POWER MARKETING ADMINISTRATIONS TRANSFER 

OVERSIGHT HEARING 

BEFORE THE 

SUBCOMMITTEE ON WATER AND 

POWER RESOURCES 

OF THE 

COMMITTEE ON RESOURCES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

FIRST SESSION 

ON 

THE POTENTIAL TRANSFER OF THE POWER MARKETING ADMINISTRATIONS OUT OF FEDERAL OWNERSIDP 

92-403cc 

MAY 18, 1995-WASHINGTON, DC 

Serial No. 104-28 

Printed for the use of the Committee on Resources 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1995 

For sale by the U.S. Government Printing Office 

Superintendent of Documents. Congressional Sales Office, Washington, DC 20402 

ISBN 0-16-047723-9 
COMMITTEE ON RESOURCES 

DON YOUNG, Alaska, Chairman 

JAMES V. HANSEN, Utah 

JIM SAXTON, New Jersey 

ELTONGALLEGLY, Califurrua 

JOHN J. DUNCAN, JR., Tennessee 

JOEL HEFLEY, Colorado 

JOHN T. DOOLITTLE, California 

WAYNE ALLARD, Colorado 

WAYNE T. GILCHREST, Maryland 

KEN CALVERT, California 

RICHARD W. POMBO, California 

PETER G. TORKILDSEN, Massachusetts 

J.D. HAYWORTH, Arizona 

FRANK A. CREMEANS, Ohio 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, California 

WALTER B. JONES, JR., North Carolina 

WILLIAM M. (MAC) THORNBERRY, Texas 

RICHARD (DOC) HASTINGS, Washington 

JACK METCALF, Washington 

JAMES B. LONGLEY, JR., Maine 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

GEORGE MILLER, California 

NICK J. RAHALL II, West Virgirua 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

SAM GEJDENSON, Connecticut 

BILL RICHARDSON, New Mexico 

PETER A DEFAZIO, Oregon 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

TIM JOHNSON, South Dakota 

NEIL ABERCROMBIE, Hawaii 

GERRY E. STUDDS, Massachusetts 

W.J. (BILLY) TAUZIN, Louisiana 

SOLOMON P. ORTIZ, Texas 

OWEN B. PICKETT, Virgirua 

FRANK PALLONE, JR., New Jersey 

CALVIN M. DOOLEY, Californi~ 

CARLOS A. ROMERO-BARCELO, Puerto 

Rico 

MAURICE D. HINCHEY, New York 

ROBERT A UNDERWOOD, Guam 

SAM F ARR, California 

DANIEL VAL Kl:SH, Chief of Staff 

DAVID DYE, Chief Counsel 

CHRISTINE KENNEDY, Chief Clerk 

JOHN LAWRENCE, Democratic Staff Director 

SUBCOMMITIEE ON WATER AND POWER RESOURCES 

JOHN T. DOOLITTLE, California, Chairman 

JAMES V. HANSEN, Utah PETER A. DEFAZIO, Oregon 

WAYNE ALLARD, Colorado GEORGE MILLER, California 

RICHARD W. POMBO, California BRUCE F. VENTO, Minnesota 

FRANK A. CREMEANS, Ohio SAM GEJDENSON, Connecticut 

WES COOLEY, Oregon BILL RICHARDSON, New Mexico 

HELEN CHENOWETH, Idaho CALVIN M. DOOLEY, California 

GEORGE P. RADANOVICH, California MAURICE D. HINCHEY, New York 

WILLIAM M. (MAC) THORNBERRY, Texas SAM FARR, California 

RICHARD (DOC) HASTINGS, Washington 

JOHN B. SHADEGG, Arizona 

RoBERT FABER, Staff Director/Counsel 

VALERIE WEST, Professional Staff 

LIZ BIRNBAUM, Democratic Counsel 

(II) 
CONTENTS 

Hearing held May 18, 1995 .................................................................................... . Statement of Members: 

Allard, Hon. Wayne, a U.S. Representative from Colorado ........................ .. Cooley, Hon. Wes, a U.S. Representative from Oregon ................................ . DeFazio, Hon. Peter A., a U.S. Representative from Oregon ...................... . Doolittle, Hon. John T., a U.S. Representative from California, and Chairman, Subcommittee on Water and Power Resources ................................ . Foley, Hon. Mark Adam, a U.S. Representative from Florida .................... .. Klug, Hon. Scott L., a U.S. Representative from Wisconsin ........................ . Prepared statement .................................................................................. . Payne, Hon. L.F., a U.S. Representative from Virginia .............................. .. Statement of Witnesses: 

B~~:::; 8~:~::·: .. ~.~~.~~ .. ~.~~.~~~.~~~~~~: .. ~.~~.~~~: .. ~~~~.~.~~~~~ Prepared statement .................................................................................. . Connor, A. Joel, Vice President, Wholesale Marketing, Alabama Power 

Company (prepared statement) ................................................................. .. Prepared statement .................................................................................. . Crews, Clyde Wayne, Jr., Fellow in Regulatory Studies, Competitive Ente~~:i:J~:~~~;t;·::::::::::::::::::::::::::::::::::::::::::::: :: :::::::::::::::::::::::: :: ::: :: Driver, Bruce, Land and Water Fund of the Rockies .................................. .. Prepared statement .................................................................................. . Dushaw, James, Director of Utilities, International Brotherhood of Electrical Workers ............................................................................................... . English, Glenn, Executive Vice President, National Rural Electric Cooperative Association .......................................................................................... . 

Mol!~lli!':ge~~hili~ F~d~~~·E~~;g;;·&g;;y~t;;cy·C~~ri~~i~~··::::::: :: ::: Prepared statement .................................................................................. . Norquist, Grover G., President, Americans for Tax Reform and member 

of Citizens Against Energy Subsidies (prepared statement) .................... . Notar, Russell C., President and CEO, National Cooperative Business 

Ri~h!rd~~~~~!~l!~ege~~~Ee:e~uti;~ ·ni~~t;;~,' ·~~ri~~~··fubll~· i>~V.:~; Association ................................................................................................... .. Prepared statement .................................................................................. . Schreiber, George A., Jr., Managing Director, Sector Head, Regulated 

Industries, Technology and Project Finance, Paine Webber, Inc ............. .. Prepared statement .................................................................................. . Southeastern Federal Power Customers, Inc. (prepared statement) .......... . Southwestern Power Resources Association (prepared statement) ............ .. Weisel, Ken, General Manager, Missouri Jomt Municipal Electric Utility 

Commission (prepared statement) .............................................................. . Additional material supplied: 

Cop~~.~~ ... ~~~:.~~~ ... ~.~~~~~~= .... ~.~:~ ... ~~~~~.~ .... ~~ ... ~~~.:~~~~~~ ... ~~ Doolittle, Hon John T.: Press Release of May 18, 1995, on PMA ................ . Dushaw, James: Attachment to statement .................................................. .. Foley, Hon. Mark Adam: Attachments to statement .................................... . Richardson, Alan H. (APPA): Responses to questions submitted ................ . 

(III) 

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Communications submitted: 

Allard, Hon. Wayne: Letters fromArkansas River Power Authority and Southeast Colorado Power Association, et al ....................................................................................... . Bilsten, John H., Atlantic Municipal Utilities, dated May 12, 1995 .... . Fabec, Robert W., City of Trinidad, CO, dated May 15, 1995 .............. . Henderson, James M., dated May 12, 1995 .......................................... .. Lackey, John H., and James M. Henderson, dated April21, 1995 ...... . Marble, Joe, Lamar, CO, dated May 15, 1995 ...................................... .. Slimak, William J., Colorado Association of Municipal Utilities, dated 

May 15, 1995 ......................................................................................... . Sneath, Ardeth, City of La Junta, CO, dated May 15, 1995 ................ . Suhler, Jay D., Town of Springfield, CO, dated May 15, 1995 ............ .. Doolittle, Hon. John: Letters fromBayless, Charles E., Tucson Electric Power Co., dated June 22, 1995 . Beckner, Paul, Citizens for a Sound Economy, dated May 18, 1995 .... Boyce, Dan, East Grand Forks Water & Light Dept., dated May 

10, 1995 ................................................................................................. . Canney, Walter A, Lincoln Electric System, dated May 17, 1995 ...... . Coleman~ Kenneth R., City ofGunniso~ CO, dated Ma;y 17, 1995 .... .. Crawfora, WilliamS., Memphis Light, uas and Water Division, dated 

May 15, 1995 ......................................................................................... . DeBolt, Bruce S., Eastpoint, dated June 1, 1995 .................................. . Erickson, Paul A, Wahoo Utilities, dated May 15, 1995 ...................... . Garcia, Anthony, Town of Holly, CO, dated May 15, 1995 .................. .. Gardner, Leland R., Navajo Tribal Utility Authority, dated May 26, 

1995 ........................................................................................................ . Hanson, Gilbert E., Jr., KMEAKMGA, dated May 16, 1995 ................ . Harrison, Hugh W., Clarksville Light & Water Co., dated May 15, 

1995 ........................................................................................................ . Loggins, Joe N., Tullahoma Utilities Board, TN, dated May 12, 1995 . Luecke Daniel, and James Martin, Environmental Defense Fund, 

dated May 25, 1995 .............................................................................. . Moccasin, Richard Bad, Mni-Sose Intertribal Water Rights Coalition, 

Inc., dated May 16, 1995 ...................................................................... . Moler, Elizabeth A., FERC, dated June 19, 1995, with list of acts ...... . Ortega, D. Chris, County of Los Alamo, dated May 16, 1995 .............. . Pelzel, Marcia, City of Fairfax, MN, dated May 12, 1995 .................... . Roos, Brad, Denison Municipal Utilities, dated May 16, 1995 ............ .. Rude, Arlo L., City of Thief River Falls, MN, dated May 12, 1995 ...... . Schiebout, Harold, City of Sioux Center, IA, dated May 16, 1995 ...... .. Schreiber, George A., Jr., Alliance for Power Privatization, dated 

June 21, 1995 ........................................................................................ . Sugden, Kenneth A, Franklin County Public Utility District, dated 

May 15, 1995 ......................................................................................... . Vincent, Kerry G., Princeton Electric Plant Board, dated May 15, 

1995 ........................................................................................................ . Walker, Robert H., City of Chanute, KA, dated May 12, 1995 ............ . Weis, Rory, Woodbine, IA, Municipal Light & Power, dated May 

12, 1995 ................................................................................................. . Young, Hon. Don: Letter of May 15, 1995, from Duane P. Wething, 

City of Detroit Lakes, MN .......................................................................... .. 

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POWER MARKETING ADMINISTRATIONS 

TRANSFER 

THURSDAY, MAY 18, 1995 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON WATER AND POWER RESOURCES, COMMITTEE ON RESOURCES, 

Washington, DC. 

The subcommittee met, _pursuant to call, at 10:01 a.m. in room 

1334, Longworth House Office Building, Hon. John Doolittle (chairman of the subcommittee) presiding. 

STATEMENT OF HON. JOHN T. DOOLITTLE, A U.S. REPRESENTATIVE FROM CALIFORNIA, AND CHAIRMAN, SUBCOMMI'ITEE 

ON WATER AND POWER RESOURCES 

Mr. DOOLITTLE. The Subcommittee on Water and Power Resources will come to order. 

The subcommittee is meeting today to hear testimony on the potential transfer of the Power Marketing Administrations out of 

Federal ownership. Under rule 6(f) of the committee rules any oral 

opening statements at hearings are limited to the chairman and 

the ranking minority member, and all members are invited to submit opening statements which will be included as part of the 

record. I might just mention by way of reference, today we are debating 

and voting on the historic balanced budget amendment in the 

House of Representatives. There will be periodic interruptions with 

votes. We are just going to have to put up with that, and I guess 

about every hour we are going to have a 15-minute vote. So when 

it happens don't be surprised. This hearing will focus on the potential sale of the three Power 

Marketing Administrations. It will review the existing competitive 

electrical supply system, evaluate the effect of the transfer out of 

Federal ownership, and consider some of the alternatives proposed 

to effect the transfer. 

The PMA's are agencies within the Department of Energy with 

the primary mission to market the electrical power produced at 

Federal water projects operated by the Bureau of Reclamation and 

the Army Corps of Engineers. The PMA's are facing a number of 

problems, including a drain on revenues for unrelated purposes, increased competition in the wholesale power market, deferred maintenance on the dams and power-generating facilities, and 

reoperation of dams for environmental purposes. For purposes of the fiscal year 1996 budget resolution, the House 

Budget Committee made policy assumptions that include selling 

(1) 
2 

three of the PMA's to private, taxpaying corporations. According to 

Budget Committee recommendations, quote, the three corporations 

would buy the power houses and related generating equipment at 

Federal dams plus transmission and other assets now owned by the 

agencies at the Department of Energy. The corporations, in turn, 

would be owned by the customers, who as of the sale date, buy the 

FederalJower. These customers are primarily municipal utilities 

and rur electric cooperatives. The net effect of the Budget Committee proposal over five years 

is to produce $3 billion in deficit reduction. In setting the $3 billion 

figure for recovery, it is our understanding that the Budget Committee recognized that the return could be greater depending on 

how the transfers are executed. 

There was also an assumption that by creating taxable entities 

there would be further revenue in the form of taxes. However, 

there are some difficult problems raised by this approach and questions which are unanswered. For example, how would tax-exempt public entities, i.e., the preference customers, hold stock in private 

taxable corporations which are engaged in the same basic business 

as these tax-exempt organizations? This provision might require 

changes to the Internal Revenue Code as well as State corporation 

and tax laws. It also raises the possibility that such entities would 

simply set rates so that no taxable income is produced. 

Two, in addition, the management of the such entities would be 

cumbersome, Given the large number of preference customers 

served by some PMA's. There are also widely divergent interests. 

There would be a question concerning a relative management 

weight given to each preference customer. 

Three, the plan transfers the major income producing assets 

while retaining the assets with the greatest liability. There would 

be ongoing Federal costs with little or no income to pay for them. 

The transfer of the PMA's will affect an existing private/public electric supply and distribution system in the United States. That 

system has grown up over the past 50 years with about 80 percent of the electricity currently generated by investor-owned utilities, 

lOU's, and about 20 percent by the public power systems. The Federal-Energy Regulatory Commission, FERC, regulates wholesale 

power rates and the availability of access to the transmission systems. 

As FERC continues to make the electric utility business more 

competitive, they are taking steps to let public and private electrical providers compete directly for each other's customers. However, with minor exceptions, the public power providers can use the 

transmission systems of the lOU's to compete for the lOU's customers, but the lOU's do not have the same open access to the public power transmission systems. 

In determining the nature of the PMA transfers, the subcommittee must look at the impact on existing and future competitive 

trends in the marketplace. This impact will include decisions about 

whether to make the ultimate purchasers of the PMA's subject to 

FERC or the principles of the FERC competitiveness regulations. 

Just a bit of historic review here. In the early 1900's when privately-owned utilities served primarily the large urban markets, 

Congress authorized and appropriated funds that would allow mu-
3 

nicipalities and rural cooperatives to build electric utility systems 

to meet their needs. When the Federal Government advanced the 

funds for the construction of these public rower facilities, the revenue subsequently generated by the sale o the electricity was to be 

returned to the Treasury to pay for the capital expenditure. Since 

that time, two schools of thought have arisen concerning the nature 

of those payments. 

Some in the public power sector have come to view the payments 

as the acquisition of an equity interest in the facilities themselves 

both in the rural and municipal systems as well as in the PMA's 

that supply some of their power. Others view the revenue generated as merely payments for the electricity received which do not 

create ownership interests in the PMA's. 

I believe there is ample evidence for transferring the PMA's out 

of Federal ownership. However, even a cursory review reveals that 

there are significant issues to be addressed. They include the effects of such a sale on ratepayers, a determination of which assets 

should be sold, and the consequences of any transfer to other users. 

There are public power policies that should be protected in the 

transfers. We can and should provide for limitations on rate increases to provide a smooth transition from the current situation. 

The trend toward increased competition should be enhanced by this 

transfer rather than frustrated thereby. 

Finally, the Federal Government should not be left with the liabilities while transferring the revenue-generating resources out of 

Federal ownership. I remain very concerned about our ability to 

reach these objectives effectively if we limit all transfers to the existing public power entities. 

As we hear from the broad spectrum of witnesses we have today, 

I trust that these witnesses will provide some creative suggestions 

on how best to meet these goals, and, with that, I would like to recognize our ranking member, Mr. DeFazio, for any statement he 

may. wish to make. 

[The statement of Mr. Doolittle follows:] 

STATEMENT OF HON. JOliN T. DOOLITI'LE, A U.S. REPRESENTATIVE FROM CALIFORNIA 

This hearing will focus on the potential sale of the Power Marketing Administrations. It will review the existing competitive electrical supply system, evaluate the 

effect of the transfer out of Federal ownership, and consider some of the alternatives 

proposed to affect the transfer. 

The PMA's are agencies within the Department of Energy with the primary mission to market the electrical power produced at Federal water projects operated by the Bureau of Reclamation and the Corps of Engineers. The PMA's are facing a number of problems, including: a drain on revenues for unrelated purposes; increased competition in the wholesale power market; deferred maintenance on the 

dams and power generating facilities; and reoperation of dams for environmental 

purposes. 

For purposes of the fiscal year 1996 budget resolution, the House Budget Cominittee made policy assumptions that include sellin~ three of the PMA's to private, taxpaying corporations. According to Budget Comrmttee recommendations: 

''The three corporations would buy the power-houses and related generating 

equipment at Federal dams plus transmission and other assets now owned by the 

agencies at the Department of Energy. The corporations in turn would be owned by 

the customers who (as of the sale date) buy the Federal power. These customers are primarily municipal utilities and rural electric cooperatives." The net effect of the Budget Cominittee prOJ?.OSal over five years is to produce $3 

billion in deficit reduction. In setting the $3 billion figure for recovery it is our un- derstanding that the Budget Committee recognized that the return could be greater depending on how the transfers are executed. There was also an assumption that 
4 

by creating taxable entities, there would be further revenue in the form of taxes. 

However, there are some difficult problems raised by this approach and questions which are unanswered: 

1. How would tax-exempt public entities (the preference customers) hold stock in 

private taxable corporations which are engaged m the same basic business as these 

tax exempt organizations? This might require changes to the Internal Revenue Code as well as State corporation tax laws. It also raises the possibility that such entities 

would simply set rates so that no taxable income is produced. 2. In addition, the management of such entities would be cumbersome given the 

large number of preference customers served by some PMA's. There are also widely 

divergent interests. There would be a question concerning the relative management weight given to each preference customer. 

3. The plan transfers the major income producing assets while retaining the as- sets with the greatest liability. There would be ongoing Federal costs with little or no income to pay for them. 

The transfer of the PMA's will affect an existing private/public electric supply and 

distribution system in the U.S. That system has grown up over the past 50 r,ears 

with about 80% of the electricity currently generated by investor owned utilities 

(lOU's) and about 20% b_y th~ public power systems. The Federal Enerw. .Hegu.Iatory Commission (FERC) regulates wholesale power 

rates and the availability of access to the transmission systems. As FERC continues 

to make the electric utility business more competitive, they are taking steps to let 

public and private electrical providers compete directly for each other's customers. 

However, with minor exceptions, the public power providers can use the transmission systems of the lOU's to compete for customers but the lOU's do not have 

the same open access to the public power transmission systems. 

In determining the nature of the PMA transfers, the Subcommittee must look at 

whether or not to affect the existing and future competitive trends in the market. This will include decisions about whether to make the ultimate purchasers of the 

PMA's subject to FERC or the principles of the FERC competitiveness regulations. In the early 1900's, when privately owned utilities served primarily the large 

urban markets, Congress authorized and appropriated funds that would allow mu- nicipalities and rural cooperatives to build electric utility systems to meet their 

needs. When the Federal Government advanced the funds for the construction of these 

public power facilities, the revenue subsequently generated by the sale of the electricity was to be returned to the Treasury to pay for the ca~ital expenditure. Since 

that time two schools of thought have arisen concerning the nature of those payments. Some in the public power sector have come to view the payments as the ac- quisition of an equity interest in the facilities themselves, both in the rural and mu- nicipal systems as well as in the PMA's that supply some of their power. Others 

view the revenue generated as merely l'_ayments for the electricity received, which 

do not create ownership interests in the PMA's. 

I believe there is ample evidence for transferring the PMA's out of Federal owner- ship. However, even a cursory review reveals that there are significant issues to be 

addressed. They include the effects of such a sale on rate payers, a determination 

of which assets should be sold, and the consequences of any transfer to other users. There are public power policies that should be protected in the transfers. We can and should provide for limitations on rate increases, tojrovide a smooth transition 

from the current situation. The trend toward increase competition should be en- hanced by this transfer, rather than frustrated. And finally, the Federal Government should not be left with the liabilities while transferring the revenue sources. I remain very concerned about our ability to reach these objectives effectively, if we limit all transfers to the existing public power entities. 

As we hear from the broad spectrum of witnesses we have today, I trust the wit- nesses will provide some creative suggestions on how to meet these goals. Thank you. 

STATEMENT OF BON. PETER A. DEFAZIO, A U.S. 

REPRESENTATIVE FROM OREGON 

Mr. DEFAZIO. I thank the Chainnan, and I look forward to hearing the testimony. 

I'm very skeptical about a number of the assumptions that have 

been made by the administration and others regarding the sales of 

the PMA's. In a lot of cases if one were to look carefully at the 
5 

PMA's, their existing obligations, the revenue streams that they 

provide to the Federal Government, disposal, particularly disposal 

at bargain prices, is not in the best interests of the Federal taxpayers, and in many instances disposal, parcelization or sale, is not 

going to be in the interests of large regions of the United States 

or the ratepayers of those regions. So this is something we should 

enter into cautiously. 

I regret deeply that the Democratic administration, knowing little of what it was talking about, began down this path last December and has never revisited those assumptions. In a rush to find 

a way for the President's bid in the tax cut bidding war going on 

here on the Hill, they just threw out a lot of outrageous and 

unsupportable numbers which have been picked up by Members of 

Congress regarding the revenues that we could realize by selling 

the PMA's. Of course we then disregard the fact that we lose a revenue stream over the next 20 or 30 years. Essentially we sell the 

furniture to take a trip to Las Vegas. 

These are investments that have been made by the Federal Government. They are being repaid by the ratepayers of those regions 

to the Federal Government that provide stability in those areas, 

economic growth, prosperity, taxes to the Federal Government, 

and, you know, we have got to visit this issue very carefully. 

I am not an expert on all of the PMA's, only on the ones serving 

my region, but I look forward to the testimony that will be before 

us and enter into this other, than the reservations I have stated, 

with a totally open mind. 

Mr. DOOLITI'LE. All right. Amongst the Members to testify, Mr. 

Scott Klug is present, and we welcome you, Mr. Klug, and please 

share with us your insight on this matter. 

STATEMENT OF HON. SCOTT L. KLUG, A U.S. REPRESENTATIVE 

FROM WISCONSIN 

Mr. KLuG. Thank you, Mr. Chairman, and I'll submit a protracted statement for the record, but I'll keep my initial comments 

fairly brief. 

If I can, let me just make three or four of what I think are very 

important points, and I want to go back to Mr. DeFazio's comments 

to begin with. I think at the top we really have to, first of all and 

foremost, make a philosophical judgment, does the Federal Government in 1995 still need to produce and sell electricity, and I'll make 

it very clear to this committee up front that I say absolutely not. 

I think in many ways the Power Marketing Administrations are an 

anachronism left over from the mid-1930's. I think 60 years later 

it is awfully difficult to justify why the Federal Government is still 

involved in the business of producing and selling and distributing 

electricity. 

On the back of the statement you have in front of you I think 

is an interesting map. This is produced by Merrill Lynch, and it is 

global trends-industry trends, I should say, in the global power 

sector. These are privatization projects going on across the world. 

We are, I'm sure L'lis committee will be astonished to find, behind 

Malaysia, the Philippines, China, Russia, Hungary, Turkey, 

Ukraine, Pakistan, Italy Brazil, Bolivia, Chile, Argentina, Peru, Columbia, Mexico, and Canada in privatizing electric companies and 
6 

utilities and energy-producing resources owned by the central government. . Now in an era we are about to enter, retail wheeling, where electricity can be bought and sold and moved across State lines, where 

a California utility in a few years will be able to sell in Massachusetts and a Florida utility in Washington State, I think we have 

to ask why it is the Federal Government continues to rope off sections of the country. 

Now fundamentally I also have to tell you that it is my judgment 

that what consumers of the Power Marketing Administrations have 

been paying for years is electricity, it is not paying off the assets, 

no more so than when I pay my utility bills back horne I'm buying 

electricity. I don't get shares of stock in the mail some months 

later. It is also abundantly clear that many more people today and 

many more people in the past have paid for than actually had the 

opportunity to use the cheap power produced by the Power Marketing Administrations, and so I think we have to ask ourselves again 

in 1995 why it is that taxpayers in Wisconsin or Florida or Texas 

pay to provide cheap power to other corners of the country. 

Now if we are going to look at models on how we should do this, 

what you have described and what I think the Budget Committee 

has talked about is the idea of selling it primarily to its current 

customers. It is a model that was used by Great Britain some time 

ago when it moved to privatize its public power resources, but I 

would suggest that the better model actually for the United States 

to look at is what New Zealand did. 

In New Zealand the fundamental goal was to maximize the return on the investment, to get as much money as possible in house. 

The administration, under the proposal they have written, thinks 

we will raise about $3.3 billion. The House budget resolution selling price is just a little bit over $3 billion. But if you look at some 

of the initial analyses that have been done by outside investment 

firms, we think the four Power Marketing Administrations, Alaska, 

Southeast, Southwest, and Western, are probably close to $7 billion, and that may be and underestimated price as well. So I would 

submit to the committee if we are going to do this, we need to be 

very clear up front what it is we are trying to do. 

In the past when the Federal Government has privatized other 

resources we have always had very mixed motives. For example, 

when we privatized Cornsat some years ago, if our only choice 

would have been to maximize the price, we would have restricted 

the data on that satellite to the fewer number of people possible 

to make sure we got the most money we could, but instead what 

we decided is, since the Federal Government and therefore taxpayers paid for these resources and this data, we should keep the 

revenue stream a little more open, and so we tempered that. 

I think the same kind of philosophy should be used in the Power 

Marketing Administrations when we decide to sell them, and that 

is to essentially hire outside financial consultants to figure out how 

best to take the systems apart, and, if you will, to kind of walk our 

way up the food chain. Alaska is the least complicated. Somewhere 

down the road Tennessee Valley Authority is the most complicated. 

