[Federal Register Volume 70, Number 29 (Monday, February 14, 2005)]
[Notices]
[Pages 7489-7495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2780]


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DEPARTMENT OF ENERGY

Bonneville Power Administration


Bonneville Power Administration's Policy for Power Supply Role 
for Fiscal Years 2007-2011

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

ACTION: Notice of final policy.

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SUMMARY: This notice announces BPA's final policy regarding how the 
agency intends to market power and distribute the costs and benefits of 
the Federal Columbia River Power System (FCRPS) in the Pacific 
Northwest for fiscal years (FY) 2007-2011. This policy clarifies BPA's 
obligation to supply power to its regional power customers and guides 
BPA in developing and establishing its firm power rates in the future.

ADDRESSES: This policy and the Administrator's record of decision (ROD) 
are available on BPA's Web site at http://www.bpa.gov/power/regionaldialogue. Copies are also available by contacting BPA's Public 
Information Center at (800) 622-4520.

[[Page 7490]]


FOR FURTHER INFORMATION CONTACT: Helen Goodwin, Regional Dialogue 
project manager, at (503) 230-3129.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Scope of Regional Dialogue
II. Link to FY 2007-2011 Strategic Direction
    A. Report to the Region
    B. Strategic Direction
III. An Integrated Strategy for FY 2007-2011
    A. FY 2007-2011 Rights to Lowest-Cost Priority Firm (PF) Rate
    B. Tiered Rates
    C. Term of the Next Rate Period
    D. Service to Public Agency Customers With Expiring Five-Year 
Purchase Commitments That Do Not Contain Lowest PF Rate Guarantee 
through FY 2011
    E. Service to New Public Agency Utilities and Annexed Investor-
Owned Utility (IOU) Loads
    F. Product Availability
    G. Service to Direct Service Industries (DSIs)
    H. Service to New Large Single Loads (NLSL)
    I. Service to Residential and Small-Farm Consumers of Investor-
Owned Utilities (IOUs)
    J. Conservation Resources
    K. Renewable Resources
    L. Controlling Costs and Consulting With BPA's Stakeholders
IV. Long-Term Issues
    A. Long-Term Policy: Limiting BPA's Long-Term Load Service 
Obligation at Lowest Cost Rates for Pacific Northwest Firm 
Requirements Loads
    B. Schedule for Long-Term Issue Resolution
V. Environmental Analysis

I. Scope of Regional Dialogue

    The Regional Dialogue process began in April 2002 when a group of 
BPA's Pacific Northwest electric utility customers submitted a ``joint 
customer proposal'' to BPA that addressed both near- and long-term 
contract and rate issues. The proposal focused on how BPA would market 
Federal power and distribute the costs and benefits of the FCRPS under 
20-year power sales contracts as a means to settle litigation on the 
Residential Exchange Program Settlement Agreement signed in 2000. It 
was believed that both near- and long-term issues could be resolved 
before BPA's next rate period in October 2006. Since then, BPA, the 
Northwest Power and Conservation Council (Council), customers, and 
other interested parties have continued to work on both near- and long-
term issues. Considering the depth and complexity of these issues, BPA 
concluded it was not practical to resolve all issues before the start 
of the next rate period.
    BPA's current firm power rates expire at the end of FY 2006. Nearly 
all of BPA's regional power sales contracts continue through FY 2011. 
BPA believes its first priority is to resolve policy issues that likely 
will influence the last 5 years of those contracts, the next rate case, 
and decisions to be made by customers concerning BPA power service 
during that period.
    By February 2004, BPA decided to address the issues in two phases. 
The first phase of the Regional Dialogue addresses issues that must be 
resolved in order to replace power rates that will expire in September 
2006. These decisions will create certainty for the FY 2007-2011 period 
and set the stage for the long-term phase of the Regional Dialogue that 
follows. The second phase will address issues that are critical to 
determine how BPA in the longer term will market Federal power and 
distribute the costs and benefits of the FCRPS for 20 years, with the 
objective of implementing new 20-year contracts well before current 
power contracts expire in FY 2011. The process and schedule for 
resolving these issues is included in section IV.B.
    The Council has played an active role in helping to plan and guide 
BPA's development of the near-term Regional Dialogue policy direction, 
as well as in setting the stage for developing the long-term policy 
direction. BPA and the Council agree on the overall goals of the 
Regional Dialogue process to determine BPA's long-term role in 
providing power to regional customers at the lowest cost-based rates 
and capturing that role in long-term contracts and rates as soon as 
possible to create a durable solution. Underlying the Regional 
Dialogue's focus on addressing BPA's long-term power supply role is the 
need to assess and understand the impact the 2000-2001 West Coast 
electricity crisis has had on BPA and its customers.

