283 



It is important to note that Bonneville made more money in fiscal 

 years 1988 and 1989 from the VI rate than it would have under the 

 standard industrial power rate. 



But aluminum prices dropped, thus lowering the VI rate and 

 Bonneville's revenues. Had the VI rate not been extended, it 

 would have expired on June 30, 1993, and Bonneville would have 

 come close to breaking even from the entire seven-year period. 

 In total, it would have received only $12.4 million less under 

 the VI rate than under the IP rate. 



But the decision to extend the rate will likely cost ratepayers 

 several hundred million dollars. The reason is that prices hit 

 the floor on August 1991, and have remained there since then. 

 The U.S. transaction price is now 55.5 cents (August 1993). 



What caused the dramatic drop in aluminum prices? One of the 

 reasons was the Russian Government's decision to sell large 

 quantities of aluminum to generate cash, which flooded the 

 market. The sluggish world economy, particularly in automobile 

 manufacturing, also dampened demand and forced smelters in the 

 United States and elsewhere to reduce the price they could get 

 for their product. 



Market prices have remain depressed. They are now lower than any 

 time in the last 40 years (in real dollars). Although the 

 companies believe that the long-term fundamentals of their 

 industry are good, the prospects for a rebound in the near future 

 are poor. Most industry analysts are not optimistic that 

 aluminum prices will increase significantly in the next two or 

 three years. 



15 



