77 



PREPARED STATEMENT OF RANDALL W. HARDY 



Mr. Chairman and Members of the Subcommittee, it is a pleasure to come before you to present 

 the FY 1996 budget for the Bonneville Power Administration (Bonneville). The Subcommittee's 

 attention and support continue to be essential as we work to address the challenges we face in the 

 Northwest. 



The Bonneville Power Administration is at a historical pivot point that will, depending on our 

 response, determine the future of this agency. After five-and-a-half decades of virtually no 

 competition, Bonneville now finds itself in a deregulated, highly competitive marketplace At the 

 same time, new decisions on Columbia Basin endangered salmon will influence how the hydro 

 system is operated. Bonneville's response is to move decisively to manage the challenges these 

 events pose. 



Today, I will first discuss the competitive environment we are facing and the tools we are using to 

 remain competitive. I will then discuss the increasing financial pressures of added costs. Finally, 

 I will comment on our current financial situation as of the end of the first quarter of FY 1995, our 

 current budget, and some of the more important events now affecting Bonneville 



For 58 years, Bonneville has been a "can do" agency, adapting to the Northwest's changing 

 needs, from rural electrification to establishing one of the leading energy conservation programs. 

 Bonneville's ability to change remains its greatest strength. This attribute takes on new 

 importance today as Bonneville undergoes what may be its most crucial transformation 



Bonneville's ability to adapt successfully is fundamentally important to the Northwest economy 

 and environment. Our low-cost, non-polluting power has brought new business and industry into 

 the region. In the rural Northwest, Bonneville power has transformed arid expanses into rich 

 croplands. This same reliable power is a major factor in the region's economic expansion 



A productive and growing Northwest economy depends on Bonneville. A financially healthy 

 Bonneville is also key to funding the region's fish and wildlife enhancement and energy 

 conservation efforts. In today's competitive utility marketplace, Bonneville must first succeed as 

 a business if it is to serve its wide-ranging regional mission and meet its Federal responsibilities 



COMPETITIVE MARKETPLACE 



Utility deregulation has fostered a strong independent wholesale electric power production 

 industry nationwide. In the Northwest, as elsewhere, this industry offers Bonneville customers an 

 ahemative. This competitive climate was accelerated with the National Energy Policy Act of 

 1992, which opened transmission access, not only within the Northwest, but also to utilities 

 among regions. 



The costs of new power sources have dropped sharply in recent years, causing the gap between 

 Bonneville's costs and the cost of alternative power sources to narrow dramatically. Ten years 

 ago our price advantage was over 400 percent. We believe that recently this gap has been 

 narrowing rapidly as independent power producers and others enter the Northwest wholesale 

 market. I have attached a number of charts and graphs to my testimony to elaborate on my 

 testimony. Please see Attachment 1 on the avoided cost of alternative generation. In addition, 

 uncertainties about Bonneville's future costs, especially salmon restoration costs, have led some 

 customers to conclude Bonneville might not be competitive in the very near fiature That could be 

 true were Bonneville to take no action. 



Two years ago we took a hard look at the position of our agency. Following business-as-usual, 

 our projections, using current rate levels, showed Bonneville's costs would exceed revenues, 

 annually, by $600 million in just ten years. There was no question that we would have to change 

 the way we do business. Bonneville's Competitiveness Project is the agency's vehicle for creating 

 the necessary change. Bonneville believes the key to its success is for it to be a customer-focused, 

 cost-conscious, results-oriented, market-driven government organization. 



