BPA Base Case -- Assuming No Legislation
as Defined by the Regional Review

A. POWER AND TRANSMISSION SEPARATION

A.1 How are generation and transmission separated?

No statutory separation--administrative separation: BPA remains one Federal agency with a single Bonneville Fund, but with separate business lines. There would be separate accounting of transmission and power with transfer charges.

A.2 How will functional separation be implemented?

In response to FERC Orders #888 and #889, the Administrator is re-organizing BPA into distinct Transmission and Power business lines, creating separate executive leadership below the CEO level. BPA is delegating substantial authority to these business lines to function independently and instituting safeguards against preferential disclosure of transmission information to Power Marketing employees. Further, operational decision making is being sufficiently separated to avoid conflicts between power and transmission. Nevertheless, the Administrator retains ultimate statutory responsibility for all business lines and must exercise prudent oversight.

B. POWER MARKETING FUNCTION

B.1 How is the power marketing function governed?

- Business line within BPA reports to DOE as existing. Secretary appoints Administrator. Congress has final oversight.

- Power Planning Council advises BPA.

B.2 What are the federal treaty and trust responsibilities?

The U.S. Treaty obligation includes an annual return of approximately 1400 MW capacity and 500 MW energy to Canada. The treaty also requires the U.S. to coordinate operation of its projects with Canadian projects. Only a U.S. Entity can implement the treaty, in cooperation with the COE and the BOR. Trust responsibilities reside with the U.S. Government in regard to Indian Treaties as well.

B.3 How is power sold to the customer?

BPA would continue to have the obligation to offer requirements power under existing law. BPA can offer a range of bundled and unbundled products and services, tailored to meet individual customer needs. Power contracts can be for any period up to 20 years. Exchanges can extend beyond 20 years.

B.4 What is preference to Federal power?

Public agencies, Northwest preference, then all others under existing statutes. BPA establishes terms and conditions for exercise of rights to requirements power, including notice provisions. Such terms and conditions for power purchased under post-2001 contracts have not been established.

B.5 How will the exchange program be implemented?

BPA currently "exchanges" power with utilities at rates determined by the 7(i) process. Consistent with the 1996 Energy and Water Appropriations Act, Conference Report, BPA is seeking to work with customers to phase-out the exchange by 10/1/2001. BPA could exercise in-lieu provisions post-2001.

B.6 How are rates set and costs accounted for?

The Administrator makes a final decision establishing the rates based on the record. Rates become effective upon FERC confirmation and approval. The requirements for the 7(i) process are set in statute [notice in Federal Register, one or more hearings conducted by a hearing officer with opportunity to refute or rebut material and opportunity for cross-examination, developing a record, opportunity for public comment] and can not be changed without legislation. Within those requirements, BPA has developed Procedural Guidelines for Expedited Proceedings, which may be used in the case of single issue ratemaking. The expedited process may not be adequate for a full rate case. Rates set under the full 7(i) procedural rules could be streamlined. BPA must meet separate accounting requirements under a FERC order. The accounting is being enhanced for functional separation.

B.7 Who has regulatory oversight?

FERC confirms and approves BPA's rates. However, the review is limited to ensure that the BPA rates are sufficient to assure repayment of the Federal investment, are based upon BPA's total system costs, and equitably allocate the costs of Federal transmission systems between Federal and non-Federal users.

B.8 At what price is power sold?

- Cost-based for those receiving priority; except where market-based rates better assure cost recovery.

- Surplus firm and other products and services at market-based rates.

- Nonfirm marketed on spot market, seeking full cost recovery on average.

B.9 Is there an obligation to serve the load growth of customers?

Yes. BPA could sign agreements with customers requiring the cost of meeting load growth to be borne directly by those customers. BPA and its customers might be able to contract to relieve BPA of the obligation to serve.

B.10 Under conditions of insufficiency, how would customers be served?

