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Public Power in a Competitive Electricity Market

Fortnightly Magazine - July 1 1997

procedures, appeals, audits and judicial reviews. No such procedures affect the sale of federal electricity.

When Bonneville recently sold 200 megawatts of power to a Southern California marketer, it did not organize an open bidding process. It did not determine a fair market value. It did not reveal the final selling price. One wag noted, "Billions of dollars worth of power produced at taxpayer expense were sold with less care than would accompany the sale of surplus federal property like used typewriters or fill dirt." If lawmakers are to advance retail competition, they obviously also must establish a system to ensure that federal taxpayers get fair market value for the sale of their electricity.

A program to sell electricity produced at federal facilities could be modeled on the Mineral Leasing Act of 1920, ensuring an open and fair system. Sales to the highest bidder would return to American taxpayers the billions of dollars they have invested in dams and generating facilities. It would provide a good source of funding for maintenance and upgrades at these facilities. With audits, appeals and judicial reviews, a new system also would curtail today's backroom deals and block potential corruption.

The Debate's Other Side

A key issue in the deregulation debate is whether federally owned power companies are still relevant. No doubt, the TVA, PMAs and the Rural Electrification Administration were needed (em once. For example, as recently as 1935, only 15 percent of rural Americans enjoyed electricity. Now, 99.9 percent of America is wired. TVA, PMAs and REA achieved enormous accomplishments.

Yet Sen. Frank Murkowski (R-Alaska), chair of the Senate Energy and Natural Resources Committee, has succinctly noted, "Once upon a time it was good public policy to bring power to regions of the country that did not have it, but that need has long since ended."

Rural America. Public power advocates argue that reforming government-owned electricity companies will hurt rural consumers. Yet it's investor-owned utilities that provide a full 60 percent of power to rural Americans, not public power organizations. IOUs serve 79 percent of small-town consumers. What is also surprising is that private power companies offer lower electricity prices to rural consumers than do 70 percent of their neighboring rural electric cooperatives. Based on these statistics, lawmakers need to resist equating the welfare of rural consumers with the interests of rural public power managers.

Public power advocates also claim that competition will leave certain rural customers behind. A similar argument was used against airline deregulation, but the situation with electricity competition is much different. Electric poles and wires in rural areas, whether public or private, are already in place. These distribution lines will not be torn down. Unlike airline routes, the electricity distribution infrastructure is a fixed, immovable asset. Once rural customers are hooked up, they can access electricity over this fixed infrastructure. The issue is not whether public power customers will have power, but whether they can join other Americans in obtaining competitively generated electricity.

Public power advocates say that deregulation will send the price of electricity to rural consumers through the roof.