Federal Power

To deliver electric power to large parts of rural America, the government created five power marketing administrations (PMA) during the New Deal, along with the Tennessee Valley Authority. Now that nearly all of America has electricity, some believe that the PMAs should be divested, particularly because greater competition exists in the electricity industry. Others suggest that the PMAs be required to operate more like private utilities, including charging market rates for power. However, the PMAs sell power primarily to preference customers--cooperatives and public bodies, such as municipal utilities, irrigation districts, and military installations--at average rates that, from 1990 to 1995, were from 40 to 50 percent below the rates that nonfederal utilities charged. Concerns have been raised that a change in PMAs' ownership or the way in which they set rates could boost rates and harm the rural and poor areas they serve. Those raising such concerns believe that the PMAs should continue to operate as they do now. This report provides a state-by-state analysis of the preference customers who buy power from the Southeastern Power Administration, the Southwestern Power Administration, and the Western Area Power Administration. GAO (1) identifies the extent to which preference customers' rates may change if market rates are charged, (2) the areas the three PMAs' preference customers serve, and (3) the incomes in these areas and the extent to which they are rural or urban.

GAO noted that: (1) overall, slightly more than two-thirds of the preference customers that purchase power directly from the Southeastern, Southwestern, and Western Area power administrations may see relatively small or no rate increases if these PMAs begin to charge market rates for the power they produce; (2) in particular, given GAO's assumptions, almost all of Southeastern's preference customers would see average rate increases of up to one-half cent per kilowatt hour (kWh) on rates that in 1995 typically ranged from 3.5 to 6.0 cents per kWh; (3) most of these preference customers would see increases of less than one-tenth cent per kWh; (4) if the preference customers served by Southeastern pass the higher rates on proportionally to their residential end users, most end users would see their monthly electricity bill increase by less than $1, while the maximum increase would range in most states between $1 and $8, depending on the state; (5) preference customers who receive power from Western may see a variety of rate increases if market rates are charged; (6) as a group, Southwestern's preference customers may see rate increases that lie between those for Southeastern's and Western's customers; (7) most of Southwestern's preference customers may see relatively low rate increases of up to one-half cent per kWh on rates that typically ranged between 1.5 and 3.5 cents per kWh; (8) however, almost all preference customers in Oklahoma may see larger rate increases that exceed 1.5 cents per kWh; (9) in general, a preference customer's rate increase depends primarily on what portion of its total power comes from the PMA and how close the PMA's rate is to the market rate; (10) preference customers included in GAO's analysis that purchased power directly from the PMAs serve varying portions of 29 states; (11) the populations in the areas preference customers serve generally have median incomes that are similar to the median income in the entire state; (12) in about two-thirds of the states GAO examined, the preference customers serve counties and towns whose median household incomes are within 15 percent of the statewide median income; (13) however, in some states, preference customers primarily serve poorer areas and households; (14) nationwide, about half of the towns that preference customers serve are urban and about half are rural; and (15) most of the counties are mixed, about 40 percent are rural, and the remainder are urban.