Under current statues, BPA may limit its obligation to serve if Federal resources are not available to meet total load obligations. New contracts could specify a formula allocation similar to existing power sales contracts. Service to DSI or non-preference customers would be determined by the terms of the sales contract and statutory provisions in Section 5 of the Regional Act.

B.11 Under what conditions do the customers have the obligation to take power?

Terms of existing contracts require customers to purchase power from BPA except under a limited number of circumstances. New contracts could specify different obligations.

B.12 Under what conditions can the customer resell the power to others?

Resale prohibited under existing law, except for resale of surplus power.

B.13 Who ultimately bears the risk if the price at which power is sold does not cover costs?

Rate payers first, then Treasury if BPA can not cover costs. Customers may be subject to rate increases in the long term to pay for deferrals (see also F.3). BPA would probably need to establish a "plan of repayment" to submit with new rates to FERC.

B.14 Who ultimately bears WNP-2 decommissioning costs responsibility?

Rate payers first, then Treasury if BPA can not cover costs. Customers may be subject to rate increases in the long term to pay for deferrals (see also F.3). Net-billing will cause Transmission and Power revenues to flow to the supply system before the BPA fund.

B.15 Who receives the benefits of Federal power if the market price is above costs?

Customers receive benefits and/or BPA is able to provide public benefits consistent with current legislation.

B.16 How are capital projects funded?

BPA may either fund capital projects from its revenues or borrow the funds. BPA has limited remaining borrowing authority from the U.S. Treasury. BPA may also use third-party financing whenever possible.

B.17 How are the Corps and Bureau capital projects funded?

The Corps and Bureau generally receive appropriations to fund their capital projects. In some cases, BPA provides direct funding for a portion of their capital projects, using revenues or Treasury borrowing.

C. PUBLIC PURPOSES

C.1 Does BPA support public purposes?

Yes. BPA has statutory obligations for public preference, regional preference, conservation and renewable resource acquisitions, fish and wildlife mitigation, public involvement, etc., and has authority and commitments to provide other benefits.

C.2 What is the process for deciding which public benefits BPA provides for?

Benefits BPA provides from federal system resources are decided and reviewed through public processes, chiefly those managed by BPA or the Council, and through Executive and Legislative budget review and oversight.

C.3 Which public benefits does BPA support?

BPA supports its statutory obligations and the other benefits that have evolved from its role in the region; including benefits to consumers, the power system, the environment, and Federal taxpayers. Examples include public preference, residential exchange benefits, and public involvement practices.

C.4 How does BPA support public benefits?

BPA pays the costs of those benefits that are integral to its business activities (such as fish and wildlife mitigation, or the low-density discount) through costs charged to customers. BPA carries out public responsibilities both by conducting its activities according to law (e.g. preference) and by making payments (e.g. exchange).

C.5 What is the mechanism for supporting energy services benefits and ensuring that they are provided?

Competitive marketing is the first choice where the market can provide public benefits (for example, benefits the suppliers provide to attract and hold customers). BPA may pursue some energy benefits through the marketing efforts of the energy services business line. Where the market fails to provide cost-effective benefits, BPA supports cost-effective market intervention. BPA is working to establish regional support for some public purposes through the formation of trusts to which BPA and others contribute; particularly the proposed Market Transformation Trust. BPA continues financial support for existing programs and has made some extensions of past support.

C.6 What responsibility does BPA have for environmental obligations (e.g., fish program, environmental clean up)?

BPA complies with environmental law (e.g. NEPA and ESA) as it applies to Federal agencies. BPA's ratepayers bear the bulk of the costs associated with regional environmental obligations Costs are limited to $252 million/year plus operating costs through 2001 by the fish funding agreement. The U.S. taxpayers reimburse BPA through Section 4(h)(10)(C) of the Regional Act for fish associated expenses not allocable to power. The retroactive portion of this 4(h)(10)(C) credit, approximately $325 million, will be for outlays by BPA ratepayers between 1980 and the present. The Administration will also provide annual credits of approximately $50 million to $60 million prospectively to reimburse BPA ratepayers for fish and wildlife costs from fiscal years 1997-2001.

