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Public Power in a Competitive Electricity Market

Fortnightly Magazine - July 1 1997

Nonsense, say independent power marketers who are so confident of increased efficiencies that they predict lowering electricity bills for urban and rural consumers.

The environment. In another scare tactic, PMA managers and their beneficiaries suggest that reform means abandoning public dams, navigation, irrigation, salmon and wildlife habitats and recreational areas.

The head of the BPA recently said, "The region has rallied behind us despite our problems. I mean, you do not want to be the Northwest politician that gets blamed for losing the Columbia River system and losing Bonneville."

Privatization, of course, would get the federal government out of the electricity business, but it would not abandon the Columbia River system. Even the most ardent of privatization advocates talk about selling only the hydroelectric assets of PMAs and TVA. Their plans would have the federal government still control the dams and the water flows and still provide navigation, irrigation, fishing, habitat protection and restoration and other recreational benefits.

Reform, in fact, offers the opportunity for substantial environmental improvements. One reason is that market discipline would curtail wasteful energy consumption, the construction of unnecessary power plants and the generation of inordinate pollution caused by subsidized rates at TVA and the PMAs. Second, privatization offers the chance to renegotiate the terms for operating hydropower facilities, setting future dam use priorities and improving the dismal record by federal agencies on protecting endangered species and habitats.

Exemptions from Regulation

Public power advocates argue that they should be exempt from state and federal regulation. Such exemptions, however, will be blatantly unfair in a competitive environment.

Only 41 states have meaningful economic jurisdiction over municipal utilities, and only 31 states have meaningful economic

jurisdiction over rural electric cooperatives. In California and Pennsylvania, lobbyists for municipal utilities and electric cooperatives won exemptions from state retail restructuring programs. When Congress approved the Federal Power Act in 1992, lobbyists for PMAs, municipal utilities and most cooperatives also won exemptions from meaningful regulation. Importantly, these entities are not subject to FERC Order No. 888, and, therefore, can deny open-access transmission.

A municipal utility having a transmission system (em that either doesn't own power generators or doesn't want to sell power at wholesale (em need not open its network to other power companies. That municipality, however, can obtain wholesale power from others and require surrounding utilities to provide open access. Public power entities, therefore, get the full benefits of open access to private utility systems but do not have to reciprocate.

Similar inconsistencies affect retail sales. California's recent restructuring bill, for instance, requires municipal utilities to put their transmission systems under the control of an independent system operator. However, municipal utilities are not required to give their customers retail access to competitors until two years after private utilities have done so.

The Tennessee Valley Authority also is exempt from open-access requirements. A "fence" created by the TVA Self-Financing Act of 1959 protects it from competitors. TVA officials have tried aggressively to sell their power outside the fence (a federal court recently blocked those attempts). But they don't want other power providers competing in