And I think what we want to do is, rather than go into this and 
7 

assume what we want to do immediately is to structure the rules 

to only sell them to rural electric cooperatives or to municipals, we 

should really make sure what price we can get for which parts of 

the systems. 

As you know, Tucson Electric, for example, has a proposal on the 

table to buy some of the resources of the Western Power Marketing 

Administration. As you know, Mr. Chairman, in the Central Valley 

Project, there is actually a coalition of the State and a number of 

public utilities who are interested in buying it, and I don't think 

we want to do this in every case just so that REA's are essentially 

cut out of the loop and don't have any opportunity to bid and compete, but it also seems to me absolutely foolish if we are trying to 

maximize the sale price in these cases that we are going to preclude investor-owned utilities. 

So let me, because I know we have a vote going and I want to 

keep this short so we can at least get one series of testimony under 

the way, make the case that I'm delighted that you and the chairman of this full committee are going to explore and aggressively 

pursue this. I'm delighted to actually find ourselves in a situation 

when we are about to, one way or the other, jettison the Power 

Marketing Administrations away from the Federal Government. 

At the time when we are talking about eliminating the Department of Energy and nearly a third of the Department of Energy 

staff works for the Power Marketing Administrations, unless you 

take them off the Federal books, to talk about eliminating the Department of Energy is a joke, you are just going to change names 

on the letterhead. 

But fundamentally when you decide how to go through with this, 

I'd urge this committee to examine this just as you would any other 

investor. You have a very valuable asset to liquidate, and I think 

it would be a mistake to rush to judgment on how to liquidate that 

asset. 

Finally and fundamentally, if this is a budget decision then it 

should be the decision of this committee to fully explore all the revenue streams, to fully explore the maximum return on the investment, and then finally, once you have reached those decisions and 

once you understand that judgment, to try to figure out how to balance the conflicting needs between maximizing the return to the 

Treasury and also understanding in some cases there could be implications for some comers of the country, and, again, I'll submit 

a full statement for the record and thanks for having the opportunity to talk to you. 

[The statement of Mr. Klug may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you very much. 

Are there questions of Mr. Klug? 

Mr. DEFAZIO. I have some questions, Mr. Chairman. Mr. DOOLITTLE. Yes, sir. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

Mr. Klug, do you own a house? 

Mr. KLUG. Yes. 

Mr. DEFAZIO. What interest rate are you paying? 

Mr. KLuG. Good question. We refinanced about a year ago, somewhere in the high 7's or low 8's, I think. 
8 

Mr. DEFAZIO. OK You know, I'm not sure, you are not certain 

of the rates compared to the market, but the question would be, for 

instance, I refinanced at a better time. I've got a 7.0 rate on my 

house in Oregon, and banks currently, no way they are going to 

lend me that money at 7 percent. Would you say I'm getting a subsidy because I happened to get the loan at a time and lock it in 

when interest rates were lower? Does that constitute a subsidy by the bank of me? Is that a problem? 

Mr. KLUG. No, butMr. DEFAZIO. OK Well, if I could continue with my time, the 

loans to BPA have occurred over a 50-year period, some of which 

were let out at a market rate of 1.5 or 2 percent. That was the existing market rate at that time. Now today we look back and say 

well, if we could have that money today and loan it out today, well, 

we could get 7 percent because that is what we are selling 30-year 

treasuries for. Well, I fail to see how that is a subsidy. The Bonneville Power Administration will pay. There will be a revenue 

stream to the Federal Government of $750 million approximately 

in the next fiscal year, principal and interest. 

Now, you know, your numbers regarding BPA, this $250 to $450 

million a year subsidy seems to be predicated on the fact that the 

Federal Government lent them money a long time ago at rates that 

were current at the time but we wish they were higher now. Well, 

my bank wishes that I was paying them 8 percent too, but I had 

a deal, I had a contract, as did the BPA. Now should we go back 

and revisit all of the existing Federal loans that are out there being 

repaid by everybody and raise the interest rates constantly to market rate and move them up? Should they all become variable? I 

mean that seems to be a major part of your assumption. 

Mr. KLuG. The substantial difference is that we didn't ask the 

taxpayers to help subsidize the interest rates on your mortgage on 

your house. 

Mr. DEFAZIO. Federal mortgage insurance, Fannie Mae, Sallie 

Mae, all these things, there is certainly some Federal interest in 

stabilizing the housing market, and I would think if the Federal 

Government didn't participate at all that we would see higher mortg~ge rates. 

Mr. KLUG. First of all, Sallie Mae actually is the secondary mortgage company that authorizes student loans, which, incidentally, 

wants to be privatized so they can pay their loans. 

Mr. DEFAZIO. Right, but these are all things that were started 

by the Government in order to create secondary markets, liquidity, 

and to help, you know, maintain those markets. 

Now the question here is, you know, are we just going to revisit 

all of the past Federal investments, whether it is in education, 

housing, power, and we are just going to have constantly to revise 

anything to current market rate? I mean so we couldn't ever lend 

anybody-the Federal Government couldn't be involved in any 

long-term obligation because there wasn't a variable rate loan. 

Mr. KLuG. First of all, when they got their initial loans they 

were at a subsidized rate, so they didn't get it at market rates 

when this began. If they would have essentially borrowed money 

from the private sector we wouldn't be having this discussion, because there wouldn't have been taxpayer subsidy loans over the 
9 

history of the Bonneville Power Administration or any of the rest 

of these. So this idea that somehow what we are doing is comparing market rates today to market rates in the past isn't true, because they were subsidized. 

Mr. DEFAZIO. They were approximately the same rates that Social Security got at that time, so I guess Social Security got a real 

bad deal from the Treasury. If you go back and look at outstanding 

obligations to Social Security in comparable years, you will find 

comparable rates of interest are being paid on some of those 30-

year-old debts to Social Security. So I guess we are screwing the 

Social Security Trust Fund because that was all we were paying 

them. 

Mr. KLUG. Mr. DeFazio, remember though that the Social Security System serves the entire United States. The Bonneville Power 

Marketing Administration does a very good job serving the Pacific 

Northwest. Unfortunately, my consumers in Wisconsin aren't allowed to buy power at the same rates. So the question really becomes a question of national equity, and at a time when you are 

going to move to retail wheeling and certainly Bonneville is going 

to face tough competitive pressures, it is already, and if the argument is, well, somehow Bonneville has had these rates in place and 

they can never be forced to live under competition I think simply 

isn't true, and as somebody, as I know you are, who is very interested in energy efficiency and very interested in the efficiencies in 

the use of energy, period, know that oftentimes the best way to 

guarantee that somebody will be efficient is when there are competitive pressures under way, and I think Bonneville's rates, frankly, might shrink if they face competition. 

Mr. DEFAZIO. As you aptly point out in your testimony, they 

have made some disastrous decisions in concert with the Federal 

Government such as the WPPS debacle, and they are saddled with 

such a debt load at this point in time, and I don't think anyone has 

been more critical of the operations of BPA. Essentially they are 

losing customers. They have lost about 1,000 megawatts of customers in the last month. Public customers and private customers 

are going elsewhere and getting long-term power agreements. 

So you say that there are some loss leaders out there 

underselling BP A. They aren't loss leaders unless these people 

enter into 10-year loss leader deals, and I don't think there are too 

many customers operating 10-year loss leaders. I mean the market 

in the Northwest has now-and the West, has undercut Bonneville's and some of its most optimistic assumptions, eliminating bureaucracy, cutting costs, and everything else-1 mean unless we 

can get rid of the WPPS debt, and unfortunately that predates me, 

and somehow we made the WPPS debt secondary-! mean primary, and the Federal debt is secondary. So, you know, the ratepayers and the taxpayers have to pay off the WPPS debt before we 

can begin to deal with the Federal debt. 

Mr. KLuG. Well, again, I think the fundamental question back to 

the beginning-you and I disagree on this-the question is whether 

Bonneville and the other Power Marketing Administrations are an 

anachronism. I mean to the credit, for example, of the folks who 

operate Sallie Mae today, they have said, look, why is the Federal 

Government still today in the business of providing a secondary 
10 

market for student loans? It is no longer necessary. Let us get out 

from under the wings of the Federal Government and operate and 

stand on our own. We don't want any continued strings with the 

Federal Government. 

Frankly, I think it would be in the best interests of the Bonneville Power Marketing Administration to try to figure out how it is 

they can get from under the wings of the Federal Government and 

learn how to stand on their own two feet, and I think decade after 

decade after decade after decade of Federal Government involvement, Federal subsidies, Federal support of employees connected to 

the Bonneville Power Marketing Administration should immediately come to an end. 

Mr. DOOLITTLE. Does the gentleman--

Mr. DEFAZIO. Well, I have just one final-I mean if one were to 

take a sober assessment of their outstanding obligations, both Federal and private, because of WPPS, look at the current market, I 

believe that the sale price of BPA would be less than the total obligations, which means that the Federal taxpayers would have to 

pay to sell it, and then they would lose the $760 million a year revenue stream. It doesn't make a lot of sense to me. That would be 

a subsidized sale of an asset just to satisfy a philosophical bent as 

opposed to a sound business decision which benefits Federal taxpayers long-term, and that is the current existing situation out 

there. I mean no one-you know, to buy this entity with essentially $16 billion. I mean if this were a private company it would have 

been in Chapter 11 a long time ago. 

Mr. KLuG. Well, I'll make a deal with you, and that deal would 

be that we should send a signal to Wall Street and to investment 

firms that Bonneville may be for sale, and then we can take a look 

at the price, and, in addition, when you take that into consideration you obviously have to include the revenue stream that will 

come back to the Federal Government when these are for-profit 

ventures that have to pay taxes. 

Mr. DOOLITTLE. Will the gentleman yield for just a moment? 

Mr. DEFAZIO. I will certainly yield. 

Mr. DOOLITTLE. We have got a Journal vote on. I think we are 

going to have to go now and do that. 

Mr. Cooley, you have some questions of Mr. Klug. Is that right? 

Mr. CooLEY. Yes, but I don't think I have enough time. 

Mr. DOOLITTLE. No, you don't have. Let me just say, let's go and 

vote. Mr. Klug, can you come back? 

Mr. KLuG. Mr. Chairman, unfortunately, I can't because I have 

to go and have this same argument on the Senate side in a few 

minutes, but Mr. Foley will be here, and I'm sure he can address 

the same kinds of concerns. 

Mr. DooLITTLE. We are going to have to go, so we will reconvene 

in a few minutes. 

[Recess.] 

Mr. DOOLITTLE. The subcommittee will reconvene if people will 

take their seats. 

Our next witness is the Honorable Mark Foley. 

Just in the interests of time, we have got a number of witnesses 

today. We are going to run the lights and ask the questions to be 

limited-testimony and questions limited to five minutes apiece. 
11 

Welcome, Mr. Foley. 

STATEMENT OF HON. MARK ADAM FOLEY, A U.S. 

REPRESENTATIVE FROM FLORIDA 

Mr. FOLEY. Thank you very much, Mr. Chairman, and good 

morning, members of the committee. I appreciate the privilege and 

the opportunity to testify today. 

I will try to limit the amount of time I take and offer my written 

testimony for the record of this hearing. 

The Power Marketing Administrations and the policy we apply 

to them in the future serve as an example of a common debate occurring in the Nation today. That debate, simply stated, is whether 

we should continue to subsidize benefits for just a privileged few 

at the expense of many. I compliment the committee for its interest 

in this issue, and I am happy to add my voice and the voice of millions of taxpayers to this discussion. 

As the Nation emerged from the Great Depression, we worked to 

bring electricity to the greatest number of people. Clearly, the 

Power Marketing Administrations served a vital role in this important and necessary mission. By providing preferential sale of federally generated power at below market cost, the PMA's, in conjunction with the ever expanding private sector, helped electrify practically every inch of American soil. Now that this important goal 

has been reached, what should happen to the PMA's? 

The President and the House Budget Committee have both proposed selling the PMA's. Some of these proposals, unfortunately, 

have not gone far enough. As background, I will tell you that my 

interest in the PMA's started with my work on the House task 

force to eliminate the Department of Energy. Since the start of this 

Congress, the task force has investigated every program and function of the department. I am proud to inform you that very soon 

the task force will unveil legislation that redirects or eliminates 

every single element of the Department of Energy. My portion of 

that bill will be a title that proposes the sale of all five Power Marketing Administrations. 

Mter using Representative Klug's bill, H.R. 310, as the perfect 

starting point, I have added many provisions that would protect 

consumers and ensure the most benefit to the American taxpayer. 

It will call for the Secretary of Energy to work with a private, nongovernmental consultant to establish an honest, fair market value 

for all assets of the five PMA's. Once the value is established, it 

directs a sale by process of the highest bidder for these assets. 

Most importantly, it calls for a rate stabilization mechanism that 

will guarantee no extreme rate increases for current consumers of 

PMA power. I reiterate, to ensure the most return to the Federal 

Government for the massive investment it has made, it will call for 

the highest paid sale and does so without placing a burden on current consumers. 

I believe that if we simply transfer these assets for the net 

present value of the debt we will provide an unfair subsidy to the 

group that receives the preference. This subsidy would impede the 

progress being made toward a free and competitive base power 

market. 
12 

It is essential that the issues be considered in an open and honest way. For that reason I would like to spend my last few moments addressing the most common misconceptions associated with 

the sale by the highest bid. 

First, some claim a sale of any type means unreasonable rate increases. I disagree. As you will hear today, a bid has already been 

offered by the Department of Energy by Tucson Electric Company. 

This bid would ensure no rate increase in excess of what would 

occur at the facility under the PMA management. 

Additionally, as I have stated, the PMA legislation I am offering 

would limit any potential rate increase. During the process of drafting this language it has become clear that rate guarantees are 

available as part of legislation or contractual arrangement. It must 

be stated though that any such obligations will undoubtedly affect 

the final sale of the assets. 

The reason for potential rate change is the current below market 

rate of PMA power. PMA power is sold at rates more than 50 percent less than the national electric rate. As the chart included with 

this testimony shows, the PMA rate is at times over 100 percent 

less than the regional market rate. 

Next, as we consider these sales we are told that the current 

preference customers have equity in these facilities. By their assumptions, the amount that they pay covers operation and maintenance but also pays back principal and interest incurred since the 

building of the original facilities. I do not accept this premise. I 

currently lease an automobile. When the term of my lease is ended 

I will not have equity in the car. Despite the fact that I have paid 

a monthly charge, bought gas and oil to operate it, and occasionally 

paid for repair, I certainly will not be able to tell the dealer that 

I am now a co-owner of this asset. 

Finally, claims are made that the sale would only supply a onetime infusion of cash, thereby leaving potential revenue on the 

table. This only occurs if the current preference customers purchase the PMA's. These customers are rural electric coco-ops and 

municipal power utilities, both of whom receive wholesale tax-free 

power and resell it with tax exemption. In 1993 investor-owned 

utilities paid $10.8 billion in Federal income tax, and to assume 

that acquisition of an additional 35,400 megawatts of electric generation capability would not add to that revenue is ludicrous. 

A sale by the highest bid would guarantee the highest return for 

years of the investment the American taxpayers have made in the 

PMA assets. It is the method of sale supported by a host of this 

country's most notable taxpayer and consumer watchdogs. Some of 

the groups in support are Citizens Against Government Waste, the 

Seniors Coalition, the Small Business Survival Committee, the 

Competitive Enterprise Institute, and the United Seniors Association, to name a few. 

As this Congress moves to downsize bureaucracy and works to 

rein in Federal spending we must show Americans that we have 

the courage to end the benefits to a select few. I look forward to 

working with you in these efforts to achieve fairness. 

Thank you, Mr. Chairman. 

[The attachments to Mr. Foley's statement may be found at end 

of hearing.] 
13 

Mr. DooLITTLE. Thank you very much, Mr. Foley. 

Questions of Mr. Foley? 

Mr. DeFazi(J. 

Mr. DEFAZIO. Mr. Cooley--

Mr. DOOLITTLE. Mr. Cooley. 

STATEMENT OF BON. WES COOLEY, A U.S. REPRESENTATIVE 

FROM OREGON 

Mr. COOLEY. Thank you, Ranking Minority Leader, for the courtesy of going first. 

This will go on the record as probably the first time I have ever 

agreed with Mr. DeFazio on issues even though we are from the 

same State. 

Mark, we have known each other for a long time. Stop and think 

about something when we talk about this process. Why does a private utility want to buy a Federal entity? Because they can make 

money from it. Otherwise they wouldn't want to buy it. Why should 

you buy a loser? You are not going to. 

Besides that, the private utility rates, at least in my part of the 

country, are vastly closer to what Bonneville and some of the other 

utility rates are paying because we are loading on the backs of 

some of these public utilities such things as endangered species 

costs, et cetera, et cetera, which is actually literally driving them 

to the point where they cannot make contracts. 

Now in my area I have one of the biggest power users in the 

country, Northwest Aluminum Company. They are now buying 

power out of Texas through the transmission line of Bonneville. 

Could they do that if that transmission line was owned by a private utility? I don't know. But I think that there are some areas 

in here that we really have to truly look at before we start dumping these units. 

Number one is, we have to look at, why did we build them in the 

first place? Why did the American taxpayer build these units? Because we needed electrification. We wanted to have competitive 

prices, and we wanted it done at the benefit of the people using 

those utilities. 

The argument comes in that we are subsidizing it because we are 

paying low interest rates. If you were to purchase a major building 

in a major city in 1934 you would have been paying 2.5 percent to 

3 percent interest rates on that total property purchase. You might 

have had that over a 100-year mortgage because it cost in the millions and millions of dollars. The bank doesn't come to you 20 or 

30 years later and say, "Gee, I want to renegotiate that interest 

loan because now the rates are 8 or 9 percent." It doesn't happen 

in business, and it should not happen also in public entities. 

At the time the money was borrowed the rates paid were the 

going rate, and nobody worried about that. Now they are going 

back and criticizing that. We are talking about turning Government back to business with business principles, and we are going 

the other way now. I think we need to look at this as businessmen, 

look at what it is doing. 

This is supplying income to our Treasury. But some of them 

won't if we keep loading on the backs of the public utilities, some 

of the, quote/unquote, unnecessary burdens economically. Yes, you 
14 

are right, you will drive them to the point to where they are going 

to miss their Treasury p_ayments, and then there will be a clamor 

in this building as there will on the other side to sell off these units 

because they will not be profitable. Now we know that that is hap- pening in the Northwest. We know what is happening there, and, 

as they continue to require, obligate, our public utilities to meet 

certain regulations and so subsidize those regulations, we are going 

to make them not as competitive, that is true, and those private 

entities in the area will profit by that, and the thing is that I don't 

think that that is good government. 

I think we are here to try to provide a good service to the people 

that we serve, and I think that all of a sudden by going out and 

overnight deciding to start selling off some of these assets, selling 

off some of these power units, is not good public policy. We should 

look at them. 

We discussed it yesterday in a four-hour meeting on the Alaskan. 

We have decided to sell the Alaskan unit. It is unique in itself because it really is not efficient any more and the public utilities are 

willing to pick it up and pay something for it. But some of these 

other ones we are looking at, there is a lot more to go into it than 

just all of a sudden starting to sell it--disruption of power source. 

This country is run on electricity. We need to have a stable sup- ply, and I think we need to take a real good look at this and not 

hurry down the road to try to get rid of these in order to readjust, 

quote/unquote, the Treasury. I think we can do that without selling 

these units off. I think we can balance the budget, and I think we 

can do it in an equitable way, but I think before we just hastily 

run down the road we need to examine each and every one of these 

utilities within its own unique sphere and what it will really do 

and also look at the other side of the ledger. 

The other side of the ledger is that if something is not profitable, 

private enterprise is not going to buy it, and yet we have people clamoring to buy it, so it is obvious that there is something there 

that maybe we are not looking at as Members of Congress, as 

guardians of the taxpayers', money and as good government and 

providing services to the people we represent. 

Thank you, Mr. Chairman. Mr. DOOLITTLE. Thank you. 

Mr. FOLEY. If I can only respond for just a minute, one of the 

things you brought up should be of great concern to us. As the free 

enterprise opens up and utility companies are allowed to move 

away from their geographically bound barriers, you will be starting 

to lose in the Bonneville and other PMA's customers, and as you 

have declining revenues this will place a greater burden on the 

American taxpayers. 

A number of corporate debts around America have call provisions, so that somewhat answers that earlier question about the 

100-year mortgage on a building that you had purchased. A number of notes have call provisions on interest rates. If we sell in fact 

to the highest bidder, the revenue generated will be coming to the 

Treasury in the form of tax payments on the profits of those utilities. 

So we do want to be careful. We are concerned with the consumers. We don't want to turn these over and have rapid rate in-
15 

creases. If you put a cap per year on the amount of rate increases 

from the current base rates, you will not only protect the consumer 

but you will also set a threshold on the pricing mechanism and the 

value utility. 

Much like in the real estate example, you base your net operating income on a cap rate or a yield. You determine the value of 

that property based on that analysis. The same would be true in 

the Power Marketing Administrations. We do have five. We want 

to look at the five independently. We want the Secretary of Energy 

to go out and get a bona fide analysis of both the debt and the income streams and the potential for sale. It would not preclude your 

local municipal operators or the other rural co-ops from being participants in that purchase. 

Mr. COOLEY. Would you yield, Mr. Foley? 

Mr. FOLEY. Yes, sir. 

Mr. COOLEY. Let me ask you one question. We now in the Northwest have spent $2 billion mitigating salmon recovery. The ratepayers in the Northwest, going clear down to California, have paid 

this. There is a proposal of spending half a billion dollars a year 

starting in 1996. It is going to be picked up by Bonneville. If you 

were to sell Bonneville, who would pick up the cost? I'm just curlous. What are we going to do to pick up that cost? Is that going 

to come out of the Treasury? 

Mr. FOLEY. That would have to be figured into the acquisition 

price. If there is a cleanup or a mitigation responsible, that would 

be a liability that the investor or purchaser would be required to 

take part in just as if you bought a piece of real estate knowing 

that there may be an underground storage tank of fuels, you know 

that in advance you have a requirement to clean the site up. The 

purchase price would be adjusted to reflect that type of expense 

that a purchaser would have to undergo. 

Now I agree with you, there are things in the Endangered Species Act we are going to work on. I don't think they definitely relate 

to--

Mr. CooLEY. We have been working on this for over 10 years and 

not been able to solve it. It is an open-ended situation. We realize 

that, the way the legislation the law is set up today, it is open 

ended. I don't believe, as a private entrepreneur, that anybody 

would buy something that is open ended, and I wonder how many 

other utilities throughout the United States or the other three that 

we are really looking at face the same type of problems that we 

have in the Northwest. 

Mr. FOLEY. Well, again, in the analysis of determining value, all 

those factors have to come into play. If it is determined that in fact 

the liability is open ended, then I would assure you that Tucson or 

Florida Power or any other company that is interested in acquiring 

these assets will simply walk away from the table and we will be 

right back where we started from. 

I don't think there is a risk with going forward and determining 

an asset value. I guess that is my point. Let's fmd out what we 

really have here, and if those factors weigh heavily on an investor's 

mind they are certainly not going to lay down cash on the table 

and say I'm willing to risk and gamble, but it will tell us at least 
16 

what our up front obligations are going to be as far as the United 

States taxpayer is concerned. 

Mr. COOLEY. Thank you. 

Mr. DooLITTLE. The chair is going to recognize the ranking member. 

Let me just hasten to add, Bonneville is the most difficult of all 

these PMA's, and it is not the subject of the legislation. So I realize 

it has implications for all of them and it is fair to explore in questions, but it isn't being proposed that Bonneville be sold. 

Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

I guess I'm a little puzzled, and I'd ask the gentleman to explain 

a little bit more how it is we are going to sell it to the highest bidder theoretically at the market value when in an area the market 

range of power-let's take Phoenix, in the case of Tucson Electric, 

is 2.66 to 3.48, is the market range on your chart, and the PMA 

average is 1.56. How is it that we are going to sell it at the market 

rate to a profit-making entity and they are not going to increase 

the rates to the detriment of the current customers, which is your 

allegation here. 

I mean I notice it says guarantee no extreme rate increases. So 

are we saying that a rate increase from 1.56 to 2.66 is not extreme? 

Is that what we are looking at? I would assume that this company 

is going to want to make a return on its investment. It is paying 

market rate, so therefore I would assume that it is going to want 

to increase rates. How much are you going to limit that increase, 

and therefore how much is that going to limit the disposal price? 

Mr. FOLEY. Well, that is a function of what you set your cap rate 

at. If you limit increases to 10 percent per annum to get it up to 

a stabilized market rate, then your income stream will generate a 

net value price of the asset. So it is all a function of running the 

numbers up. 

Mr. DEFAZIO. So is that a feasible scenario, 10 percent per year, 

to bring it to the market rate? Do you think that would be a reasonable cap under this legislation? 

Mr. FOLEY. Possibly. 

Mr. DEFAZIO. So that would be a doubling within seven years, 

so electric rates would double for PMA customers in a seven-year 

period, and that wouldn't cause extreme hardship, undue problems, 

or economic disruption for all of those millions of customers? 

Mr. FOLEY. I guess I would have to ask the question, if I'm paying market rate in my area of Florida for electricity coming to my 

home and my business, how fair is it for me to look at a neighbor 

in another State who has access to the PMA power and is substantially paying less than I do? I don't think that is a fair analogy either. I don't think that the Federal Government was in the business--

Mr. DEFAZIO. No, I'm just going by your allegation, which is, it 

would not be to the detriment of the current consumers. Clearly 

the caveat is that they may be looking at a doubling of their electric rates within seven years and we don't consider that to be to 

their detriment because other people pay higher rates. 

Again, given the chairman's caution, I don't want to dwell too 

much on Bonneville Power Administration, but, you know, the Fed-
17 

eral Government built the BPA to service in great part the aluminum industry for World War II, and they induced-since they had so much surplus power, they induced certain consumption so 

they basically-everybody in the Northwest or most people use 

electric space heating, and we have had a conservation program, 

and we are trying to move away from that, but the difference is 

that in Boston or some place else you would be crazy to try and 

use electric space heating, but it was induced by Government policy 

in the past, and it is hard too make an abrupt transition to say to 

every homeowner, well, either you have got to go out and get a different source of power or your electric rates are going to double. 

I wouldn't say that 10 percent a year is any sort of reasonable 

assurance for current consumers in, say, Sacramento, 2.48 to go to 

3.34 to 5.16. You know, I don't think the Sacramento ratepayers 

would find that to be nondisruptive of small business, seniors, and 

others. I don't know where they are going to fmd the extra money. 

One other question. The taxes, what did Tucson Electric pay in 

taxes last year? I am just curious. I see their rates of return in the 

article, but it didn't state specifically their taxes. Do we know that? 

