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Mailbag

Fortnightly Magazine - July 1 1996

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Dr. Youseff Hegazy, Corporate Planning Team

Utilities Division, EDS

Preserve the PMAs!

Clyde Wayne Crews, Jr., writing on the Power Marketing Administrations in your May 1 issue (p. 11), not only failed to do his homework, he hasn't even been paying attention in class. His "Perspectives" column rehashed a mix of wornout political bluster and faulty economics espoused by investor-owned utilities (IOUs), notably their front organization, the Alliance for Power Privatization, which tried last year to force an auction of the PMAs and create an imbalance in the electric utility market just as deregulation and competition are beginning to develop.

Crews laments that the IOUs do not enjoy preferential access to power generated at federal dams. And for good reason. A better definition of the term "preference" would be "anti-monopoly." The IOUs already own 32 percent of the nation's hydro capacity (em nearly 30 gigawatts (em located at facilities that they developed over 50 years ago on public water resources for private gain. The preference principle instead allows the broad use of public resources, giving first call on the power from the publicly owned, multipurpose hydro projects to consumer-owned utilities, Native American authorities, federal military installations, and other public bodies.

As for subsidies, no tax dollars prop up the PMAs. In fact, revenues from PMA power sales have paid for constructing, operating, and maintaining the hydro facilities. These revenues also have covered some of the costs of other critical, nonenergy functions

performed by the dams (em e.g., irrigation, fish and wildlife enhancement, and recreation. All this has been verified, at various times, by the General Accounting Office, the Congressional Research Service, and the Congressional Budget Office (CBO).

Since when does the sale of any item at a price that recovers production costs and brings in additional revenue amount to a subsidy? Approximately $1.6 billion over and above the appropriations that show up in the federal budget will be paid by the PMAs to the U.S. Treasury this year alone. Selling them would mean a one-time, near-term cash payment in exchange for a long-term loss of revenue to the federal government. Compensating for these losses would require more tax dollars. Both of these findings are contained in the most recent CBO report related to the PMAs, delivered October 1995 to the House Resources Committee, whose ill-advised proposal to auction off the Southeastern Power Administration was eventually stripped from the Budget Reconciliation bill.

Had Crews done thorough research, he also would have discovered that the IOUs, though taxable, receive real subsidies through that same tax code (em approximately $8 billion a year from tax deferment and other privileges.

Crews unfortunately restated the IOUs' false claims in regard to PMA debt-repayment practices. In fact, PMAs are required to retire all debt, with interest, within 50 years. That is the law, which authorizes a particular project to repay according to a schedule set by legislation. All PMAs have rigidly adhered to whatever schedule applies in their case. And audits by respected accounting firms such as Deloitte & Touche have determined that the PMAs have conformed