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Public Power in a Competitive Electricity Market

Fortnightly Magazine - July 1 1997

array of contrary evidence, said: "The federal power program pays for all the investment, with interest, and covers O&M renewals and replacements plus supporting agriculture. The program is not subsidized. It is a self-supporting capital budget item."

NRECA declares: "The PMAs operate as a self-sustaining, no-cost program that actually will return billions of dollars in revenue to the U.S. Treasury each year. The cost of the federal power facilities are being repaid in full and with interest by customers of the PMAs."

Lawmakers must ask whom to believe: Is it the self-interested recipients of PMA power or this nation's top, independent auditors? PMA beneficiaries, in fact, make contradictory statements about their subsidies. On the one hand, PMA beneficiaries deny the existence of any taxpayer benefit. On the other, to argue against privatization, they plead that the price of power without PMA benefits will go through the roof.

PMAs often complain that investor-owned utilities are the ones with all the breaks. Private and public utility lobbyists long have brought out their accountants and economists to argue the minutia of tax-exempt financing and deferred taxes. This finger pointing is particularly dangerous for managers of government-owned power companies. TVA's chair tried this approach in March 1997 before the House Appropriations Committee: "If there are any advantages at all, they go to the private power companies and not to us."

Rep. Mike Parker (R-Miss.) noted the inconsistency of this statement and argued for privatization: "If private power companies have it so good, then TVA should become one. If they've got it so good, I want you to be in that system."

Expected soon are more GAO and CBO studies on federal power subsidies, including those provided to TVA, Bonneville and the Rural Utilities Service (the REA's new name). The existence of taxpayer subsidies to a select group of electricity consumers can no longer be hidden or denied. The question for policymakers is whether those subsidies are appropriate in this era of deficit reduction and electricity competition.

A principle of any deregulation bill will be to ensure that the generation market is as competitive as possible. The current array of subsidies, therefore, are problematic not just because they waste taxpayer dollars, but because they distort a competitive market.

Lost Revenue, Oversight

The prospect of retail competition highlights several inequities in the current role of federal electricity vendors. Bonneville, for instance, already sells billions of dollars of "excess" federal power to wholesale customers in California. TVA is trying to market electricity outside its "fence." Should American taxpayers be helping these select utilities participate in a competitive electricity market?

Also troubling is the fact that Bonneville's current marketing of taxpayer-subsidized electricity outside the Northwest is done without any oversight. It is sold without any of the safeguards and procedures associated with federal sales of coal, oil or natural gas. The Mineral Leasing Act of 1920 sets up elaborate procedures to ensure that taxpayers receive "fair market value" for the sale of the federal government's massive reserves of coal, oil and natural gas. The act ensures full disclosure, minimum bid