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BPA, TVA, Salt River: Playing Fair in Power Markets?

Fortnightly Magazine - July 1 1998

CROSS THE COUNTRY, CRITICISM RISES FROM INVESTOR-owned utilities as public power agencies are drawn into regional or national markets through power pools and the geographic expansion of power marketing activities. Whether these agencies are seen as federally funded or just indirectly subsidized, the complaints remain the same: tax advantages, no reciprocity, exemptions from regulation.

Who really has power over the power? Do public power agencies enjoy an advantage, as private industry claims? Can they offer cheaper rates on different terms, and could those rates destabilize spot markets or power pools?

These questions are heating up in three of the country's major regions. The stand-offs involve the Northwest and Bonneville Power Administration, the Southeast with the Tennessee Valley Authority and the Southwest with the Salt River Project. Two recent rulings highlight the nature of the conflict. First a federal district judge was asked to interpret the meaning of the TVA "fence." Second, the Federal Energy Regulatory Commission faced allegations of BPA market power in the California Power Exchange. Now comes a letter to the Treasury Department and the Office of Management and Budget, complaining about an alleged diversion of electricity from federal projects to private coffers.

At the same time, special advisory committees have emerged, such as the Bonneville Cost Management Committee (created by the Northwest Power Planning Council), and the Tennessee Valley Electric System Advisory Committee (created by the Department of Energy). Their reports, issued this spring, examine both internal cost management and larger questions of overall mission.

Particular questions address TVA's service boundary, or the fence, created in 1959 when Congress allowed TVA to issue debt to finance its own operations from electric revenues, and "the anti-cherry-picking" rule added in section 212j of the Energy Policy Act of 1992.

The TVA fence bars any "sale or delivery of power" that would make TVA or any of its distributors, directly or indirectly, a "source of supply" outside the area that TVA served on July 1, 1957. TVA enjoys an important exemption, however: it may conduct power exchanges with power generating companies outside the fence with which it conducted such arrangements on the July 1957 cutoff date. On the other hand, the anti-cherry-picking rule exempts TVA from any requirement to transport power from outside the fence into its service area in competition with the power TVA already generates. This exemption to open access will expire on its own terms if the fence should come down. As noted in the DOE report, TVA now seeks authority to sell power at wholesale without restriction. Such authority would appear to complement TVA's core business, since most of its current load is wholesale. TVA serves only a few large industrial retail customers and offers retail service in Kingsport, Tenn. Nevertheless, it claims authority to set retail rates for the distribution utilities that it serves, such as the municipal utilities in Memphis, Nashville, Knoxville and Chattanooga.

At BPA, questions focus on internal costs for research and funding of renewable energy projects, along with possible staff cuts for administrative and power marketing activities. But controversy also attends BPA's participation