maintain the tax exempt status of the bonds, the private use test and the private payment test. Both tests are designed to limit the portion of project benefits or debt payments that are attributable to non-exempt persons. Some non-exempt persons, called in the analysis "bad" users, include the federal government, investor-owned utilities, cooperative utilities, for-profit corporations, and non-profit corporations. Exempt persons include states; the political subdivisions of states, including public and people's utility districts; joint operating and power agencies; and state compacts. Bonneville's current sales are covered by existing legislation and rulings Bonneville has obtained from the IRS. Changing the customer mix and contract terms of those who buy federal power runs the risk of upsetting the structure that establishes the tax-exempt status of the bonds.


The tax issue could be solved in several ways. Bond or tax counsel might issue an opinion and tax certificate. The IRS could issue a private letter ruling. The likelihood of either of these occurring is very low. Or, legislation could be sought to preserve the tax-exempt status of third-party debt. The group heard from Bonneville that Treasury and OMB do not generally support broad tax exemptions. Legislation could, of course, override such opinions, but any proposal will be closely reviewed in the Administration, in Congress, and among impacted parties. An important part of the calculus in weighing possible solutions is consideration of the length of time each might require.

Appointments Clause of the U.S. Constitution

Bonneville legal staff state that the Appointments Clause of the Constitution requires that those who exercise significant federal authority be federal officials. The board of a federal corporation must be appointed by the President and he cannot be constrained to choose any particular people, though he may be constrained to select people who demonstrate various interests. Conversely, private persons cannot exercise significant federal authority and most of the examples of non-federal officials exercising such authority appear to relate to state government regulatory functions or power exercised through interstate compacts.


The work group has not had the time and resources to independently test the Bonneville opinion regarding the Appointments Clause. This clause places important limits on the ability of the customers to control Bonneville's costs through membership on an oversight board of some sort. As a result, it has forced the work group to examine a long-term allocation model with a governance structure that moves beyond federal control to private control, which, in turn, raises questions regarding the WPPSS debt.

Bonneville and Public Utility Contracting Authorities

One alternative mechanism that was raised for the customers to get some control over the costs and policies of Bonneville was through contracts. There appear to be important limits to contracting authority on both sides. Bonneville cannot contract away authorities of the federal government such as budget setting. It can contract to limit customers' exposure to the effects of its costs, but to the extent that it does that to the aggregate of its customers, as opposed to just to a small group of customers, it risks a determination by FERC that its revenues will be inadequate to repay the Treasury. In addition, contractual mechanisms limiting federal agency discretion cannot be specifically enforced. The only remedy customers have is damages for breach of contract; they cannot force the federal agency to perform specific actions.


On the other side, public utilities in Washington, where the issue was sharpened by the state court decision on WPPSS obligations, cannot sign take-or-pay contracts without the ability to exercise significant control over their exposure (the question of utility authority in other states has not be explored). If such control existed it would raise the Appointments Clause question, and if it did not, there could be state authority issues. Take-or-pay contracts are an issue in proposals for a long-term balance of risks and rewards between the customers and the Treasury. There are also questions about the extent to which, or whether, public utilities can legally waive existing rights to e.g., requirement contracts from Bonneville. This issue is raised in non-legislative proposals to limit Bonneville's acquisition authority.

Competitive Marketplace

Separation of Generation and Transmission

Standards for comparability of treatment and for administrative separation of generation and transmission businesses have been set by FERC in its recent Orders 888 and 889, as part of the effort to create a deregulated generation market with non-discriminatory open access to transmission for all market participants. Bonneville is separating generation and transmission functions and complying with FERC standards of conduct, although Bonneville is not a FERC-jurisdictional utility for this purpose.


The existence of a single Bonneville fund at the Treasury, in which revenues from generation and transmission are mingled for the purpose of paying Bonneville's obligations, including Treasury obligations and the Supply System and other third-party debt, may complicate separation of Bonneville's generation and transmission functions. This complication happens because both functions support all obligations; Bonneville has the ability to defer transmission Treasury payments to cover generation debt costs.


