Federal Power

The federal government has played a significant role in the development of electricity markets. The federal government began to market electricity extensively in the 1930s after Congress authorized the construction of dams and established major water projects. To help Congress in its deliberations on the future role of power marketing administrations (PMA), this report provides a PMA-by-PMA analysis of the potential rate changes that would likely be experienced by preference customers who buy power from three PMAs if the power were sold at market rates. More specifically, GAO identifies potential changes in preference customers' rates and the share of total state power consumption for each state served by the Southeastern Power Administration, the Southwestern Power Administration, and the Western Area Power Administration. GAO concludes that, overall, slightly more than two-thirds of the preference customers that purchase power directly from these PMAs would likely see relatively small or no rate increases if they began to charge market rates for the power they market.

GAO noted that: (1) in general, a preference customer's potential 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 rates; (2) significant variation exists among the PMAs and among states if these PMAs begin to charge market rates for the power they market--most rate increases would likely be relatively small, although some would likely be larger; (3) overall, slightly more than two-thirds of the preference customers that purchase power directly from Southeastern, Southwestern, and Western would likely see relatively small or no rate increases if these PMAs begin to charge market rates for the power they market; (4) almost all of Southeastern's preference customers would likely see relatively small rate increases of up to one-half cent per kilowatthour (kWh) on rates that in 1995 typically ranged from 3.5 to 6.0 cents per kWh; (5) most of these preference customers would likely see increases of less than one-tenth cent per kWh; (6) 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 in their electricity bill would range in most states between $1 and $8, depending on the state; (7) most of Southwestern's preference customers would likely see relatively small rate increases of up to one-half cent per kWh on rates that in 1995 typically ranged between 1.5 and 3.5 cents per kWh; (8) preference customers who receive power from Western would likely see a variety of rate increases on rates that typically ranged from 1.5 to 4.0 cents per kWh; (9) in some states, more than three-quarters of the preference customers would likely see relatively small increases of less than one-half cent per kWh; in contrast, a number of preference customers would likely see average rate increases that exceed 1.5 cents per kWh; (10) for more than three-quarters of these preference customers, their residential end-users would pay about $11 to $24 more per month for electricity; and (11) generally, of the total power consumed in a state, the portion provided by the three PMAs is small.