Mr. FOLEY. You are going to have a representative here later. I'm 

not a representative of Tucson. 

Mr. DEFAZIO. All right. We will certainly want to get that ques- tion answered since I know the rates of return are regulated by 

public utility commissions and those sorts of things. I'm just curious what they did pay in Federal taxes and what sort of return we 

can look at, because we are looking right now with WAPA at areturn-a net of $153 million to the Fooeral Treasury. That is a lot 

of taxes. We would have to add up the aggregate, but we are talking a net of $153 million for the Federal taxpayers. To come out 

ahead I would assume that we are going to see some pretty hefty 

taxes across a number of these private utilities. I just want to see 

if that pencil is out. 

Mr. FOLEY. Do you have a suggestion as to what you would consider a reasonable rate increase so we can proceed with an evaluation of the utilities? 

Mr. DEFAZIO. Well. Each of us is an expert in its own region. I 

can tell you that in my region right now that BPA is being undercut daily and the market is below their PMA rate. So I don't know 

what the market conditions are in these other regions, but right 

now my largest public utility has just gone into the private market 

and is shedding BPA power to buy private power, and so market 

conditions are changing dramatically. But that also means that 

BPA is worthless. That is, you couldn't sell it, and I don't know 

what that means for these other PMA's at this point in time. 

Mr. FOLEY. I think we have got to recognize that as an absolute 

important dialog to proceed, because as customers are stolen or 

taken or co-opted from the Bonneville or any other PMA's they will 

continue to decline in value until ultimately we are paying in excess of just the generating capabilities to maintain the facilities. 

Sometimes they say in real estate get out while the getting is good. 

I'm afraid that is where we are headed. 

Mr. DEFAZIO. I'm looking at handing it back to the Feds, I don't 

know about selling it. 

Anyway, I thank the gentleman. 
18 

Mr. DOOLITTLE. Other members have the right to question. We 

have yet to hear from another Member of the House who wishes 

to testify. But does anybody over on this side wish to ask Mr. Foley 

further questions? 

How about over here? Mr. Dooley? 

Mr. DOOLEY. No, thank you, Mr. Chairman. 

Mr. DOOLITTLE. OK. Let's welcome the Honorable L.F. Payne, a 

representative from Virginia who has a statement for the record. 

Mr. Payne. 

STATEMENT OF THE HONORABLE L.F. PAYNE, A U.S. 

REPRESENTATIVE FROM VIRGINIA 

Mr. PAYNE. Thank you, Chairman Doolittle and members of the 

subcommittee. 

I appreciate the opportunity to address the subcommittee this 

morning regarding the proposed sale of the PMA's and represent 

the south central part of Virginia. This region includes the federally-owned Kerr-Philpott hydroelectric facilities that generate electricity and market it through the Southeastern Power Marketing 

Administration, or SEP A. 

Throughout our State almost one million of our citizens receive 

a significant portion of their electricity from these power facilities. 

These citizens and the consumer-owned electric cooperatives which 

they are members of are deeply concerned about the efforts to privatize the PMA's, and I share these concerns and have strongly opposed the sale for the reasons I want to discuss just briefly this 

morning. 

First, contrary to popular misconception, the Federal Government is not giving anything away through SEPA and the other 

PMA's. No one is getting a free ride because of the PMA's, but 

rather the power marketing arrangements represent a partnership 

with the majority of the Nation's 1,000 not-for-profit consumerowned utilities. These utilities purchase power through long-term 

contracts. Under these sales contracts, the PMA's recover all of 

their operating costs and the PMA's also recover an amount necessary to repay the construction costs of the power generating facilities with interest. 

According to a report published this March by the Congressional 

Research Service, the net positive receipts to the Federal Treasury 

generated by the four PMA's will be $243 million in fiscal year 

1995. This is a significant stream of revenue to the Treasury. 

Second, because these consumers have helped to finance the capital cost of our Nation's hydroelectric power facilities they have a 

real vested interest in the PMA's as a result of their investment. 

It is important to remember that when this partnership was 

formed it was not always a good deal for these consumers. In many 

cases hydroelectric power was more expensive than competing 

forms of electricity, and rural America upheld their end of the bargain by meeting their financial obligations, and so I think we need 

to question the fairness of ending this partnership at this particular time. 

Thirdly, the Power Marketing Administration plays an important 

role in ensuring price competition in the electric utility industry. 
19 

There are some other factors too which strongly argue against 

this sale. Preference customers have in some instances foregone 

new plants and sources of electricity because they relied on the 

continued existence of PMA's, and under existing budget rules this 

or any other asset sale will not be counted toward our deficit reduction. 

Mr. Chairman, I know that there is great support for this sale. 

It was included in the President's budget, it is included in the 

House budget, the Senate budget proposals from the Budget Committee, and it enjoys the strong support of Mr. Klug from Wisconsin who has already addressed this panel. 

I must say that if this sale is approved that I would urge you 

to work with the preference customers to protect and preserve their 

equity investment in this power, and to that end I believe that it 

is important that any sale to the preference customers should be 

at a price where it would not adversely affect their utility rates. 

Furthermore, the privatization issue is complex, and organizations necessary to the replace the PMA's may have to take several 

forms to best represent the interests of the preference customers. 

It may also be that in some instances component parts of the PMA 

systems can best be owned and operated separately. Therefore, 

flexibility to meet these needs should be an integral part of the privatization efforts. 

Mr. Chairman, today we will vote on a budget resolution, one 

that will ensure that we reach a balanced budget by the year 2002, 

and certainly the rural people in my district and rural Americans 

will be a part of shouldering much of the burden in order to ensure 

that we do reach a balanced budget by the year 2002, and many 

of these people are also members of electric cooperatives that are 

preference customers of the Power Marketing Administrations. So 

I would urge you that if privatization happens, then let it be done 

in a manner that does not interrupt or disrupt our existing power 

supply markets, and I urge you to preserve competition by recognizing the huge investments that rural people have already made 

in these facilities by ensuring that PMA's are sold to existing preference customers, and I urge you to assure that any sale is structured to meet the needs of preference customers and the thousands 

of rural customers who rely today on PMA's affordable energy. 

I thank you, Mr. Chairman, and thank the members of the panel. 

Mr. DOOLI'ITLE. I thank the gentleman. 

Are there questions of Mr. Payne? 

Mr. DeFazio. 

Mr. DEFAZIO. Mr. Payne, I know you are both an able representative of your district and your State and have been a very successful entrepreneur, and I guess I would direct you to our predecessor 

colleague's remarks, Mr. Foley, and ask when we look at our discussion there and we talked about a 10 percent annual rate increase, a doubling within seven years, that he didn't find that to 

be either extreme or didn't feel it would be potentially disruptive, 

or, even if it was, that it was in the best interests of national equity. Could you address what you think the impact would be on 

those million customers of a 10 percent annual rate increase for 

seven years? 
20 

Mr. PAYNE. I think a 10 percent rate increase for seven years, 

as you suggest, would double the rates over a seven-year period of 

time. A doubling of rates in seven years would be a substantial increase, substantially higher than what is anticipated as it relates 

to inflation, perhaps double what other costs will increase over that 

time, and consequently I would say that efforts that we are making 

to generate economic development, for instance, in areas that badly 

need it as we are moving from agricultural economies to manufacturing economies would be hampered by rate increases such as that 

that you just described. Mr. DEFAZIO. So perhaps then the taxes that might be realized 

because of the profits of a private power company purchasing those 

assets would be more than offset by a depressed effect on the taxes 

paid by the aggregate million people engaged in small business, 

farming, and other sorts of employment? 

Mr. PAYNE. I don't have any way to know that on a macroeconomic basis because I haven't had an orportunity to look at the 

other side, but I do know in region that serve, that the electric 

cooperatives are an extremely important part of our region and an 

extremely important part of making life there affordable in a rural 

area and an extremely important part of making sure that we are 

competitive as it relates to attracting new industry into our region. 

Mr. DEFAZIO. OK. I thank the gentleman and thank the chair. Mr. DOOLITTLE. Thank you. 

Are there questions from this side of Mr. Payne? 

Mrs. Chenoweth. Mrs. CHENOWETH. Thank you, Mr. Chairman. 

Mr. Payne, I was interested in your comments about making 

sure that we protect the capital assets of the preference customers. 

Are you excluding the investor-owned utilities, or would you also 

plead as hard as I would for the capital investment and the investor-owned utilities as well as those PURPA customers that, for instance, the PMA's have allowed direct access to? 

Mr. PAYNE. My point was that over time, as this contract has 

been implemented over time, that a great deal of money has been 

paid from cooperatives and from small utilities to the PMA's, and 

that represents to them an investment over time of a source of 

power, and that is what I feel and others feel ought to be protected, 

that that shouldn't simply be given up without some recognition 

that an investment has been made over a very long period of time 

in those assets. 

Mrs. CHENOWETH. I really appreciated your comment, and I'm 

right with you so long as we can expand it to all of those who have 

made capital investments for the production of power and have 

been recognized by the PMA's in allowing wheeling. 

Being from the Northwest, I wanted to ask Chairman Moler a 

couple of questions, if I might. Mr. DooLITTLE. Let me jump in and ask you to hold on that because she is going to testify and then you will have an opportunity 

to ask questions. 

Mrs. CHENOWETH. All right. Thank you, Mr. Chairman. I have 

had two or three committee meeting going so I missed that. 

Thank you. 

Mr. DOOLITTLE. All right. 
21 

Any further questions of Mr. Payne? 

All right. Thank you very much, sir. 

Mr. PAYNE. Thank you, Mr. Chairman. 

Mr. DooLITTLE. We will now move to recognize the chair of the 

Federal Energy Regulatory Commission, Elizabeth Moler. 

Welcome. 

STATEMENT OF ELIZABETH MOLER, CHAIR, FEDERAL 

ENERGY REGULATORY COMMISSION 

Ms. MOLER. Good morning, Mr. Chairman and members of the 

subcommittee. It is a pleasure to be with you this morning to discuss issues related to the transferring of the Power Marketing Administration's facilities and functions to non-Federal entities. 

There are two points I want to emphasize at the beginning of my 

testimony today. First, as you have noted in your opening statement, Mr. Chairman, the electric utility industry is rapidly undergoing a transition to a much more competitive industry. The market for those who build new power plants to generate electricity is 

already competitive, and we have recently proposed to deregulate 

the price of power from those new facilities. We are looking at 

whether existing generating marketing can be made more competitive as well. We believe that a much more efficient wholesale market where buyers and sellers of generation capacity can easily conduct transactions will save consumers money and is in the public 

interest. 

The key to making the wholesale market more competitive is 

transmission facilities. Transmission facilities are now regulated 

and operated as traditional monopolies. We have recently issued a 

notice of proposed rulemaking, known as our Open Access Rule, to 

require utilities to allow third parties access to their transmission 

wires. We do not have authority under existing law to require the 

PMA facilities to comply with our open access rulemaking, though 

we do have authority to require them to provide parties access on 

a case-by-case basis. Any legislation permitting the sale or transfer 

of PMA facilities should ensure that the PMA transmission systems 

are subject to open transmission access requirements being imposed on other transmission-owning utilities. 

Second, PMA hydroelectric generating facilities are located at 

Federal Government dams operated by the Corps of Engineers or 

the Bureau of Reclamation. These generation facilities are not 

under Commission jurisdiction or license because they are Federal 

facilities. However, they could become subject to mandatory Commission licensing if they are transferred, depending upon who purchases them. 

Any legislation transferring PMA facilities, hydroelectric generating facilities, from Federal operations and control should be clear 

as to who, if anyone, is responsible for regulating them. Congress 

should resolve the uncertainties associated with these licensing issues in order to facilitate the sale of the PMA facilities and to enhance their market value. 

Let me discuss each in a bit more detail, though I will certainly 

limit my oral comments, as you have requested. 

First, let me give you a broad overview of our existing statutory 

authority over PMAs. The Commission now only has limited statu-
22 

tory authority over the five PMA's. We regulate the rates of each 

PMA. However, our rate authority is very limited. We do not evaluate the PMA rates under the traditional just and reasonable standards of the Federal Power Act. The Northwest Power Act imposes 

some specific requirements on our review of Bonneville rates. Even 

so, our review is limited. We basically take a cursory look at their 

rates to make sure they provide for repayment of Bonneville's debt 

to the Federal Government. 

The Commission also has limited authority to order PMAs to provide transmission service. We do not have general authority over 

the transmission service of the PMAs, the municipalities, or the cooperatives, though under the 1992 Energy Policy Act we can order 

PMAs to provide transmission service on a case-by-case basis. We 

have no licensing authority over the hydroelectric generating facilities from which the PMAs market power. 

Now what will happen if the PMAs are transferred? The regulatory consequences of any legislation will of course depend upon 

the specifics of any proposals you adopt. Depending upon who acquires the PMA assets, that entity could become subject to the 

Commission's regulation as a public utility under the Federal 

Power Act unless you deem it otherwise. 

If PMA facilities, for example, are acquired by an investor-owned 

utility that owns or operates facilities that are subject to our jurisdiction, the Commission would regulate the PMA assets transferred 

under the Power Act. We would regulate rates, terms and conditions, we would regulate transmission, and we would regulate 

mergers. If, on the other hand, they are transferred to a co-op or 

a municipality, we would not have jurisdiction over them. 

It is critical that you tell us whether you want us to exercise rate 

regulation over the assets that are transferred or not. It is equally 

critical that you tell us whether you want us to regulate and have 

jurisdiction over the hydroelectric generating facilities if they are 

transferred. Absent a specific directive, they will be subject to our 

jurisdiction under the Federal Power Act. If you take them out 

from under our jurisdiction, that is not the end of regulation over 

them. They could easily be subject to a myriad of State rules and 

regulations and perhaps a licensing regime under individual State 

authority. 

We believe it is important that you address these issues in order 

to facilitate the transfer of the PMA facilities. Resolving the uncertainties about licensing should facilitate the sale of the PMA facilities, if that is what you want to do, and enhance the taxpayer's return on those facilities. 

Thank you. 

[The statement of Ms. Moler may be found at end of hearing.] 

Mr. DooLITILE. Thank you very much. 

The obtaining of a FERC license can be a rather lengthy and expensive process, can it not? 

Ms. MoLER. Yes, sir. 

Mr. DooLI'ITLE. Give us a range, if you will, for the time and the 

expense that could be involved. 

Ms. MOLER. It depends really on a whole variety of factors. It 

takes a minimum of four or five years because of planning and consultation that has to be done with resource agencies in advance 
23 

and a number of studies that are required. You have to count fish, 

for example. That has to be done in advance, and then we process 

the licenses in . a one to two-year period under the best of circumstances. 

Mr. DOOLI'ITLE. You said you have to count fish? 

Ms. MOLER. Yes, sir. 

Mr. DOOLI'ITLE. Who required that? 

Ms. MOLER. There are various statutes. If you get a FERC license you are subject to mandatory conditions from the other Federal fish agencies, and you have to provide for passage around the 

dams, and we have to know in advance whether the passage is 

working, and we also have to look at the effect of the generating 

facilities and whether fish go through those generating facilities or 

not. 

Mr. DOOLI'ITLE. Do you have some suggestions you would be prepared to offer to this committee about ways to streamline the regulatory process so it didn't take a minimum of four to five years, including revisions to the various laws that you are citing? 

Ms. MOLER. We have not been making those suggestions. Most 

of the requirements are imposed on our process by the litany of 

statutes that you are already familiar with-NEPA, Endangered 

Species Act, and so forth. 

Mr. DOOLI'ITLE. I wonder if you can submit for the record the 

various acts and their requirements, because we are in the process 

of revising those and we would like to have the input of the Administration if possible. 

Ms. MOLER. We are not the Administration, but we will certainly 

submit our input. 

[The material submitted may be found at end of hearing.] 

Mr. DooLI'ITLE. I would welcome your input and would appreciate that. 

Let me ask you, this issue, FERC, is a big issue. Let's su_ppose 

these PMAs, these facilities, are transferred with a de facto FERC 

license because if they go to anything other than the exempt entities that are getting the power now, if we go to, say, an investorowned utility, then they are going to be subject to FERC, so if they 

get a de facto license what would you recommend to be the minimum length of such a license? 

Ms. MOLER. We generally issue our licenses for a period of between 30 and 50 years under the Federal Power Act. 

Mr. DOOLI'ITLE. OK, and would that be a recommendation in this 

instance? 

Ms. MOLER. You provide them a license in the process of the 

transfer, or you could accomplish something that would happen by 

operation of law for some sort of initial licensing regime, or exempt 

them from our jurisdiction. But, unless you do something like that, 

we would begin to license them under the mandatory conditions of 

the Power Act, and we would look at all these fish kinds of issues 

and the other endangered species issues and we would ultimately, 

presumably, impose mitigation requirements on them. And they 

may be up to snuff already. And then we would issue a 30 to 50-

year license. 

Mr. DOOLI'ITLE. Should the renewal dates be staggered to enable 

FERC to handle the volume of licenses more efficiently? 
24 

Ms. MOLER. There are_ two schools of thought on that. One is that 

we should look at all of the licenses in a river basin and they 

should all be up at the same time so we can coordinate. Fish go 

along rivers, so the argument is that we do them all at once. The 

other is, so that we can cope, that you should stagger them. 

I don't think it really makes a difference to us, though it is easier 

for us to do our environmental work if we take a river basin approach. 

Mr. DOOLI'ITLE. Maybe someone else can answer this better, but 

what do you think it costs the applicant who is going through four 

or five years of minimum process to get the FERC license? Do you 

have any idea of the amount of money involved for them? 

Ms. MOLER. No, sir, I don't. 

Mr. DOOLI'ITLE. OK. All right. Thank you very much. 

The gentleman from Oregon. 

Mr. DEFAZIO. I thank the chair. 

Ms. Moler, I guess back to your basic assertion here in the open 

access, I have got a couple of questions regarding that, and I know 

FERC is perhaps in the midst of making some rules in this area, 

but I'm puzzled how we are going to deal with prior investment, 

something that the California Energy Regulatory Commission came 

up to, and they said, well, we'll allow people to amortize what were 

good investments. 

I mean there is a question here. Who is going to benefit? What 

I envision is a world where the new independents are out there 

snapping up the profit centers, which are generally large industrial 

or commercial customers not real interested in maintaining miles 

and miles of electric line to provide power to a farm in Mr. Cooley's 

district or a rural area in my district. I don't see that there is going 

to be a tremendous amount of competition to provide power to that 

person or to carry the costs of that distribution system. 

So I'm just puzzled how, in this brave new world where we go 

from a regulated monopoly to free market dealing with one piece 

of wire, what we are going to do with these utilities who made investments under existing conditions and now suddenly they have 

someone come in and pick off their profit centers and they have no 

option except to either, A, go bankrupt or, B, shift those costs on 

to their remaining customers, and I know this isn't exactly the 

thrust of this hearing, but this is just something that bothers me 

tremendously, and I wonder what great wisdom the Federal Energy Regulatory Commission, since you are such strong advocates 

of these changes-how are you going to deal with that? 

Ms. MOLER. Mr. DeFazio, in the world that you have just described where individual customers can buy from independent 

power producers, that is a full retail wheeling environment. 

Mr. DEFAZIO. I was under the impression you were advocating 

that. 

Ms. MOLER. No, I am not. We do not have that authority, and 

you specifically prohibited us in the 1992 Energy Policy Act from 

getting into retail wheeling issues. 

Mr. DEFAZIO. There were differences of opinions over the rather 

vague wording of the 1992 Energy Act, and being one of the two 

conferees who voted against the agreement, one of 30 people in the 
25 

House who voted against it, I felt that it was vaguely enough worded that in fact it did authorize that. 

Ms. MOLER. Well, let's skip that discussion. In a full retail wheeling environment, the number for stranded investment, which is the 

term that we use to describe what you are describing, the amount, 

the price tag, on that is approximately a $200 billion problem. 

We are not proposing retail wheeling. We are looking at wholesale wheeling, a much more open access environment between utilities. We think you can make major improvements, major efficiency 

gains for customers, without staring a $200 billion problem in the 

face. 

We have, in our notice of proposed rulemaking that you alluded 

to and that is discussed very briefly in my testimony, recognized 

the right of utilities under the old regulatory regime to recover 

these stranded costs, to recover prudently incurred costs that they 

invested when they had an obligation to serve people, and we are 

proposing an amortization of those costs over a period of time to 

deal with it. 

We have done this in the natural gas business where the industry has been restructured. We allowed the utilities to be paid those 

stranded costs, and even taking those stranded costs into account, 

and keeping the utilities whole, we have lower consumer prices as 

a result. It can be done, but it is a very difficult problem on the 

electric side. 

Mr. DEFAZIO. And would the wholesale transmission-I'm glad to 

hear. I mean it seems that there are certainly people out there who 

believe that retail wheeling is the objective and it has been authorized, but I'm glad to hear that isn't. 

But in dealing with this problem, what conditions-! mean is 

there any mandate on FERC to see that this is a nonpolluting 

source of energy or it is particularly energy efficient? Are there any 

constraints? Is it renewable, or any of those constraints apply, or 

is basically the price the determining factor? That is, if someone 

can provide power cheaper on a wholesale basis, whether it is 

burning dirty coal somewhere in the Plains States, they then can 

become the efficient producer and should have access on the wholesale market? 

Ms. MOLER. We assume that other agencies do their job with respect to dealing with pollution issues, and we do not deal with that 

nor do we have authority to deal with it directly. 

Mr. DEFAZIO. Again, you referenced the PMA's and needing to 

bring them under your jurisdiction in this arena. In the Northwest 

we have very strict mandates regarding conservation renewable 

preference. Would you then advocate or would you be prepared to 

carry that forward in your regulatory scheme, or are you assuming 

that that mandate would go away with any change in the status 

of the PMA? There would no longer be a conservation or renewable 

preference in the Pacific Northwest? 

Ms. MOLER. Most of those kinds of mandates under the existing 

law are imposed by State regulatory commissions. 

Mr. DEFAZIO. This is Federal. 

Ms. MOLER. And we recognize in our proposed rulemaking that 

utilities, or if they become utilities, should have an opportunity to 

pass through the costs of those kinds of mandates as well. 
26 

Mr. DEFAZIO. OK. So in this case it is a Federal mandate, and 

you are not anticipating then that in the implementation legislation we do away with this mandate? 

Ms. MOLER. No, sir. 

Mr. DEFAZIO. OK. And I would assume then that any sorts of 

conditions we are putting on these sales would lower the market 

value of these entities. 

Ms. MOLER. To the extent they cost money, yes, they would. 

Mr. DEFAZIO. OK. 

I thank the chairman. 

Mr. DOOLI'ITLE. Thank you. 

Mr. Cooley is recognized. 

Mr. COOLEY. Let me ask you a question for clarification. Did I 

understand your testimony that you said that you had a limited 

authority to order transmission services? 

Ms. MOLER. Yes, we basically have authority over investor-owned 

utilities. We do not have authority over co-ops and municipalities 

and PMAs, except under one particular provision of the Energy 

Policy Act of 1992 where we can order them to carry power for a 

specific customer upon application and after a proceeding. 

Mr. CooLEY. Basically then, who does have the ultimate authority over transmission lines? 

Ms. MOLER. We have authority over some of them. The PMAs 

have authority over their own. The co-ops and munis have authority over their own. 

Mr. COOLEY. So when we talk about transmission of power of, 

let's say, all the way from Texas to the Columbia Gorge this is an 

agreement by the PMA's that service Texas and the Bonneville to 

move power up? Is that what you are saying to me? 

Ms. MOLER. No. More likely it is a series of transactions, though 

some of them in Texas don't sell outside Texas. 

Mr. COOLEY. We are buying power right now on the Columbia 

Gorge from Texas. 

Ms. MOLER. Assuming they are not limited by a really obscure 

Texas situation that doesn't matter here, the investor-owned utilities along that way, or in many cases the Western Area Power 

Marketing Administration, WAPA, for example, have an open 

transmission access regime now. But it is done on a case-by-case, 

contract specific basis where they agree individually to provide 

power for others. That is very common. 

Mr. CooLEY. OK. So you don't have any real authority, and you 

don't get involved in that process? 

Ms. MOLER. We do if they are investor-owned utilities participating in that, yes. If Tucson Electric, for example, is in that transaction or if Southern California Edison or PG&E, or PacificCorp, all 

of which are in the transaction you are describing, yes, we have authority over them. 

Mr. COOLEY. OK. 

Another thing, as I looked at your testimony here, do you have 

some kind of a different-under the Northwest Power Act it specifies that you have confirming approval on an interim and final 

basis on the rates for Bonneville. Is that a little bit different than 

in some of the other PMA's. 

Ms. MOLER. Yes. 
27 

Mr. COOLEY. OK. 

And let me make one statement about natural gas and your 

quotation about deregulating natural gas. In your deregulation of 

natural gas we have really disenfranchised our small communities, 

and I want to go back to my good colleague on the other side of 

the aisle, Mr. DeFazio, who is absolutely correct that the PMA's 

have provided electric power to areas where private enterprise 

probably would not have spent the funds to do that, and the natural gas is actually an example of what the free enterprise system 

has done. 

I'm not picking on the natural gas people, but in a great part of 

our country, especially in the West, we do not have natural gas 

available because of the expenditures to bring this energy source, 

which is clean, to utilize in some of our smaller communities because it is just not economically viable to do that. I think to myself 

that if we had not had PMA's part of this country would not have 

power today, electric power, and so I think that the PMA's maybe 

need to be looked at, overhauled, and a lot of things done to them, 

but I think that they serve the people of America very, very well 

in providing this energy source. 

Ms. MOLER. I would observe that regarding natural gas for new 

construction-in the Pacific Northwest, for example, we have recently authorized several new pipeline expansions. And the new 

generation, whether it is for individual homes or whether it is to 

feed new power plants, is largely gas fueled even in the Pacific 

Northwest. 

Mr. CooLEY. I know that, but you know and I know what is 

going on there because two major lines run through my entire district, which, as you know, is the full length of the State of Oregon, 

but what we say in the east side and people in Idaho and other 

places are talking about is that line goes through but it doesn't go 

east, it only goes west where the population is. It runs right in our 

backyard, and yet we have no ability to tap that source. 

I mean we are running through the community of Bend, Oregon, 

which is 45,000 people. We do not have a gas source off of that line, 

and yet it runs right through our city. We feel very deprived of the 

ability to tap into that because of the way the system is set up, and 

it is a free enterprise system, and we understand that, and we are 

not crying about it, it is just that if that would have been a PMA 

we would have had gas there. 

Mr. DOOLITTLE. OK. 

Mrs. Chenoweth is recognized. 

Mrs. CHENOWETH. Thank you, Mr. Chairman. 