II. Link to FY 2007-2011 Strategic Direction

    The financial impacts of the West Coast electricity crisis of 2000-
2001 led many utilities to examine their policies and approaches to 
their power supply. BPA is no exception. Over the past year, BPA has 
invested significant time and effort in strategic planning directly 
related to its power supply.
    This re-examination of BPA's mission and core values has, along 
with comments and advice from the Council, customers, constituents, 
tribes, and other regional stakeholders, helped inform the agency's 
approach to the Regional Dialogue.

A. Report to the Region

    In early 2003, BPA initiated a detailed examination of the events 
that began in 2000 that led to the significant rate increases and 
deterioration of BPA's financial condition. On April 18, 2003, BPA 
released a Report to the Region that included lessons the agency 
learned, with the intention of translating those lessons into future 
actions.
    Among a number of other lessons, the report noted that the level of 
BPA's costs and risks are driven heavily by the load obligations BPA 
assumes under contracts with customers. Meeting those load obligations 
was a large driver of BPA's cost and rate levels. The report pointed 
out that the amount of risk (market volatility and uncertainty) to be 
managed in the whole region's power system has grown substantially and 
the fraction of that risk that BPA can absorb has gotten smaller. The 
report also noted that BPA must avoid the need to acquire large amounts 
of power on short notice to meet customer load demand.
    This policy has been developed specifically with those lessons in 
mind, particularly to resolve the agency's customer load service 
uncertainty as soon as possible and provide customers with the power 
supply clarity they need.

B. Strategic Direction

    The Report to the Region highlighted the need for BPA to have a 
clear and steady strategy and manage to clear objectives. In response, 
the agency devoted a significant amount of time to clarifying its 
strategic direction.
    BPA's strategic direction establishes the agency's most important 
objectives and the actions that will help it manage to these 
objectives. The strategic direction calls on BPA to advance the Pacific 
Northwest's future leadership in four core values--high reliability, 
low rates consistent with sound business principles, responsible 
environmental stewardship, and clear accountability to the region.
    It should come as no surprise that the subjects covered in the 
Regional Dialogue are well represented in the agency's strategic 
direction, particularly with regard to BPA's role as a low-cost 
provider and the need for clear regional accountability. The strategic 
direction guiding this policy includes:
    1. Regional Infrastructure Development: BPA policies encourage 
regional actions that ensure adequate, efficient, and reliable 
transmission and power service.
    2. Conservation and Renewables: Development of all cost-effective 
energy efficiency in the loads BPA serves, facilitation of regional 
renewable resources, and adoption of cost-effective nonconstruction 
alternatives to transmission expansion.

[[Page 7491]]

    3. Benefits to Residential and Small-Farm Consumers of Investor-
Owned Utilities (IOUs): The post-2011 benefit that BPA provides to IOUs 
for their residential and small-farm consumers is equitable based on 
the Northwest Power Act.
    4. Rates: BPA's lowest firm power rates to public preference 
customers reflect the cost of the undiluted Federal Base System (FBS), 
are below market for comparable products, and are kept low through 
achievement of BPA's objectives at the lowest practical cost.
    5. Service to Direct-Service Industrial Customers (DSIs): Explore a 
post-2006 DSI service option with a known and capped value.
    6. Regional Stakeholder Satisfaction: Customer, constituent, and 
tribal satisfaction, trust, and confidence meet targeted levels.
    7. Management: Collaborative customer/constituent/tribal 
relationships are supported by managing to clear long-term objectives 
with reliable results.
    8. Cost Recovery: Consistent cost recovery over time.
    9. Ratepayer and Taxpayer Interests: FCRPS assets are managed to 
protect ratepayer and taxpayer interests for the long term.
    10. Best Practices: Best practices (with emphasis on cost 
performance and simplicity) are obtained in key systems and processes.
    11. Risk: Risks are managed within acceptable bounds.
    Additional principles guiding the Regional Dialogue are:
    12. Legal Criteria: Approaches or policy options should not require 
legislative change and should minimize legal risk.
    13. Treasury Payment: BPA will plan to achieve and maintain a 
Treasury payment probability (TPP) that is the equivalent of a 95 
percent probability for a 2-year period and an 88 percent probability 
for a 5-year period. Options for achieving this goal include, but are 
not limited to, cost recovery adjustment clauses (CRACs) and planned 
net revenue for risk.

III. An Integrated Strategy for FY 2007-2011

    BPA's policy decisions on each of the issues raised in its July 
proposal are given below. The reasoning behind each decision, including 
how BPA addressed public comment in making the decision, is contained 
in the record of decision (ROD). Where decisions are required to be 
made in a rate case, the policies articulated here will guide BPA's 
initial rate case proposal.

