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Fortnightly Magazine - May 1 1996

with the right to transfer ownership through privatization.

Argument #4: Selling the PMAs will cause environmental degradation. Wrong. The PMAs themselves are open to the charge of damaging the environment. Selling electric power at below-market rates (em since it increases demand and leads to overconsumption (em is inconsistent with the government's energy conservation objectives, as noted by the Congressional Budget Office in its report, Reducing the Deficit. Consider also the deadweight losses generated by energy subsidies, which may involve environmental resources.

Comprehensive privatization proposals raise issues that concern impact on irrigation systems, wetlands, flood control, wildlife preservation, or recreation. These issues can be addressed through reasonable conditional sales that reinforce environmental goals. Some privatization proposals, such as President Clinton's, seek to minimize environmental impacts by selling only transmission facilities.

Argument #5: Privatization proceeds cannot legally be applied to deficit reduction. Wrong. If Congress chooses, it can alter budget-process law so that proceeds from PMA sales reduce the deficit. The President's FY 1996 budget indicates that he will request a legislative fix so that sale proceeds would apply toward deficit reduction. Congressman Foley addresses this objective by crediting sales proceeds to "miscellaneous receipts" in the budget.

Treading Water

Ironically, at the same time our executive branch is prohibited by law from studying the impact of a switch from market- to cost-based pricing of hydroelectric power,3 last year's foreign operations appropriations bill provided several hundred million dollars in funding for Russia and the other former Soviet Republics to ease their transition to a market economy, a transition that includes at least partial privatization of the energy sector. Similarly, the Mexico aid package carries the condition that Mexico vigorously pursue privatization of its governmental programs, including the energy sector.

We should do at home as we ask others to do.

Privatization of the PMAs is long overdue. The core issues in this debate are the unfairness of requiring one class of Americans to subsidize the power needs of another, and the impropriety of government-run commercial enterprises competing against and even excluding large chunks of the private sector from access to their output.

The notion that some buyers of electricity may be prohibited by law from bidding (em without subsidies (em on the output of a large part of our nation's electricity generating capacity is alien to American business practices, and to future low rates. The potential participation of all of America's generating and transmission capacity is essential if we are to supply the electricity needs of Americans most efficiently and at the least cost.

If PMAs do disrupt the otherwise inevitable coming of retail wheeling and consumer choice, their annual costs to society will be far greater than their annual appropriation, the below-market rates, and the tax advantages municipal utilities and rural co-ops now enjoy. Of course, the public won't be able to directly perceive those costs. These are the pernicious "hidden costs" of economic regulation that are difficult to tabulate but that nonetheless conspire to debilitate our nation's economic health. t

Clyde Wayne Crews, Jr. is the Fellow in Regulatory Studies at the Competitive