Chairman Moler, I was interested in your comment about the 

open access rule that occurred as a result of the amendment, the 

1992 amendment, but do I understand you to say that the open access rule for power marketing agencies is not available for retail 

customers and that includes PURPA customers, or who would that 

include? 

Ms. MOLER. We have authority over transactions between utilities, we don't have authority to authorize transactions to end users, 

industrial customers for example. So we are proposing open access, 

buyers and sellers getting together between utilities so that the 

independent power producers will have access to the power grid so 
28 

that they can sell to distant utilities. If the State regulators wish 

to make it so that these independent power producers can sell to 

industrial customers or even individuals, as they are proposing in 

California, that is really up to a State regulatory initiative. 

Mrs. CHENOWETH. But if the avoided costs for the independent 

power producers which does set a cap over 20, 30 years once they 

get into the contract, if the avoided cost is so low that the utility 

within that particular grid or within that particular area that is 

serviced by a utility whose avoided costs for some reason or another is very low, my concern is that with a 10 percent per annum 

potential increase in the PMA's ultimately that will fall back on the 

producers and it is going to be an impossible situation. I hope we 

can work that out because it is of great concern to me. 

I think that the 1978 PURPA amendment was a great thing for 

this country, and it has worked well in Europe and Japan and 

China and everywhere else, but for some reason it just wouldn't fly 

here, and I hope that that vision doesn't die. I hope that we can 

resurrect it. 

Mr. Chairman, you asked what could be done to help do away 

with some of the regulatory burden. I can tell you in the Northwest 

if we repealed the Northwest Power Act I think that would go a 

long way, and I don't mean to sound reckless, but in the Northwest 

Power Act there were four criteria by which we were to make sure 

that there was efficient energy always delivered to the customers 

and make sure that the facilities were in a stable enough condition 

that we could rely on a reliable price, and instead the fourth criteria, which was simply mitigation for damage of fish and wildlife, 

has flipped and so now the Bonneville Power Administration is 

burdened with an economic burden of the salmon that does nothing 

but produce paper, and how we can equate the facilities of BPA 

and what might be sold with the health of the salmon run is a real 

stretch, and the only way you can bring the two together is through 

the Northwest Power Act. I hope some day this committee can look 

at that Act. 

I think that I have covered most of my list. You did say that facilities that are owned by the Bureau of Reclamation or the Corps 

of Engineers, if they are somehow transferred, that unless this 

body specifically deals with that, that it would revert to the jurisdiction of FERC? 

Ms. MoLER. If they are sold, for example, to an investor-owned 

utility which would be a likely purchaser--

Mrs. CHENOWETH. Oh, yes, if they were sold to an investorowned utility, but if they were sold to an irrigation company? 

Ms. MOLER. If they are not still in the Federal domain, we would 

have licensing jurisdiction over them. 

Mrs. CHENOWETH. Interesting. 

Thank you, Mr. Chairman. 

Mr. DOOLITTLE. Thank you. 

The gentleman from Colorado is recognized. 

Mr. ALLARD. I would like to thank the chairman. 

I have a statement I would like to submit to the record. Without 

objection, I would like to have that part of the official record. 

Mr. DOOLITTLE. That will be included. 

Thank you. 
29 

[The statement of Mr. Allard follows:] 

STATEMENT OF HON. WAYNE ALLARD, A U.S. REPRESENTATIVE FROM COLORADO 

Mr. Chainnan, thank you for holding this important oversight hearing today to 

discuss the proposal to sell three of the nation's power marketing agencies. I have a keen interest in this proposal, as do the approximately 1.5 million Coloradans who are consumers ofWAPA power. 

As you know, Mr. Chainnan, the House Budget Committee recently unveiled its 

budget proposal for FY 1996. The proposal includes the sale of Western Area, Southeastern, and Southwestern Power Administrations (PMAs) for a total sales price of 

$3 billion. Although that is certainly an attractive figure to anyone who is trying 

to balance the budget, there are still innumerable questions surrounding this issue 

that have to be answered before the proposal should move forward. Further, there 

may be other proposals worthy of consideration, but the details of any plan must 

be brought forward before proceeding. 

Many Coloradans are nervous about a proposal to sell WAPA. The idea was first 

advanced in the early 1980s and has been discussed by several Administrations and 

Congressional budget cutters since. Letters from constituents with questions about 

the idea are already starting to pour into my office. These individual rate-payers 

want to know, as do I, whether their rates will go ue as a result of privatizing the 

PMAs. My answer is that I'm not sure-and I don t think the Administration or other Members of Congress are either. 

I think it's important at the outset to say that this proposal is on the table be- cause it generates precious short te~ cash offsets for budget proposals. Some may 

argue that selling the PMAs is motivated by a desire to privatize power generation 

systems or make government more efficient. I don't believe that argument because 

if that were the case we'd also be talking today about selling TV A and BQnneville--

but we're not. And the reason is because they wouldn't bring much, if anything, at 

the auction block because of various resource problems. 

If privatizing selected government power generating functions is the goal of this 

debate we ought to start with the ones that would benefit most from a change in 

management, not with the ones that are well run. In general, I am a big fan of privatization. I'm also one of the toughest budget 

cutters on Capitol Hill. Look at my voting record and talk to my colleagues and 

you'll find I'm willing to make the tough votes. Therefore, when someone comes up 

with a sensible idea to save money, I'll take a look at it. 

Having said that, I have to tell this Committee that to date I have had serious concerns about the proposal to sell WAPA-the PMA with which I'm most familiar. 

My biggest bone of contention is that no one can tell me what the details of the 

sale are. Will they be offered up to the highest bidder? Can any for-profit power con- sortium make a proposal? Will rate-payers be protected from huge rate increases? 

What are the effects or irrigators? How will it affect future water projects? And so on, and so on. The question of rate increases is key here, because what we're really talking about 

is a backhanded tax if rates do go up. If the sale price ofWAPA or any of the PMAs 

is jacked-up by a sales contract, with few or no conditions about the level of future 

rates, then it is merely a case of the government sucking out a big cash windfall 

at the expense of the captive rate base. 

Another important question I want answered before acquiescing to this idea is 

whether the individual PMAs are money making assets or liabilities to the government. For example, I know that WAPA annually nets about $100 million-after 

costs-to the Federal Treasury. A month-and-a-half ago I sent a letter to Deputy 

Secretary of Energy William White asking for a 15-year valuation of the PMA sale, 

and I look forward to his report. 

The pending sale of the Alaska Power system shows that there are situations 

where privatization of PMAs makes sense. But the APA is quite a bit different than 

any of the other PMAs. Putting together a buy-out proposill for a small, one-state 

system like APA, is not by any stretch of the imagination analogous to brokering a deal for a huge, intertwined, 23-state system like WAPA. 

I want to emphasize that I'm not opposed to looking into this idea further. In fact, 

I want it looked into! There may be a scenario possible, such as the one the Budget 

Committee paints, whereby these sales would be harmoniously negotiated among 

the existing preference power community. If such were the case, rate-payers were protected and the sale made long tenn economic sense for our Treasury, then I 

would probably support it. But I point out that right now there are lots and lots 

of unanswered questions. 
30 

That's why in this hearing and in the coming weeks I'm going to be asking a lot 

of tough questions about what we're up to here. If more study is needed to answer my questions, which I believe will be the case, I'll help to bring it about. But what 

I won't do in this climate, absent firm guarantees about the nature and terms of 

the sale, is blindly endorse a proposal that directly affects the pocketbooks of more than one million Colorado citizens. I look forward to asking questions of the witnesses and thank the Chairman for 

the opportunity to share my thoughts on this issue. 

STATEMENT OF BON. WAYNE ALLARD,, A U.S. 

REPRESENTATIVE FROM COLORADO 

Mr. ALLARD. I have some comments that I would like to make 

before I question the witness. 

I served on the Budget Committee, and this issue of PMA came 

up in discussion in the Budget Committee because of various budget ramifications, and going into the discussion in the Budget Committee I had a very open mind about what we ought to be doing 

with the PMA's. 

It has been very clear to me that this is a very, very complicated 

issue, an issue that perhaps there needed to be some studies done 

so we could clearly get a picture of what was going to happen with 

some of privatization efforts that were going on. 

My personal preference in many cases is privatization. I am an 

individual who has a lot of confidence in the free market system. 

But during our discussions on that committee it came to my attention that there was a real potential for rate increases to occur, particularly in rural areas, and that we had to keep in mind how the 

preference power customers were being impacted by what decisions 

the Congress may make. Most of that burden is going to fall on this 

committee. We came up with a bottom line figure. Now this committee is going to have to work out the details, and it is going to 

be a difficult chore for the chairman, and I respect that. 

There are still many, many issues before us on this particular 

issue, and I want to compliment the chairman for getting at these 

issues right away and holding this hearing. I hope that we don't 

come up with price controls as part of the strategy because in my 

view price controls do nothing more than result in shortages. We 

have seen that happen whenever price controls get applied, and 

some people are suggesting that as a possible alternative. 

It has come to my attention in the last week that there are some 

special interests that are purely driven by the profit motive and not 

thinking so much about the services to the preference customers 

and the costs to those particular customers who are putting together a campaign to target certain members on this committee because of them trying to represent their constituencies and to try 

and hold down those utility rates to their customers, and if you 

take a district like mine where we have a lot of farmers who do 

irrigate, it is a very, very important issue to whether those farms 

even stay in business or not. I have not been willing to take a real up front position on this 

issue, but because of this information coming to me within the last 

week that there are going to be members of this committee that 

may be very well targeted by a vicious campaign within their own 

districts because they are trying to represent their customers, I 

plan to take a much more active role in this issue, and I will be 
31 

sitting down with the members of this committee and will continue 

to work with all the various parties, but I want the members of 

this audience and this committee to know that we have a number 

one responsibility to make sure that our customers are well served 

and that they are not gouged by high utility rates that could otherwise be avoided, and that is going to be my primary concern. 

Let me move on to a question to the witness. 

If we get into the PMA's being sold for a price that would exceed 

the present net value, what kind of terms and conditions would 

have to be brought up by those new purchasing powers that would 

guarantee that there would be no rate increase as a result of some 

privatization? 

Ms. MOLER. Congressman, again it depends upon to whom they 

are transferred. If they are transferred or sold to an investor-owned 

utility, we would look at what they paid for them, use that as their 

rate base, and do our normal approach under the Federal Power 

Act. 

Mr. ALLARD. So there could be a substantial increase in utility 

rates? 

Ms. MOLER. It depends on the price they pay. It all comes down 

to that. 

Mr. ALLARD. So an original figure looked at by the Budget Committee of $10 billion would have a greater potential of having an 

impact on utility users than what is now in the-was discussed out 

of Budget Committee, the $3 billion. 

Ms. MOLER. It would. It also depends on how long you amortize 

those payments. I mean you can't do that in one year, and there 

are lots of things that you do if you are going to get into ratemaking issues that are ratemaking magic that determine whether 

there is a rate increase or not. There are certainly things that you 

can solve if you want to address rate issues. 

Mr. ALLARD. I would like to get an opportunity to visit with you 

a little more about this ratemaking magic that you refer to. 

Thank you very much, Mr. Chairman. 

Mr. DOOLITTLE. Thank you. 

Ms. Moler, thank you very much for coming forward, offering 

your testimony. We would ask you to respond to any further ques- tions that we may submit to you in writing, and we will hold the 

record open to get those responses. 

With that, we will excuse you and call up panel number one. 

I will just hasten to add, we are due to have a vote here any 

minute, but let's get started. When this vote comes, we are going 

to endeavor to recess as soon after the call comes as we can, and 

then we will reconvene following the vote. 

Mr. DOOLITTLE. Panel number one, I think you know who you 

are. We have four individuals, and what we will do is ask each of 

you to try and confine your remarks to the five minutes. The lights 

will indicate there, red, yellow, and green, what the status of your 

time is. 

At the conclusion of the testimony of the four witnesses, then 

members will each have five minutes to address questions to any 

member of the panel that they would choose. 

Our first witness on this panel is Mr. Charles Bayless who is 

representing the Edison Electric Institute. 
32 

I think, Mr. Bayless, you are also the CEO of ~fucson Electric, 

I believe. 

Mr. BAYLESS. That is correct, sir, yes. 

Mr. DOOLITTLE. Thank you. You are recognized for your statement. 

STATEMENT OF CHARLES E. BAYLESS, EDISON ELECTRIC 

INSTITUTE, AND CEO, TUCSON ELECTRIC POWER COMPANY 

Mr. BAYLESS. Good morning, sir, Mr. Chairman and members of 

the subcommittee. 

The Edison Electric Institute's members strongly support the 

sale of the assets of the Power Marketing Administrations. We believe that in privatizing the PMA's Congress can provide rate protection to current customers and at the same time yield substantially more funds for the Federal Treasury than the net present 

value of the debt. 

Four issues will determine the level of benefits received by the 

taxpayers from the sale: First, obviously the sale's price. We believe 

the administration's estimate of $3.7 billion as well as other estimates being considered is a gross undervaluation of the PMA assets. A study for EEl by the EEOP Group finds the combined value 

of the three PMA's to be just under $9 billion, more than twice the 

administration's estimate. In addition, if the facilities were sold to 

tax paying entities the Federal Government could reap an income 

stream whose present value exceeds $1 billion. 

Tucson Electric's's estimate for WAPA Phoenix area assets really 

had three values. We thought the assets, if sold on the open market with no rate constraints, were worth about $1 billion. Based on 

the existing contracts, in other words, not raising the existing rates 

any more than they would be if W AP A owned them, they were 

worth about $500 million, and we thought the net debt excluding 

some Navajo debt was about $300 million. 

As Congress strives to balance the budget we would urge that 

you not leave billions on the table by conducting a fire sale of the 

PMA assets to existing customers at far below market value. 

The second critical issue is existing customers' protection. Even 

under the worst case scenario, the EEOP Group has calculated that 

almost 85 percent of the current ultimate customers would experience an increase in rates of less than 5 percent. Th1~ 10 percent figure for seven years is not feasible. It is not in the studies. It is not 

viable. We would urge that Congress put a mechanism in which 

would limit rate increases that the entity buying the assets could 

charge, whether it is an IOU or an REA, a co-op, or whatever. 

The EEOP estimates that including rate protections in the sale 

would lower the sale's value by about 10 percent, but we believe 

that Congress must address rate protection up front with any legislation. It is the only way to ensure that the current customers will 

not significantly see an increase in rates. It should be noted that 

limiting the sale to preferenc'e customers under existing law provides no rate protection. 

Next is the eligible customers or the eligible purchasers. If rate 

protection legislation is passed Congress can then authorize an 

open sale and let the market set the price and choose the purchasers. The assets are obviously worth more to some people than 
33 

others, and only an open sale will let the person who the assets are 

worth the most to bid. We do not feel that the current customers 

have any equity whatsoever in these assets. 

If benefits of the Treasury are to be maximized it is imperative 

that federally-subsidized financing not be used to finance the sale. 

Further, the purchasing entity must pay Federal income tax. To 

allow buyers to finance purchases of the PMA's with funds that are 

provided by the Federal Government would simply trade one Federal subsidy for another. 

EEl feels strongly that upon privatization the PMA's assets 

should be subject to FERC's full jurisdiction. Any transmission access regulations adopted by FERC should apply to the purchaser 

of the PMA facilities. Congress must also address the issue of 

hydro-facility licensing, as the chairperson of FERC stated earlier. 

Otherwise it will be virtually impossible for any interested party to 

obtain financing to purchase the assets. 

In the broader context, the thing that really got Tucson started 

on this subject is really two things, the budget and competition. We 

feel that Government subsidies to Government-owned utilities and 

electric cooperatives currently cost Federal, State, and local taxpayers about $11 billion every year. While the Federal benefits, for 

instance, to small co-ops may be justified, Federal benefits to Government utilities that are financially healthy and engaged in a 

competitive market are not. 

When Nevada Power solicited 600 megawatts of power, Salt 

River, one of our competitors, was on the bidding list. They pay no 

taxes, they are financed 100 percent with tax-free debt, and they 

get preference power. We can't compete with that. TVA has announced it wants to expand outside its territory. Others can't compete with that. We feel that these programs present an interesting 

juxtaposition from other programs you are being forced to examine 

as you strive for a balanced budget. For example, medicare and 

welfare programs certainly serve sound public goals, but many 

question whether the programs are efficient. On the other hand, 

these programs certainly are efficient at keeping down rates to a 

select few, but where is the public policy behind it? Why should we 

as a nation be using taxpayer money to keep rates low in Aspen 

but not Tucson? Why Hilton Head but not Washington? Why on 

one side of the street in Phoenix should rates be low and on the 

other side should they be high? Where is the public policy behind 

this? These programs certainly achieve a goal, they are efficient in 

that manner, but they only achieve it for a public few. 

As you are forced to wrestle with painful cuts, we would suggest 

that cutting programs which serve no public policy goals make 

more sense than those which have goals. 

Thank you. 

[The statement of Mr. Bayless may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you, Mr. Bayless. 

We are going to now recess until after this vote, so stay nearby 

and we will be back. 

Mr. DEFAZIO. Mr. Chairman. 

Mr. DOOLITTLE. Yes. 

Mr. DEFAZIO. I'm designated to speak on this next amendment 

so it won't be for a lack of interest that I may not catch this panel. 
34 

Mr. DooLITTLE. Thank you. Maybe you can make it back afterwards. 

[Recess.] 

Mr. DOOLITTLE. We will resume the hearing. Mr. Bayless had 

just concluded his testimony, and the next gentleman to testify is 

Mr. Crews, Clyde Wayne Crews, Junior. 

Mr. Crews. 

STATEMENT OF CLYDE WAYNE CREWS, JR., FELLOW IN REGULATORY STUDIES, COMPETITIVE ENTERPRISE INSTITUTE 

Mr. ·CREWS. Thank y~u, Mr. Chairman. Good morning. 

My name is Clyde Wayne Crews, Junior. I'm the new Fellow in 

Regulatory Studies at the Competitive Enterprise Institute. I'm 

very grateful to the subcommittee for the opportunity to appear 

today. 

CEI wholeheartedly supports efforts to privatize the Power Marketing Administrations. We view the current interest in privatization as merely one manifestation of today's wide scale public commitment to fundamental Government reform and taxpayer savings. 

We need to enact these savings not to cause pain to consumers but 

for precisely the opposite reason, to remove artificial benefits to 

some producers that threaten to prevent all Americans from sharing_in the benefits of the coming deregulated energy environment. 

While we may debate the proper selling price for the PMA's or 

the precise techniques needed to protect current affected customers 

in the event they experience rate shock during the transition to a 

private system, certain issues of fairness should be beyond debate 

but unfortunately are not. The core issues in this debate are two, 

and they center on the basic legitimacy and fairness of the PMA's. 

Number one, certain groups are getting preferential access to cheap 

power while others do not enjoy this privilege. Number two, power 

generation is a commercial activity in which the Government has 

no business and no rational basis for being a player. This is certainly true today given that Government's continued involvement, 

particularly the selling to preferred parties, will prove highly disruptive to wheeling innovations as they become more widespread 

and their benefits to consumers become more apparent. A system that will be the most efficient for energy consumers is 

one in which all producers are free to sell to any buyers and any 

buyer is free to purchase from any seller. The PMA's preclude the 

existence of such a marketplace. 

Certain developments provide hope. As everyone knows, both the 

Clinton administration and the House budget to be voted on today 

have proposed selling marketing rights for three of the five PMA's 

for an estimated $3.7 billion, although there is very legitimate debate about whether that price is too low. And the Senate less than 

48 hours ago by a vote of 7 4 to 25 passed S. 395, a bill to authorize 

the sale of the Alaska PMA. These are several developments that 

are very important, and there are many others. There are several critiques of privatization. We have heard a lot 

of them today. I think these critiques are unfounded, and I have 

provided written testimony-in my written testimony you will find 

some responses to those critiques, but I do want do mention the 

harmful impacts of subsidies beyond what I have mentioned in 
35 

these written statements and what I have mentioned in my testimony so far. 

Taxes, for their part, are widely known to create dead weight 

losses to society by driving a wedge between supply and demand 

and cutting off trades that otherwise would have taken place. 

These lost trades are unseen by the public. They do not make the 

nightly news but they simply evaporate. Less well known but 

equally important is that subsidies like those the PMA's enjoy create dead weight losses as well. Artificially lowering the cost to the 

producer will make him willing to supply more at any given price 

or, in economic jargon, it will shift out the supply curve. But the 

real resource cost represented by the original pre-subsidy supply 

curve does not change, and an excess of resources is consumed by 

power purchasers over what they actually paid for them. These resources will are lost forever to society despite the fact that they 

would have been more highly valued in other uses. 

Let me skip ahead to some recommendations. 

Number one, restrictions on Government studies of proposals to 

switch hydroelectric prices from cost base to market base should be 

eliminated immediately; two, Congress should specify legislatively 

that the proceeds from privatization shall go to deficit reduction; 

and, number three, while all the PMA's need to be privatized, an 

important intermediate step Congress might consider in initially 

dealing with the problem is establishing a commission similar to 

the Military Base Closure Commission. The commission could assemble a package of facilities to privatize, perhaps across PMA regional lines, submit it to the President for revision, and then hold 

an up or down vote. This procedure can be generalized to the Government at large as Senator Mack has done with his spending reduction commissions, but here I just look at PMA's. 

There has been significant comment today on the question of rate 

increases. I'm not an investment banker, but I do want to make a 

statement on how a package like that might be put together that 

would benefit all the parties involved, both the customers and the 

taxpayers at large. This is a note on the mechanics of privatization, 

but I would prefer to leave it up to the experts who will come in 

the next panel, but it is important to note that the Heritage Foundation suggested a method in a 1986 study that was based upon 

the British experience with the British Oil and British Telecom. 

The idea is to create a package whose benefits are distributed in 

such a way that all parties, PMA customers and taxpayers, can potentially be better off with the privatization compared with the status quo, and in rudimentary terms it might work something like 

this. A 51 percent controlling interest in the PMA could be offered 

to the public at the initial valuation, with current customers of 

each PMA given the option to purchase stock in proportion to their 

use of power. A minimum of 10 percent of this 51 percent block 

could be reserved for small investors like residential or small business customers of the PMA. These small buyers could also receive 

an option to buy additional shares in the future at the original offering price if they hold their shares for a prescribed minimum 

length of time. This allows small investors or former customers to 

benefit from any increasing value that privatization brings. Theremaining 49 percent share of stock could be temporarily retained by 
36 

the Government and then sold at the most attractive price. This 

way, the taxpayer wins from any increase in stock value post privatization because all additional funds could be earmarked for deficit reduction. 

I will conclude my comments there and thank the chairman. 

[The statement of Mr. Crews may be found at end of hearing.] 

Mr. DooLITTLE. Thank you very much. 

Our next witness is Mr. James Dushaw. 

STATEMENT OF JAMES DUSHAW, DIRECTOR OF UTILITIES, 

INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS 

Mr. DUSHAW. Good morning, Mr. Chairman and subcommittee 

members. 

I am Jim Dushaw, director of the Utility Department of the 

International Brotherhood of Electrical Workers. On behalf of our 

international president, Jack Barry, and some 800,000 IBEW members, we thank you for your invitation to present our union's concerns about the proposals to transfer the Federal Power Marketing 

Administrations out of Federal ownership. 

The IBEW, our union, is closely is connected with this issue as 

a labor union representing some 230,000 members employed directly in the Nation's utility industry, the vast majority of these 

workers are in electric power production, distribution, and transmission; others contribute to reliable power supply and operating 

and maintaining power supply and distribution facilities and a host 

of activities associated with making certain Americans can enjoy 

reliable and safe electric supply. We have others working as contractors to the industry. We have some 1,350 labor agreements with employers categorized by ownership type, importantly here, as 

investor-owned, municipal, State or Federal, or rural electric cooperatives. 

The typical IBEW electrical worker image that comes to mind for 

most people is the line worker exposed to adverse weather and 

threatening safety conditions while performing duties to restore 

electricity following natural disasters. That is the case often. Unfortunately, the fate of these workers and that picture we are familiar 

with is seldom considered as •~conomic restructuring debates about 

the power supply industry con.sider outcomes and opportunities for 

other industry stakeholders. 

The IBEW has no interest in joining on one side or the other of 

the general war between the competing and opposing entities and 

associations which was unleashed by the National Energy Policy 

Act of 1992. We are, however, deeply concerned with issues as they 

affect the industry's work force and also consumers who expect and 

deserve reliable, affordable, and safe electric power supply. 

The IBEW would submit a reality check to point out that the coexistence of different forms of ownership and management of the 

Nation's electric power supply has produced an energy system 

unrivaled in the world and one which is fundamental to the Nation's productivity and hence critical to economic growth and advantage in global competition. Therefore, dismantling significant 

portions of the industry structure such as the PMA's should not be 

taken lightly or precipitously. 
37 

The IBEW submits that the privatization of Federal Power Marketing Administrations is not in the best interests of consumers 

generally, is not in the best interests of a well integrated competitive power supply system, and is not in the best interests of taxpayers. The PMA's are in fact one area of much maligned Federal 

Government operations which, by all accounts, is working well. 

These operations are gaining efficiency, providing vital services to 

vast areas of the country, and generating a dependable revenue 

stream to the Treasury. 

One less conspicuous factor to be considered with proposals to 

sell off the PMAs is the workers who have made the PMAs a well 

managed, effective system. These dedicated folks are threatened 

and stand to be abandoned while more powerful economic interests 

manipulate for the assets which have become tuned and polished 

by workers who more appropriately deserve commendation from 

their employer, the Federal Government. Instead, they are either 

on their way out the door or they are looking from the inside out 

at the equivalent of a fire sale liquidation of their workplaces with 

the sticker price an insult to good reason. 

There are few voices these days who dare to question the popular 

and politically correct lexicon centering on privatization of Federal 

assets, deregulation, and competition. The IBEW is concerned that 

the philosophical and ideological mindset that goes along with the 

popular jargon may ignore reasonable considerations when making 

decisions about appropriate Government power operations' coexistence with private industry. We would suggest that the privatization of the PMA's is counter 

to accomplishing a desirable outcome for either long-term Federal 

budgetary interests or restructuring of the Nation's power supply 

industry to provide greater industry competition. 

In the interests of brevity, the IBEW would adopt and support 

the National Rural Electric Cooperative Association's itemized 

points in opposition to the sale of the Federal Power Marketing Administrations as listed in the attachment to this. 

One further point to be made is to recognize the PMA's singular contribution to the advancement of power supply technology and 

also energized line worker safety. Research and technical development undertaken by the PMAs, especially Western Area Power Administration, and Bonneville, to bring new efficiencies to operations 

in the Federal systems has contributed vastly to improvement of 

national and international standards for advanced work methods 

on energized lines and worker safety. 

