Public Power in a Competitive Electricity Market
Subsidies? Maybe. But how about reciprocity? Should Congress let PMAs, munis and co-ops decline open access?
Until recently, most congressional debate on utility deregulation has focused on the future of investor-owned utilities and independent power producers and marketers. Lobbyists for government-owned or cooperative-owned power companies have tried to downplay their clients or to seek exemptions. Yet as the electricity industry is opened to competition, lawmakers cannot ignore public- or government-owned power companies, which supply 25 percent of the nation's electric consumers. They should not exempt some of this nation's largest utilities from competition. Most important, they should not prohibit public power's consumers from enjoying the benefits of competition.
Restructuring legislation must address public power, if for no other reason than that it represents a significant segment of the electricity industry. In this era when lawmakers want both to advance competition and to cut the deficit, the federal government's own power entities, Bonneville Power Administration and the Tennessee Valley Authority are particularly vulnerable to reform.
The electricity market has changed substantially in the last 70 years. It will change even more in the next few years. TVA and the power marketing agencies, just like the rest of the electricity industry, must change as well. The status quo is simply too expensive for both taxpayers and ratepayers.
It's the Ratepayer's Loss
Independent auditors are only beginning to examine taxpayer subsidies provided to public power. PMA backers for many years used their political clout to insert language in appropriation bills that forbade the use of government funds even to study such federal power subsidies. Recent analyses, however, suggest substantial taxpayer benefits are provided to a few preferred customers.
Perhaps the most extensive audit to date was done in September 1996 by the U.S. General Accounting Office. The office found three PMAs (em Western, Southeastern, and Southwestern (em fail each year to recover some $300 million in costs. The burden is left to taxpayers across the country. PMA beneficiaries issued a lengthy critique with complex and convoluted denials of any ratepayer benefit. GAO subsequently rebutted each of those claims, again showing how U.S. taxpayers are picking up the slack.
The subsidy to government-owned utilities can be defined in several ways. The GAO report examines PMA costs that electricity charges do not cover. The Congressional Budget Office, in its 1996 annual review of how to reduce the federal deficit, says that the Treasury loses approximately $350 million per year because PMAs sell power at below-market rates.
The U.S. Energy Information Administration claims the federal government provides an interest rate subsidy to PMAs of approximately $1.2 billion each year. Another $2 billion subsidizes below-market sales by PMAs. The Grace Commission calculated the market value of PMA facilities, or what the federal government would get in an open sale, at $75 billion. Although economists may differ in their approaches, the point is that even in Washington, such subsidies are far more than pocket change.
The American Public Power Association and the National Rural Electric Cooperative Association continue to deny the existence of taxpayer benefits. One APPA executive, despite the