A. FY 2007-2011 Rights to Lowest-Cost Priority Firm (PF) Rate

    BPA will apply the lowest-cost PF rates to its public agency 
customers whose contracts contain the lowest-cost PF rate guarantee 
throughout the remaining term of the Subscription power sales 
contracts.

B. Tiered Rates

    BPA will exclude a tiered PF rate proposal applicable to firm power 
load requirements sales to public agency customers from its FY 2007 
initial rate case proposal. Tiered rates will be considered as part of 
an integrated long-term contract and rate solution that will implement 
the long-term Regional Dialogue policy of limiting BPA sales of firm 
power to its Pacific Northwest customers' firm requirements loads at 
its lowest-cost rates to approximately the firm capability of the 
existing Federal system.

C. Term of the Next Rate Period

    BPA will limit the duration of the next rate period to three years, 
from FY 2007 through FY 2009. This will allow BPA to set rates lower 
than would be needed for a five-year rate period, all else being equal. 
In addition, a shorter rate period reduces the need for rate adjustment 
mechanisms such as the current CRACs. BPA plans to conduct a separate 
rate case to ensure new rates are in place when new contracts take 
affect. Depending on decisions yet-to-be made, this could result in BPA 
offering two sets of rates through FY 2011 (one for Subscription 
contract holders and one for Regional Dialogue contract holders). An 
additional rate period of 2 years will run from FY 2010 through FY 
2011.

D. Service to Public Agency Customers With Expiring Five-Year Purchase 
Commitments That Do Not Contain Lowest PF Rate Guarantee through FY 
2011

    BPA will offer all of its public agency customers whose contracts 
expire on September 30, 2006, and do not contain a guarantee of the 
lowest cost-based PF rates beyond FY 2006 either an amendment to extend 
the term of their existing contracts through September 30, 2011, or a 
new contract reflecting a product listed in Section III.F., below, that 
will expire on September 30, 2011. The customers' net requirements will 
be calculated consistent with their existing contract or prior to 
execution of a new contract consistent with section 5(b)(1) of the 
Northwest Power Act and BPA's Section 5(b)/9(c) Policy. As part of a 
contract amendment or new contract offer, BPA also will offer language 
that guarantees the lowest cost-based PF rates (except for New Large 
Single Loads (NLSL)) through FY 2011.
    BPA will offer all of its public agency customers whose contracts 
expire on September 30, 2011, and contain either a 5-year PF off-ramp 
or on-ramp option that expires on September 30, 2006, an amendment to 
cancel their respective PF off-ramp options early or exercise on-ramp 
options early. The offer also will include language that guarantees the 
lowest cost-based PF rates (except NLSL) through FY 2011. The 
customers' net requirements will be calculated consistent with their 
existing contracts.
    Public agency customers with either the expiring 5-year contracts 
or the expiring 5-year ramp options will have a 60-to-90-day period, 
specified by BPA, in which to accept BPA's offer. The offer will expire 
no later than June 30, 2005.
    Public agency customers that do not accept BPA's offer during the 
prescribed time frame will not be eligible to receive the lowest cost-
based PF rates guarantee and will be subject to a Targeted Adjustment 
Charge (TAC) or its successor, as appropriate, beginning in FY 2007.
    BPA had proposed to recalculate the net requirements of customers 
with expiring 5-year contracts or ramp options and limit sales at the 
lowest-cost rate to their recalculated net requirements. All but one of 
such customers have full or partial requirements contracts which 
automatically limit their lowest-cost service to their actual net 
requirements. The remaining customer has a contract which, upon review, 
does not allow BPA to recalculate its net requirements and limit its 
lowest-cost rate deliveries to the recalculated amount. BPA's strong 
view is that limiting customers to the amount of lowest-cost power they 
actually need to meet their net requirements is most consistent with 
BPA's broader decision to limit its total sales at its lowest-cost 
rates. However, BPA has decided not to limit this customer to its 
recalculated net requirements because this is not consistent with the 
existing contract with that customer.

E. Service to New Public Agency Utilities and Annexed Investor-Owned 
Utility (IOU) Loads

    New Public Agency Utilities: To be eligible to purchase firm power 
at the lowest-cost PF rates during the FY 2007-2009 period, an entity 
that forms a new public agency utility must request service under 
section 5(b)(1) of the Northwest Power Act, meet BPA's Standards for 
Service, and execute a power sales contract with BPA prior to

[[Page 7492]]