Proposals to separate generation and transmission would have to address this issue. Mechanisms, such as capital charges (borrowings) or other informal loans against the Treasury obligations to ensure the bond security have been suggested for the first two possible steps in separation (administrative separation and two federal agencies with a single fund). Beyond that, separate federal agencies with separate funds would need a formal inter-agency loan or other means such as standby borrowing authority to deal with the inability to defer transmission Treasury payments to cover generation debt. The next possible steps, involving non-federal transmission or non-federal transmission and generation may require either formal federal guarantees or defeasing or refunding the debt. Both defeasance and refunding would likely have to be done at taxable interest rates.

Anticipated Ability of Bonneville to Meet Market and Make Treasury Payments Post-2001

A key issue underlying the discussions in the work group has been Bonneville's competitiveness and ability to meet Treasury payments after the current contracts expire in 2001. The issue largely reflects expectations and risk perceptions, since the future is particularly uncertain now, with all the underlying structural changes in the industry.


One view of the future, held by Bonneville, is that gas prices will rise enough and the Western power market will tighten sufficiently as loads grow and the capacity surplus is worked off, that the price pressures on the agency will ease soon after 2001. As long as the market remains in the 20 mills or higher range post-2001, the agency can most likely compete effectively in the wholesale market.


Another view of the future is that Bonneville faces significant financial risks from, e.g., retail wheeling, technological changes, low gas prices, high and unpredictable fish restoration responsibilities, and that these risks ought to be explicitly addressed now.

Future Unknowns and Risks

The Treasury and Fish Cost Risk

The Treasury now bears the ultimate market risk for Bonneville if it is unable, due to market conditions, to raise its prices sufficiently to recover its costs. Temporarily unrecoverable costs are deferred, with interest, as a mechanism to deal with revenue swings due to water, aluminum price and short-term power price variations. Long-term market risk, due to changes in the wholesale power market, is a relatively new phenomenon for Bonneville. Depending on future market conditions, primarily driven by gas prices and technological changes, the long-term market risk to Treasury may become more significant.


With the conclusion of a five-year rate, and new contract amendments with customers, Bonneville is confident of covering its repayment obligations with acceptable probability in each of the years of the 1997-2001 rate period. One of the bases of that confidence is the interim agreement with the Administration on a cap on fish costs.


Fish costs, however, represent a long-term uncertainty to the Bonneville and thus the Treasury, just as market risk does. The federal government has obligations under the Endangered Species Act, the U.S.-Canada Pacific Salmon Treaty, and its treaties with the tribes. This cost uncertainty is a major impediment to achieving a long-term solution to what some see as Bonneville's market risk problems. The uncertainty about the effects of fish recovery actions on Bonneville, and particularly on the physical output of the system, is a major impediment to customer willingness to assume the new market risks on a long-term basis in return for potential long-term price benefits.


Fish costs represent a long-term uncertainty for the Treasury without any change in power marketing after 2001, when current contracts expire. At that point the current customers have no contracts, and Bonneville's ability to impose stranded cost charges is unclear. This does not imply that any particular component of Bonneville's costs (WPPSS debt, fish costs, etc.) constitute the "stranded costs," but just that fish exposure is potentially a major contributor to the total of Bonneville's costs being above market prices after 2001.

Prospect of Alternative Federal Legislation

The Northwest has the ability to propose or not propose federal legislation to deal with these issues. The Northwest needs to keep in mind, however, that others are likely to propose national legislation on the structure of the electric industry. That legislation may or may not be directed at Bonneville and the other federal power marketing administrations, and even if it is not directed at them, may have implications for them that the Northwest may not be able to control to its satisfaction.

Range of Proposals

The work group began its examination of the issues by receiving and discussing nine specific proposals from various parties. These have been summarized in a matrix that was distributed earlier to the Steering Committee. The group examined a range of proposals including maintaining the status quo, seeing how far Bonneville could be stretched administratively under its existing authorities, making minor legislative changes, making major legislative changes to enhance customer control, auctioning off the power or the power marketing rights to the highest bidder and specialized proposals to recover WPPSS costs or to direct Bonneville power to the region's domestic and rural customers.


The work group has focused on two major alternatives ("Stretched Bonneville Model" and "Joint Ownership Model") that appear to provide bookends for most, but not all, of the customer interests that were active in the group. This could also be characterized as encompassing the "center of gravity" of the customers' interests. Bonneville did not provide a specific proposal of its own to the group, but attempted to assist the group in examining the issues raised by the proposals of others. Bonneville will present what it considers to be the range of feasible alternatives at the July 12 meeting of the Steering Committee. The public interest groups came to the problem from a different perspective. Their proposal focuses on a mechanism for dealing with the possibility of Bonneville financial problems post-2001 and on changing river governance, with power generation subordinated to requirements for fish restoration.