D. TRANSMISSION FUNCTION

D.1 How is Transmission business governed?

- Business line within BPA reports to DOE as existing. Secretary appoints Administrator. Congress has final oversight.

- Subject to the Federal Advisory Committee Act, an advisory board could be put into place.

(See also A.2)

D.2 Who plans and constructs?

BPA plans and constructs its transmission system. BPA participates in Regional Transmission associations.

D.3 How are rates set and costs accounted for?

Cost-based transmission rates are set under 7(i) procedural rules which could be streamlined (see B.6). There must be functional unbundling for new wholesale and power sales and purchases that BPA engages in on or after July 9, 1996. Functional unbundling requires that the rate for ancillary services be cost-based and separate from both Transmission and Power rates. BPA must meet separate accounting requirements under a FERC order. The accounting is being enhanced for functional separation (see also B.6).

D.4 Who has regulatory oversight?

FERC confirms and approves BPA's rates. However, the review is limited to ensure that the BPA rates are sufficient to assure repayment of the Federal investment, are based upon BPA's total system costs, and equitably allocate the costs of Federal transmission systems between Federal and non-Federal users.

D.5 How would BPA participate in an IGO if one is formed?

BPA might be able to lease facilities to an IGO without Congressional approval. Nevertheless, there are issues that need to be resolved regarding the 1986 Urgent Supplemental Appropriations Act and organic acts.

D.6 How are BPA capital projects funded?

BPA may either fund capital projects from its revenues or borrow the funds. BPA has limited remaining borrowing authority from the U.S. Treasury. BPA may also use third-party financing whenever possible.

E. COMPETITION

E.1 Will BPA provide transmission access for retail wheeling?

Not yet decided. BPA can, but is not required to provide such wheeling.

E.2 Will BPA market to retail customers?

Not yet decided. BPA can and does serve Federal agencies, public bodies, DSI's, and marketers supplying retail customers.

E.3 How will BPA recover its generation stranded investments, if any?

Recovery uncertain under terms of existing contracts.

F. DEBT MANAGEMENT

F.1 How is security for outstanding $7.2 billion net-billed bonds preserved?

No change in the pledged security for the net-billed bonds. One Bonneville Fund provides security for the outstanding net-billed bonds. Nevertheless, a capital transfer and capital transfer charge between transmission and generation may be necessary to preserve security and satisfy FERC separation requirements.

F.2 How is tax-exempt status preserved, including the 9(f) provision in the Northwest Power Act and current IRS tests (such as private use and private payment tests)?

BPA currently meets all IRS tax tests including private use and private payment tests.

F.3 How is the Federal debt repaid?

There is one Bonneville Fund, as specified in the 1974 Transmission Act. The repayment schedule is largely the result of administrative rule that can be changed without legislation. After paying all other obligations first, BPA repays Treasury for the Corps and Bureau operation and maintenance, interest, and Federal amortization using the "highest interest first" method of the current repayment policy. Highest interest rate debt is repaid first in generation and transmission functions. BPA's current repayment methodology includes a provision for including future replacements and paying highest interest rates first to the extent possible. These forecasts have effect of pushing repayment forward. Recently-passed BPA appropriation legislation provides refinancing that reduces principal and increases interest rates for existing appropriated debt. The Act prescribes interest rate assignments for future appropriated investments and provides BPA customers with contractual guarantees that Congress will not alter repayment terms in the future.

F.4 Is BPA in compliance with the FERC Uniform System of Accounts?

The Federal Power Act requires compliance with the FERC Uniform System of Accounts to the extent practicable. BPA has reported externally since inception by the FERC Uniform System of Accounts. BPA could use the FERC accounts to assist in enhancing internal cost management by business line.