June 30, 2005, to take power deliveries on or before October 1, 2006. 
An exception to meeting the June 30, 2005, date is made for new small 
public agency utilities with an individual load of 10 average megawatts 
(aMW) or less, and all of these customers are not to exceed 30 aMW of 
load service in total. Such new small public utilities have until 
January 1, 2006, to request service under section 5(b)(1) of the 
Northwest Power Act, meet BPA's Standards for Service, and execute a 
power sales contract with BPA to begin taking power service on or 
before October 1, 2006.
    New public agency utilities that meet BPA's Standards for Service 
and request firm power service from BPA after June 30, 2005, or January 
1, 2006, in the case of small new public utilities, will be served at 
the lowest-cost PF rate plus a charge or rate that covers any 
incremental costs incurred by BPA to serve the new public agency's 
load. The charge will be similar to the current TAC or successor rate 
and will be applicable for the rate period that begins in FY 2007.
    Annexed IOU Loads: Consistent with existing contract terms and 
conditions, in the FY 2007-2009 period, if a public agency customer 
requests firm power service for load that is annexed from an IOU's 
service area, and that contains residential or small-farm load that was 
receiving residential exchange benefits from the IOU under Subscription 
Settlement Agreements, the public agency customer will receive a 
prorated share of such benefits. These benefits are provided in the 
form of an aMW amount of load that is exempt from any incremental-cost 
charge or rate applicable to the public agency customer's load service. 
Such treatment will apply regardless of whether the annexing public 
agency customer is a new or existing customer.
    BPA will propose in its initial rate case proposal that power 
service for annexed IOU load that a public agency customer requests 
after June 30, 2005, will be subject to a TAC or its successor, as 
appropriate, beginning in FY 2007.
    The above policy on annexed load of IOUs does not apply to public 
agency customers' mergers or to one public agency annexing another 
public agency's load. BPA will propose in its initial rate case 
proposal that it will continue to serve load annexed (excluding NLSL) 
from a public utility customer by another public utility customer at 
the lowest-cost PF rate for the FY 2007-2011 period if such load was 
previously receiving such service.

F. Product Availability

    Products for Customers Whose Contracts Expire in FY 2006 or Are New 
Public Agency Customers: Any new public agency customer or customer 
whose contract expires in FY 2006 that executes a new contract for 
service through September 30, 2011, may select from any of the 
following core requirement products: Full Requirements Service, Simple 
Partial Requirements Service, Partial Requirements Service with 
Dedicated Resources, or Block Service (with the optional feature of 
Shaping Capacity). The terms of the contract will be consistent with 
the terms described in sections III.D. and III.E. above. BPA is not 
offering Complex Partial (Factoring), Block with Factoring, or the 
Slice product to these customers.
    Product Switching or Changing the Allocation of Products Currently 
Purchased by Customers with Contracts that Expire in FY 2011: BPA will 
not offer contract amendments that would allow changes in the power 
products and services purchased by 10-year Subscription contract 
holders, including, but not limited to, changes that would increase the 
total Slice megawatts currently sold by BPA.
    Acquisition of Non-Federal Resources to Reduce Net Requirements by 
Public Agency Customers with Contracts that Expire in Either FY 2006 or 
FY 2011: BPA will consider, on a case-by-case basis, requests from a 
customer that purchases a load-following product to add non-Federal 
resources to their existing Subscription contract declarations but only 
if those additions reduce BPA's FY 2007-2011 load-serving obligation 
without increasing costs or risks for other customers. BPA will make 
such a determination at the time a customer makes its request. In doing 
so, BPA will also consider reclassifying the customer's load-following 
contract (e.g., full service to simple partial), if necessary.

G. Service to Direct-Service Industries (DSIs)

    BPA has determined that it will provide eligible Pacific Northwest 
DSIs some level of Federal power service benefits, at a known quantity 
and capped cost, in the FY 2007-2011 period. While no final decision 
regarding the actual level of service benefits to be provided is being 
made at this time, it is anticipated that service will be at a 
substantially reduced level compared to the level contracted for in the 
current FY 2002-2006 rate period. BPA wishes to further discuss the 
level of the DSI service benefit, and criteria for eligibility, with 
PNW regional interests before making final policies or decisions on 
those issues. In addition, BPA is not making a final decision at this 
time regarding the mechanism or mechanisms BPA will use to provide 
these service benefits.
    BPA will establish a regional process to take further comment from 
interested parties regarding the level of service benefits to be 
provided and the eligibility criteria that should be used to determine 
whether a DSI will qualify for these service benefits. This regional 
process will provide opportunities for written comments and will 
include one or more noticed meetings. As part of this process, BPA will 
issue a letter shortly establishing this regional process and 
describing a BPA proposal with respect to the level of benefits and 
eligibility criteria.
    Following the conclusion of the DSI comment period, BPA intends to 
issue a supplement to the Regional Dialogue ROD for this policy in 
which BPA will issue policies and decisions regarding the level of DSI 
service benefits to be offered and eligibility criteria.
    Subsequently, BPA will work during the summer of 2005 to develop 
the contractual mechanism or mechanisms that should be used to provide 
the DSI service benefits. These mechanisms, and BPA's proposal on the 
DSIs that it believes meet the eligibility criteria and should be 
offered service, will be shared with the region for review and comment. 
BPA will attempt to make final decisions regarding the contract 
mechanisms and qualifying DSIs in the fall of 2005, subject to any 
decision that must be made in a rate case.

