A fierce debate has erupted in the utility policy community, with battle lines drawn within FERC itself. In the effort to improve system efficiency, two competing alternatives stand out: to build...
as an advocate of structural protections and rules of play that will produce a competitive environment. Competition isn't the natural order. The goal of the unrestrained competitor is to eliminate competition and establish a monopoly. To prevent monopoly power abuses and to protect consumers, society puts in place structural protections and rules of play, such as the Public Utility Holding Company Act and our antitrust laws.
Public power has been, and continues to be, on the leading edge of these debates. Public power has led the fight against stand-alone repeal of PUHCA, insisting that before it is repealed, we must have in place a new structure that provides comparable consumer protections.
We insist, too, that Congress and the Administration address problems of market power.Our success in articulating the problems of unrestrained market power and proposing solutions that work in the public interest may account for some of the current attacks on us.
Sen. Gorton Floats A Proposal
The time is also right for public power to secure federal legislation to protect the interests of its communities. If Congress begins to move on restructuring legislation, then I believe the time will be right for public power to obtain the "private use" relief that we need.
Our private use problem arises from the inherent conflict between old rules and new. Federal tax law prohibits more than a small amount of "private use" of facilities constructed with tax-exempt bonds. The problem is frequently mischaracterized as arising when public power enters into sales outside its existing service area. The private-use problem has nothing to do with where the power is sold, but arises based on how the power is sold. Sales to the general public under tariffs are generally OK, sales to specific entities under contract are problematic.
Under the old rules of exclusive service territories and monopoly service, public power systems could live with these private-use limitations. But the application of those rules in the new world of open transmission access and customer choice simply doesn't work for many public power systems with significant amounts of tax-exempt financed transmission and generation facilities.
Public power supports a proposal recently advanced by Sen. Slade Gorton (R-Wash.). Sen. Gorton has proposed what might be called a "local option" approach. Under this proposal, those who need relief from private-use limits could obtain it. But there would be a price to pay. Those public power systems that elect to have the private-use restrictions removed from existing facilities would be required to forego, temporarily or permanently, the use of tax-exempt financing for future generation.
The genius of the Gorton proposal lies in its respect for the rights of state and local governments to use tax-exempt bonds for their own local infrastructure needs, including providing electric service. It offers an opportunity for those existing public power systems facing a private use problem to obtain relief in exchange for a binding pledge not to use tax-exempt financing for new generation.
Sen. Gorton characterizes his bill as a reasonable compromise between those who simply want outstanding debt grandfathered, and those who believe public power