GAO Study Fans Latest Fire to Threaten Federal PMAs
But preference customers still remain a "vocal political force."
With eyes turned again toward Congress, and possible energy legislation, opponents have thrown up yet another challenge to the sale of low-cost, allegedly subsidized power by the federal power marketing administrations. This time, congressional foes of PMAs have gained allies in several investor-owned utilities and in the findings of a report from the U.S. General Accounting Office, requested last year by Congress to aid its deliberations on electric restructuring.
While the congressional efforts of recent years to privatize PMAs have been suspended, critics of preference power believe the PMAs should be sold and the low-cost sales ended. They argue that both have become anomalies in a world moving toward markets. But defenders say preference power is needed to help those living in rural areas.
Others support PMAs "because they provide a form of competition to utilities," according to Chris Eckl, a government relations representative at the American Public Power Association. He says federal power was never meant to provide big profits for anyone, but to offer an alternative to private power. "It was a historic, well thought-out decision," says Eckl. "[Critics oppose PMAs], they say, to promote competition, but we maintain that they want to squelch competition before the market is even deregulated."
Looking at Rate Shock
The GAO report, released in November, gives fodder to those who want an end to preference power. The report, "Federal Power - Regional Effects of Changes in PMAs' Rates," is the U.S. General Accounting Office's response to a request last year by Reps. Don Young (R-Alaska) and John T. Doolittle (R-Calif.) for a report on "preference power" sales by PMAs. The report finds that slightly more than two-thirds of the "preference" customers that buy power directly from three of the PMAs - the Southeastern, Southwestern and Western Area power administrations - may experience relatively small or no rate increases if forced to pay market rates.
The GAO was responding to concerns that changing PMA ownership or ending preference power sales might cause rate shock, especially in rural or low-income areas, since evidence indicated that rates charged by federal PMAs to their preference customers - wholesale buyers such as co-ops and publicly owned utilities - ran about 40 to 50 percent below other prevailing rate levels during the period 1990 to 1995.
To help answer questions on the future role of PMAs, GAO provided a state-by-state analysis of the preference customers that purchase power from the three named PMAs: SEPA, SWAPA and WAPA. Specifically, GAO identified the: (1) the rate hike (if any) for preference customers forced to pay at market, (2) the extent of retail areas served by PMA preference customers; and (3) the character of those service areas (income level; rural vs. urban).
GAO finds that almost all of the Southeastern PMA's preference customers would see an average increase of up to one-half cent per kilowatt-hour over rates that in 1995 ranged from 3.5 cents to 6 cents per kWh. Most of the preference customers would experience rate increases of less than one-tenth cent per