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Public Power in a Competitive Electricity Market

Fortnightly Magazine - July 1 1997

TVA's monopolistic service territory. In creating an open electricity market, therefore, lawmakers must give special attention to TVA's control of key transmission lines in the Southeast (and Bonneville's control of key transmission lines in the Northwest).

Realizing Reform

PMA beneficiaries have successfully beat back reform proposals for many years. Some lawmakers on Capitol Hill fear the political clout and lobbying might of this special interest group. Public power's special-interest lobbyists are among the largest PAC contributors. Rural co-ops alone provided almost $1.5 million to favored candidates in 1996. But the politics of the PMA debate have changed dramatically in the past few years.

Public power is no longer a monolith. Like investor-owned utilities, public power advocates have diverse opinions that vary depending upon their suppliers and balance sheets. Several rural cooperatives and municipal utilities, for instance, receive no preference power from PMAs or TVA and, therefore, have more pressing concerns.

PMA reform has finally become a real possibility. Reform options, of course, vary substantially. The federal government, for instance, could maintain control of its hydroelectric assets and only sell the power to the highest bidder. If lawmakers have a particular allegiance to the preference clause, they could allow munis and co-ops the right of first refusal for that power at market rates. If lawmakers don't like selling federal assets, they could lease the

hydroelectric equipment to the highest bidder. Congress also could amend the Energy Policy Act to ensure that the federal government makes its own transmission lines available, without self-dealing, for open transmission of wholesale electricity. Another option is for Congress to end expensive subsidies and regulatory exemptions for public power.

Perhaps the most direct reform is privatization. In the last decade, at least 24 countries have launched electricity privatization programs. These reformers include highly developed countries such as Australia and Britain, and developing countries such as Argentina and Brazil. Even former communist countries such as Hungary and Poland have done so.

Sen. Murkowski, who knows first hand about the privatization of the Alaska Power Administration, stated the issue succinctly: "When the rest of the world is trying to get government out of business, so should we."

The privatization debate offers some fascinating rhetorical inconsistencies. Some conservative PMA beneficiaries argue vehemently that the government should get out of business and let the free-enterprise system work. Although they wouldn't fathom having the Air Force compete with United Air Lines, some maintain that Washington should continue to own and control some of the nation's largest electric utilities.

A long list of suitors (em power brokers, independent power producers, investor-owned utilities and investment bankers (em have expressed an interest in buying PMA or TVA assets.

Tucson Electric, an investor-owned utility, has offered $550 million for just the Arizona assets of the Western Area Power Administration. Otter Tail Power Company, another IOU, has submitted a separate offer to purchase other WAPA assets.

Selling TVA, assuming the deal fetches 1.5 times the agency's book value, would bring $10.5 billion to the Treasury. The sale would also generate a continual stream of revenue as the private corporation