16 



our product — caused us to make $170 million of unbudgeted power 

 purchases in January, February, and early March. 



In addition to those unbudgeted power purchases, we also suf- 

 fered a revenue deterioration of about another $40 million because 

 the snowpack was lower than we had predicted. Hence we would 

 not have the same amount of revenues from surplus power sales 

 to California and other utilities once the snow melted. 



The net effect of those three actions — the increased demand and 

 stream flow drop-off plus the low precipitation — ^was to have our 

 revenue circumstances deteriorate by the quarter of a billion dollar 

 figure that I just alluded to. 



This next chart shows you, in a rate sense and in a dollar sense, 

 what the effect of this change in circumstances was in January and 

 February. These are all in addition to the numbers on the first 

 page. 



Basically, the drought, the dry water conditions, added 8 percent- 

 age points to the rate increase. Increased fish and wildlife ex- 

 penses, primarily the increased cost of purchasing energy to pro- 

 vide storage for the 3 million acre-feet of water we are required to 

 provide in the Columbia and the 1.4 million acre-feet in the Snake, 

 cost a lot more because power prices went up. That added about 

 another 2 percentage points to the rate increase. 



Finally, worldwide aluminum prices deteriorated further, or the 

 recovery looked like it was going to be postponed yet further. This 

 added another 2 to 3 percentage points to our revenue shortfall. We 

 receive about 25 percent of our revenues from our aluminum com- 

 pany customers. 



The net effect of these three factors was to add 12 to 13 percent- 

 age points to the 11.5 percent initial rate proposal. Right now, if 

 we were to do nothing, to take no other actions other than business 

 as usual, we would be looking at a 23 to 25 percent rate increase. 



When these numbers came together five weeks ago, I concluded 

 that this level of rate increase was simply unacceptable for the re- 

 gion to accept and survive. So, we set about an exercise to go back 

 and cut all of our budgets across the board to try to minimize the 

 size of the rate increase. 



What we have, I want to emphasize, is a revenue problem. Our 

 expenses other than purchase power didn't change at all in the last 

 three months, what changed was our revenue picture. That being 

 said, the only tools we have to deal with this problem are on the 

 expense side of the equation. So, we are using those tools to the 

 maximum extent possible. 



What I announced three weeks ago and what I directed the staff 

 to do five weeks ago were three things: First, we are going to cut 

 our administrative expenses by 50 percent for the duration of the 

 fiscal year. Second, we are going to look to cut program expenses 

 anywhere from 5 to 25 percent. Our basic programs are trans- 

 mission, maintenance, fish and wildlife, conservation, and genera- 

 tion. Finally, we have started the process to terminate the two 

 mothballed Washington Public Power Supply System plants, Plants 

 1 and 3, to realize the savings of some $10 million a year in preser- 

 vation costs associated with those two plants. 



I would now like to talk a little bit, given that we are moving 

 in that direction, about what we have to deal with in our budget 



