223 



by collecting high prices when aluminum markets were healthy and lower prices when 

 aluminum miarkets were weak. The Variable Rate was a huge success for the smelters 

 and the Regioo. Three closed smelters reopened and all the smelters provided the 

 Region with revenues far above costs throughout the late 1980's and early 1990's. 



Al±ough ±e Variable Rate has not directly enhanced BPA's revenues during the 

 past year when the Region suffered a drought while aluminum prices were low, the 

 Variable Rate has worked as planned by being beneficial in aggregate over its 10-year 

 Ufe. BPA outside consultants recently concluded that the Variable Rate overall has 

 provided very substantial net benefits for BPA's ratepayers. They have recommended 

 that BPA extend the Variable Rate for another 10 to 15 years for the mutual benefit of 

 the Agency and its customers. 



Some changes are appropriate in the Variable Rate when it is revisited in 1996. 

 Currendy, the lowest power price under the Variable Rate is too high to keep the 

 smelters competitive during cyclical downturns in aluminum prices. That same power 

 price is much higher than the average price BPA can get on the open market for the 

 power, if it cannot sell it to the smelters. Therefore, a lower rate limit with 

 compensating changes to other elements of the Variable Rate could provide additional 

 benefits to both the smelters and the Region. 



The Variable Rate was designed by BPA's customers, and has often been held up 

 as a textbook case of good public and economic policy. So good, in fact, that it has been 

 adopted in various forms by the aluminimi industry worldwide. We will need your help, 

 Mr. Chairman, in providing leadership to extend the Variable Rate concept. We look 

 forward to working with you to find other iimovative solutions for the benefit of the 

 Pacific Northwest. 



Thank you for this opportunity to testify on these very important matters. I am 

 pleased to respond to any questions you may have. 



di\]ohB\tMt.*lT 



