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Mr. Hardy. Bonneville faces probably the most extraordinary set 

 of circumstances that it has ever had to deal with in its 55-year 

 history. Basically, as a result of water condition changes in the last 

 two to three months, our financial condition has deteriorated by 

 over a quarter of a billion dollars. What I want to describe today, 

 right now, are the near-term financial circumstances that we are 

 having to cope with and our strategy for doing that. 



Quite apart from the near-term circumstances, however, are a 

 longer-term series of competitive issues. Mr. Chairman, you al- 

 luded to these in your remarks, and all I can say is, I fully agree 

 that we have a series of mid- and long-term competitiveness issues 

 that we have to successfully address if we are to remain a competi- 

 tive supplier of low-priced electrical energy for our consumers in 

 the Pacific Northwest. This near-term crisis simply highlights the 

 need to take immediate action both in the near term and in the 

 mid and long term to address those kinds of problems. 



The first chart has to deal with the initial rate proposal that we 

 made in early January of this year. We have a rate cycle of basi- 

 cally every two years. This rate increase will go into effect on Octo- 

 ber 1, 1993. The initial rate proposal was basically for an 11.6 per- 

 cent rate increase. Its components were, as illustrated in the chart, 

 basically fish and wildlife, resource acquisitions, conservation ex- 

 penses, drought, and aluminum prices, and less than 1 percent 

 being all other expenses. That is where we were as of early Janu- 

 ary. 



In the months of January and February we had three things 

 happen to us that dramatically changed our financial condition. 

 First, we had a substantial drop-off in precipitation from the rest 

 of the basin — John, if you could switch the chart. 



This chart illustrates what has happened to us. This is as of 

 April 1 for the water year which began on October 1, 1992. Basi- 

 cally, the legend here is: yellow and orange are below average rain- 

 fall; green and blue are above-average rainfall. So you can see that 

 a good portion of the State of Oregon and southern Idaho are in 

 reasonably good shape from a precipitation standpoint. But it just 

 so happens that all of our major storage reservoirs, as illustrated 

 on the chart — namely. Grand Coulee, Libby, Hungry Horse, 

 Dworshak, Keenleyside, Duncan, and Mica — are all in the yellow or 

 in the pink sections. Namely, those are all in areas that are well 

 below average in terms of their precipitation. 



We had the driest February of record in the Pacific Northwest. 

 We have had the driest six consecutive water years of record, and 

 the 1992/1993 water years are the second worst consecutive water 

 years of record. Only 1944 and 1945 were worse, and the list of 

 worsts or second worsts goes on and on relative to the set of cir- 

 cumstances in which we find ourselves today. 



But low precipitation was only one of three things that happened 

 to us in January and February. The second thing that happened 

 was a dramatic cold snap in mid-January that both sent demand 

 way up and dried up or froze up stream flows, so we had little or 

 no inflow to the reservoirs. 



Those three factors — dramatic drop-off" in precipitation, dramatic 

 drop-off in stream flows, and substantial increases in demsind for 



