LOS ANGELES -- The Pacific Northwest is abuzz with talk about reorganization prospects for the Bonneville Power Administration, including the possibility of restructuring the debt the agency owes to the U.S. Treasury.

Although much of the discussion surrounding Bonneville remains very tentative, it is increasingly clear that some sort of reform is in the wings.

Last week, Vice President Al Gore's task force on reinventing government helped fan the flames when the group's report cited Bonneville as a candidate for further study.

Bonneville officials have expressed interest in legislation that would transform the federal power marketing agency into a government corporation, possibly along the lines of a Tennessee Valley Authority. The Gore task force might discuss details of that proposal soon, according to Bonneville officials.

"We haven't heard anything yet," said Dulcy Mahar, a spokeswoman for Bonneville.

The task force report mentioned power marketing agencies in a section that discussed the possibility of raising federal hydropower rates to cover full operating costs, or increasing revenues by refinancing existing debt.

The report notes that 50 years ago the power agencies were given the mandate to sell low cost power to spur development in sparsely populated regions. Rates are still low today, partly because of low-interest loans provided by the federal government, the report continues.

Customers benefiting from these low power rates are being subsidized by taxpayers in other regions, the report says.

Possible solutions include having the Department of Energy increase revenues from hydropower operations and establishing a new rate policy for certain federal power agencies to seek recovery of full operating costs, the report says.

Furthermore, the Energy Department "may work to restructure the financing of [Bonneville's] debt, allowing Bonneville to issue bonds at market rates and repay its low-interest Treasury loans," the report says. This would be accomplished with "minimal effects on near-term rates" by seeking favorable interest rates and lengthening repayment terms, the report adds.

The older federal appropriations that Bonneville must repay to the Treasury total about $6.8 billion, according to Mahar. The interest rates on the overall appropriated funds range from 2.5% to 8.9%, with a weighted average rate of 3.4%.

The federal investment helped finance Bonneville's extensive hydroelectric and power transmission system.

From time to time, federal officials have discussed reforms in the way Bonneville makes its payments to the Treasury, including potential acceleration of the debt. Some market participants observed that Gore's reinventing government proposal provides no specifics that go beyond previous repayment reform talks.

"There isn't anything new out there yet," said a market observer who is intimately familiar with Bonneville's financial operations.

Nevertheless, investment bankers and others await the outcome of the reform discussion with intense interest.

One trial balloon would have Bonneville buy out the remaining Treasury debt by refinancing it with bond sales in the public markets, in much the same fashion as the Tennessee Valley Authority.

"We feel we're well known in the bond markets," said Mahar, so that avenue is certainly an option.

But she cautioned that Pacific Northwest interests would want any such plan to be rate-neutral, especially given the current rate environment.

Bonneville already plans an overall average rate increase of 14.6% on Oct. 1, the beginning of its fiscal 1994 year. The increase will cover a two-year fiscal cycle.

Any plan that replaced Bonneville's existing Treasury debt with open-market borrowing also would have to address other complex financial issues. Among these, market participants say, is how new debt would fit in on a parity basis with existing bonds secured by Bonneville's net-billing pledge.

An array of other reform proposals also are being discussed to help make Bonneville more competitive.

Short of an ambitious debt restructuring, Bonneville may seek more operating autonomy or relief from certain administrative directives, Mahar said.

Bonneville also is emerging from a recent financial morass created by various circumstances, including a drought that reduced hydroelectric power production.

"Nobody wants to take on repayment reform right now" until things are more settled, the market participant said.

But with interest growing in federal reform, and other changes sweeping the power industry in general, some observers also believe the time is right to take a serious look at restructuring proposals for Bonneville.

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