you volunteer to be a reinvention guinea pig and, in theory at least, 

 get some relief from governmental administrative regulations. That 

 is precisely what we are seeking, and that is precisely why we have 

 advanced ourselves to be a reinvention candidate. Rather than 

 being a passive actor, we thought a more activist approach in try- 

 ing to shape our own destiny in this regard would be the most ap- 

 propriate course to follow. 



Finally, the third and probably principal reason why we are con- 

 cerned about our competitiveness has to do with the changing util- 

 ity marketplace. There are fundamental changes going on in this 

 industry. As an electric utility in the 1990s, we will see structural 

 changes very similar to what the airlines, the phone companies, 

 and the gas companies have been through in the 1980s. You only 

 have to look at what has happened to those industries to get some 

 idea of the magnitude of that change. And the change will come 

 quite rapidly. A couple of our colleagues have used the analogy of 

 the Berlin Wall. It does not come down one brick at a time. It hap- 

 pens quite rapidly. And that is the kind of change we anticipate. 



What are the factors that are causing that change? I believe this 

 is the essence of what we need to understand and try to grapple 

 with. I will explain them as best I understand them. First is cheap- 

 er gas and the competitive advantage it is providing for combustion 

 turbines and cogeneration facilities in the utility marketplace. Five 

 years ago, the marginal cost resource was a coal plant at 5 cents 

 a kilowatt hour. Today the marginal cost resource is a combined 

 cycle gas turbine at 3-3.5 cents a kilowatt hour when our whole- 

 sale rate is at 2.7 cents after the latest rate increase. While we are 

 still the low-cost supplier, that margin is shrinking and customers 

 have new competitive alternatives that are very close or getting 

 close to what our Priority Firm (PF) rate is. 



Second is the proliferation of independent power producers. The 

 generation side of the electricity market is basically deregulated 

 and the competition is fierce. I think you can question some of the 

 other witnesses today who have had experience in acquiring re- 

 sources through independent power producers (IPPs) to get some 

 idea of that. But just to give you one example, between the time 

 of our competitive bid 18 months ago in which we selected the 

 Tenaska Project and the resource contingency plan which we exe- 

 cuted earlier this year which provided options, the costs have gone 

 down, not up, in terms of the costs and the potential prices of re- 

 sources. This is a declining-cost industry with all of the implica- 

 tions which that provides relative to our competitive position. 



The third reason, Mr. Chairman, is the one you alluded to. There 

 are new players coming into this marketplace. Let me cite two ex- 

 amples. We are buying power today from Louis Dreyfus Company. 

 Louis Dreyfus is a French-owned multinational firm that is in the 

 tanker business and the oil and gas business. They own a lot of gas 

 and a lot of oil, and they have looked at the West Coast market- 

 place. They have leased generation, and now they are matching the 

 gas up with the leased generation and they are looking around for 

 people to sell the electricity to. They are undercutting other suppli- 

 ers by a mil or two here and there. You are going to see those 

 kinds of marketplace entrants increasingly. About two months ago, 

 we were visited by representatives of the New York Commodities 