The IBEW is convinced that while workers, consumers, and the 

entire industry have benefited greatly from this activity involving 

Federal workers, we are also convinced that the private utility sector simply would not afford to take such initiatives. Cutbacks and 

budget refocusings threaten to terminate this positive activity. 

I would conclude with, the sell-off of these important Federal assets is simply, in the very least, an idea whose time has not come 

simply because the evaluation, whatever it is, of the current value 

of these assets will vastly increase tomorrow. 

[The attachment to statement of Mr. Dushaw may be found at 

end of hearing.] 

Mr. DOOLI'ITLE. Thank you very much. 
38 

I would like to recognize Mr. Glenn English. Mr. English, I will 

observe, is a fonner member of the House of Representatives. 

Welcome back. 

STATEMENT OF GLENN ENGLISH, EXECUTIVE VICE PRESI· 

DENT, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION 

Mr. ENGLISH. Thank you very much, Mr. Chainnan. I appreciate 

that. 

Mr. Chainnan, before I begin my testimony I would request that 

a written statement by the National Cooperative Business Association be made a part of the record. 

Mr. DooLITTLE. That will indeed be included as part of the 

record. 

[The statement may be found at end of hearing.] 

Mr. ENGLISH. And, Mr. Chainnan, for the record, I am Glenn 

English. I am the executive vice president of the National Rural 

Electric Cooperative Association. The National Rural Electric Cooperative Association consists of some 1,000 electric cooperatives. 

These are all consumer owned from areas throughout the United 

States, some 46 States, and serve some 25 million consumers. 

I might say, Mr. Chainnan, with regard to the issue at hand, 

namely the proposed sale of the Power Marketing Administrations, 

that would impact on some 600 rural electric systems and some in 

some 34 States, all of which buy power from the Power Marketing 

Administrations. I might also point out for the r<ecord this would 

impact on some 17 million rural electric consumers. Now that does 

not bring to bear those that would be affected by small, investorowned utilities as well as municipalities. Mr. Chairman, the consumers of this country and the Federal 

Government some time ago wrote one of the first contracts of 

America. They sat down together to deal with a particular problem 

that we have in many parts of this country. Now the problem was 

not to generate electricity but instead was a problem of how to pay 

for flood control, irrigation, and recreation on some of our Nation's 

rivers, and the plan was that a way of paying for those projects 

would be to sell the electricity. 

Now during that time we had a number of rural electric cooperatives and municipalities that were in the area where these dams 

were constructed, and they reached agreement with the Federal 

Government for long-tenn contracts to purchase that power even 

though that hydropower in most cases cost more at the time than 

what was being supplied by investor-owned utilities. 

Now that also comes at a time when we had the development of 

the atom, and certainly a great deal of discussion was taking place 

in the scientific community about how this was going to provide 

electric power. In fact, we had a good deal of discussion coming 

from the scientific community that said that power produced by the 

atom would render metering as uncalled for, you wouldn't even 

have a meter to sell electricity under those circumstances. 

But you had rural electric cooperatives, municipalities, and small 

investor-owned utilities who went together and felt that it was important that these dams be built, it was important that they establish their own independent power supply, and it was certainly im-
39 

portant for the economic development of the areas in which they 

served. So it should be understood that small rural electric cooperatives and municipalities, they took a flier with the Federal Government. They said, "We'll help you pay for this. Even though it costs 

us more at this time, we think it is an investment in our part of 

the country and we think it is an investment as far as the future 

of our Nation," and certainly they were correct. 

Well, they have honored their part of the agreement, and certainly they have helped pay for the construction of many dams 

around this country. As we heard Mr. Cooley and Mr. DeFazio talk 

about Bonneville, they are paying not only for the construction of 

those dams, they are now paying for a good number of other burdens that have been loaded on such as environmental projects, and 

so it becomes something of a cash cow, if you would, for the Federal 

Government. If you have a need, you pile it on to the PMA, and 

that is the way that you pay for it. It has been a very good deal 

indeed for the taxpayers of this country, and certainly they have 

been well served. 

But we have some other less tangible issues that I think need 

to be brought to bear, Mr. Chairman. This Federal hydropower program has also provided a basic structure for real competition that 

has developed out of the Power Marketing Administrations between consumer-owned utilities, whether it be municipalities or 

rural electric cooperatives or small lOU's and the investor owned. 

We also find that the Federal power customers have supported 

the construction of transmission facilities in lieu of building their 

own, in fact, linking up with the Federal Government being a part 

of that overall system, an investment that they have made in that 

system, and certainly public power and the cooperative systems are 

highly integrated and interdependent with regard to each of the 

PMA's and the power that they bring to their regions. 

The value of the whole power system is certainly much greater 

than the individual pieces that could be sold off of that system, it 

is tied together, and that is what gives it a real value and systems 

diversities both from a geographical standpoint and in the facilities 

that are accommodated to maximize the overall system's operational efficiencies are extremely important as well. 

I would like to touch very quickly as my time is running out, Mr. 

Chairman, on this issue of subsidies. The bottom line is, everybody 

gets subsidies, and let's face it right up front. It comes down to it 

that those who seem to be crying the loudest about subsidies are 

the very ones who get the most. Our friends over at the investorowned utilities get some $5 billion a year from the taxpayer 

through the Tax Code, and in many cases the smallest rural electric cooperatives have paid more in the way of taxes than some of 

the largest investor-owned utilities in this country, so at this particular point, Mr. Chairman, it might be helpful if you would like 

to get into a discussion of tax benefits with regard to various elements of the electric utility industry, and we would be delighted to 

help you in that examination. 

With that, I will conclude my testimony and would be happy to 

respond to any questions that you might have. 

[The statement of Mr. English may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you very much. 
40 

All right, Mr. Bayless, how to you respond to that last statement? 

Mr. BAYLESS. I just happen to have a chart, Mr. Chairman. We 

think it is very unusual that people that do not pay taxes can claim 

that we are subsidized, and the point I would like to make--1 did 

some figures, and I'm sorry the audience can't see these, but what 

I did was look at investor-owned utilities, municipals, and REA's, 

and looked at the subsidies. 

These subsidy numbers come from a Mr. Donald Smith, the chief 

economist at the National Rural Electric Cooperative. This was a 

letter that he had sent out. We don't agree with them, we think 

they are much more, but I'll adopt theirs just for a moment. And 

they said that the rural electric co-ops got $469 million of subsidies. The munis got 1.2. 

I then looked some EEl data, and what Mr. English is talking 

about I'm sure is the so-called phantom taxes, the deferred taxes 

due to accelerated depreciation, and the fact is, if you average over 

the last six years, he used $5 billion, the number that I looked at 

in the combined industry balance sheet was, we in fact saved 

$2.448 billion. But in fact we paid 6.18 and then saved 2.48. 

The fact is, the electric utility industry paid about $3.7 billion. 

So to say that we get a subsidy and they get a subsidy, let's accept 

that as true. We paid $6.18 billion of taxes at the same time. If we 

want to make the playing field level, our industry in total, all 

taxes, paid about $24 billion. 

I would suggest an easier way to levelize the playing field is 

make us subject to the same tax benefits they are or make them 

subject to the same taxes we are, we don't care which, but if you 

do the former and make us subject to the same tax structure that 

the munis and the co-ops, it will cost Federal, State, and local governments about $24 billion. Mr. DooLITrLE. Let me just ask, the subsidies that you get, 

aren't those just what would be available to any business? 

Mr. BAYLESS. Yes, sir, they are. 

Mr. DOOLITI'LE. I mean there is nothing special for utility companies. 

Mr. BAYLESS. I would say in the past there may from time to 

time have been special ITC's or things. I think right now, as far 

as I am aware-if anybody else is aware they can say so, but I 

think that we normally just have the same depreciation code as 

others. We may have more in one category or something just due 

to our assets, but yes, sir, they are. 

Mr. DOOLITTLE. Mr. English, will you go for his deal? 

Mr. ENGLISH. I think it is a very intriguing deal. Let me point 

out a few things. Let's get it on the record and talk about this a 

little bit, Mr. Chairman. 

He did raise the investment tax credit issue. He also has straight 

line depreciation, the way they calculate from the standpoint of the 

regulators. Well, this is the way they calculate when they apply for 

their rates, but whenever it comes down to what they file for with 

the Federal Government, it is accelerated depreciation, and that is 

what led the General Accounting Office to say that in effect what 

the investor-owned utilities have been getting is an interest-free 

loan. Certainly I don't know of any rural electric cooperative that 
41 

ever got an interest-free loan or anywhere that even came close to 

it. 

I would also make the point, Mr. Chairman, that through the 

years as a result of the ITC and other benefits, that they have 

some $75 billion that has been collected under the auspices that 

this is somehow going to be paid in Federal taxes, something that 

I think is rather interesting from the standpoint of the Federal 

Government. Here we have the investor-owned utilities who go to 

their local State ratemaking commission and say, "OK, here is the 

rate that we need. Now this includes all of our various expenses 

which would include also construction, also include all the depreciation built into that, include all of the Federal taxes that we are 

going to be paying," but whenever it comes time to pay the Federal 

income taxes they have got another line, another way in which 

they calculate those taxes, and end up paying nothing. 

Now you can find this information, Mr. Chairman, over at the 

Department of Energy because they file a little form over here, and 

I happen to have the copy here of income and retained earnings. 

This one that we are looking at here is Commonwealth Edison out 

of Chicago, mighty big folks. We don't have any rural electric cooperatives that come close to what these guys do, $5 billion. That 

is how much they took in in 1993, $5 billion. You know how much 

income tax they paid the Federal Government? Not a single dime. 

Not a dime. Not only did they not pay any income tax, they came 

in and asked for a tax credit, $34 million in tax credits after earning $5 billion. And whenever it comes down to other taxes, other 

income taxes they did not pay, they asked for an $8 million tax 

credit. 

So I would suggest that-and I think I can do with great confidence-that probably the smallest rural electric cooperative in 

this country, because they do pay local taxes, probably paid more 

in the way of taxes than Commonwealth Edison did, one of the 

largest utilities in this country. 

Now whenever you can go to a State ratemaking commission and 

you can tell them you are going to be filing for Federal income 

taxes, you are going to be paying Federal income taxes, bill that 

into your rate, and then turn around and come to the Federal Government and your method for calculating those taxes then says you don't have to pay any, in fact if we made any profit the last two 

or three years we want it back-and I wouldn't be surprised-! haven't really looked, but I wouldn't be surprised if Commonwealth 

Edison didn't even get a tax refund out of all that. Now you just 

tell me that is not a subsidy? That is big time subsidy, Mr. Chairman, and I guarantee you there isn't a rural electric cooperativein fact, all 1,000 rural electric cooperatives receive less in the way 

of subsidies than 27 of the largest investor-owned utilities in the 

country. Now that is big time subsidy, Mr. Chairman, and so I'm 

delighted to hear they are finally 'fessing up to the fact that they 

are getting something and they are getting more than anybody, 

and I'm just delighted that they raised this issue so I could talk 

about it a little bit. 

Now there are some others. We have got excess deferred taxes 

too, if you would like to get into that, Mr. Chairman, but I don't 

want to get abusive with regard to the time, but I will be happy 
42 

to talk about it at length if you would like to have a hearing on 

this matter. 

Mr. DOOLITTLE. Well, my time regrettably is up. This has been 

a very interesting panel, and I'm going to recognize Mr. Dooley to 

carry on the questioning here. 

Mr. DOOLEY. Thank you. 

Mr. English, I would like to shift to a different area. There has 

been some discussion earlier about the equity that has been built 

up in the various PMA's and the equities that cooperatives such as 

you represent. Some people contend that there isn't any equity 

value that should be attributed to the PMA's. How do you address 

that? 

Mr. ENGLISH. I would simply point out that about 10 years ago 

the investor-owned-believe it or not, they have got a hydropower 

too. They haven't talked about any of that, have they? But they 

have got a hydropower, and they have got darns, and they carne in 

and asked to get their licenses extended, to renew those licenses, 

and quite frankly we supported it. They have got an investment in 

that, they have depended on it, they have linked up to it, and we 

thought that was totally just. We didn't say, well, golly gee, that 

is public water going through those darns and therefore there ought 

to be some reconsideration, or, golly gee, you ought to open this up 

and let the nonprofits, the consumer-owns, have a shot at it. We 

said that is right, they have got an investment. 

Well, I would suggest to you that the rural electric cooperatives, 

the municipalities, and small investor-owns that are participating 

in the PMA's have got just as much investment. 

Keep in mind, when these darns were built, built by the Federal 

Government, that the way they paid for it was selling power, and 

what happened in those cases is, those long-term contracts are 

what made it possible for those PMA's to come into existence, for 

the construction of those darns to be paid for and a lot of improvements that have been made over the years. 

We have paid the same way they have paid. We have paid from 

the standpoint of nearly paying off a good number of these projects. 

In fact, it is my understanding that if we continue to pay not only 

for the cost but the interest and all the improvements and everything else that goes into it, the entire thing is going to be paid off 

in 19 years, but who has got the equity at that point, and what is 

the difference between the money that they borrowed and which 

they paid interest on to build their darns? It is all the same thing. 

As I said, it is a question of which way you are going to look at 

it. Everybody has got subsidies, they just get it a different way 

than we do, and I certainly don't think they have got a right to get 

holier than thou about it. 

Mr. DooLEY. Mr. Bayless, I would just be curious in terms of, 

you know, we are going to structure some type of way to transfer. 

Obviously the issue of equity that perhaps the PMA's or municipals 

have in a particular project can be transferred is critical in terms 

of providing for the composition. How do you address this whole 

issue of equity? Do you believe that there is equity that has been 

built up to some level? 

Mr. BAYLESS. No, I do not, although Congressman Shadegg gave 

me one example that there may be, but we believe that when you 
43 

go to the Safeway to buy groceries or when you go to American Airlines to buy an airline ticket you don't acquire an equity interest 

and that they have no equity interest any more than our customers 

do who have bought from us. 

In fact, we believe that because of the Federal subsidies they are 

not paying for the cost of the whole dam. That dam was built for 

other reasons also, and because of the ability to buy the preference 

power and not having to pay taxes, et cetera, that in fact it is the 

taxpayers who have subsidized these over the years who have the 

equity, as the taxpayers from everybody's districts rather than just 

the people who are getting those particular facilities that have an 

equity interest; that is, in fact, everybody that has the equity interest. 

Mr. DoOLEY. So do you subscribe at all to the fact that some of 

the contracts, which they are currently involved in, which have 

power rates which are set, which are making contributions at least 

to the repayment of interest and operation and maintenance, that 

if those contracts were to be completed that there would be no payment on capital whatsoever, or on principal rather? 

Mr. BAYLESS. We have a lot of contracts at Tucson Electric that 

we have with other people, and we don't build up any equity interest when they have a contract with us. 

I think one real difference in the equity thing-I think it was Mr. 

DeFazio that mentioned the bank and the mortgage. In a mortgage 

and in a banking situation the Federal Government would go out 

and they would hand Mr. English $500 million to build a dam, but 

then he has a risk. Equity implies the ability to take a loss as well 

as a gain. And then as Mr. English paid the money back to the 

Federal Government he would indeed build up a an equity interest 

because he has a loss, but t.,ou don't see people running around at 

BPA, for instance, saying, 'Oh, we are an equity interest; give us 

the loss at BPA," and I think that if they have in fact taken the 

risk, that is normally what is associated with an equity interest, 

and I do not believe they have taken any risk. In fact, I believe 

they have got a big benefit. It is the taxpayers that have taken the 

risk. 

Mr. ENGLISH. Mr. Dooley, .could I respond to that very quickly? 

Mr. DOOLEY. Yes. 

Mr. ENGLISH. I would point out that the risks that we took were 

right up front. I mean when we agreed to those contracts, signed 

on to the contracts with the Federal Government for rates that 

were higher than the going rate at the time, when we agreed that 

we would sign long-term contracts in the face of the fact that the 

Federal Government itself was talking about you weren't even 

going to have a meter on an electric line in the future because nuclear power was going to just make it outmoded, that was a risk, 

that was a big risk, but we felt it was a risk worth taking. It was 

a partnership, and it was also the tie-in of a system, and whenever 

you start disconnecting the system and selling off little bits and 

pieces, you know, at that time certainly those pieces individually, 

the sum of those is not going to be worth what it is in total, and 

that is the basic issue. You are destroying the system, and you are 

destroying an awful lot of people, investor-owns, small investorowns as well, who depend upon that system for their power. 
44 

Mr. DOOLITTLE. Mr. Cremeans is recognized. Mr. CREMEANS. Thank you, Mr. Chairman. 

Mr. English, as you know, Ohio, of which I have the largest district, and it is principally rural, has its share of rural cooperatives 

and obviously rural areas, and I want to assure my ratepayers that 

they continue to receive electricity at a fair and competitive rate. 

However, I am a little bit unclear exactly how privatization of the 

PMA's, no matter what entity they go to, would impact on Ohio, 

a State which really receives no power from PMA's. Would you or 

could you comment on that? 

Mr. ENGLISH. I don't think it would as far as directly impacted 

with regard to Ohio because Ohio does not receive any of the power 

from the PMA's, but it may very well get into the question, well, 

then, maybe Ohio is receiving power that has less of a cost than 

what it does, say, in Montana, and if we are going to open that 

door and that question, are we going to go for rate equity all across 

the country? If so, then I think this committee is going to have to 

provide some Federal authority with the basis on which we say, 

OK, we are going to have one uniform rate so everybody is treated 

fairly. 

The point of the matter, the issue that we have before us, is this 

question of where the power is. sold and distributed in a lot of very 

high rate areas. Rural electric cooperatives these days-and this is 

Ohio as well as the rest of the country-on an average all across 

this country 70 percent of the cooperatives are paying more than 

what the average rate is across this country. In fact, 15 percent of 

those are paying 40 percent more with regard to their rates than 

anybody else in the country. 

Now if we want to start leveling the playing field and saying, 

golly gee, you know, that PMA power that may be going out to 

Montana, well, maybe their rates are higher, but, by golly, you 

know, we ought to raise them some more, I don't think that makes 

sense. But if you want to get in and talk about, well, let's level it 

out all across the country, whether it is Ohio or Montana or Louisiana or wherever it may be, and we are going to bring the lOU's 

in, then be a part and share in the burden as well, and if we want 

to open up the question and say, well, golly, Congress made a big 

mistake when we talked about. the Fuel Use Act in the late seventies and we started insisting that everybody do this or that with 

regard to the fuel, and drove the costs up, if we are going to level 

all those playing fields and coiTect all the mistakes that have been 

made by Government that have impacted on rates, then I think 

that is a great idea and we would applaud that, but I think you 

are going to be biting off probably more than you can chew with 

that one. 

Mr. CREMEANS. OK 

I have been the butt of this question. You know. The prevailing 

thought in my community is that because of the subsidy on rural 

electric co-ops we are obviously paying higher rates. If we are to 

privatize, would you address that question? 

Mr. ENGLISH. The PMA's? 

Mr. CREMEANS. Yes. 

Mr. ENGLISH. Of course, if you look at it from our membership's 

standpoint, and I think the municipalities probably feel the same 
45 

way, the safest thing we can do in trying to make sure there are 

no real rate increases on consumers that is out of line with what 

has just taken place normally is, you say, well, let's just don't sell 

it-you know, let's don't make any changes. 

Now what we are seeing happen is that the Congress is coming 

up, and it appears that both the House and Senate are going to be 

voting for a budget that is says, OK, we have got the sale involved. 

Now it is still possible that you are going to get by this without 

rate increases for that 35, 40 million consumers tied to PMA's, but 

you have got a real tricky operation on your hands now. 

The job of this committee is probably going to have more of an 

impact on whether you can deliver on that than what the ultimate 

number is in there, give or take. Even if you adjust out the differences with the House and Senate bill, that probably is not going 

to have as much impact as the details that this committee is going 

to have to write as to how they do it. 

If you take this system and break it up, break it up and sell off 

the pieces, then you are going to see substantial rate increases because it is an integral system and there is no way that you can 

break up this thing and take all the agreements and throw them 

in the trash and just assume, gosh, we are going to start all over 

and not have any substantial ramifications on rates. 

I think you are going to have to also make this determination 

when we talk about extreme rate increases we heard this morning. 

I have heard that come out of the administration, well, we don't 

want any extreme rate increases and we will put a limit on and 

we will do this and that. I don't know what that means. Mr. 

DeFazio I think this morning did an outstanding job of pointing 

out, well, what is extreme to me may not be extreme to you. It 

probably depends on what end you are on, whether you are on the 

giving or the receiving. If you are on the receiving, I imagine your 

sensitivity level is a good deal lower than if you are on the giving end. 

Mr. CREMEANS. OK Thank you. 

Mr. Chairman, I have a unanimous consent request. I have specific questions for Mr. Richardson. I would ask for a unanimous 

consent request that the distinguished chairman leave the record 

open so he may have an opportunity to answer them. 

Mr. DOOLI'ITLE. Let me just say as a matter of policy you don't 

need any unanimous consent because any member who has any 

questions of any witnesses on the panels today is free to submit 

them, so you may submit those and expect to get an answer. 

[The questions and responses may be found at end of hearing.] 

Mr. DOOLI'ITLE. I must apologize to Mr. Shadegg. Ordinarily 

without all these interruptions we have had today with various 

hearings and Floor activities going on, I would have recognized 

him, acknowledged him as the representative of one of our witnesses today. I believe Mr. Bayless is your constituent, and I now 

recognize you for your questions. 

Mr. SHADEGG. Thank you, Mr. Chairman. 

Mr. Bayless is not, I don't believe, a constituent, but Arizona is 

a small State so I consider him a constituent, and I'm glad to have 

him here. 
46 

I do have a series of questions I would like to follow up with several of the witnesses. 

First, Mr. English, and I apologize. With four votes and I had an 

obligation to speak on this last measure, so I missed a good deal 

of your testimony, so if I'm going over some ground you have covered, my indulgence, I beg you. 

I'm trying to understand, as proposed by the Budget Committee, 

essentially Mr. Allard's proposal, the PMA's would be sold, and I 

think you have to put that in quotes, to the existing preference customers. From what I heard you just say, you believe there is some 

rate implication in that in itself. Is that correct? 

Mr. ENGLISH. I depends on what this committee does and how 

they handle it. It becomes very tricky. 

Mr. SHADEGG. There is no doubt about that. It is complex. It is 

tricky. 

Mr. ENGLISH. It is complex, and it is tricky, but let me also say, 

if you are asking me if you take the number somewhere in the 

range-and I assume when you go to conference you usually work 

out the difference between wl-.at the Senate committee came up 

with and the House committee came up with and saying is it possible that with the diligent work that this committee comes up with 

that you would end up with a plan where there would be no rate 

increases, where consumers would not be endangered, is that possible? Yes, I think it is possible. 

Are you saying is that going to be something we can whip together tonight and run out on the Floor? Absolutely not. It is going 

to be extremely complicated and difficult, and I'm sure there are 

going to be issues raised that neither this committee nor I and 

probably a lot of other people involved in it have ever thought of. 

I think you are going to have an awful lot of different groups or 

individuals who are going to take an interest, and you have really 

got your work cut out for you. They have handed you a heck of a 

challenge. 

Mr. SHADEGG. They are in my office already. They have been 

there within days of when I was elected and long before I was 

sworn in. 

Mr. ENGLISH. I think it is possible to do, but I think you have 

got a heck of a challenge ahead of you. 

Mr. SHADEGG. Bottom line, you believe, even if they are sold directly to the preferred customers, you see rate implication in that. 

Mr. ENGLISH. If it is not done properly I think so, and I think 

the further you go afield from maintaining what you have, then the 

riskier obviously that gets, the! more likely it is that something is 

going--

Mr. SHADEGG. Mr. Bayless made reference to the fact that I 

thought I had pointed out to him, at least with one instance, where 

a preferred customer may have in fact acquired equity. I grew up 

in Phoenix, Arizona. Phoenix, Arizona was one of the first public 

power projects I think in this whole history. The Salt River Project 

is one of the first and one of the largest. It is a circumstance in 

which every single one of the landowners in the Salt River Valley 

and in the Salt River Project service area actually had to pledge 

the value of their land. They literally put a mortgage on their land 

to underwrite the cost of the dams, and, theoretically, had that 
47 

whole deal gone south they could have had their land sold out from 

under them as a result of the failure of that project. That, however, 

is not the circumstance with most of your members, is it? 

Mr. ENGLISH. Again, I think it depends on what you are talking 

about. I would think you would have a lot of consumers out there, 

millions of consumers, who say, gosh, we paid higher electric bills 

for 10 or 20 years and that gives us a pretty good stake in that. 

Mr. SHADEGG. I understand your argument that the risk you 

took was in signing a long-term contract which obligated you to 

buy power over a long period of time, and as I understand it-and 

this is news to me--you were agreeing to pay for that power at 

above market rates. Is that right? 

Mr. ENGLISH. At the beginning that was what the contracts and 

many of these called for, and let me also say I want to go back and 

hit this again because I think we slid off of it just a little bit. It 

is not just for what it cost to put in the generators in that dam, 

they are paying for the cost of the dam, the improvements that 

have taken place on the dam, they are paying for the operation of 

the dam. That is how all this has come about through the years. 

The revenue that has come in from those PMA's has exceeded what 

the Appropriations Committee has been putting out each year to 

run them. 

Mr. SHADEGG. OK Let me finish my last question. 

However, it is in fact true that most of your members did not 

pledge their land as did the landowners in the Salt River Project. 

They didn't put a mortgage on their land, they may have acquired 

equity by signing a contract, but they didn't put a mortgage on 

their land. Is that right? 

Mr. ENGLISH. They didn't put a mortgage on their land, you are 

right, and no one else in this country put a mortgage on their land 

either as far as I know. 

Mr. SHADEGG. The Salt River Project may be unique in the country. It is just the one I grew up with. 

Mr. ENGLISH. I think that it probably is. 

Now the other side of this is, it appears we are getting ready to 

put a mortgage on a lot of folks' land because if in fact the--let's 

assume that the House Budget Committee has its way and those 

provisions come out the way that they are and you do have this result. Obviously, there is going to have to be a very big mortgage 

that is going to go on a lot of folks' land as they buy what today 

are those Power Marketing Administrations, particularly if they 

are buying them intact. 

Mr. SHADEGG. I think you and I could probably talk for hours, 

and I'm going to ask for unanimous consent for some additional 

time because I would like to follow up on some of that. 

First of all, I'm a member of the Budget Committee, and Mr. Allard is a friend, and I applaud him for his efforts, but the work of 

the Budget Committee, bottom line, is to come up with a number. 