H. Service to New Large Single Loads (NLSL)

    Transfer of DSI Load to Local Utility Service in 9.9 aMW 
Increments: Any DSI production facility load (Contract Demand) formerly 
served at the IP rate that transfers to local utility service will be 
an NLSL and will be subject to the New Resources (NR) rate if served 
with Federal power as firm requirements load under the utility's 
Northwest Power Act section 5(b)(1) contract unless the load:
    (1) Qualifies for the renewables and on-site cogeneration option 
described below; or
    (2) Was a new production load that (i) was separable from the DSIs 
1981 contract demand; (ii) new plant added after November 16, 1992; and 
(iii) could have qualified for BPA PF service from a local public 
utility at the time under BPA's November 16, 1992, New Large Single 
Load Treatment of Utility Service to Direct Service Industry Expansions 
(Atochem) Record of Decision. BPA is

[[Page 7493]]

aware of a single plant at the Port Townsend Paper Company, an 
approximately 3 aMW Old Corrugated Cardboard recycle facility, that was 
eligible for utility service in 1996 when it was completed but was not 
served by the local utility under BPA's Atochem policy.
    This policy does not preclude BPA from selling surplus firm power 
consistent with section 5(f) of the Northwest Power Act to utility 
customers at a section 7(f) rate to serve former DSI load.
    Renewables and On-site Cogeneration Option Under the NLSL Policy: 
In order to further promote the development and use of renewable 
resources and on-site cogeneration in the region, BPA will provide an 
option to a consumer with a single large load whose load would 
otherwise be an NLSL eligible for service with Federal power purchased 
at BPA's NR rate but for the application of renewable and on-site 
cogeneration resources to reduce the load to less than 10 aMW. This 
option will be available to consumers with single large loads at 
facilities that are otherwise NLSLs, including existing NLSLs, former 
DSI loads, new consumer loads, increases in existing loads that exceed 
10 aMW in a 12-month period, and consumer loads changing service from 
one utility supplier to another utility.
    For existing NLSLs served with dedicated NLSL resources, this 
option does not give BPA's consent for removal of any resource 
dedicated to the NLSL. BPA's section 5(b)/9(c) Policy of May 2000 
requires resources that are dedicated to serving regional load, 
including NLSLs, to continue to remain dedicated to such service. 
Consistent with the 5(b)/9(c) policy, this policy does not require BPA 
to give consent to remove a resource or agree to amend its power sales 
contracts for a resource dedicated to serving an NLSL.
    If a consumer directly provides on-site cogeneration or acquires a 
regional renewable resource with an associated transmission path to its 
load to serve all or a portion of a load associated with a facility 
that is otherwise an NLSL and if the consumer's remaining new load or 
load increase placed on the local utility is reduced to 9.9 aMW or 
less, then that 9.9 aMW load served by the utility is served at the PF 
rate. A consumer's purchase of a renewable resource for purposes of 
this renewable resource and on-site cogeneration option must be in 
compliance with applicable state law.
    The on-site cogeneration or renewable resource must be continuously 
applied to the consumer's load. If the end-use consumer or the serving 
utility on behalf of the end-use consumer at any time sells, 
discontinues, displaces, or removes a cogeneration resource or the 
renewable resource or portion thereof from service to the end-use 
consumer's load at the facility, then all the load or the increase in 
load at the facility is an NLSL served at the NR rate or another 7(f) 
rate designed to recover BPA's cost for covering such load, whichever 
is greater.
    If the facility's load ever exceeds the sum of the renewable 
resource, any added renewable resource(s), any on-site cogeneration 
resource amount, and the 9.9 aMW, then such amount of load served by 
BPA is an NLSL and is eligible for service at the NR rate.

