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GAO Study Fans Latest Fire to Threaten Federal PMAs

Fortnightly Magazine - March 1 1999

kWh. Preference customers receiving power from WAPA might see a variety of rate increases if market rates are charged. In California, Colorado and Nebraska, more than three-quarters of the preference customers could see increases of less than one-half cent per kWh. But in South Dakota and Utah, many preference customers might face rate increases exceeding 1.5 cents per kWh. Those customers, however, typically paid relatively low rates, raging from 1.5 cents to 3 cents per kWh. In turn, residential end-users could experience larger electric rate increases. In general, the GAO said, a wholesale rate hike of 1.5 cents per kWh for a preference customers would mean $10 to $15 more each month for a typical retail residential customer, depending on the state. Possible rate hikes for SWAPA customers would lie between the increase projected for SEPA and WAPA customers. [The GAO report is posted at http://www.gao.gov.]

Congress Eyes Long-Term Contracts

On Jan. 12, Reps. Bob Franks (R-N.J.) and Marty Meehan (D-Mass.) wrote to the project manager of the Western Area Power Administration, Robert C. Fullerton, complaining about a WAPA proposal to sign long-term contracts for below-market power. The proposed 20-year terms for contracts with the Central Valley Project, Washoe Project and Salt Lake City Area Integrated Projects were too long, the congressmen argued, especially since the electric industry was in flux. They called the beneficiaries of low-cost power a "vocal political force," but said that protecting the status quo was "unresponsive to the new electricity industry and the federal taxpayer."

Also, the congressmen believe that the federal subsidies received by PMAs such as WAPA are "substantial," as verified by the GAO and the Congressional Budget Office. Those subsidies only serve to distort the market, they argued. They added that signing 20-year contracts would compromise Congress's ability to reform or sell WAPA assets to non-federal interests.

The congressmen also believe that the long contracts would "further the discrepancy between the preference clause's intent of advancing 'municipal purposes' and the distribution of WAPA power to some of the nation's wealthiest communities." They pointed out that WAPA conducts no means testing for distribution of low-cost power. Franks and Meehen threatened that PMAs, "if they are to continue to exist, need to focus on end-users and offer true public benefits only to those in need."

The congressmen wrote the letter on behalf of the Northeast-Midwest Congressional Coalition, which boasts more than 100 congressional members.

IOUs Versus Public Power

But as the congressmen pointed out, the recipients of preference power are a vocal force, as evidenced by the Salt River Project's announcement that it had received a letter from the U.S. Department of Energy concluding that SRP has not violated its contractual commitments regarding preference power by using it in electric sales in a competitive market.

Tucson Electric Power and other investor-owned utilities had complained regarding sales by SRP of low-priced federal preference power outside its historic service territory through its for-profit power marketing subsidiary, New West Energy Corp. Tucson Electric Power's power marketing entity, New Energy Ventures, competes against New West Energy in California. And SRP