We can develop some proposals within that. We came up with three 

alternatives to fix medicare, but none of those are in fact the ultimate remedies for medicare. We came up with a proposal for dealing with the PMA's, but that is not the final plan, that is the work 

of this committee. So I get this PMA issue over there and over 

here, and I'm trying to do it here, and I don't think that either the 
48 

Senate or the House budget plans on PMA's are the final shot. I 

think what is going to happen is that this committee is going to 

work very hard at trying to craft a good solution. 

So with regard to putting mortgages on people's lands, are you 

suggesting that if in fact the Budget Committee resolution or proposal were to go through and the PMA's were to be transferred to 

the preferred customers, not sold on the free market, that those 

preferred customers would have to put mortgages on their own 

land? 

Mr. ENGLISH. No. The cooperatives obviously would if they are 

going to go--

Mr. SHADEGG. The co-op itself. 

Mr. ENGLISH. The co-op, and that is owned by the consumers, so 

that is the consumers. 

Mr. SHADEGG. But it is not-again, I'm just trying to draw a distinction here between the Salt River Project and the entities that 

make up the majority of the members. The Salt River Project, on 

the house where I grew up in Phoenix, Arizona, there literally isyou go get a title search, and there is a first lien in favor of the 

Salt River Project which says if the Salt River Project goes broke 

they can come and sell the land where my childhood home sits. 

What you are saying is that those co-ops might have to mortgage 

their assets and/or their land, but you are not necessarily saying 

that their individual customers would have to mortgage their land. 

Mr. ENGLISH. Well, the customers own it. Those are the owners. 

I mean if you go out-if Mr. Bayless, one of his investor-owns-if 

Tucson Electric goes out and mortgages this thing and they are 

taking out a debt in the name of Tucson Electric, and that is in 

the name of his investors, those people that put up money in there, 

the same principle, only in this case you have got consumers invested instead of somebody from New York City or some place else. 

Mr. SHADEGG. I think you know exactly what I'm saying. The investors in Tucson Electric do not mortgage their property by owning this stock. They are at risk for the extent of their stock. Their 

homes are not at risk. Even if he goes completely south and goes 

broke, what they lose is their stock. 

Mr. ENGLISH. Let me see if I understand what you are saying. 

You are saying that you think perhaps rural electric cooperatives 

should mortgage their homes, not Mr. Bayless's investors. 

Mr. SHADEGG. No. I was asking you a question. You created the 

implication that there was going to be a mortgage on the land of 

the customers of your co-ops. 

Mr. ENGLISH. No. I said there would be a mortgage as far as that 

cooperative is concerned which reaches back to each one of those 

consumers, and it does. The consumers own it the same as the investors own an investor-owned utility. Everybody has got a stake 

in it, and that is where the mortgage would obviously have to occur 

if there is going to be a loan. The same thing occurs, of course, with 

any loan with a cooperative. 

Mr. SHADEGG. Let's pursue this for a second. Let's say the co-op 

went broke. Can they in fact go and sell the land to the customers? 

Mr. ENGLISH. No. They sell all the assets of the cooperative itself. 

Mr. SHADEGG. I think we understood that point. 

Mr. ENGLISH. Do you think it should? 
49 

Mr. SHADEGG. No, I don't. I'm just trying to draw this distinction. 

Mr. ENGLISH. Oh, I thought maybe there were good folks in Arizona interested in giving up their homes and their lands and you 

were suggesting a way there for them to do it. 

Mr. SHADEGG. You know, sometimes it is not important to pick 

a fight on every single question you get asked. I was just trying 

to draw this distinction between the Salt River Project and your coops. 

Mr. DooLITTLE. If the gentleman will yield, I think we will go to 

a second round of questioning. So if that is all right, we will come 

back. 

Mr. SHADEGG. I will be happy to yield. 

Mr. DOOLITTLE. I want to go back to Mr. Bayless for a minute. 

Unfortunately, we have got all these things going on. Mr. Allard 

is chairing the subcommittee next door, but he expressed concerns 

about public relations campaigns by interests supporting the sale 

of the PMA's. Do the interests you represent care to comment with 

reference to the concerns that he expressed? 

Mr. BAYLESS. Yes, sir. If anybody at EEl or our member companies has done anything to offend Mr. Allard in that respect, we 

apologize. We do not think we have. We believe in the merits of our 

case. We are aware that others such as Mr. English's organization 

in one of their magazines was bragging of the fact that they had 

sent out 12.6 million postcards to their members and in fact used 

up the paper supply in Washington to do so. We have not done 

anything like that. We will not. But if we have done anything that 

offended any of the members, we do not intend to. 

Mr. DOOLITTLE. I would like to ask Mr. Crews to comment. 

You are a fellow in regulatory affairs with the Competitive Enterprise Institute. Do you buy the equity argument, Mr. Crews? 

Mr. CREWS. No, I don't buy that argument, but it does raise the 

issue of why it is so important to abolish the law that prevents the 

executive branch from even studying this question of transferring 

PMA's to market-based pricing. 

I think it is a fundamental misunderstanding of what ownership 

is. Ownership implies right of use and disposal of the property. If 

the customers owned the PMA's essentially they would already be 

privatized and we could approach them about setting up deals to 

exchange them, to exchange hands, but clearly I think the Government and the taxpayers in a sense actually own the PMA's, and 

that is why there is a right to sell them. 

However, in constructing a deal, to the extent that these decadesold contracts may exist that do give some equity interest in specific 

cases, I think that when you set up a deal similar to that illustration I mentioned earlier, you can give those folks the first right of 

choice and you can create an option whereby they stand to gain 

from the appreciation of the stock in the PMA once it is privatized 

over time. 

Mr. DOOLITTLE. In your written testimony you spoke about electricity rates, and it has been represented that the rates will go way 

up if we sell these PMA's. Could you comment upon that? You indicated in the written testimony that you felt the arrangement could 

be structured in such a way that the impacts are either negligible 
50 

or indeed perhaps even a net plus for the PMA consumer. Will you 

explain that? 

Mr. CREWS. That is what I was referring to in the testimony. 

One of the ways of minimizing the impact was mentioned earlier 

in that draft legislation that puts a 10 percent cap on rate increases, but that is not necessarily the only way. 

Mr. DOOLITILE. You mean annual rate increases of a 10 percent 

cap? 

Mr. CREWS. That was-Congressman Foley had the draft bill. 

Mr. DOOLITILE. Yes. I mean 10 percent seems a little steep, but 

Mr. Bayless in his testimony indicated that even under a worst 

case scenario where there was no transition time involved with the 

sale, no special protections for ratepayers,-I'm just paraphrasing 

his testimony, and assuming the $8.9 billion sale price, he said 85 

percent of the current preference customers would experience an 

increase in rates of less than 5 percent. 

Mr. CREWS. I'm not disputing that. That is probably true. The 

rates could increase even less, and you could construct a deal 

where the customers can accept a rate increase in exchange for an 

option to buy the stock at the initial offering price once that stock 

has appreciated. 

That 10 percent cap mentioned, that was a cap. That was a maximum increase that was going to be permitted, and that is all that 

was. That wasn't saying that every year that is the amount the 

rates would go up. The point I'm trying to make in this debate is, we need to study 

it, find out which of these facilities can be privatized, and that is 

why I recommended a commission approach. But there are various 

ways to go about it and get some answers and make sure that the 

people who potentially could lose are included at the outset of setting .up the arrangements so that they can gain. 

Mr. DOOLI'ITLE. All right. Thank you. Mr. Dooley is recognized. 

Mr. DOOLEY. Yes. I guess my question is, if you go to a privatization or a transfer, you have basically-if you go into what is proposed by the administration, perhaps you will give a preferential 

right to the PMA's themselves. I guess if we do then also follow 

through on what has been recommended in terms of deregulation 

and certainly deregulation of the grid system, do we create a situation which is going to be an unfair competitive advantage because 

the cost of production of a unit of power is going to have a competitive advantage and also is going to have access to a grid system 

out there? 

Mr. CREWS. Who is going to have the competitive advantage? 

Mr. DOOLEY. If you gave a preferential right of purchase that 

was not necessarily reflective of the real market price of that generating unit, then they would have-again, be in competition with 

other power generators out there that were having a higher per 

unit cost of production, yet they, because of deregulation, would 

have access to the marketplace. I guess what I'm looking at is, if we are going to pass legislation 

that is going to effectuate this transfer, how do we deal with this 

in terms of ensuring equity? 
51 

And, Mr. English, I guess some of the folks you represent would 

have potentially this advantage. Do you see it as an advantage? 

Mr. ENGLISH. I think the real issue that we are coming down to 

here, and I think you are touching on a very important one that 

needs to be recognized by the committee, is that this discussion 

should not be taking place in the environment of today or the environment of yesterday, it is the environment of what you can expect 

for the future, and, keep in mind, we are moving into a competitive 

deregulated environment. 

Now I'm reminded what happened on airline deregulation. Now 

if you want to fly from New York City to Los Angeles, you can get 

a pretty good price ticket. You have got a lot of competition back 

and forth. If you are flying back to my home State of Oklahoma 

and Oklahoma City, which was in my district, you pay a lot higher 

rate even though you are only going half the distance, and the reason is because you are subsidizing part of this stuff. 

Now if you are talking about the PMA's and selling the PMA's 

into the future-and that is the reason that I would suggest that 

our good friends over at the investor-owned utilities are so eager 

to get their hands on the PMA's-and you put that into a competitive environment, it isn't going to be those folks that are getting 

served now, it isn't going to be those rural areas, those small 

towns, it isn't going to be consumers-! mean residential consumers. What you are going to be doing is, you are going to be moving 

into the area of retail wheeling, and Commissioner Moler, as you 

recall, said earlier then you are talking about the question of competition not with regard to residential consumers, you are talking 

about competition with big industry. That is what all comes about. 

Now if you go into a national retail wheeling, which she says we 

are not into yet, but FERC is certainly encouraging all the State 

to get into it-and we are just about a half a step behind, I'd suggest, FERC going into a national type of retail wheeling situationthen I think it makes a lot more sense as to why you have got some 

people out here talking about $9 and $10 billion that they are willing to pay for PMA's even when you have got the Congressional 

Budget Office and a bunch of other folks saying it isn't worth anywhere near that. It may be worth it in the future, and particularly 

if you can get a hold of municipalities and rural electric cooperatives and literally strangle them to death and eliminate competition. That is how it is worth it to you. Then you can jack the rates 

up and you can do with it whatever you want. You want to talk 

about extreme rates; that is where it comes about. 

As I mentioned, you have got to keep, in mind an awful lot of 

municipalities, 600 rural electric cooperatives, are tied to those 

PMA's, and they have transmission, particularly in the western 

part of the country, that are linked up to those PMA's, and if you 

are going to sell those PMA's out from under them, boy, they have 

got them, they have got each and every one of them. 

Mr. DOOLEY. I would suggest though, if you have got the deregulation of the grids and the transmission, there is going to be nothing necessarily to preclude those small cooperatives from purchasing the wholesale power that might be available through whoever 

might purchase the PMA or who might be accessing that, and I 

guess my real concern comes back to, how do you effectuate a 
52 

transfer that doesn't give somebody an unfair inherent advantage 

because of the way we priced that PMA? 

And I guess, Mr. Bayless, I would like to hear your comments on 

this. 

Mr. BAYLESS. I think one thing, to compare the deregulation in 

our industry with the airlines, in the airlines there were no airlines 

flying around that didn't pay taxes at all, weren't subject to the 

Tax Code, and had 100 percent municipal debt financed and got to 

buy cheap preference fuel from the Naval Petroleum Reserve, or 

they would have won. 

I think in transferring over we think right now that there is a 

huge benefit that goes to these different types of power systems. 

Once the transfer is made, we believe that the way to do it is that 

the Federal Government should say here's what rates can do. I 

think 10 percent is too high; 10 percent to me for seven years is 

outrageous. I would intervene personally as a consumer on that 

one. But I think the Federal Government can set rates and say 

here's what the rates can be, and then anybody can bid against 

that, and the Federal Government gets the maximum, knowing 

what the rates are. 

Our systems today are so integrated with the PMA's. One of our 

largest customers is a rural electric cooperative, and we are not out 

against any of the small REA's, that is not our problem, but we buy 

and sell power on an hourly basis back and forth between PMA's 

and rural electric co-ops and munis. The systems work now; they 

are going to continue to work. 

I don't think-the system right now, if you look in the West, 

there are probably 40 different transmission owners, including the 

PMA's and the electric utilities, and we all work together. The system works. 

If the assets are sold there are no transmission ties that are 

going to be disrupted, no transmission lines are going to disappear, 

there are not going to be any new bottlenecks, it is just a new 

owner, and we think that what Congress should do is say this is 

what rates can be and let anybody bid, anybody own, and if they 

win they can run power companies as well as we can, we can nm 

them as well as they can, but it should be whoever it is wortha lot of these assets are worth more to one person than they are 

to another person. 

Hydro on our system would be great. If you have been to Tucson, 

we don't even have water in our rivers, we don't have hydro, so we 

would like to get some hydro. That is probably worth more to us 

than it would be a PacificCorp who is awash in water right now. 

So I think that you can say that, you know, that the way to maximize the benefit is say this is the rate path, it has got to be this. 

An important part about this, when people talk about 15 percent 

rate increases from the PMA's or 20 percent, is that generation is 

probably a third to a half of the total cost of electricity, so if generation is 30 percent or, let's say, 40 percent, a 10 percent generation increase may only be a 4 percent increase to the ultimate customer. 

My recommendation is, the Government says this is what rates 

can do, anybody can bid. 

Mr. DOOLITTLE. Mr. Shadegg. 
53 

Mr. SHADEGG. Thank you. 

My goal is to try to come up with a structure which, I think following on my colleague from the opposite side of the aisle, sets up 

something which does not preserve an inequity, because it is evident that we are moving into a more competitive market in this 

area. I think we ought to try to recognize the equities that exist 

at the present time but at the same time move into competition, 

because that is in the best interests of all people, and I happen to 

believe it is in the best interests of these people to get these assets 

out of the hands of the Government, and Mr. Klug testified earlier 

that we are trailing the rest of the world in that effort. 

Having said that, I'm a little troubled by what at least I have 

heard so far in terms of ideas on how to do it. 

Mr. Bayless, in your testimony there is reference to certain practical devices, limits on rate increases or rebates or rate caps or a 

phase-in approach. Have you or anyone in your company-and I'm 

going to ask Mr. Crews to comment on this as well-given thought 

to some sort of a free market alternative to that? Because I'm just 

not crazy about the idea of the Government setting prices in this 

area even in an interim period. Mr. BAYLESS. If you look at the study that we submitted-and 

we would certainly be glad to provide more testimony on thatabout 85 percent of the people we feel would only get a 5 percent 

rate increase, but there clearly would be a couple of people out 

there-and in fact it is probably worst in the W AP A area than in 

some others-that would get a large rate increase. I could see 20 

or 30 percent, which is unacceptable. 

Mr. SHADEGG. Why would somebody wind up getting a significantly larger rate increase than somebody else? Give me that dynamic. 

Mr. BAYLESS. Somebody, for instance, could be buying-not all of 

the REA's or rnunis or anybody else buys all of their power from 

WAPA. There would be somebody out there-for instance, I'll use 

the Navajo Nation, one of our customers. They buy their electric 

power from us. They are an REA. They buy minor amounts of energy from the PMA's. The PMA could probably slide into the Grand 

Canyon tomorrow and it would not affect the Navajo Nation that 

much. On the other hand, there could be people that have contracts 

on specific facilities that were very low cost that could see more of 

an increase. So it would vary from entity to entity. I mean there 

are some co-ops that buy more or less, and rnunis, so I think that 

it could vary, and it is those 5 or 10 percent of the people that 

could see larger rate increases that I think need protected. 

Mr. SHADEGG. Mr. Crews, can we figure out some way around 

this without getting ourselves deep in the Government regulating 

rates? 

Mr. CREWS. Well, I don't think there is any kind of magic answer. It is something that we have studied, and the developments 

in wheeling are going to take time. It is going to be a long time 

before we get to the point where rates can be equalized everywhere, but we can set initial trades maybe on a base closure cornmission model, we can set up initial deals where we move toward 

that more fluid power market. 
54 

The ultimate goal should be to get away from a situation where 

a PMA is isolated-ntunis and co-ops don't really have an incentive 

to buy outside of their PMA region, and those people on the outside 

who aren't in the PMA's, they ought to be able to buy power that 

is generated in the PMA. So when we free that up we will see rates 

come down. Those things take place over time. It may take a long 

time to get the absolute rate holddowns you want in some of the 

most inaccessible areas, but there are ways that you can manage 

it, and the way to manage it is not to leave the system as it is but 

to start taking steps to get there. 

Mr. SHADEGG. Let me ask you, on page 7 of your testimony there 

is a discussion of perhaps the sale of a controlling interest of a 

PMA to offer to the public. Can you flesh that out at all and tell 

me what the thought was there? 

Mr. CREWS. That was simply an example on how you might set 

up something like this. l'm not an investment banker, these guys 

will be coming on the next panel, but the idea is, you are going to 

have an initial offering price of the stock and you can set up a program where that stock is offered to the public. You can make certain that a certain percentage of it is reserved for small businesses 

that are going to be affected in the PMA regions and customers 

who are affected in the PMA regions. 

Mr. SHADEGG. Would you suggest that it be sold to those PMA 

customers at its market value, not at any discount? 

Mr. CREWS. When the stock is issued at its initial offering price, 

it is not necessarily going to be at the market value, that will be 

determined later, but if you set a PMA up into a block of stock you 

can offer an initial percentage of it in that manner. In the example 

I used, it was 51, and the other 49 percent the Government would 

retain, and as the stock price appreciated later it could sell that off 

and then benefit the taxpayers much more. That way, you don't sell 

the PMA off at these rock bottom prices that are being considered 

now, you can do it in an incremental way. 

Mr. SHADEGG. One last question. We have heard debate back and 

forth on the subsidy issue. I missed a part of that, but I understand 

it has kind of gone from one end of the table to the other. You are 

kind of an honest broker here, to some degree at least; you are not 

with either. What is your view of the subsidy argument, subsidy 

issue, on each side? 

Mr. CREWS. I do think PMA's get a subsidy in various ways. The 

back and forth was on the tax issue, but there are other ways. 

There is the appropriation that PMA's get that is over $200 million 

a year. CBO indicates that PMA's sell their power for 2.5 cents a 

kilowatt hour while the market price is 4.5. That is not a direct 

taxpayer subsidy, that is the dead weight type of loss that I was 

indicating before, because the rest of society doesn't have access to 

that generating capacity when there is no reason why it shouldn't. 

That creates a dead weight loss in society that you really can't calculate. It is like regulatory dead weight losses, they are hard to 

tabulate. We don't know how much regulation costs the economy. 

Mr. SHADEGG. Thank you. Mr. DOOLITTLE. All right. I thank very much the witnesses of the 

panel. 
55 

Mr. BAYLESS. Mr. Chairman, could I have permission to submit 

further written testimony to rebut a few of the points that were 

made? 

Mr. DOOLI'ITLE .. Yes, I would invite all of the witnesses who 

wish to submit anything else in the way of written testimony. In 

fact. We would ask you to respond to any questions that the committee may have of you or any member thereof. And we will hold 

the record open in order to get those responses. We thank you for 

your time and interest. And we are going to go vote. At the conclusion of the vote we will return and take the second panel. 

Thank you. 

[The material submitted may be found at end of hearing.] 

[Recess.] 

Mr. DOOLI'ITLE. In the interests of everyone's time I was waiting 

for at least one other member to come. But I think we will start. 

We have got our second panel up here. And we will begin with Mr. 

Connor. 

STATEMENT OF JOE CONNOR, VICE PRESIDENT, WHOLESALE 

MARKETING, ALABAMA POWER COMPANY 

Mr. CoNNOR. Thank you, Mr. Chairman. 

I am Joe Connor, Alabama Power Company's vice president of 

wholesale marketing. Until just recently I was responsible for the 

company's daily hydro operations. I appreciate this opportunity to 

speak to you regarding Alabama Power Company's hydro operation 

and maintenance programs. Alabama Power Company has 14 hydroelectric plants on three major rivers in the State of Alabama, 

about 41 generating units representing approximately 1,600 

megawatts of generating capacity. So, it is very important to Alabama Power Company and to our customers. 

As a result of a very aggressive maintenance program, these 

hydro units have been able to serve customer load over 96 percent 

of the time. If you compare that to a national average of about 91 

percent, you can see that we are very proud of our program. 

The goals of our maintenance program are of course to maximize 

the availability of the units and minimize the cost of operating the 

units. In doing this, we start with daily routines of maintenance review by our technical personnel using checklists that we have developed over the years to determine the components that may need 

immediate maintenance or attention in the near future. These 

checklists wind up being a very important component of the maintenance program and, again, something that is a result of many 

years of operating a hydro system like ourself. 

The maintenance outages are scheduled at least once a year. The 

longer-term maintenance outages, which are on the order of 7 to 

11 days, are scheduled normally in the fall of the year outside of 

our peak demand period and when we have low flows in our rivers 

so that there is very little water lost. We coordinate those outages 

among all of our units using a very sophisticated hydro optimization management system that we have developed to do that. So, 

again, we are trying to maximize the use of all of our water resources in the State. 

We are involved with two jointly owned and jointly operated 

projects with the Corps of Engineers on one of our river systems, 
56 

and in cases of outages planned for those units, we coordinate with 

the Corps of Engineers so that they can make plans for navigation 

and flood control purposes. This coordinated operation at the multipurpose dams, in this case two dams, has operated very successfully with the Corps for over 80 years with both parties receiving 

additional benefits from that cooperation. 

From time to time we are required to make what we call substantial capital improvements at our hydro plants, things like turbines wearing out. They just don't last forever, and you have to replace these pieces of equipment. Planning for these capital improvements, the large ones, our capital budgeting plans extend as 

far as 10 years out in the future, so that we have a very carefully 

planned maintenance program that covers a long period of time. 

If we look next door at our neighbors in the Southeastern Power 

Administration and dams operated by the Corps for the Southeastern Power Administration, when the Corps is faced with budgeted 

items like this, major replacement of capital equipment, they are 

required to go through a Federal budgeting process that really does 

not provide them with the ability to properly plan·-or at least it 

appears that way-they cannot properly plan for major maintenance items, and we wind up with situations like two dams in Alabama where they have units that have been down and out of operation for over two years. 

One of the major and very important factors in contributing to 

keeping our costs low at the pl:mts that we operate is that we operate these plants at what we call efficient gate or best gate, that is 

something below full gate. The percentage below full gate varies 

from unit to unit. It is the gate opening at which you have maximized the generation from the limited quantity of water that you 

have available, and what this does is, it also helps to reduce the 

wear and tear on our units so it reduces our mai.ntenance costs 

while we are maximizing the amount of generation that we get out 

of the units. 

If we look to the Southeastern Power Administration again, and 

the Corps operation for the Southeastern Power Administration, we 

find that they are typically operating their units at full gate. 

Maybe that arises from contractual reasons, but for whatever reasons, they are, in our minds, operating those units in such as a 

manner as to drive up the cost of the operation and also does not 

maximize the generation that they get from the dams. 

Mr. CONNOR. If you look at our projects, we havE~ very excellent 

hydro availability, we have very few unscheduled maintenance outages, and the cost we have kept very low. We are very proud of our 

program, and I will stop at that point, thank you. 

Mr. DOOLITTLE. OK. 

[The statement of Mr. Connor may be found at end of hearing.] 

Mr. DOOLITTLE. Mr. Bruce Driver is our next witness. 

STATEMENT OF BRUCE DRIVER, LAND AND WATER FUND OF 

THE ROCKIES 

Mr. DRIVER. Thank you very much, Mr. Chairman. My name is 

Bruce Driver. I am Special Counsel to the Energy Project of the 

Land and Water Fund of the Ftockies. I am appearing today on behalf of the LAW Fund, as well as the Natural Resources Defense 
57 

Council and also the Grand Canyon Trust. I very much appreciate 

the opportunity to present to the subcommittee our positions on 

PMA asset transfer. 

The LAW Fund is a nonprofit regional environmental law center 

serving the Rocky Mountain, Intermountain and Desert Southwest 

States of the American West. Basically our objective is to advocate 

the adoption of measures that tend to minimize the adverse environmental impacts of meeting the demand for electric energy services in our region. To advance our positions, we intervene in State 

PUC cases in Arizona, Colorado, Nevada, New Mexico, Utah, as 

well as Wyoming. As well, since 1991, we have represented environmental interests in the public procedures that surround the 

Western Area Power Administration's attempts to deal with customer contract extensions as well as integrated resource planning. 

In short, we live in and work in the West on electric utility industry matters. 

The focus of my testimony today is on the transfer of assets used 

in the generation and transmission of electric power marketed by 

Western, and my basic reason for being here is to place environmental impacts that are definitely affected by what is being discussed here today on the table. An initial basic point is that we 

fear the loss of various environmental amenities which most westerners very strongly support if there is a sale or other transfer of 

Western's assets. I am talking here of fish, wildlife, recreational 

benefits and support for the sustained and orderly development of 

the region's copious renewable resources. 

Now, this does not mean that we are unalterably opposed to any 

transfer, only that Congress not leap before it looks, and that any 

transfer protect and enhance the kinds of values and amenities 

that I am here to talk to you about today. In this regard, please 

do not forget that privatization is not an end in itself, but must be 

viewed in the context of the impact of it on the people and their 

values as might be affected in our region. It follows from this basic 

position that we prefer the Congress not authorize the sale of Western's assets right away, but instead remove the ban on the administration studying the transfer even while this subcommittee undertakes its own study. 

It also follows, we believe, that when and if a transfer is authorized, important public environmental benefits are protected 

through conditions on any such transfer. We note strongly that 

there is very broad support for these values in our region of the 

country. However, there may be no way of protecting certain public 

interests through conditions on an asset transfer. 

One such public interest is the need to promote vigorous wholesale electric competition in our region. There are lots of benefits 

from wholesale competition, including lower rates, lower cost of 

service, and a better environment, but it takes coordination of 

transmission assets to bring about a strong, wholesale, competitive 

market in our part of the country. 

We think that selling transmission assets to dozens, scores, perhaps even hundreds of utilities may be inconsistent with a coordination of the transmission system; and if so, and if transmission 

is further balkanized in our part of the country, wholesale competi-
58 

tive markets will be spent, so please consider in this not selling the 

transmission assets. 

Another important public benefit that could be lost and is up for 

grabs here is the running of the rivers to protect and enhance fish 

resources. It is not clear to us that if you authorize the sale of the 

power turbines themselves that the rivers will not end up being 

run primarily to serve the needs of electric utilities. That would be 

inconsistent-we think it might be at least-with protection of 

these other values. 