I. Service to Residential and Small-Farm Consumers of Investor-Owned 
Utilities (IOUs)

    BPA's Subscription contracts with the region's six IOUs require the 
agency to provide 2,200 aMW of power or financial benefits to the 
residential and small-farm consumers of these customers during FY 2007-
2011. BPA recently signed agreements with all six regional IOUs that 
provide certainty in the amount and manner that benefits will be 
provided to their residential and small-farm consumers under their 
Subscription contracts. These agreements provide certainty by defining 
benefits as financial payments, not power deliveries, defining a mark-
to-market methodology that uses an independent market price forecast in 
calculating the financial benefits and establishing a floor of $100 
million and a cap of $300 million per year for these financial 
benefits.
    BPA expects this approach will successfully implement the 
Subscription contracts. However, these agreements are under legal 
challenge. Since a fundamental goal of this Regional Dialogue policy is 
clarification of BPA and customer load obligations for the FY 2007-2011 
period, BPA is clarifying how it will proceed if the new agreements are 
set aside.
    In the event a court sets aside the new agreements and amendments 
but leaves the underlying Subscription contracts in place, BPA is 
providing the IOUs a contingent notice that BPA will provide financial 
benefits, not power benefits, during FY 2007-2011 under those 
contracts. In such an event, the financial benefits will continue to be 
based, in part, on a forecast of the market price of power developed in 
a BPA power rate case. If the Subscription contracts are successfully 
challenged in court, the agency will act consistent with the court's 
ruling in negotiating new contracts to provide power or financial 
benefits to the residential and small-farm consumers of IOUs under the 
Northwest Power Act.

J. Conservation Resources

    While there has been much discussion of how conservation 
development might be regionally structured for the post-2006 time 
frame, BPA has not yet determined what the specific terms and 
conditions will be.
    BPA has adopted five principles to guide the full development of 
BPA's conservation acquisition programs in the post-2006 period. These 
general principles are:
     BPA will use the Council's plan to identify the regional 
cost-effective conservation targets upon which the agency's share 
(approximately 40 percent) of cost-effective conservation is based.
     The bulk of the conservation to be achieved is best 
pursued and achieved at the local level. There are some initiatives 
that are best served by regional approaches (for example, market 
transformation through the Northwest Energy Efficiency Alliance). 
However, the knowledge local utilities have of their consumers and 
their needs reinforce many of the successful energy efficiency programs 
being delivered today.
     BPA will seek to meet its conservation goals at the lowest 
possible cost to BPA. While it is a given that only cost-effective 
measures and programs should be pursued, the region can also benefit by 
working together to jointly drive down the cost of acquiring those 
resources.
     BPA will continue to provide an appropriate level of 
funding for local administrative support to plan and implement 
conservation programs.
     BPA will continue to provide an appropriate level of 
funding for education, outreach, and low-income weatherization such 
that these important initiatives complement a complete and effective 
conservation portfolio.
    These principles are consistent with the Council's recommendations. 
However, there is a need for significant detail to be developed before 
these principles can be transformed into a specific program structure 
that best serves the region. There is currently an ongoing 
collaborative planning process to develop a fully defined proposal for 
conservation. BPA will, accordingly, make public its final policy with 
respect to conservation at a later date, following the conclusion of 
the collaborative process.
    Finally, as BPA pursues opportunities to reduce long-term costs to 
ratepayers, conservation and other demand-side

[[Page 7494]]

management options will be carefully considered as part of the solution 
to transmission constraints. Conservation can be part of a non-wires 
solution that not only will provide low-cost power resources but also 
will reduce or defer the need for transmission construction.

K. Renewable Resources

    BPA will shift from a program focused on direct acquisition to an 
active and creative facilitation role with respect to renewable 
resource development. Although BPA will still consider acquisition as a 
viable facilitation option under the appropriate circumstances, the 
agency's primary focus will be to reduce the barriers and costs 
interested customers face in developing and acquiring renewables. As an 
added benefit, BPA believes its facilitation role will also help non-
BPA customers develop renewable resources in the region.
    BPA will use a combination of tools and will engage with its 
customers and other stakeholders to determine which facilitation 
options will most effectively leverage the agency's available funds to 
maximize regional development of renewable resources. The facilitation 
tools BPA sees as being available include, but are not limited to:
    Integration Services: BPA recently began offering two wind 
integration services in the spirit of regional facilitation. These 
services, and other sound and prudent uses of the flexibility of the 
Federal hydro system, have the potential to serve as a key component of 
the agency's renewables facilitation effort.
    Transmission System Improvements: Another facilitation option is 
participation in regional efforts to construct strategic transmission 
lines to foster the development of the region's excellent wind 
resources. BPA is also exploring ways to make more efficient use of 
existing transmission infrastructure.
    Rate Discount: Approximately 30 customers have devoted a portion of 
their Conservation and Renewables Discount (C&RD) funds to renewables 
in this rate period. Continuing such a rate discount mechanism is 
another facilitation option.
    Direct Acquisition: If BPA determines there is a need to acquire 
power to meet its regional firm power load obligations, BPA may 
consider innovative opportunities to purchase from renewable resources, 
including the participation in such resources by interested BPA 
customers. The agency will consider other acquisition activities as 
well if they are the most cost-effective among competing facilitation 
options and can be accomplished consistent with the agency's financial 
objectives and governing statutes.
    Other Options: BPA is actively consulting with customers and other 
stakeholders to identify other options that will help facilitate 
regional renewables development. All of BPA's renewable resources 
facilitation activities will be subject to a risk review to ensure that 
they are consistent with the agency's financial and risk management 
objectives.
    Program Funding: BPA will spend up to a net of $21 million per year 
to support its facilitation activities. The $21 million net expense is 
a measurement of the expected, added costs of our renewable program 
measured against avoided alternative long-run marginal power costs. The 
$21 million comprises the existing $15 million renewables fund and $6 
million of annual renewables spending that is currently being 
accomplished through the C&RD program, which expires at the end of the 
current rate period. BPA will continue consulting with customers and 
other constituents as to whether a Renewables Rate Discount Program 
should be established in the next rate period, or alternatively, 
whether BPA should use the funds for other facilitation mechanisms. The 
costs of the renewables program will be recovered in BPA's firm power 
rates.

