74 



this graph is 3 months old, and we are probably already at the 

 crossover point where alternative sources of generation are below 

 or at least equal to our wholesale rate. 



This situation is a product of three factors, first, low natural gas 

 prices; second, a west coastwide surplus of electricity borne by a de- 

 fense restructuring in California, and a number of other factors; 

 and third, the opening up of transmission access nationwide, and 

 particularly in the west coast. This situation in particular, has 

 made low-cost coal-fired power in the desert Southwest, Wyoming, 

 Utah, and other places available in this region at costs that are 

 competitive with our current rates. 



We announced a 5-percent rate increase as a preliminary pro- 

 posal some 3 weeks ago. I am not even sure we can sustain that 

 level of rate increase without losing significant additional cus- 

 tomers. 



We have tried to deal with this problem in a number of ways. 

 Between last year's budget submittal and this year's budget sub- 

 mittal that you now have under consideration, we have cut almost 

 $250 million a year on average for the next 5 years. But that was 

 not enough. Three weeks ago we identified another $250 million a 

 year on average worth of cost reductions that we believe we will 

 have to undertake to stay competitive. These reductions involve a 

 1,000-person staff reduction at Bonneville and possibly additional 

 staff reductions. 



The 1,000 person reduction is a 20-percent downsizing for BPA. 

 The additional cost reductions involve significant cuts, particularly 

 in the generation and transmission budgets. I am sure we will get 

 into some of those significant reductions in the questions. 



But, basically, in the last 15 months or so we have identified one- 

 half a billion dollars a year worth of cost cuts over the next 5 years 

 that we are aggressively pursuing. 



The next couple of pages list for you some of the offers that our 

 customers have been receiving. They reference Senator Gorton's ob- 

 servation about the number of people who visited his office, and I 

 think have visited all of your offices. Let me just cite a few offers 

 to give you an example of the competition we have. 



Kootenai Electric Co-op of northern Idaho has an offer on the 

 table from ENRON. Who is ENRON? ENRON is the largest natu- 

 ral gas company in the United States, and is an active marketer- 

 broker in the Northwest. That offer starts at a rate below Bonne- 

 ville's current rate of 27 mills, and escalates by a modest percent 

 each year. 



Clark County PUD, our fifth largest customer, has already made 

 a decision to build a combustion turbine and offload one-half of its 

 load from our system. And I now have pending a request from 

 Clark to go to zero, to offload its entire 375 megawatts worth of 

 load by the end of 1996. 



Inland Power & Light, our second largest cooperative customer 

 outside of Spokane, has received an offer from the Washington 

 Water Power Co. to offload one-half of its load from Bonneville, 

 again at a price that starts below our current rate, much less any 

 potential rate increase, and escalates by roughly 3 percent a year. 