What is left to sell if you don't sell the transmission assets and 

the pourer turbines? In our view, there is still a lot to sell, and that 

is the entitlement to use the power. 

Lastly, I would like to say that an idea that we have that we 

commend to your attention is, if there is to be a transfer of Western assets, Congress should encourage a vigorous competition within the electric industry to see who would offer the best package to 

protect and enhance important public interests. It follows that an 

automatic preference to existing Western customers to take control 

of these assets, as suggested in the administration proposal, is just 

not appropriate. 

Thank you very much. 

Mr. DOOLITTLE. Thank you, sir. [The statement of Mr. Driver may be found at end of hearing.] 

Mr. DOOLITTLE. Our next witness is Mr. Alan H. Richardson. 

STATEMENT OF ALAN H. RICHARDSON, DEPUTY EXECUTIVE 

DIRECTOR, AMERICAN PUBLIC POWER ASSOCIATION 

Mr. RICHARDSON. Thank you, Mr. Chairman. My name is Alan 

Richardson. I am the Deputy Executive Director of the American 

Public Power Association. I have a rather lengthy statement that 

I have already submitted and request that it be printed in the 

record. 

I have a somewhat shorter summary statement, but I am faced 

with the dilemma of what to say when most of what I was going 

to say has already been said. So, Mr. Chairman, I would like to 

offer a few comments regarding some comments that others have 

made. First, we heard from Mr. Klug this morning that privatization is 

the trend and the United States is in fact behind the curve. I would 

suggest that in fact the United States, in terms of privatization, is 

ahead of the game, because if you look over our economy, you see 

that we are much more heavily privatized than most of the other 

economies and most of the other examples cited by Mr. Klug. 

He referred to the Great Britain experiment with the privatization of their electric utility system, but of course they began with 

a total publicly owned system and they have converted it now, 

through privatization, to a private system. But in fact when you 

look at the experiences of natl.ons, when you look at the experience 

of the United States, it is not necessarily whether it is publicly or 

privately owned that is the significant factor; it is the competition 

between the two sectors and competition that yields true benefits 

for consumers and for the economy. So I would like to look at a 

couple of issues that have been raised about competition, and also 
59 

about equity interests of public power systems and rural electric cooperatives that are the current purchasers of these systems. 

In my mind, they clearly do have an equity interest based upon 

their contribution, their repayment of the Federal power costs over 

the past 40 or 50 years. They certainly have a reasonable expectation that this power will remain available to them over time; and 

that expectation is every bit as strong as the expectation the private power companies had back in the 1980's that they would be 

assured of renewals of hydroelectric licenses. And there was a rather substantial debate that occurred in Congress regarding renewal 

of hydro licenses, and it was clear that the companies that had 

those licenses had a reasonable expectation that they would continue to have those licenses, and Congress affirmed that in the 

adoption of the Electric Consumers Protection Act, and we have 

heard about that. 

Competition, Mr. Chairman, has been mentioned by several witnesses. There are a couple of elements here that I think have not 

been brought out. First of all, it is difficult for me to understand 

how a change in the status quo is somehow going to harm competition in the bulk power market that is currently developing, and 

what we are arguing for through the protection of existing customers is allowing those customers to continue to receive the benefits of the power for which they have been paying over the years. 

There is another element to this, however, and that is what is 

required to create a vigorous market. Clearly, a vigorous market 

demands that you have both buyers and sellers of a product, in this 

case, kilowatt hours. There have been incentives to bring additional 

generators of power into the bulk power market, but the 1,100 

consumer-owned utilities that purchase power from the Power Marketing Administrations are a substantial number of buyers that 

make this market in fact very vigorous. 

If the power that they receive from the Federal power program 

is to be stripped from them, this will undermine their economic viability and will have a serious impact on competition over time as 

these systems become more vulnerable to takeover and sale to private investor-owned utilities. 

We have heard some comments about taxes, Mr. Chairman. In 

fact, the witness for the Edison Electric Institute said earlier this 

morning that the Salt River Project in Arizona pays no taxes. In 

fact, an individual from the Salt River Project is here, and she advised me that in fiscal year 1993 Salt River Project paid $172 million in taxes to State and local governments. 

And in fact when you do a nationwide comparison of taxes paid 

to State and local governments by public power systems and investor-owned utilities, what you find is that it is nearly a wash, they 

pay approximately the same amount of tax on net revenues whether they are publicly owned or privately owned; and to assert that 

they are not paying taxes is simply misleading. 

The witness also talked about advantages that go to public power 

systems. There was not an explicit, but I believe an implicit reference to tax-exempt financing as the kind of benefit that goes to 

public power systems. There was a discussion of the kind of benefits that might go to Tucson Electric. Not mentioned by the witness, however, was the fact that Tucson Electric itself is a bene-
60 

ficiary of tax-exempt financing through the so-called "two county 

rule" and has, in fact, outstanding about $350 million in bonds that 

they have been able to issue under the so-called "two county rule," 

a special privilege afforded to about 10 investor-owned utilities 

through changes in the tax law several years ago. 

Finally, Mr. Chairman, there has been much discussion about 

the price of Federal power. There seems to be the assumption that 

because this power is relatively low priced, it is somehow subsidized. I think we need to make an apples-to-apples comparison 

here, and I have before me 1993 hydroelectric generating plant statistics for selected plants, and if you look over various hydroelectric 

facilities licensed to the Idaho Power Company, the Washington 

Water Power Company, and Pacific Gas and Electric Company, you 

find hydro prices that range anywhere from 0.88 mills per kilowatt 

hour to 4.8 mills, 4.56 mills; Kings River Storage Project, Pacific 

Gas and Electric built in 196~~, coming in at 2.48 mills. So if you 

look at a comparison of hydroelectric facilities and hydroelectric facilities, I think the perception is easily dealt with that this is subsidized electric power, particularly when that perception is based 

simply on an examination of the price that is charged for the sale 

of that energy. 

Mr. Chairman, thank you very much for the opportunity to testify. I appreciate it, and would be happy to respond to your questions. 

Mr. DOOLITTLE. Thank you very much. 

[The statement of Mr. Richardson may be found at end of hearing.] 

Mr. DOOLITTLE. Our final witness will be Mr. George A. 

Schreiber, Jr. 

Mr. Schreiber. 

STATEMENT OF GEORGE A. SCHREffiER, JR., MANAGING DIRECTOR, SECTOR HEAD, REGULATED INDUSTRIES, TECHNOLOGY AND PROJECT FINANCE, PAINEWEBBER, INC. 

Mr. SCHREIBER. Thank you, Mr. Chairman, thanks to other members of the committee for giving me the opportunity to share my 

thoughts on this subject today. My name is George Schreiber. I am 

managing director at PaineWebber in the Investment Banking Division. My responsibilities are for the Regulated Industries Technology and Project Finance Sectors. 

I am here today on behalf of PaineWebber and on behalf of the 

Alliance for Power Privatization, a group of independent power producers, investment banks, investor-owned utilities who support the 

privatization of federally owned electricity assets and, in particular, 

the PMAs. 

A couple of points that I want to address-! also have filed testimony, but will just kind of summarize in these oral remarks. It 

seems as though there are a couple of clear messages that are in 

the marketplace and in the political arena. 

Number one, as a result of last year's elections, it seems that the 

American people are saying they want to reduce the size of government; and I think also that other countries around the world are 

following and may be in fact out in front of that. 
61 

There also seems to be, and what is being debated currently, the 

budget, and that is to reduce the deficit. 

The privatization of the PMAs through a competitive bidding 

process to the highest bidder I think accomplishes both of those 

goals. Fundamentally, I think there is a real question whether the 

Federal Government should be in the business of supplying electricity, and I think that one of the issues there is the fact that taxpayer subsidization does not go to the benefit of all the public, it 

goes to the benefit-to a few of the taxpayers that are in the PMA 

regions; and I think that, just from a fairness point of view, that 

is an issue that needs to be looked at closely. 

In terms of privatizations, the global capital markets have demonstrated clearly over the last 15 or so years that investors find 

privatizations very attractive. There is a lot of capital available for 

these kinds of transactions. Since 1979, worldwide, $100 billion has 

been raised through the privatization effort. Since 1990, about $40 

billion has been raised. Since 1990, about $27 billion has been 

raised for utility assets. It is interesting that we find that various 

countries around the world, in fact former Communist countries, 

are moving to privatize their assets; and we have a situation here 

which is legitimately a business that is still being owned and debated whether the U.S. Government in a system which is the most 

capitalistic system in the world has some question whether that is 

appropriate or not. 

In terms of valuation, the valuation question really revolves 

around the rate question. The deal, how you privatize it, it will affect what the value is. There are ranges that have been published 

from $4.5 billion up to, I think, $86 billion that has been talked 

about over the years. I am not sure I know what the true value 

is. Certainly, in my experience, having been involved in M&A 

transactions and transactions of this sort, it is not the lowest number that is in the marketplace. It is also-from what I can tell, it 

is not the highest number, because investors are simply not going 

to put that kind of capital to work at the highest numbers. The 

true value will be found in the marketplace in the competitive bidding process. 

You can value these assets on many different ways, whether by valuing the outstanding debt by the discounted cash-flow method 

or by the replacement-cost method, and all those will serve the purpose and all the potential bidders will use those kinds of analyses 

to determine value. 

One thing I have to say, that in all my years of being in this 

business-and I think you can tell from my bald head and my gray 

hair it is a few years-that I have never in my life heard of a situation where payment for services is the equivalent of equity in some 

situation. My business is designing equity transactions, designing 

transactions where the equity component is at least a large part of 

it, or some part of it; and you know, if I could have ever sold that 

to any investor, you know, I probably would have been able to retire long ago because that is really turning gold from straw. 

But, you know, I have been confused before, and I have also listened to Washington say that they are going to cut the budget and 

in fact the budget grows by about 7 percent, so I may be confused 

here again. I think that privatization can be completed on a couple 
62 

of different ways, either through a sale to a strategic buyer or 

through an offering to investors. From a rate point of view, I don't 

think that is going to be an issue. 

The competitive market today is not going to allow great rate increases. In fact, we have heard Congressman DeFazio say that the 

Bonneville Power Authority has lost customers because the competitive market has made cheaper power available to their customers. 

I think that, going forward, the bottom line is that the government needs money-there is no question about that. I think that 

the privatization will help in that regard. Also I think that the 

question of whether or not this is a business that the government 

ought to be in is also a question. 

I think that we heard earlier a little comment about the profit 

motive. Quite frankly, the profit motive is not a dirty word. You 

know, all you have to do is look at what happened to overnight 

mail service, you have a situation where the Federal post office 

can't compete with Federal Express; and I think there is a lot to 

be gained by moving forward with the privatization, and I thank 

you very much for allowing me to testify. 

Mr. DOOLITTLE. All right. Thank you very much. 

[The statement of Mr. Schreiber may be found at end of hearing.] 

Mr. DooLITTLE. If I might ask a question of Mr. Schreiber, you 

feel the government has undervalued the PMA assets. What do you 

think is a more accurate value for the assets? 

Mr. SCHREIBER. Well, Congressman, it is a question that is going 

to require a lot more study than I, quite frankly, have given at this 

time. I have seen numbers that are all over the lot, but generally, 

in my experience, when you run an auction process or prior to running an auction process, if you find that people are giving you indications of what they think something is worth, you will be able to 

achieve a lot more by throwing it into a competitive situation 

where you have made information available, you have made terms 

and conditions available under which everybody will have the same 

opportunity to analyze the situation and understand what the requirements are, and value will be determined through that process. 

Mr. DOOLITTLE. Thank you. Mr. Driver, if the sale of the PMA assets were to move forward, 

through what process, either legislative or perhaps the FERC licensing process, would you suggest protecting the public interest to 

which you referred? 

Mr. DRIVER. I think it is very important that, as part of any legislation that goes forward, Congress is forthright in saying that 

those who take on the ownership, management or control of these 

assets have to meet certain conditions. That is one way of doing it. 

Another way that is not inconsistent with it and may just be a 

process to gain the objective of protecting public benefits that are 

spelled out in the bill is to have competitive bidding to meet-who 

can meet these public benefits the best, who can provide the best 

package. I am convinced that the market may very well come up 

with some ways of protecting, for example, fish flows in the Colorado River Basin that we haven't even thought of yet, and so I urge 

Congress to consider possibly meeting these public benefits through 
63 

the authorization of competitive bidding that might be undertaken 

and implemented by, for example, DOE. 

Mr. DooLITTLE. Well, that is a very innovative idea. I hope that 

you will continue to advise us of your thoughts on this matter 

should this process continue on down the road, as it frankly seems, 

I think, likely to do. 

Mr. Richardson, let me ask you, considering public power's 

strong demand to ensure fair competition, would it be correct to assume there would be no objection from public power interests if the 

entities which acquire the PMAs are regulated by FERC and are 

subject to the open access provisions concerning transmission lines? 

Mr. RICHARDSON. I am glad you asked that question about thefirst, on the transmission lines, because I think perhaps there is 

some misunderstanding about the reach of FERC and the regulation or the ability to regulate publicly owned transmission facilities. _ The Energy Policy Act that was adopted in 1992 authorizes the 

Federal Energy Regulatory Commission to order any transmitting 

utility-those are jurisdictional utilities, the investor-owned utilities over whom they have traditionally had jurisdiction, as well as 

public-owned utilities over whom they have not had jurisdictionto order any of those transmitting utilities to provide transmission 

services to others. Public power was instrumental in pushing for 

that legislation; in fact, enhancing the authority of the Federal Energy Regulatory Commission to order utilities to transmit power 

has been on public power's agenda and APPA's agenda for many, 

many years, and it finally came to fruition in 1992. We did not 

seek then and we do not seek now to hide behind public ownership 

to avoid FERC jurisdiction with respect to the exercise of tha:t authority over transmission facilities. 

The NOPR that was referred to this morning, the open access 

NOPR that has just been issued by FERC, applies only to the 

one--I believe it is 130 "jurisdictional" transmitting electric utilities, read "investor-owned utilities." That is because FERC is proceeding under different sections of the Federal Power Act, sections 

205 and 206, in proceeding with that course to get a comprehensive, open access transmission regime as opposed to proceeding, as 

Chair Moler said, on a case-by-case or a piecemeal basis. 

But a very important element of the Commission's proceeding 

has to do with the transmission tariffs that they are requiring and 

what is required from those who seek to benefit from the open 

transmission tariffs that they would require be filed. There are provisions in there that require reciprocity. In other words, if I take 

from you, I have got to give to you in the same way, so if I am a 

publicly owned utility with transmission facilities and I take service under one of those new open-access transmission tariffs, I have 

to provide the same service to you. 

Now, this is a back door way of getting at the publicly owned 

utilities to encourage them to come forward, but it is working because in my conversations with publicly owned utilities that do own 

transmission-and they are relatively few in the 2,000-plus community of public power systems-they are all looking at the prospect or planning the filing of open-access transmission tariffs. But 

I say they are also, of course, subject to FERC's authority. If an-
64 

other utility says, we ·want this transmitting public power utility 

to transmit power for us, they can be taken before FERC in a proceeding under the provisions of the Energy Policy Act. 

The Commission also is encouraging transmission access from all 

providers and all transmission owners through the creation of and 

the conditioning of regional transmission groups by requiring regional transmission groups when they come forward to have in 

their transmission tariffs the same kind of comparability provisions 

that we are seeing now in the notice of proposed rulemaking. Many 

public power systems are participants in these regional transmission groups, and they are participating with full knowledge that 

this is a requirement of the Federal Energy Regulatory Commission. 

Now, as to the issue-and I don't want-I spent a lot of time on 

that because it is a very important issue, and how public power 

plays into this competitive environment and what our expectations 

are in terms of transmission access and making our facilities available to others. As to regulatory jurisdiction over public power systems by the Federal Energy Regulatory Commission, there has 

been no necessity for such jurisdiction; regulatory jurisdiction has 

been an instrument for protecting consumers, and local public 

power systems are owned by and responsible to the consumers that 

they serve, and they are in fact very effectively regulated by the 

elected officials or the appointed officials that operate and manage 

and oversee the responsibilities of those public power systems. 

Mr. DOOLITTLE. Thank you. 

Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

To Mr. Schreiber first, you referenced the mail service. I have 

been through these privatization arguments, and I am not one who 

says the government should keep doing everything it has been 

doing; but on the other hand I always take a little bit of a jaundiced view. 

Now, sure, overnight mail, great; what about delivering first 

class mail at 32 cents a shot to Canary, Oregon? Is there a lot of 

interest in the private sector in doing that at that price and providing an integrated Federal system which provides First Class Mail 

service at a third of a dollar to every American and every person, 

and business resident in this country? 

Mr. SCHREIBER. I don't know. Have we tried it? Have you put it 

out for bids? 

Mr. DEFAZIO. I think the answer would be clearly no. They want 

the profit centers, and that is understandable. Everybody wants 

the profit centers, you know it would be great to just have to deal 

with densely populated commercial areas or even urban areas, as 

opposed to having to provide rural delivery. I think the same example holds here with, you know-in part, particularly for rural coops and others. 

You heard Mr. Cooley and other members perhaps earlier who 

represent districts even more rural than mine. There is a question 

of, you know, who is going to want to string or continue to maintain three miles of line to serve a single farm house. You know, I 

suppose as long as we have regulated utilities, they will have to because the PUCs in the various States are required. But I don't see 
65 

that as being the real fight here; the real fight is over some very 

potentially profitable transmission in the case of these Federal entities, and also some very profitable prior-existing generation. 

I don't blame you. You are going to sell the bonds and make 

money on that, and that is great. Everyone wants to make money. 

But I have to come at it from a little different perspective; how are 

the people of the western United States best served and how can 

we provide the lowest cost? 

I guess here is the gist of it. If we are to sell these things, someone is going to have to, and apparently there is a tax exempt way 

to do it, I wasn't aware of the Tucson example, but let's just say 

they had to issue taxable bonds. What would be for-say, the billion dollar purchase price of the Arizona portion of W AP A, what 

would be the going market rate if someone wanted to issue a billion-dollar taxable bond on a utility project? 

Mr. SCHREIBER. Well, you have to tell me what the credit rating 

is; you have to tell me--

Mr. DEFAZIO. Whatever Tucson has, they are the ones who want 

to buy it. What is their credit rating? 

Mr. SCHREIBER. Well, Tucson, they are a noninvestment-grade 

rated company. 

Mr. DEFAZIO. What does that mean? 

Mr. SCHREIBER. That means the market for those bonds is severely limited. 

Mr. DEFAZIO. You mean, they would be like junk bonds? 

Mr. SCHREIBER. Well, they are not junk bonds. 

Mr. DEFAZIO. We had them up here earlier and they were being 

offered as the paragon of a bidder for this Federal entity, and now 

you are telling me you wouldn't want to sell their bonds or they 

wouldn't be rated? 

Mr. SCHREIBER. I never said-! would love to sell their bonds, because I make more money selling those kind of bonds than I do investment grade bonds; but the point is--

Mr. DEFAZIO. So they are nonrated. What would they go for? 

Mr. SCHREIBER. A nonrated bond. What is the maturity? 

Mr. DEFAZIO. Let's-you guys are all the experts. Whatever you 

want to market them for. What do you think is ideal here, 30 

years? 

Mr. ScHREIBER. You can't generalize because you could set up a 

structure--

Mr. DEFAZIO. We have just generalized on selling all of these 

Federal power marketing agencies, but now I want to get a little 

specific and talk about someone who testified earlier that they are 

a bidder, they have gotten written up in the Wall Street Journal. 

I assume they are a great example of what we are about here. It 

is the only specific example I have got before me, and you can't 

give me a number. Let's just say 30 years. You told me they are not rated, fine, so 

you have got junk bonds, 30 years, a billion dollars for what they 

were written up about in the Wall Street Journal. 

Mr. SCHREIBER. Nine-and-a-half percent. 

Mr. DEFAZIO. Boy, that is spending. So a billion dollars, 9.5 percent, 30-year amortization. What would that be on an annual 

basis? 
66 

Mr. ScHREIBER. Well, the interest alone is almost $100 million. 

Mr. DEFAZIO. And they are not going to raise the power rates? 

This seems to me a miracle, like loaves and fishes. 

The gentleman from APPA, could you comment? You guys must 

be incredibly inefficient, that is all I can say. 

Mr. SCREIBER. Could I--

Mr. DEFAZIO. No, I am talking to the public power folks now if 

I could. 

Mr. ScHREIBER. Could I just answer oneMr. DEFAZIO. Sure. 

Mr. SCHREIBER. You made a comment earlier about transmission. 

The competition that the investor-owned utilities are facing is on 

the generation side of the business. Your transmission will continue to be regulated by FERC, distribution will continue to be regulated at the State level, so the fear that you have or the concern 

that you have that somehow there will be stranded, potential consumers out there I think is not realistic in the world in which companies operate today. 

Mr. DEFAZIO. Well, I don't know. We had been talking a little bit 

about stranded investment earlier, and we heard the figure of $200 

billion from Ms. Moler, that has certainly got to be a concern to the 

IOUs and the public power in a retail wheeling atmosphere. 

Mr. SCHREIBER. That is an investor concern, not a customer concern. 

Mr. DEFAZIO. Then that gets to customer concerns ultimately because somehow we have got to pay off that $200 billion of stranded 

investment. Someone has got to carry the costs, and I suspect it is 

going to be the ratepayers, probably not the stockholders; and in 

the case of public power, there aren't stockholders so it has to be 

the ratepayers. 

Mr. SCHREIBER. I don't think that is a valid conclusion, either, 

because the stockholders in these companies are the ones that are 

bearing the risk that things are going to operate the way they had 

thought they were going to operate when they made the investment. This is a huge change to them, and I think you are going 

to see tremendous losses by investors at a time when you have said 

yourself your customers in your district are fmding rates cheaper 

and cheaper. The customer is the one who is going to benefit 

through this whole process; the investor is not going to beMr. DEFAZIO. I didn't advocate Ms. Moler's world or retail wheeling because I see the problem of the stranded investment and don't 

believe it is something you can make an abrupt transition to. And 

in the case of California, it was totally nonsensical, what they said: 

We will allow people to add this on to the cost of the new power. 

So you would have the new power transmitted, which is theoretically cheaper, but by the time you add on all the amortization costs 

of the sunk investment and the stranded investment, the consumer 

is going to end up paying in the aggregate more for their power, 

but there would be two different entities making money on it. It 

is an interesting world. The gentleman from APPA, could you comment on that? Just tell 

me, I just heard now that theMr. RICHARDSON. The question--
67 

Mr. DEFAZIO. The major offer we have out here is pending from 

a utility that would have to pay 9.5 percent, and they told meunfortunately, I couldn't get back to ask the gentleman some questions, but I saw in their testimony, 5 percent rate increase over five 

years. That seems to me to be miraculous. 

Mr. RICHARDSON. That is silly as far as I am concerned. 

Mr. DEFAZIO. What do you mean, silly? 

Mr. RICHARDSON. I can't believe that they can, with the interest 

rates we are talking about here, with the amount of money they 

are proposing to put up, that they can meet the conflicting goals 

of maximizing the return to the revenue and holding ratepayers 

hannless seems to me to be nonsensical. 

Mr. SCHREIBER. But you are assuming here---

Mr. DEFAZIO. Excuse me, it is this gentleman's time. 

Go ahead. 

Mr. RICHARDSON. Perhaps you are suggesting, or it is being suggested that they can extract greater efficiencies out of the system; 

and there is no question in my mind that there are some additional 

efficiencies that can be extracted from the system. In fact, many of 

my members see ways that they can, in fact, enhance the value of 

these resources. It does not involve the sale of Power Marketing 

Administrations, although it may involve greater responsibility in 

the hands of the local systems that are paying the bills and directly 

responsible. 

But to think you can squeeze greater efficiencies out of these systems, generate more power and enough power to come up with the 

difference in the price that would have to be paid when you increase-maximize the value to the Treasury, pay very high interest 

rates and still hold customers hannless, I don't see how it can be 

done. 

Mr. DEFAZIO. So we are back to perhaps more than a 5 percent 

over five years? 

Mr. RICHARDSON. Yes. 

Mr. SCHREIBER. But you don't know because this is an economyof-scale business, and through integration-! mean, strategic buyers pay a lot of money for an asset when it fits into the overall system, OK? And so we are dealing in hypotheticals here, and the only 

way to really know is to set some rules by which bidders will come 

into-at a date certain and issue their bids. 

Now, as far as Tucson is concerned, you asked me what it would 

be on Tucson's credit. I could structure that deal where it would 

get an investment grade rating and the bond rating would be probably something on the order of 8 percent, and the overall cost is 

going to be substantially lower. So, you know, the hypotheticals 

that we throw out here bear no relevance to what is going on in 

the marketplace. 

The only way to find out is to decide what you think is important, what environmental concerns are important, what consumer 

concerns are important, the goal of trying to maximize the amount 

raised to help reduce the amount of Treasury debt that is going to 

have to be financed, and see who will pay the highest price. 

Mr. DEFAZIO. Now, what if we pass on-we have concerns on the 

lower Colorado in tenns of, you know, the height of the water, so 

we are going to put restrictions on generation that go to time of 
68 

day, amount of water that can be put through the generators-of 

course, we have flood control concerns-spill at certain times that 

is not economic, and all those sorts of things. 

Perhaps we should even think of selling the dams as opposed to 

just-! mean, it would be nice to just buy the generation but, gee, 

I think maybe the responsibility of operating the flood control and 

everything else that goes with the dams should be part of the package. 

Mr. SCHREIBER. That is fine. If you want to make that as a part 

of the condition of the process. 

Mr. DEFAZIO. Wouldn't that lower the value, though, if we are 

going to add all those? 

Mr. SCHREIBER. It all affects value. You have public interest concerns. You put those in the bidding documents, and you let investors say what they are worth, and you know, the allowance-the 

Alliance has no-we don't compete with anybody, OK? 

We are just saying that-let public power, let the co-ops compete. 

I mean, they have a subsidized cost of capital. I don't know what 

they are afraid of in getting into a competitive situation where they 

pay the market-determined price for these assets. I don't understand what their fear is. By definition, you would think they would 

be winners because they got a lower cost of capital coming right out 

of the box. 

Mr. DEFAZIO. Well, we heard that, apparently, Tucson has had 

two interests at least, federally tax exempt, or was it State tax exempt? 

Mr. RICHARDSON. No, federally tax exempt. 

Mr. DEFAZIO. federally tax-exempt bond issuance. So they apparently got a subsidy somehow, too. I don't know how that works. 

Mr. SCHREIBER. But be that as it may, you have set the criteria 

by which you want to see bids come in at; on a date certain, you 

tell everybody to submit their bids. 

