271 



Because aluminum prices are low, Bonneville now loses about $32 

 million a quarter on this rate, compared with what the smelters 

 would pay under the standard industrial firm power rate.* 



The variable rate has fluctuated wildly in the last few years 

 when the price of aluminum skyrocketed to $1.30 per pound in 1988 

 and then plunged within a four-year period to about 52 cents.** 



It seems to me as a utility official that Bonneville has gambled 

 its financial security on a volatile, international commodity 

 over which it has no control. 



Whether the variable rate is a success or a disaster is a matter 

 not of good management or cost-cutting or clever, business 

 initiatives, but of luck. 



It is inconceivable that Canby or any other public utility in the 

 region would speculate with its future revenue stream that way. 

 We would reject that approach not because of hostility to the 

 aluminum industry, or because we are insensitive to the cycles of 

 business, but because traditional standards of prudent utility 

 ratemaking demand that we retain control over the utility and its 

 sources of revenue. 



* Information on the effect of the VI rate was supplied by 

 Bonneville's Division of Contracts and Rates. 



** For data on the swings in aluminum prices between 1980-88, 

 see Table 6 (Historical Aluminum Price Cycle Analysis), page 19, 

 Documentation for the Loads and Resources Studv: Volume 1. 

 Bonneville Power Administration, 1993 Final Rate Proposal. 



