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To pay the variable operation and maintenance (O&M) cost of the private utilities' combustion turbine when the energy is delivered to BPA;

To reimburse the utilities for the cost of preserving their
share of WNP-3 after February 1, 1985;

To acquire under the Pacific Northwest Power Act the utilities' share of WNP-3 before restarting construction.

The settlement agreement requires the four private utilities to do the following:

To irrevocably offer the project capability from the utilities' share of WNP-3 for sale to BPA;

To provide BPA the right to request energy from each utility's combustion turbines or other available lower cost resources in an amount equal to the power BPA delivers to the utilities;

To pay to BPA an amount which will approximate the amount they would have paid for O&M costs if WNP-3 had been operating;

To agree to arrange financing for the remainder of their share of WNP-3, provided BPA acquires the utilities' remaining share in the project.

This settlement is not expected to have any direct impact on the decision to restart or terminate construction of WNP-3.

Question: How much will be spent in FY 87 on debt service for WPPSS 1 WPPSS 3?

Answer: Debt service for WNP-1 will run $206.7 million in FY 1987. For WNP-3, it will total $163.5 million.

Question: How much is spent for each plant on preservation costs in FY 87?

Answer: Preservation costs for WNP-3 will be $22.2 million in the FY 1987 Budget. Preservation costs for WNP-1 are $21.5 million. WNP-1 preservation costs are not included in BPA's budgets because they are currently being paid by the Supply System from construction bond sale proceeds. Preservation levels are presently being discussed in the region and are subject to change during the Supply System's annual budget review processes. The Supply System's 1987 budget formulation process (covering July 1986 to June 1987) is now nearly complete.

Question: For the record, provide a breakdown for each plant on the debt service and "preservation" costs in FY 85, 86, and 87 with a statement of justification for each activity. Please provide an estimate, if possible, of these two costs for FY 88 thru 1992.

Answer: The table below shows debt service and preservation costs for WNP-1 and WNP-3 through FY 1991. Preservation costs, in particular, are subject to scrutiny and change during the Supply System's present budget approval process. Estimates of debt service and preservation costs for FY 1992 are not available 'and are being developed now for the FY 1988 Budget.

WNP-1 and WNP-3 Debt Service and Preservation Costs

(in millions of dollars)

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WNP-1 preservation costs will be paid through at least FY 1990 by the Supply System with funds it has on hand from bond sales made prior to the construction delay. Therefore, those preservation costs are not included in BPA's budgets and are not shown in this table. However, during its FY 1985 (July 1984 to June 1985), the Supply System disbursed $38.4 million from bond sale proceeds for WNP-1 preservation. The Supply System estimates preservation disbursements for WNP-1 of approximately $24.5 million and $21.5 million during its FY 1986 and FY 1987, respectively.

The table shows only BPA's share (70%) of WNP-3 preservation costs. BPA records its obligations for the Supply System on the basis of power transactions. That is, BPA does not account for these obligations using such cost categories as debt service and preservation. However, using Supply System accounting and forecasting information, BPA can approximate how much of its total obligations for WNP-3 were due to Supply System preservation costs in 1985.

Debt service is paid as a result of contractual arrangements with the Supply System, participant utilities and bond holders. BPA funds the Supply System's cash requirements for debt service through net billing. WNP-1 and WNP-3 construction preservation activities are budgeted at a level appropriate to preserve the assets for cost-effective construction restart when BPA determines that the power is needed and financing is available. BPA'S FY 1987 Budget assumes that construction on WNP-3 and WNP-1 will resume no earlier than 1992.

Question: When will the review of the potential restart or termination of WPPSS 1 and WPPSS 3 be completed?

Answer: The current analysis of WNP-1 and WNP-3 will be linked to the 1987 Resource Strategy. This will provide adequate time to conduct a thorough analysis and permits the evaluation of an integrated mix of resources. Current plans call for the duft 1987 Resource Strategy to be issued in November 1986.

Question: What is the latest analysis on the option of termination of one or both plants?

Answer: The last published BPA analysis which specifically examined the termination alternative was completed in November 1984. The conclusion, at that time, was that the plants had more value as options to the region than if they were . terminated. Subsequent analyses on related issues conducted by BPA and the Northwest Power Planning Council continues to support this conclusion.

Question: What action will be taken if one plant is ranked ahead of the other plant?

Answer: The Supply System has begun the process of "packaging" design work and demobilizing the design teams of WNP-1 and WNP-3 such that they will be at a minimum level of preservation by the end of its FY 1988. A restart of construction will not occur before 1992. At such time as the power is needed and financing is available, the issue of which plant to complete first will be addressed.

Conservation

Question: Are the conservation program levels in BPA'S FY 1987 budget consistent with BPA's current rate case proposal and the BPA Resource Strategy?