L. Controlling Costs and Consulting With BPA's Stakeholders

    For the term of existing contracts (through FY 2011), or until new 
contracts go into effect if that is earlier, BPA will continue to focus 
on non-contractual means that promote transparency under BPA's 
financial information disclosure policy, allow for public input on 
agency costs, and demonstrate management of those costs. BPA recognizes 
the wide range in concerns and, hence, solutions to the issue of long-
term cost control. BPA will continue discussions on long-term cost 
control in preparation for the July 2005 Regional Dialogue policy 
proposal on long-term issues. BPA's short-term enhancement activities 
will include the following:
    Collaborative Forums: BPA will engage customers and non-customers 
in collaborative forums structured similarly to the Power Net Revenue 
Improvement Sounding Board and current Customer Collaborative to 
improve the effectiveness and efficiency of BPA's communication 
processes.
    Financial Reporting with Customer and Constituent Input: BPA will 
continue to improve its external financial reporting in order to 
increase the clarity and usefulness of BPA's reports to both experts 
and laypersons. Such information will also continue to be posted on 
BPA's Web site before it is released to any single customer or 
constituent group.
    Business Process Improvement: In July 2004, a consulting firm hired 
by BPA conducted a high-level overview of the agency's business 
processes and recommended functions that warrant more in-depth analysis 
for strategically and effectively promoting process improvements. The 
consultant made 23 recommendations in all. In FY 2005, BPA will conduct 
7 in-depth process reviews selected from the original 23 
recommendations to identify opportunities for improvements in 
efficiencies and effectiveness. How and when the remaining 
recommendations will be pursued will be determined by the results of 
the first phase. This is a multi-phased, multi-year effort that will 
require a sustained commitment. BPA will provide periodic status 
reports as significant milestones are achieved.
    Power Function Review: In 2005, BPA will conduct an in-depth 
regional discussion regarding power function cost levels that will be 
used to set power rates for the FY 2007-2009 rate period. This process 
will be designed to provide full disclosure of BPA's planned cost 
levels and ample opportunity for customer, constituent, and tribal 
input on those proposed levels prior to initiation of the power rate 
case.

IV. Long-Term Issues

A. Long-Term Policy: Limiting BPA's Long-Term Load Service Obligation 
at Lowest Cost Rates for Pacific Northwest Firm Requirements Loads

    BPA is establishing a long-term policy regarding its PNW customer 
load obligations. BPA's policy is to limit its sales of firm power to 
its PNW preference customers' firm requirements loads at its lowest-
cost rates in an amount approximately equal to the firm capability of 
the existing Federal system. BPA expects that firm power load service 
in excess of the Federal system capability will be provided at a 
higher, tiered rate, that reflects the incremental cost of power 
purchased or acquired to meet those additional loads. BPA intends this 
long-term policy to be implemented through new long-term contracts and 
rates on the schedule presented in the next section. As stated in 
Section III.B., Tiered Rates, BPA does not propose to adopt or 
implement PF tiered rates applicable to public agency customers in its 
FY 2007 initial rate case proposal.

[[Page 7495]]

    By itself, this long-term policy is not enough. It is only one 
step. Creating certainty will require subsequent development of new 
power contracts and rates. The schedule for these additional steps is 
described next.

