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Fortnightly Magazine - February 15 2000

customer.

I encourage Reps. Franks and Meehan to address this inequity and protect their constituents from this administratively imposed tax.

Ruth K. Kretschmer

Commissioner

Illinois Commerce Commission

Chicago

On behalf of the Public Power Council (PPC), the regional trade association representing the consumer-owned utility customers of Bonneville Power Administration (BPA), I am responding to the article by Reps. Bob Franks and Marty Meehan, "The Sensible Approach: Federal Power at Market Rates" (Public Utilities Fortnightly, Nov. 1, 1999).The authors assert that requiring BPA to sell power at market rates is both "sensible" and sound public policy, eliminating so-called taxpayer-provided subsidies. I encourage the authors to ponder the following questions in deciding how "sensible" their approach is:

* Market rates may produce shortfalls for the Treasury. Would the government have been wise to sell BPA power at market rates during the mid-1990s, when market prices would not have covered BPA's costs - leaving the taxpayers, not the region, saddled with the unpaid bills? With increasing regional costs for fish mitigation efforts, the price of BPA's power is likely to increase over time. Do the authors wish to jeopardize environmental mitigation efforts?

* Charging market rates would increase the role of government in the marketplace. Despite the authors' desire to reduce the role of government in the electricity market, their proposal could have the opposite effect. Fifty percent of the power in the Northwest is marketed by BPA. If BPA were to sell power at market rates, it would be acting as a "price maker," potentially distorting the market in the Northwest. Is it really a good idea for the government to assume the role of active participant in the market?

* Power is not subsidized. While the authors cling desperately to the belief that BPA power is subsidized, the fact is that hydropower is simply a low-cost resource. Non-federal hydropower projects in the Northwest produce electricity at rates as low - or lower - than the power marketed by BPA. It is not surprising that Northwest private utilities have electric rates that are among the lowest in the country. Are lower rates, resulting from natural resources and geography, automatically and irrevocably a "subsidy"?

* Use of market rates should not be a federal decision. Reps. Franks and Meehan imply that retail ratepayers of utilities that are not "preference customers" pay market rates. The implication is simply not true. The vast majority of consumers do not pay market rates - they still pay retail electric rates that are set by state regulatory commissions to recover the actual cost of production plus a reasonable rate of return. Twenty-four states have adopted retail competition in which consumers could be paying "market rates." The decision to adopt retail rates was made by the individual state; it was not something forced on them by Congress. Do the authors want to preempt state and local authorities and require market rates for all power sales throughout the country?

* All regions have advantages. While the Northwest is blessed with low-cost hydropower, other regions - including the Northeast and Midwest - have