15 



The Electric Industry is Changing 



Fundamental changes are occurring in the electric utility business. These changes are 

 largely driven by new technologies, on both the demand side and the supply side, and 

 increased competition. New efficiency technologies are rapidly entering the marketplace, 

 creating greater awareness of energy alternatives and increasing the sophistication of end 

 use consumers 



Simultaneously, efficient new gas generation technologies and lower gas fuel prices are 

 exerting downward pressure on the marginal cost of new resources. In some utilities, 

 these new resource costs are less than the embedded costs of existing resources. Finally, 

 the institutional changes on the transmission side of utility operations are creating 

 opportunities for more transactions of mutual benefit - further increasing the market 

 orientation of electric utilities. 



Bonneville is experiencing all of these changes. At the same time, we are experiencing 

 substantial upward pressure on our rates, largely due to the drought, purchase power 

 costs, lower revenues from our aluminum customers, and Endangered Species Act 

 responsibilities. Bonneville price increases will place pressure on the competitive position 

 of our customers. Understandably, they are urging Bonneville to change to meet their 

 needs in this rapidly emerging competitive environment. 



These are volatile times for Bonneville and the electric industry. We have taken a hard 

 look at the current Bonneville mission and culture, and we have concluded that we must 

 change to meet the challenges of the future. In recognizing the realities of the future 

 environment, we have launched a Competitiveness Project to "reinvent" Bonneville. 



