23 



to BPA — that is, ratepayers — because it doesn't have a biannual 

 battle about whether rates should be increased to eliminate the 

 subsidy, and that uncertainty. 



So it appears to us to be a win-win solution. It is not as much 

 as some people might have wanted to increase the rates and pri- 

 vatize the debt, which would have resulted in relatively more reve- 

 nues to the Treasury than the $4 billion. 



Mr. Smith. Let me ask you in that respect, $4 billion, at 7 per- 

 cent, is a higher cost to BPA than $7 billion at 3 percent. So how 

 do we get away from an increased cost when we have increased 

 cost developed in rescheduling the debt? 



Mr. White. I can't tell you precisely what the effect of interest 

 rates would be. I am not quarreling with the 3 percent versus 7 

 percent. 



Mr. Smith. We know that current interest is 3 to, what, 3.5 per- 

 cent? Three percent? However you do it, you end up with more cost 

 for the lower debt. 



Mr. White. If you did that calculation there would be some in- 

 creased cost, although as a percentage it is not a large percentage. 

 However, the cost in any particular year would be governed by the 

 amortization schedule. Some of the debt that is currently scheduled 

 to mature around the early 2020 period is pushed into the late 

 teens, 2015-2020 period, so there are some longer maturities which 

 influence the amortization schedule. And in addition to that, you 

 can increase some revenues payed the Treasury because some of 

 the post- 1974 debt remains outstanding somewhat longer. 



So what we have done. Congressman, is assume that the total 

 amount of debt service interest each year is constant. It is the 

 same as it would be under the current profile, and then simply ex- 

 tended the term of the debt. 



Mr. Smith. That sounds like the way we budget here, Mr. White. 

 At some time it is going to cost more money. 



Mr. White. Yes, at some time it is going to cost more money and 

 sometimes it is going to cost less money when the principal is paid 

 off. That is, I believe that some of the principal will be deferred. 

 It will be retired in the 2015-2022 rather than the 2010-2015 

 range. 



Mr. Smith. One last question. How did we come up with $100 

 million premium? 



Mr. White. Okay. This is what I began to talk about, and I will 

 express it as best I can. There is some post- 1974 debt which bears 

 interest rates which are higher than current rates on the appro- 

 priations. The sum of that debt would be retired relatively sooner 

 under the status quo. It will be retired relatively sooner under the 

 status quo because Bonneville retires the higher interest debt soon- 

 er, before retireing lower interest debt. 



Now, the new debt, as you point out in your question, the new 

 debt will have a higher interest rate. Because the new debt has a 

 higher interest rate, the post- 1974 debt will be retired relatively 

 later than it would be under the status quo, and that would result 

 in the Treasury being able to earn the relatively higher rate on 

 that debt for a relatively longer period of time, therefore increasing 

 the present value of the package. 