Answer: BPA's current rates are designed to cover the revenue requirement associated with a $165 million conservation program in FY 1987. This is the level identified in the 1985 Resource Strategy, published in November 1984. In May 1985, our estimate of what it would take to satisfy the Northwest Power Planning Council's Conservation and Electric Power Plan and to accomplish our own Strategy objectives had been revised downward to about $135 million. This level is reflected in our 1986 Resource Strategy. The 1987 Budget level includes an undistributed reduction of $22 million.

Question: Are the out-years for conservation consistent with the Resource Strategy? How do reductions in conservation investment affect the long-term cost of providing power for the Northwest?

Answer: The out-year funding levels for conservation that would be consistent with BPA's recently published 1986 Resource Strategy are $144 million in FY 1988, $160 million in FY 1989,

$171 million in FY 1990, and $183 million in FY 1991. These are nominal dollars, escalated for inflation, and represent a steady overall activity level in the program. BPA's Resource Strategy analysis discusses the expected impacts of investing in conservation at these levels.

Question: The FY 86 budget proposed alternative financing, which to the extent realized, would result in additional conservation achievement. To what extent has alternative financing been applied in the FY 1986 program and in past years? What are the hurdles to greater use of this technique?

Answer: Financial incentives totaling $200,000 involving two industrial sponsor-designed projects have been handled off-budget, as well as $ 17 million of the Residential Weatherization program. BPA is considering contracts with eight more industrial plants and a number of commercial buildings that will also involve third-party financing. We are also negotiating with several utilities for their use of revenue bonds to finance weatherization.

The primary obstacles to greater use of tax-exempt long-term bonds is the proposed Congressional reform of Federal tax law. Because of this, potential long-term partners in such financing efforts are very leery of entering into the required new arrangements with BPA.

Question: Can BPA carry out the Northwest Power Planning Council's regional electric power and conservation plan under the proposed funding levels for conservation?

Answer: The FY 1986 and FY 1987 amounts in the 1986 Resource Strategy are sufficient to fully implement the Council's Plan. However, the budget amounts are $9 million and $22 million below these levels.

Question: The FY 87 budget proposed a $21.7 million undistributed reduction to conservation activities. What delays or slippage would you foresee in FY 87? How would this reduction be applied among the individual programs? If delays are not identified, what will be the impact of this general reduction?

Answer: The FY 1987 undistributed reduction of $21.7 million will come mainly from the commercial and industrial areas. Preliminary assessments indicate that commercial activities would absorb $12 million, industrial $7 million, and residential about $3 million of the reduction. However, Model Conservation Standards support activities for new homes and commercial buildings are now expected to require greater sums than originally budgeted for FY 1987. This may result in other activities in the residential, commercial and industrial sectors being further reduced as we enter the fiscal year. The extent of these further reductions depends greatly on the penetration of Model Standards construction in new housing--in other words, on the success of our Super GOOD CENTS program which now aims for 30 percent of the market in the 1987 building season.

Transmission

Question: What is the status of BPA intertie planning and construction?

Answer: BPA is currently involved in the planning of two Intertie upgrade projects: the California-Oregon Transmission Project (or Third AC Intertie) and the DC Terminal Expansion Project.

The plan for constructing a new. 500-kV transmission line from southern Oregon to California (California-Oregon Transmission Project or Third AC Intertie) as described in the February 7, 1985, Memorandum of Understanding signed by Secretary Hodel, is moving forward.

In California, project participants have signed a Project Development Agreement which provides for up to $27 million for project development work taking the Project to the decision point of whether or not to proceed with construction. A good start on the environmental and power systems studies work has already been made under interim funding arrangements. A preliminary plan of service has been developed and a draft Environmental Impact Statement (EIS) is expected to be published by November 1986. The projected inservice date for the Project is early 1991.

In the Northwest, there are three participating utilities: BPA, Pacific Power & Light, and Portland General Electric. These utilities are currently negotiating an agreement to cover rights and obligations on the expanded intertie on the Northwest. A preliminary Northwest plan of service has been completed. Northwest utilities are also participating in the planning process in California.

A Draft Environmental Report on Northwest Reinforcement Actions will be incorporated as an Appendix of the Draft Environmental Impact Statement (DEIS) and a summary of the report will appear in the body of the DEIS. Both Northwest and California utilities are participating in the Oregon Review Committee established by the State. BPA is also preparing an EIS on Intertie Development and Use (IDU) which examines impacts of changes in system planning and operation in the Northwest and Southwest resulting from planned intertie additions and policies governing use of the Federal Intertie. The IDU-EIS should be released in final form by Fall 1986.

Expansion of the existing Pacific Northwest-Pacific Southwest direct current (DC) intertie (DC Terminal Expansion Project) is also in progress. This project will add 1,100 MW to the DC Intertie's existing 2,000 MW capacity. BPA and the Los Angeles Department of Water and Power (LADWP) will make additions to their respective terminals of the 846-mile line, with no significant new transmission lines needed. Completion in February 1989 is planned.

In October 1985, BPA awarded a $52.7 million contract to Brown
Boveri Corp. (BBC) for design, construction, and equipment

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