B. Schedule for Long-Term Issue Resolution

    BPA and the region have a strategic interest in resolving a number 
of key long-term issues. BPA is strongly inclined toward 20-year 
contracts, assuming parties can reach agreement on reasonable terms. 
This interest centers on providing BPA customers certainty over load 
service obligations and enabling customers and the market to respond 
with the necessary electric industry infrastructure investments. Other 
key strategic interests include general market stability, BPA risk 
management, and long-term assurance of funding to repay the United 
States Treasury. BPA's interest in resolving these long-term issues is 
shared by most BPA customers and by the Council.
    To become effective, almost all the decisions must be captured in 
new long-term contracts and rates. There is a range of opinions within 
the region on the commitments and decisions can be made in contracts 
versus those that can be made in rates. BPA's view is that customers, 
BPA, and other stakeholders must work together to develop a logically 
linked set of new contracts and rates and that neither by itself will 
be sufficient to accomplish the long-term goals. This split between 
contracts and rates must be discussed and decided.
    BPA intends seriously to explore the proposal and establishment of 
a long-term tiered rates methodology to accompany new 20-year contracts 
during the next phase of the Regional Dialogue. BPA also believes there 
is a need to develop regional resource adequacy metrics/standards to 
provide clarity regarding what constitutes generation sufficiency to 
meet the load serving obligation defined by the long-term Regional 
Dialogue contracts. These resource adequacy metrics/standards will also 
provide assurance that needed electrical infrastructure will be 
developed by Northwest load serving entities to allow the Northwest 
Power Act mandate of an adequate, economical, and reliable Northwest 
power system to be met even with BPA in a reduced power acquisition 
role.
    Schedule: The following schedule is ambitious, but BPA agrees with 
the perspective of the Council and many customers that the region has a 
core interest in the earliest practical completion of this process.

          Schedule for Achieving Long-Term Contracts and Rates
------------------------------------------------------------------------
                 Milestone                              Date
------------------------------------------------------------------------
BPA Administrator Issues Long-Term          July 2005.
 Regional Dialogue Proposal for Public
 Review and Comment.
BPA Administrator Signs Long-Term Regional  Jan. 2006.
 Dialogue Policy and Record of Decision.
New Contracts Offered.....................  Dec. 2006.
Contract Signature Deadline...............  April 2007.
Complete Establishment of Long-Term Rate    Oct. 2008.
 Methodology to Accompany New Contracts.
Earliest Contract Effective Date..........  Oct. 2008.
------------------------------------------------------------------------

    Challenges to Achieving Our Goal: Achieving this schedule will be 
challenging. Challenges that both customers and the agency will have to 
manage include:
    1. Ability of BPA, customers, and other interests to find a 
solution to provide long-term benefits to residential and small-farm 
consumers of IOUs.
    2. Ability to structure long-term contracts to protect taxpayer and 
ratepayer interests.
    3. Finding mutually acceptable solutions to very contentious issues 
will be difficult, especially while other decision processes are 
running in parallel.
    4. Developing regional resource adequacy metrics/standards to 
provide clarity and mechanisms to assure the development of needed 
electrical infrastructure.
    5. Ability of customers and other interested parties to invest the 
necessary time, especially in view of the concurrent activity on BPA's 
FY 2007 power rate case and a variety of other issues.
    6. Ensuring BPA and customers can administer new 20-year contracts 
for several years concurrent with contracts of customers who choose to 
retain their existing Subscription contracts through FY 2011. This 
could also result in two sets of rates through FY 2011 (one for 
Subscription contract holders and one from Regional Dialogue contract 
holders).
    7. Willingness of customers to sign new 20-year contracts before 
the supporting rate case concludes.

V. Environmental Analysis

    BPA has reviewed the final policy for environmental considerations 
under the National Environmental Policy Act (NEPA) in a NEPA ROD 
prepared separately from the Administrator's ROD. BPA has reviewed each 
of the individual policy issues, as well as the potential implications 
of these issues taken together. For some issues, there are no 
environmental effects resulting from implementation of the policy for 
that issue, and NEPA, thus, is not implicated. For other issues, the 
policy is merely a continuation of the status quo, and NEPA, thus, is 
not triggered.
    For the remaining issues, any environmental effects resulting from 
the policy have already been addressed in the Business Plan Final 
Environmental Impact Statement, DOE/EIS-0183, June 1995 (Business Plan 
EIS), and the policy would not result in significantly different 
environmental effects from those described in this EIS. Furthermore, 
the policy is adequately covered within the scope of the Market-Driven 
Alternative identified and evaluated in the Business Plan EIS and 
adopted by BPA in the August 15, 1995, Business Plan ROD.
    Evaluating all of the individual policy issues together, the final 
policy still does not represent a significant departure from BPA's 
adopted Market-Driven Alternative and would not result in significantly 
different environmental effects from those described in the Business 
Plan EIS.
    BPA therefore has appropriately decided to tier the NEPA ROD for 
the final policy to the Business Plan ROD, as provided for in the 
Business Plan EIS and Business Plan ROD. Copies of the NEPA ROD for the 
final policy are available on BPA's Web site at http://www.bpa.gov/power/regionaldialogue or by contacting BPA's Public Information Center 
at (800) 622-4520.

    Issued in Portland, Oregon on February 4, 2005.
Stephen J. Wright,
Administrator and Chief Executive Officer, Bonneville Power 
Administration.
[FR Doc. 05-2780 Filed 2-11-05; 8:45 am]
BILLING CODE 6450-01-P