The alternatives are described in their authors' words without editing by the work group. There is no agreement on elements of these proposals unless noted specifically in the "Major Points of Consensus" section.

Two Proposals for Marketing FBS Output at Cost

Stretched Bonneville Model

This model is based on a premise that without any form of federal legislation, but with administrative changes, Bonneville can be competitive post-2001, that regional customers as a whole can be better off, that the financial risk and rewards between Bonneville customers and the federal government can be clarified, and that agreed-upon levels of public purposes can be fulfilled. This model allows sufficient latitude for improvement and response to an evolving market, the benefits of which flow to the region.


Bonneville, its customers, public interest groups, and elected officials do not have the luxury of being complacent, just because new contracts or amendments have been signed and a five-year rate will be going into place. In this model, Bonneville and interested parties would immediately develop a master list of key issues and a work schedule.


This model requires Bonneville to look for creative solutions, using broad interpretations of statutes and the flexibility of contract authority. Equally important, for this to work, Bonneville's customers and other groups are going to need to demonstrate creativity, trying to steer around limitations of federal or state statutes that may have outlived their purpose. In summary, there needs to be a united front within the region to allow Bonneville to respond to change.


A number of important issues are highlighted below with the understanding that the Federal Power Marketing Work Group has not analyzed in detail the merit of alternative policy choices. The focus has been on identifying an overall direction -- a series of substantive or procedural issues where the region, and Bonneville in particular, may have the flexibility to act. The detailed implementation actions that follow will only unfold with subsequent work that is beyond the scope of this work group.

Customer Friendly Products and Services

Bonneville should offer products in the marketplace that meet the diverse needs of customers. Products could be of varying duration: 6 months, 2 years, 5 years, 20 years. Products could have differing cost components that match risk and reward: fixed price, price with a formula adjustment clause, lower rate on average but exposure to risk due to unforeseen events, etc. Bonneville has moved in the direction of offering product variety and responding to customers seeking diversity in their resource portfolios. In a new market the support services beyond "energy" will become increasingly important.


Bonneville should use its contract flexibility and rate making flexibility to offer unique services to customers. To accomplish this, customers will need to agree to allow Bonneville to exercise that flexibility, as the agency takes on individual bilateral business deals. Customer focus would be directed to overall cost control and budget, and general policies of the agency.


Resource Acquisition and Obligation to Serve

Many utilities want Bonneville to serve their full requirements, including load growth, while some want to take care of their own load growth. To the extent additional resources are required to serve load growth, they could be procured through short or mid-term contracts. Bonneville would acquire resource output on a bilateral basis with individual customers if those customers were willing to exclusively shoulder the financial risks.


Bonneville and its customers should determine the extent to which a contractual agreement regarding serving a level of load over a fixed period of time can be binding. Bonneville may still have an "obligation to serve" by statute, but there may be latitude to limit this requirement under the terms of a new contract. If this were possible, Bonneville would be able to reasonably predict its actual service requirements, and, in turn, provide the most cost-effective mix of planned resources to meet that load.


Customer Groups - Packages Offered

Publics - There would be full requirements package for utilities signing 100 percent service agreements, including obligation to serve load growth. Customers with resources can enter into separate bilateral contracts for load growth if desired. Customers would choose whether or not to take power. If customers leave, there would be a waiting period to return to PF service, but a utility could take surplus power at market price if available and offered.


IOUs - A package would be offered to address needs of residential and small farm customers, with products and prices subject to negotiation.


DSIs - A variety of contracts would be offered based upon load on Bonneville in 2001. Other DSI loads would be treated similarly to the remaining in-region loads.


Regional preference/competition - Bonneville would not expand the current scope of retail sales, given existing federal and state legislation, but could offer surplus power in the region to third parties that end up marketing to Northwest customers. Out of region sales would be offered first to public agencies.


