Federal Power

The Role of the Power Marketing Administrations in a Restructured Electricity Industry Gao ID: T-RCED/AIMD-99-229 June 24, 1999

The electricity industry faces vast opportunities as it moves into restructured, more competitive markets. During the past 20 years, competition has been replacing regulation in many sectors of the U.S. economy, including transportation, natural gas, and telecommunications. As this restructuring proceeds in the electricity industry, policymakers must consider how the existing federal system of generating, transmitting, and marketing electricity is managed. This testimony discusses several broad goals of restructuring the electricity industry--goals that apply to both the private sector and the government, including the federal power marketing administrations. GAO also discusses the role of the power marketing administrations in the changing electricity industry.

GAO noted that: (1) one major goal of deregulating the retail electricity market is encouraging retail price competition; (2) removing practices that treat potential competitors inconsistently and providing customers with lower electricity prices are two major considerations; (3) the PMAs are generally able to sell power more cheaply than other providers in part because they sell electricity generated almost exclusively by hydropower and because some of the government's costs are not recovered through the PMAs' rates; (4) GAO estimated net financing costs attributable to the PMAs to be about $585 million in fiscal year 1996; (5) unlike the investor-owned utilities, the PMAs are not required to earn a profit; (6) the PMAs and Tennessee Valley Authority (TVA) also have competitive advantages in financing, taxes, and regulatory oversight; (7) protecting the environment is the second broad goal; (8) because the electricity industry is a major source of air pollution, the debate over restructuring includes the question of how changes in how electricity is generated could affect the environment; (9) concern exists that competitive markets may result in increased emissions of pollutants from the burning of fossil fuels; (10) although the mix of sources generating electricity may change, over 50 percent of TVA's power is generated from coal, whereas less than 2 percent of the PMAs' power is generated from coal; (11) the PMAs' hydropower may offer potential environmental advantages over other electricity sources because it is a clean, domestic, and renewable source of energy; (12) however, hydropower facilities can have significant impacts on fish and wildlife habitats; (13) balancing equity among shareholders is the third broad goal; (14) Congress has the option of requiring the PMAs to sell their power at market rates; (15) this would better ensure the full recovery of the appropriated and other debt of about $22 billion through the PMAs' power sales; (16) the fourth broad goal of restructuring is maintaining the reliability of the interstate transmission grid; (17) an issue that directly relates to the PMAs is the maintenance of reserves that can be called upon to meet planned or unforeseen outages by power providers; (18) the last broad goal is promoting deregulation by redefining federal roles, such as those of federal regulatory agencies; and (19) while restructuring has focused largely on deregulating the retail market, some segments of the electricity industry may face new or increased regulations to address market power and consumer protection issues.

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