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Public Power: An Inexpensive Insurance Policy Against Consolidation

Fortnightly Magazine - September 1 1997

reliable service for all consumers.

As Rep. Ed Markey (D-Mass.) observed at the July 9 hearing, if the efforts to restructure the electric industry produce results like those in the telecommunications industry - specifically the potential merger of AT&T and SBC Communications - then we might as well abandon the effort right now.

When conditions to support sustained competition are not present - especially for an essential service such as electricity - public enterprises are legitimate vehicles of public policy to help produce the results of competitive markets. The heart of Mr. Munson's protests do not involve subsidies or other cost advantages, real or alleged. He is challenging the very right of public enterprises to exist.

Mr. Munson does spend a considerable amount of time on "subsidies." As with public power he would do well to provide a solid definition of what a subsidy is. If a government sells a good or service to its citizens at a price sufficient to recover all of its costs, then it is not a subsidy. If the government could obtain a higher price from its citizens, but chooses not to, it has foregone a profit. This is the issue that is the core of the debate over PMA rates. Should the federal government seek to maximize its return on infrastructure investments? Or should it try to ensure the benefits are distributed to the public without the extraction of a profit at any level of the process? This is a legitimate policy question that is obscured not enlightened by pejorative references to subsidies.

Changing the Story

In contrast to the extensive discussion of subsidies to PMAs and TVA, Mr. Munson dismisses the monumental subsidies provided to the private power companies, relegating them to the "minutia" of the tax code. Twenty years ago, as the director of the Environmental Action Foundation, Mr. Munson wrote an article for The Progressive in which he extolled the benefits of public power and rural co-ops, noting that they "do more for their customers and charge less."

In that article, published in May 1977, he demonstrated considerable expertise in the minutia of the IOU tax subsidies. Specifically, he stated: "It is the private utilities which benefit most from the nation's tax laws. Congress passed legislation in 1969 allowing IOUs to charge their customers for Federal income taxes which will never be paid because of tax loopholes. Thus, in 1975, the nation's 150 largest investor-owned utilities charged their customers for $1.5 billion in taxes which were never delivered to the U.S. Treasury."

The only thing that has changed over the past two decades is the magnitude of the accumulated federal subsidies. When Mr. Munson's article was published in 1977, the IOUs had accrued more than $8 billion in net deferred income taxes. By 1994, this figure had grown sevenfold, to more than $57 billion. Without this and other subsidies, the rates of the private power companies in 1994, on average, would have risen 5 percent.

In a surprising twist for an article looking at a deregulated, market-driven electric industry, Mr. Munson finds time