63 



Mr. DeFazio. No, I didn't think so. In fact, last month, with my 

 travel schedule, I was in arrears and I got a notice. 



That isn't set by contract, is it, the length of time which they 

 have to pay? Is it set by contract? 



Mr. Hardy. Yes, it is set by contract. 



Mr. DeFazio. Oh, it is. The 20 days? 



Mr. Hardy. Yes, sir. 



Mr. DeFazio. Is it set by long-term contract or 



Mr. Hardy. I believe it is set by their power sales contract, if I 

 am not mistaken, but I would have to check to make sure. 



Mr. DeFazio. Okay. It is? 



Mr. Hardy. It is the power sales contract, so it is a long-term ob- 

 ligation The power sales contract requires payment in accordance 

 with our rate schedules which set the payment date. 



Mr. DeFazio. So given current contractual obligations, we have 

 given them the 20 days. 



Mr. Hardy. For your information, we are renegotiating the 

 power sales contracts over probably the next 18 months to 2 years, 

 and that could well be one of the provisions that could be changed, 

 and as I say, the customers have made a specific proposal to 

 change that or to agree to a so-called prompt payment in the rate 

 case, and we are evaluating that. 



Let me talk a little bit about what we have got to deal with here. 

 We have got two sets of problems. One is the immediate cash flow 

 problem to get through that three- week period, and as I mentioned 

 in my opening statement, typically to get through that three- to 

 four-week period we would typically have $80-$100 million worth 

 of cash flow in the month of October. 



What we proposed initially, back before we entered the rate case, 

 was to carry a $100 million reserve level. We have now lowered 

 that in our initial rate case proposal to $50 million to try to gamer 

 the rate benefit of that. 



What the customers are asking is to reduce it to or 5 or some 

 other number that is fairly low. We are looking at that proposal. 

 We are also looking at other proposals that would have the same 

 effect. But we have got two problems. One is the immediate prob- 

 lem, but the other is a problem that goes on for several months. 



Typically, even with $100 million of reserves, our expenditures 

 exceed our cash receipts for a 3- or 4-month period from October 

 1 until about the end of the year. So if that is the pattern and you 

 don't have a fairly high level of reserves to begin with, you are run- 

 ning to catch up, and what you need from the customers if you are 

 down near in reserve levels is not just that one-time prompt pay- 

 ment, you need a stream of revenues that is going to help you get 

 over a 3- to 4- to 6-month period before you are evened out again, 

 and that complicates the problem beyond just the immediate 

 prompt payment problem. 



All that being said, we are looking at trying to find a way to do 

 what the customers want, which is to get that $50 million number 

 down. It may or may not involve the kind of prompt payment 

 mechanism that they have suggested. 



Mr. DeFazio. Okay. Just for reference, when was the last whole- 

 sale rate increase? 



Mr. Hardy. It was in 1991, October 1 of 1991. 



