Federal Power

From the early part of this century through 1996, the federal agencies that generate and market electricity and that make or guarantee loans to finance improvements to electricity systems incurred $84 billion in debt. Like the other federal agencies, the Southeastern, Southwestern, and Western Area power administrations--responsible for $7 billion of this debt--face an uncertain future as electricity markets restructure. This report, which focuses on these three power marketing administrations, (1) examines whether the government operates them and the related electric power assets in a businesslike manner that recovers the federal government's capital investment in those assets and the costs of operating and maintaining them and (2) identifies options that Congress and other policymakers can pursue to address concerns about the role of the three power marketing administrations in emerging restructured markets or to manage them in a more businesslike fashion. This report also provides information on the Tennessee Valley Authority, the Rural Utilities Service, and the Bonneville Power Administration.

GAO noted that: (1) although federal laws and regulations generally require that the PMAs recover the full costs of building, operating, and maintaining the federal power plants and transmission assets, in some cases federal statues and the Department of Energy's rules are ambiguous about or prohibit the recovery of certain costs; (2) as GAO reported in September 1997, for fiscal years 1992 through 1996, the federal government incurred a net cost of $1.5 billion from its involvement in the electricity-related activities of the Southeastern, Southwestern, and Western Area Power Administrations; (3) the $1.5 billion was the amount by which the full costs of providing electric power exceeded the revenues from the sale of power; (4) the availability of federal power plants to generate electricity is below that of nonfederal plants because the federal plants are aging and because the federal planning and budgeting processes, as implemented, do not always ensure that funds are available to make repairs when needed; (5) the resulting declines in performance decrease the marketability of federal power; (6) to mitigate these funding delays, the Bureau of Reclamation, Army Corps of Engineers, PMAs and their preference customers have negotiated or are negotiating agreements whereby customers pay for needed repairs in advance; (7) the net cost to the Treasury and the decreased generating availability of the federal power plants--when combined with the competitive pressures on all electricity suppliers to decrease their rates and the need to recoup some federal hydropower projects' environmental costs--create varying degrees of risk that some of the federal investment in certain hydropower plants and facilities will not be repaid; (8) although the recovery of most of the federal investment in Southeastern's, Southwestern's, and Western's hydropower-related facilities is relatively secure, up to $1.4 billion out of about $7.2 billion of the federal investment in the electricity-related assets of these PMAs is at some risk of nonrecovery; and (9) three general options are available for the Bureau, the Corps, Southeastern, Southwestern, and Western to address their roles in emerging restructured electricity markets: (a) the Bureau and the Corps could continue generating and the PMAs could continue marketing power as in the past; (b) the current ownership structure could be maintained while improving how the federal assets are managed and operated; and (c) the federal government could divest the PMAs; the PMAs and the generating assets; or the PMAs, the generating assets, and the dam reservoirs.