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consistent with the borrowing cost of publicly owned utilities and with the e discount rate used by Bonneville Power in doing analyses. Mr. Winnerfeld said it was assumed that there would be no change in the current retail rate design because there was no way to estimate what rate changes would occur in future years. He said that since they were studying a broad range of impacts, rate design cannot be changed for one set of custom- ers because it would affect all customers. He said that the ramifications of lower rates for one group would mean higher rates for another since this is a zero-rate game. Mr. Winnerfeld said that if it was assumed that all rate benefits to other LEC customers were given through lower rates to Willow Creek customers, they would find that there was no benefit to their Non-Wil- low Creek customers and that EWEB would still be able to offer lower rates. Therefore, the only way for LEC to serve Willow Creek customers at a lower rate would be for other LEC customers to be worse off. Mr. Holmer asked how close would the rate calculations come if the other customers suffered no disadvantage. Mr. Winnerfeld said this was not covered in the report but there would be about a one cent differential, but assuming all rate breaks, it would decrease to a 3/10 of a cent differential. B. Comparisons Mr. Winnerfeld said that, using the inflation estimate, new distribution investment for LEC would have a present value of $3,7 million. He said their interest rate on external financing would be a combination of 5 percent REA funds and 15 percent based on commercial rates for a 5.75 percent average. e Mr, Winnerfeld said LEe's cost of service would go up at historic rates, even though it was assumed that LEC would capture the same economies-of-scales used by EWEB. Mr. Winnerfeld said LEC would have to make an additional purchase of power from Bonneville Power at their priority firm rate, includ- ing a five percent low-density discount. Mr. Winnerfeld said the distribution investment for EWEB would have a present value of $2.7 million. He said that EWES would not need any external financ- ing because it would be able to finance out of its current revenues. Mr. Winnerfeld said EWEB1s cost of service would be based on historic ratios and their source of power supply would also be Bonneville Power, but they could mitigate costs by using their own hydrosystem. C. Study Results Mr. Winnerfeld said service to the Willow Creek area by EWEB would result in an overall savings to utility customers and the community as a whole because of reduced distribution investment and related expenses into the future due to a duplication of services. There would also be lower power supply costs to serve the Willow Creek load because of the use of hydro-resources and purchases used by EWES. Mr. Winnerfeld said there would be lower electric costs to customers in the Willow Creek area due to EWEB's lower current rates, which are a result of e MINUTES--City Council Work Session August 8, 1988 Page 3