32 



pound in 1988 and 1989, we made a lot of money, a little over a 

 quarter of a billion dollars. We basically now have lost that, if you 

 want to look at it that way, and we are about even. 



However, the rate has probably kept on line some plants that 

 otherwise would have gone off line. In that sense we are probably, 

 in a net sense, ahead for having instituted the rate. 



Mr. Smith. I want to get into this long-term competitiveness 

 issue. I think you mentioned it, and I want to talk about it a 

 minute, because we are faced here with not only yoxir needs for 

 revenue enhancement but also the question of how, with the Btu 

 tax, we keep our aluminum industries competitive, and I notice 

 that you have mentioned in an Ore^o/imn-reported statement that 

 the proposed energy tax on top of your proposed rate increases 

 could force utilities to abandon energy conservation programs. Do 

 you want to comment on that? 



Mr. Hardy. I am a loyal member of the Administration, and I 

 support the Btu tax. Honestly, I have gotten myself in some trouble 

 because I have concerns, but I guess those are handled by forces 

 that are beyond my control. 



Mr. Smith. I understand the 0MB, and I know how it operates, 

 and I understand your loyalty, and I am not trying to interfere 

 with that, but am trying to get your expert opinion about the long- 

 term competitiveness of rates in view of the increases that you 

 have established here you need, plus the increase that may occur 

 if there is a Btu tax. 



Mr. Hardy. Let me describe to you in a factual sense, Congress- 

 man, what the compounding effect would be, and then everybody 

 can make whatever value judgments they think are appropriate. 



I have just described to you a rate increase that, if we do noth- 

 ing, is 23 to 25 percent. We have described in these settlement dis- 

 cussions, which the chairman referred to earlier, an ability to get 

 that down around 20 percent. Our customers want it to be in the 

 14-15 range. Absent any other things going bad, we are probably 

 in that 15-20 percent range. 



The Btu tax, if passed in its present form, would add 10-12 per- 

 centage points just in and of itself to Bonneville rates. In 1995, we 

 will be looking at another rate increase. I can't project with any 

 high degree of confidence what that rate increase will be, but it 

 probably would be in the high single digits. 



So you could look at a three-year period of time where you could 

 easily draw up a scenario of a 40 percent or more increase in Bon- 

 neville rates as a result of forces that are already existent in our 

 rate structure, be they water or Endangered Species Act or low alu- 

 minum prices or external forces in the form of a Btu tax or poten- 

 tially repayment reform or other kinds of initiatives. I think it is 

 a pretty factual statement that those would have a serious competi- 

 tive impact not just on the aluminum industry, but on the irriga- 

 tion industry and on a number of other Bonneville customers. 



Mr. Smith. I appreciate that. 



This question of reservoir drawdown is something that is in the 

 experimental stage at the moment, I understand, and there is 

 questionable science about whether or not it saves salmon or 

 doesn't. But what are your views on the drawdown issue, and what 