Governance/Administration

The Bonneville Administrator would continue to report to the Department of Energy, and be responsible for functionally separated generation and transmission. The region should seriously explore creation of a Customer/Regional Board to provide input on budgets and programs. The board could have clout but remain advisory in nature and would influence other federal agencies such as the Corps of Engineers and Bureau of Reclamation.


The 7(i) rate process should be simplified to the extent possible, with the understanding that the future may involve a wide variety of rate options. Bonneville should apply FERC accounting. Continued cost cutting measures need to be emphasized. Cost control could be exerted through contractual mechanisms.


Treasury Obligations and Fish Protection

Try to maintain a sufficiently high level of probability of Treasury payment, while keeping products competitively priced. Extend the fish cap beyond 2001. On a multi-year basis, determine if there is flexibility from Bonneville net earnings in good water years to provide additional reserves over time that could be used as needed to supplement fish commitment. Build these assumptions into contract offerings. Improve fish governance to yield better accountability for programs.

Joint Ownership Model

The Joint Ownership model was developed by customers, but it does not have official endorsement from any organization, particular utility or company. Under the current Bonneville/federal ownership system the U.S. Treasury lends money to the region which the customers then repay over time through their power rates. After the assets are repaid Bonneville and the Corps and the Bureau projects are still owned by the federal government. In contrast, the purpose of the Joint Ownership model is to provide for an ownership-like right to the customers of this proposed power marketing entity. Customers would choose whether or not to take an allocation. If the customers choose to take an allocation, with that allocation would come an ownership-like right to the system along with a governance role linked to the percentage of ownership. Through this means customers would exert control over budgets, operations and the strategic direction of the power entity. The description of this model does not include an explicit discussion of oversight of river operations.


Assumptions


Federal Role and Governance

A federally chartered corporation would be created to assume Bonneville's power system debts and other defined roles. This entity would be a private corporation with private shareholders. Private ownership rights in the corporation would follow allocations. The government could possibly have a minority interest.


Functions

The corporation would be responsible for coordinated operation and scheduling of the system, administration, contract management, information systems, finance, and limited participation in competitive markets. The Corps and Bureau would still perform their historical functions, balance the multi-purpose uses of the hydropower system and assume treaty functions.


How new entity would dispose of federal power

The output of the system would be allocated to customers with recognition of public preference, regional preference and historical contract rights. The allocation term would be 30 to 40 years. The allocations would be phased as follows: 1) public power, 2) DSIs and IOUs, and 3) outside the region.


With the allocation would come an ownership-like right to power from the system to those customers that are willing to commit to paying their allocated share of the budget. Power obtained through allocations could be resold. Allocations would be on a modified slice of the cake basis, that is customers could choose to take all of their allocated share of the power products of the system and market those power products that they do not use. In the alternative, customers could have the power entity market the power products that they do not use and credit the revenues that this entity obtains from these sales back to the budgets of the customer so that their bill is reduced.


A purchaser's load growth would be met optionally through bilateral contracts which shield other customers from cost exposure. New publics' allocations would be met through voluntary reallocations or from open market purchases.


How would power that is obtained through allocations be priced?

Prices would be cost based (including Supply System costs), take or pay. Future operations and maintenance expense and capital additions would be under the control and responsibility of the board.


Fish and wildlife costs

Fish and wildlife costs would be addressed through an modified fish cap under which a monetary limit would be set. The money could be used as the fish and wildlife interests see fit. The split between flow costs and program costs would also be determined by fish interests. In order to reduce fish cost purchasers could opt out of purchase obligations if fish costs get too high. In addition the U.S. Treasury could share in increased costs should these exceed a specified level.

Alternative Proposal for Selling FBS Output at Market, Imposing Stranded Costs if Necessary, and Financing Public Purposes

A group of work group members consolidated the several specific proposals submitted by public interest groups into the following model. Like the other major proposals it does not have official endorsement from any organization.


Sales at Market Prices

Bonneville would sell the output of the FBS at market prices shaped as necessary to meet market demands. Requiring Bonneville to be a "price taker" by auction is an option to restrain Bonneville's market power. Preference customers and aggregators for exchange-eligible consumers would be given a limited right of first refusal.


Separate Marketing of WNP-2 Output

If the security and tax-exempt status of the bonds can be maintained, the output of WNP-2 would be separately marketed and no longer melded with the rest of the FBS. If such an attempt fails to recover the plant's avoidable costs (O&M, new capital costs, perhaps less a contribution representing the savings from late vs. early decommissioning that could be made by the hydrosystem), it would be shut down.


