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COMPETITIVE TOOLS 



Bonneville has three tools to stay competitive: controlling costs, improving services, and 

 increasing revenues from a variety of sources We have proposed a Business Plan to restructure 

 our entire business approach. The plan is our guide for adjusting to the new environment by 

 managing financial risks, reducing agency costs, and increasing our customers' satisfaction 



In late February, all of Bonneville's key executives met to assess agency marketing and business 

 strategies. We concluded that escalating competition in the marketplace is getting tougher and 

 will continue to get tougher before the playing field levels out. We agreed that in order to meet 

 the competition, further cost reductions would be needed, and we have the tools, the talent, and 

 the will to do it. We fijrther concluded that our overall marketing strategy outlined in the 

 Business Plan is sound and we will continue to keep the course 



CONTROLLING COSTS 



We are continuing to take aggressive actions in managing our costs. Thanks to internal cost 

 management, we avoided triggering an interim rate adjustment last October despite a third year of 

 very poor water conditions. 



Despite significant and unexpected new costs for power purchases related to drought and fish 

 mitigation--$500 million more than budgeted in the last three years, Bonneville's total operating 

 expenses stayed level for the last three years. 



Cost cutting and efficiencies have resulted in reductions of about $240 million a year on average 

 from Bonneville's planned operating expenses for fiscal years 1996-2000. Please see Attachment 

 2 for a comparison of total operating expenses from the FY 1995 Congressional Budget 

 Submission and the 1995 Rate Case data. Preliminary spending levels for 1995 Rate Case data 

 includes updated assumptions and more cost reductions than are included in the FY 1996 

 Congressional Budget. These cuts will total at least $1 billion by the end of the decade 



As the competition gets tougher and market prices drop, we recognize that even more stringent 

 steps will be needed to close the gap between expenses and revenues To the extent possible, 

 over the next five years, we will seek an additional $1.3 billion in cuts—this is an average of an 

 additional $250 million annually These additional cost reductions are expected to be included in 

 the final Business Plan set for release in June 



By the end of this month we will have reduced our workforce by about 350 Bonneville employees 

 from the time we initiated the Competitiveness Project. We expect to reduce Bonneville 

 contractors by about 200 by the end of FY 1995. We are on target to meet our goal of reducing 

 the overall workforce by 1,000 workers by the end of FY 1997. This overall 20 percent reduction 

 is divided equally between contractors and Bonneville employees It is likely that the S 1 3 billion 

 cost reduction goal will further increase this number 



Further examples of cost-cutting and efficiency include: terminating two partially completed 

 nuclear plants, in cooperation with the Bureau of Reclamation, improving Grand Coulee Dam 

 generation efficiency, thereby adding revenues in power sales, altering a major maintenance 

 project; early cleanup of the Ross Complex Superfund Site, and negotiating an agreement in 

 principle to resolve delivery of the Canadian Entitlement downstream benefits under the Columbia 

 River Treaty, thus saving alternative resources costs and the costs of building a new transmission 

 line Regarding additional cost cutting, all elements of the budget are being considered In 

 particular, we are looking at resource acquisition projects. 



Further, and as a result of recent management decisions, all current generating resources on line 

 and under development are being reviewed in order to achieve savings of about half their costs 

 In addition, transmission capital investments will be significantly reduced 



