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Fortnightly Magazine - May 1 1996

Enterprise Institute in Washington, DC. Crews previously served as a legislative aide in the U.S. Senate, and worked as an economist at the Food and Drug Administration and at the Citizens for a Sound Economy Foundation. Mr. Crews is currently pursuing a PhD in economics at George Mason University. He holds an MBA from William and Mary and a BS from Lander College in Greenwood, SC.

A Heritage Foundation Proposal

A Certain percentage of the stock of the newly privatized PMA could be sold at higher post-initial-offering rates, effecting greater deficit reduction.

Create a privatization package that benefits all parties compared to the status quo. For example, for each PMA:

. Offer a 51-percent controlling interest to the public at the initial valuation.

. Give current customers the option to purchase stock in proportion to their use of power (perhaps paid for in installments on future electric bills)

. Reserve at least 10 percent of this 51-percent block for residential or small business customers

. Give small buyers an option to buy future additional shares at the original price if they hold their shares for a prescribed minimal length of time (This allows small investors or former customers to benefit from any increase in value that privatization brings, thereby increasing the likelihood that they go along with a sale.)

. Give the remaining 49 percent of the stock to the government to sell at the most attractive price. (The taxpayer will gain from any increase in stock value after privatization, because all the additional funds could be earmarked for deficit reduction.)

Proposed by the Heritage Foundation in 1986, based on the British experiences with Britoil and British Telecom.

Getting Our Feet Wet

Congress might consider initially dealing with the problem by establishing a commission similar to the Military Base Closure Commission. The commission would assemble a package of facilities to privatize, perhaps across PMA regional lines; submit the package to the President for revision; and then hold an up-or-down vote.

Alternatively, Congress could attempt to privatize the five PMAs individually, working from the easiest case to the hardest. Knowledge gained from each sale would be applied to the greater difficulties at the next level. (The Senate bill to privatize the Alaska PMA may mark the first step on this simplest case (em a matter of only two power plants.)

1 See, Reducing the Deficit: Spending and Revenue Options, Congressional Budget Office, February 1995.

2 See, Martin Gross, The Government Racket: Washington Waste from A to Z.

3 An amendment to the Continuing Appropriations Resolution for FY 1983, renewed in subsequent law, prohibits the government from conducting "any studies relating to or leading to the possibility of changing from the currently required 'at cost' to a 'market rate' method for the pricing of hydroelectric power.


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