Risk Mitigation Measures

Risk mitigation measures would be put into place to ensure that the FBS output could always generate enough revenues to cover costs, and to reduce load loss whose only aim is to shift costs.

Negotiations should begin with Treasury to explicitly share both upside and downside fish, technology and market risks borne by Bonneville.


Disposition of Profits

Profits generated by sales of FBS output would be available to offset previous Treasury deferrals, to build up reserves, for return to customers and to exchange-eligible residential and small-farm consumers who had accepted the IRA, and to supplement support for public purposes and fish and wildlife restoration.


Governance and Stewardship of the Columbia River System

Federal legislation would establish an executive Board of Sovereigns that includes federal, state and tribal representation. Consistent with applicable law, the Board would set policy for federal Columbia River operations for federal agencies (except FERC, which would be obligated to take the Board's policies fully into account) with responsibilities that may affect the biological health of the river, and would oversee its implementation. The Board would set long- and short-term river operations and watershed health protocols, oversee Bonneville strategic planning, and oversee power operations (including operations of, and capital modifications to, hydropower elements of federal projects) to the extent the Board determines such operation may affect its responsibilities.


Subject to requirements of law, the Board would have the authority to direct or disallow specific federal agency actions it deemed inconsistent with its fish and wildlife plan. Determination of the level of Bonneville's fish and wildlife (flow and non-flow) expenditures would be vested in the new body, subject to restoration objectives stipulated in legislation and fixed in multi-year budgets adopted by the Board. Board fish and wildlife decisions would be based on science-based river health standards and subject to judicial review and/or a dispute resolution process where treaty rights are involved. The Board's highest priority for river operations after public safety would be for fish restoration.



Bonneville legal staff felt the public interest governance model for river management raises Appointments Clause issues. Public interest representatives sought to address these by constituting an interstate/tribal compact (not a board of private persons or interests), by focusing its authority on river stewardship responsibilities, and by building on a Power Council model that has been tested and validated in Federal Court proceedings.


Public Purposes

Further support for conservation, renewables and low-income services would be provided through mechanisms being developed in the Public Purposes Work Group. Some of the 'profits' from revenues from the FBS can be used to fund public purposes, but these important purposes cannot be held hostage to the vagaries of the commodity market. Instead, some proportion of the profits would be put into a trust fund whose proceeds could supplement or supplant other funding mechanism and be used as a fish reserve fund for dry years.

Other Points of View Summarized

Some models proposed discuss the possibility of an auction at market prices of any remaining power products, after an initial cost-based allocation phase that acknowledges public and regional preference and existing DSI contracts. Cost-based models work well if Bonneville's future costs are perceived to be less than expected market prices, whereas an auction is sufficiently robust to work regardless of market conditions. An auction also provides the necessary preliminary step in defining whether, and to what degree, stranded costs exist.


These models do not discuss the auction alternative in detail, so the following provides a brief discussion of possible alternative auction structures, and provides for a market-based alternative to the two primarily cost-based alternatives discussed. An auction could take numerous forms dependent on the definition of the primary variables, such as product, term and payment. In the case of Bonneville, the products can vary from a "slice" of a defined subset of Bonneville products, to a smorgasbord selection of products as desired by the bidders. The slice provides a percentage of output with the quantity determined by the total system output at any point in time. A selection of products allows the bidder to determine the desired quantities of various products. The terms of sales have varied from as little as five years to as long as perpetuity.


Payment is somewhat predetermined by the decision about how products are offered. In the case of individual products, a per unit charge for product received is most compatible. In the case of the slice, an annual or a one-time payment would be most compatible. The former is a take and pay arrangement and the latter is a take or pay arrangement. By making the products more "user friendly," by offering a wide variety of product choices, terms, etc., more value will be obtained from the auction. While the concept of an auction usually brings to mind a one-time process, this is not necessarily the case. At the other end of the spectrum is a continuing federal entity that markets by auction and is effectively a price taker, rather than a direct competitor in the power markets. Give the goal of the Review to maximize the value of the system for the benefit of the region, the structure of the auction should be as flexible as possible, in consideration of other constraints or objectives, such as the desire to constrain Bonneville's market power.

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