Mr. DEFAZIO. I think we are going to go forward with a study 

and an assessment. Whether we get exactly to the point of bids, I 

guess that is another question. Again, I am puzzled, and I regret 

I wasn't here for the gentleman from Tucson, but what is their 

problem that they are not rated? Well, they have issued debt because they have done this $350 million. Well, why aren't they 

rated? 

Mr. SCHREIBER. I think they are rated. The fact of the matter is, 

they are rated, but they have a noninvestment grade rating. 

Mr. DEFAZIO. So then people aren't maybe looking at their management and thinking it is a paragon of efficiency? 

Mr. SCHREIBER. I think again you are making a great leap of 

faith here. 

Mr. DEFAZIO. No, I am just curious. Even BPA has a decent rating, and BPA is a management disaster. I can't imagine what 

somebody who isn't rated must be doing. 

Mr. SCHREIBER. Yeah, but-! mean, you mentioned BPA; they 

also had the WPPS situation. 

Mr. DEFAZIO. Right. That is a management disaster; it was a 

very, very bad decision. 
69 

Mr. SCHREIBER. You can look at Tucson's history prior to Mr. 

Bayless joining the company and you will see a similar type of disaster, OK? That is not--

Mr. DEFAZIO. Well, we may be looking for a new administrator 

soon, maybe we can bring him over. But my time has long expired. 

I thank the Chair for his generosity. 

Mr. DOOLITTLE. I thank the witnesses for their testimony. We 

will ask you to respond to any additional questions we may have 

in writing, and we will keep the record open for your responses to 

come in. 

With that, we will conclude the subcommittee hearing. Thank 

you very much. 

[Whereupon, at 2:44 p.m., the subcommittee was adjourned; and 

the following was submitted for the record:] 
70 

HONORABLE SCOTT KLUG'S TESTIMONY ON THE 

PRIVATIZATION ON THE 

POWER MARKETING ADMINISTRATIONS 

BEFORE THE HOUSE RESOURCES SUBCOMMITTEE ON 

WATER AND POWER RESOURCES 

MAY 18, 1995 
71 

Privatizing the U.S. Department of Energy's Power Marketing Administrations is an 

initiative that is long overdue and I am pleased, Mr. Chairman, that this Committee is 

exploring the various options to remove these functions from the federal government. In the 

discussions between the Administration and Congress, there is strong consensus on two main 

points: 

1) Since the 1930's, the PMAs have served their purpose successfully, to facilitate regional 

development by providing below market and at cost power. 

2) The U.S. electric industry is becoming more competitive, i.e. the interconnection of local 

utilities, the growing significance of independent suppliers, and the use of wholesale power 

markets. The industry's competitive structure has the potential to reduce the cost of power 

and increase service reliability. Government subsidized power prevents the American public 

from enjoying the benefits of increased competition. 

Please refer to the attached map of the privatization of power in the world. The United 

States remains clearly behind the curve in terms of the world economy. We now have the 

opportunity to save taxpayers approximately $316 million of appropriations every year by 

privatizing the PMAs. The annual appropriations for the five administrations are: 

• Alaska Power Administration (FY95 = $6.5 million) 

l 
72 

• Southeastern Power Administration (FY95 = $22.5 million) 

• Southwestern Power Administration (FY95 = $21.3 million) 

• Western Area Power Administration (FY95 = $266 million) 

• BoMeville Power Administration (Debt = $3.7 billion) 

In anticipation of the deregulation of the power industry and competition on the rise, 

it would make sense to stop the federal government from marketing this power. The PMAs 

currently make up nearly 1/3 of the Department of Energy payroll and markets 6 percent of 

the nation's total energy production. Given current fiscal realities, taxpayers should not be 

forced to pay for the federal government's competition with the private sector. 

In addition to the Administration's proposal and the House Budget Resolution proposal 

some private utilities have put forth their own ideas of how the PMAs should be privatized. 

I want to explore these various options and offer my own recommendations on how the 

PMAs should be privatized. Because the privatization of the Alaska Power Administration 

is approaching its final stages, I will primarily focus on Southeastern Power Administration, 

Southwestern Power Administration, Western Area Power Administration and BoMeville 

Power Administration. 

2 
73 

The Current Situation 

The four above mentioned PMAs currently owe the Department of Treasury approximately 

$14.4 billion. When the debt structure was established for the PMAs, construction costs 

were generally to be repaid, with interest, within 50 years of the project's beginning service. 

Operation, maintenance, and interest costs were to be repaid annually. 

PMA Debt Owed to the U.S. Department or Treasury 

Alaska Power Administration 

Southeastern Power Administration 

Southwestern Power Administration 

Western Area Power Administration 

Bonneville Power Administration 

Total 

$165 million 

$1 billion 

$678 million 

$3.6 billion 

$9 billion 

$14.4 billion 

It should also be noted that the above numbers do not include PMA projects currently under 

construction. These projects will be considered outstanding debt once they are operational. 

A perfect example is the Southeastern Power Administration's "Pump back Project •, in which 

water would be pumped back to the reservoirs when power demand is lower and run the 
74 

water back when demand is at it's peale This project has already spent roughly $400 millio!'l 

in taxpayers money. Construction has been put on hold for about 5 years now because of 

environmental concerns for the project. Because the project is neither complete nor 

operational, the $400 million is not included in SEPA's current outstanding debt. 

• Bonneville Power Administration 

The debt structure of Bonneville Power Administration is different from the other 

PMAs. The current BPA total debt load is $16 billion: 

• BPA debt to the Department of Treasury 

• BPA debt from nuclear facilities 

• Total 

$9 billion 

$7 billion 

$16 billion 

Approximately $9 billion in debt is owed to the Department of Treasury for investments in 

dams and the transmission system. An additional $7 billion is owed to the public for the illfounded nuclear construction program (the Washington Public Power Supply System, 

WPPSS) that resulted in substantial amounts of non-producing assets - an expensive error. 

4 
75 

BPA backed bonds issued by the WPPSS to finance three nuclear power projects. The 

WNP-2 is the only completed nuclear power project. The other two nuclear power projects 

were suspended in 1982 and have been preserved by BPA since. WPPSS debt service costs 

BPA over $700 million annually. In January of this year, however, the construction of the 

two nuclear plants was terminated. In essence, taxpayers have been financing the 

construction of these nuclear plants which will never be built. 

BPA management decisions also have been expensive for other reasons. Conservation 

spending has not produced the savings BPA first expected. Decisions regarding the purchase 

of other resources now suggest contracts for new power are at a cost well above current 

market levels. 

In addition to BPA's flawed management decisions, operational efficiency has not been 

emphasized over the years. Despite these problems, however, BPA still has a very 

competitive firm power rate of2.7 cents per kilowatthour. BPA's rate remains well below 

that of other traditional suppliers in the northwest and in California. Most of BPA's 

competition offers firm wholesale power at prices substantially over 3.0 cents per 

kilowatthour. 

The recent emergence of gas turbine generation suppliers, who are taking advantage 

of current low gas prices, has force BPA to respond, on the margin, to competitors offering 

contracts at prices slightly over 3.0 cents per kilowatthour. Some loss leaders are even 

5 
76 

providing power at less than 3.0 cents per kilowatthour. 

Regardless of the current and probably temporary market situation, BPA can take 

actions to prepare itself for privatization and during the interim contribute to deficit 

reduction. 

PMA Privatization Proposals 

• The Administration's PMA Privatization Proposal 

The Administration proposes to privatize Alaska, Southeastern, Southwestern and 

Western Area Power Administrations by transferring the rights to market the power to 

preference customers with net proceeds totalling $3.3 billion. I have some concerns that the 

President's proposal is unnecessarily restrictive because bidders are limited to the curren• 

customers on a first right of refusal basis. In addition, PMAs currently have flexibility to 

raise rates. The Administration's proposal restricts rate increases. As a result, the 

government will not realize the full amount of deficit reduction benefits that could be 

generated from the sale. 

By limiting the purchasers ability to make rate changes, the proposal also locks in 

subsidies that the PMAs have assumed for themselves as they determined the interest rates 

they would pay on amounts owed the Treasury. Generally, the PMAs are repaying debt at 

interest rates that are well below the government's cost of money at the time the loans were 

extended to each of the PMAs. 

6 
77 

• House Budget Resolution PMA Privatization Proposal 

Like the Administration's proposal, the House Budget Resolution would privatize 

Alaska, Southeastern, Southwestern and Western Area Power Administrations for a total of 

$3 billion from the sale. Alaska Power Administration would be sold based on the 

agreements made between the Department of Energy and the APA customers. The three 

other PMAs would become private corporations. Each of these corporations would own all 

of the current PMA facilities and the electric generating facilities such as the federal 

hydroelectric dams (currently owned by the U.S. Army Corps of Engineers and the Bureaus 

of Reclamation). The PMAs would be sold to the PMAs preference customers for the 

current outstanding total debt of $3 billion. 

My concerns for the budget resolution proposal mirror my concerns for the 

Administration's proposal. By limiting the sale to the preference customers and the price 

to the outstanding total debt to the Department of Treasury, taxpayers are not receiving the 

full return on their investment in the PMAs. 

• Proposals for Bonneville Power Administration 

BPA is not included in neither the Administration or the House Budget Resolution 

PMA privatization proposals. There is legislation, however, to refinance BPA's debt owed 

to the Treasury. This legislation is designed to lock in BPA's current annual subsidy of$450 

million. 

7 
78 

The Northwest region enjoys the cheapest electricity rate in the country- about 4.8 

cents per kilowatthour for residential retail sales. Average rates, nationally, are about 8 

cents per kilowatthour. BPA customers, such as the irrigators who use the power to pump 

water, pay only a fraction of the real value of the water. The remaining cost is paid by 

taxpayers who provide the $450 million annual subsidy. 

The legislation which has been introduced to refinance BPA's debt, like other PMAs, 

would arrange debt repayment terms that create a differential (subsidy) between the interest 

rate BPA pays on debt owed the Treasury and the Treasury's cost of money at the time the 

loans were extended to BPA. This subsidy under the legislation totals $250 to $350 million 

per year. Partially eliminating this subsidy could produce $50 to $100 million or more in 

revenue per year for deficit reduction. On BPA's $2 billion plus annual revenue base, $10\. 

million represents about a 4 percent wholesale rate increase or a 2% retail rate increase. 

This amounts to about an additional $2 per month paid by Northwest ratepayers on their 

monthly electricity bills. 

In addition, the Administration and BPA is proposing to recast itself as a government 

corporation to derive efficiencies not now available under current regulations. Although this 

assertion is suspect, (but serves BPA's purpose in explaining partly why it is having 

problems) the proposal, if adopted with stipulated time limits and a solution for WPPS debt, 

could place BPA on a path toward privatization. 

8 
79 

• Private Sector PMA Privatization Proposals 

Tucson Electric Power Company has placed their bid on W AP A assets in Arizona for 

$550 million. The bid is for all WAPA assets in the state of Arizona which includes assets 

such as the power plants and transmission lines. Tucson Electric's proposal would ensure 

that any rate increases under Tucson Electric would not differ from rate increases under 

WAPA. The offer of $250 million would come from the net present value of taxes to be 

paid on the WAPA assets after they are sold. 

Another proposal from the private sector is from the Otter Tail Power Company. 

Otter Tail proposes to privatize the Billings Marketing Area of W AP A by conducting a pilot 

project. This project would be a 5 year contract for Otter Tail to manage, operate and 

maintain the Billings Marketing Area of the W APA Pick-Sloan Project. During this time, 

Otter Tail would takeover the PMA responsibilities for this area and implement strategies to 

transition rates to market levels. By raising the power rates to market levels, Otter Tail 

proposes to increase the value of theW APA assets, thereby preparing it for sale. After the 

five year contract, the Billings Marketing Area would be up for sale, lease or renewal of 

contract without any increases. Under this contract, Otter Tail would receive a management 

fee of one mill/kwh. All revenues in excess of this cost would got directly to the 

Department of Treasury. 

9 
80 

Conclusion 

While I raised many concerns about the current proposals to privatize the PMAs, I am 

not endorsing one approach over the other. There are obviously many different possible 

implications to take into consideration such as rate shock and environmental concerns. I 

recommend that the Committee authorize an investment banking firm to study the assets and 

make recommendations from the private sector's point of view. Because every PMA is 

different, in some cases, it may make sense to sell directly to the preference: customers. In 

other cases, it may make sense to have an open bid on the assets. My main concern is for 

the taxpayers to receive the maximum return on their investment. 

10 
PMA VALUE COMP

Administration's House Budge

Selling Price Resolution 

Selling Price 

Alaska $63 Million $55 Million 

(APA) 

Southeastern $399 Million $343 Million 

(SEPA) 

Southwestern $434 Million $396 Million 

(SWPA) 

Western Area $2.436 Billion $2.260 Billion 

(WAPA) 

TOTAL $3.332 Billion $3.055 Billion 
82 

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83 

Tucson Electric Offers $550 Million 

For the Arizona Assets of U.S. Utility By BEIUAMtM A. ""'-

Siaf/ n..,..rcn •I Tllll: W'""' Snmn' IOUIUIAL 

TUcsoa Jilettr1< Pinier Co. IIU olfered 

1550 million In cull for tile Arlmna-bued 

wetsolthefedenii)'OwuedWeslfnlAre& 

Power Admlnlslnlloa, AJ peaple lamlllar 

wllh the situaUon. Cbarles B. Baylell. dlalralaD of TileSOli EII!CU\e. CDidlrmm 11111 b1s CUIIIII8IIJ bid "'In Ill&! notpbartlood" for WAPA'I uansm1a1on unes. .,.._ pllatl, martet· 

Inc rtrbta 11111 0111er - 1a lilt s1a1e. Mr. Baytesa said bls _,., bid Illdudes an qreem~~~tlbatntel for nllllnc oustomera -·t rile...,.... wMlllleJ 

WOUld haft - UICI(IIIIib. lolament11111 tDnn1 prlftllzla( WAPA. 

•Jane wllb lbree Ill f-adler ............... ~eunc adnlilllllnllaa 1111 oa:e~era~ec~ 

slnoe tile Cllllalllldmlalllnllaa called lor- the dlspollllonlla llllllcal .. IIUdleL Tile sell-off Cllllllllllrlllr .. earePie Sl. T bUIIOIIOtWilft ,.aw.IICalfdiDIID die 

Department of BDIIV· 8111 a tr111e poup for lnveatoNnnled utllltlel bu put !be 

number.-rtoSibllllaL ......,fallllllu 

Wilh the siiU&IJon SlJ n-IIIIClrlc'l 

offer Is one of snenJ llllac pllllllered bJ the Oflke Ill~ wiJUdcel u the Clinton 111m- .udlel for 

souroea of reYeDue to naa- tu CUll. 

WAPA.wblcllawtea-poweriD 

IS states from fedoniiJ - - plants, proJI!ded 1115 - at •ta milllon TIIe..-r~ 11.1'34 lllllel 

.ol hlcb-vallqe ,._... - aad 251 subltatlonl or IWIIdiJU'dL n- Eieetnc. a pullllciJ - IIIIIIIJ, IU liM revenue ol sau lllllllolt ud..,.. Ill SlO.TniiUiaa,orU<BD&IItue. Bec:ause WAPA'I- lftll't -..t- ally for sale yet. n-lleclrtC hasn't 

dlscloledlls p11a1. Buill bu--1 

team of In-...-. IIIII laWJ8S, 

lndudlnr Cllue -11&11116k. Merrtn 

Lynoh lc 01.11111 Newlllrltor -· alone wllb tbo w......., D.C., o111te ol 

Reid " Priest. to 111111 - ill after. People familiar wllh tbo sllttaliaiii&J tile d~al wOUld be fkWICell 7ft wtUI debt &ad 

30'J. wllh new priYite ..,U,. Mr. Bayless c:atlllnttltl IIIII bo aad 

another Tltcsoa lleclrtC _.,. "'" met twice - BneiV .,..._ olft· cials In WUhlnctaL fa ~. !be 

company wrote to l'nlldlllt CIDIDn ••· premnr lnlensl Ia-WAPA UMIS. In Fdlruary, Mr. aJ-. -IIKL Tile ........ flllllll&r ..... !be lltuaUon say Tucaoa lleclrtC ~ 1 dllllled 

bid kiter to tile----. 

d<scriblll( tile ttnlllud .---

Which the - - poorchue WAPA'I Arllllal·bued -. Tilt after 

said ... llddllloall1251-pill- be reallud by tbo __. u 1 result of the not presentvatueoiiUftto be paid 

on the WAPA UM1S af1er pi1YIIIsalioa. Bill Wlcter. u -., Dopaspoilesman, said. ''We don't comment 011 

SJ)fC:IIIt bkll, bul W ..... nai'ftd IIIIIIJ, 

many •IJiftll-allallnlll.-a-· ber of pWIIdJ owned ullllllellllll & ftUIII· 

berot eustomora -arevorytntoreatedln 

buyinc nne o1 the"' """"·..ut:IUIIC 14· mln~scn.unns. 

P••nnh• f:un1li:11' u.•ilh th10 citu!'llltrl"' o:·u• 

WALL STREET JOURNAL 
Comparison of PMA Average Prices 

Calculated from IOU Prices 

(cents/kWh) 

PMA . "Market" Weigh

. Average. .8m!9.! Avera

Alaska 2.49 

Bonneville 2.74 2.22-4.94 3.54 

Southeastern 

GA·AL·NC-SC 2.35 2.37-5.97 3.54 

KERR-PHILLPOT 2.11 2.86-4.64 3.82 

JIM-WOODRUFF 2.44 2.61-5.97 4.81 

CUMBERLAND ill 1.55-4.12 ~ 

TOTAL 1.89 3.11 

Southwestern 1.23 1.7-5.09 2.76 

Western 

PHOENIX 1.56 2.66-3.48 3.29 

SACRAMENTO 2.48 3.34~5.16 3.86 

LOVELAND 1.98 2.28-3.94 3.22 

BIWNGS 1.36 1.14-4.24 2.13 

SAL! !,AI!;~ CITY 1.§2 2.67-3.94 3.35 

TOTAL 1.81 3.09 

Aft Pre pa red by the EOP Group, In
85 

Cittzcrls Agatnst 

Energy Subsidies 

May4, 1995 

The Honorable Mark Adam Foley 

U.S. House of Representatives 

506 Cannon HOB 

Washington DC 20515 

Dear Representative Foley : 

The November 1994 electiQn represented a dramatic cry from the 

American people for change. They want a government that works better and 

costs less. They want their representatives to take a hard look at this nation's 

budget and make the tough choices they have to make with their own budgets 

every single day. For a long time, individual Americans have had to 

re-examine their spending habits and determine how and where they can 

spend their . hard earned money more effectively. The United States 

government is being asked to do the same thing. 

One policy that needs to be re-examined is federal subsidies provided to 

government-owned electric utilities and to rural electric cooperatives. 

Government-owned electric utilities that serve less than 24% of all American 

electricity consumers are the direct beneficiaries of numerous subsidies that 

translate into a heavy tax burden to the majority of Americans. In fact, 76% of 

the nation's electricity consumers don't benefit from these programs at all. The 

government does not need to be in the electric utility industry. 

America's electric power utilities are now entering a new era of competition 

that will bring enormous benefits and lower costs to all consumers. Citizens 

Against Energy Subsidies (CAES) is a diverse coalition of taxpayer, 

consumer activist, senior citizen and small business organizations. We urge 

you to support privatization of the Power Marketing Administrations (PMA's) 

through sale to the highest bidder, and without onerous restrictions on the 

sale of power. If the sale of the PMA's is not based upon a free, fair market 

sale, the cost to the American taxpayer will be enormous. 

CITIZENS AGAINST ENERGY SUBSIDIES 

1320 Eighteenth Street N.W. Su"• 200 W~on. D.C. 20036 202·785-02611 fox 202-7~261 
May 4, 1995 

Page Two 

86 

Additionally, the rural electric loan programs are in dire need of reform. 

These programs do not make sense in the 1990's and are too costly in today's 

fiscal environment. Rural America has changed dramatically since the New 

Deal; it is time for the rural electric loan programs to catch up. 

Your support for these important reforms will send a strong message to 

the American people that you are committed to meeting their demands for a 

government that costs less and works better for all Americans. 

Sincerely, · 

fb,f/~ Grover R. Norquist 

On behalf of Citizens Against Energy Subsidies: 

Americans for Tax Reform 

Association of Concerned Taxpayers 

Business Leadership Council 

Citizens Against Government Waste 

Competitive Enterprise Institute 

Consumer Alert 

Frontiers of Freedom 

Independence Institute, CO 

National Center for Policy Analysis 

National Tax Limitation Committee, CA 

National Taxpayers' Union 

Pennsylvania Leadership Council 

Seniors Coalition 

Small Business Survival Committee 

United Seniors Association 

Yankee Institute, CT 

CITIZENS AGAINST ENERGY SUBSIDIES 

1320 E'tgh1oen1h St.- N.W. Suite 200 W~on. O.C. 20036 202·185-02M lax 202·785-02&1 
87 

STATEMENT BY 

ELIZABETH A. MOLER, CHAIR 

FEDERAL ENERGY REGULATORY COMMISSION 

BEFORE THE 

SUBCOMMITTEE ON WATER AND POWER RESOURCES 

UNITED STATES HOUSE OF REPRESENTATIVES 

MAY 18, 1995 

Mr. Chairman and Members of the Subcommittee: 

It's a pleasure to be here this morning to discuss the 

Federal power marketing administrations (PMAs) and issues related 

to transferring the PMAs' facilities and functions to non-Federal 

entities. My testimony will first focus on the Federal Energy 

Regulatory Commission's limited jurisdiction over the PMAs under 

existing law. It will then discuss the jurisdi ctional 

implications if the PMAs' facilities and functions are 

transferred to non-Federal entities, and the importance of PMA 

transmission facilities in light of competitive changes in the 

electric utility industry. 

There are two key points I would emphasize: 

First, the electric utility industry, which historically has 

been comprised of vertically integrated monopolies, is rapidly 

undergoing a transition to a much more competitive industry. We 

believe the market for ~ generation capacity -- that is, those 

who build new powerplants to generate electricity -- is already 
88 

-2-

competitive. We are looking at whether existing generation 

markets can be made more competitive. We believe that a much 

more efficient wholesale market, where buyers and sellers of 

generation capacity can easily conduct transactions, will save 

consumers money and is in the public interest. We are trying to 

encourage that to happen. 

Transmission facilities are now regulated and operated as 

traditional monopolies. We must change that: and we have 

proposed a rule that would do so. Competitive generation markets 

can be achieved only if monopoly controllers of the nation's 

transmission grid open their transmission systems, on a nondiscriminatory basis, to all wholesale users. Some of the PMAs 

own significant amounts of transmission facilities. Any 

legislation permitting the transfer of PMA facilities should 

ensure that the PMA transmission systems are subject to open 

transmission access requirements being imposed on other 

transmission owning utilities. 

Second, PMA hydroelectric generating facilities are located 

at Federal government dams operated by the Corps of Engineers or 

the Bureau of Reclamation. These generation facilities are not 

under Commission license.because.they~re Federal facilities. 

However, they could become subject to mandatory Commission 

licensing if they are transferred. Any legislation transferring 

these facilities from federal operations and control should be 
89 

-3-

clear as to whom, if anyone, is responsible for regulating them. 

If the commission is responsible for their regulation, thP 

legislation should specify which project works would come under 

the Commission's jurisdiction, and should clarify whether and 

when a licensing process should be undertaken. Congress should 

resolve the uncertainties associated with these licensing issues 

in order to facilitate the sale of the PMA facilities and to 

enhance their market value. 

Existing Authority Qytr PM&• 

There are five Federal power marketing administrations: the 

Alaska Power Administration (Alaska); Bonneville Power 

Administration (Bonneville); Southeastern Power Administration 

(Southeastern); Southwestern Power Adainistration (Southwestern); 

and Western Area Power Administration (WAPA) . The PMAs market 

surplus power generated at dams operated by federal agencies, 

principally the Corps of Engineers and the Bureau of Reclamation. 

Certain of the PMAs also provide what we call "unbundled" 

transmission. In brief, that means they make transmission 

services available to third parties. In marketing power, the 

PMAs are required to give priority to "preference" customers; 

they are generally defined as non-investor owned utilities, such 

as cooperati-ves ·and ·municipalities. 

The Federal Energy Regulatory Commission regulates the rates 

of each PMA . However, our rate authority is very limited. PMAs 
90 

-4-

are not subject to the regulation (rate and otherwise) that 

applies to privately owned utilities. While the Commission must 

confirm and approve PMA power and transmission rates, we do not 

evaluate PMA rates under the traditional just, reasonable, and 

non-discriminatory standard applied to public utility rates under 

the Federal Power Act. 

We have particular statutory authority over Bonneville's 

rates. Pursuant to the Pacific Northwest Electric Power Planning 

and Conservation Act (Northwest Power Act), the Commission must 

confirm and approve, on an interim and final basis, Bonneville's 

rates. Under section 7(a)(2) of the Northwest Power Act, the 

Commission evaluates Bonneville's rates for sales within the 

Pacific Northwest region to ensure the rates: (a) are sufficient 

to repay the Federal investment in the Federal Columbia River 

Power System over a reasonable number of years after first 

meeting Bonneville's other costs; (b) are based on Bonneville's 

total system costs; and (c) insofar as transmission rates are 

concerned, equitably allocate the costs of the Fede:ral 

transmission system between all users of the system, Federal and 

non-Federal. 

Under section 7(k-} -of the -Northwest -Power Act, the 

Commission evaluates Bonneville's rates for sales outside the 

Pacific Northwest region to ensure the rates are established: 

(a) having regard to the recovery of the cost of generation and 
91 

-5-

transmission of such energy; (b) so as to encourage the most 

widespread use of Bonneville power; (c) to provide the lowest 

possible rates consistent with sound business principles; and 

(d) in a manner which protects the interests of the United States 

in amortizing its investments in the projects within a reasonable 

period. 

The Commission also confirms and approves rates of the other 

PMAs, on a final basis only, pursuant to delegation from the 

Secretary of Energy. Under the Delegation Order, the Commission 

evaluates the other PMAs' rates to ensure that the rates are: 

(a) the lowest possible consistent with sound business 

principles; (b) sufficient to recover the costs of producing and 

transmitting power, including repayment of the Federal 

investment; and (c) consistent with the assumptions and 

projections used in developing the rates. 

Significantly, the Commission can only approve, disapprove 

or remand a PMA's proposed rates. Unlike our regulation of 

public utility rates, the Commission cannot modify a PMA's 

proposed rates. 

In addition .to_~imited ra.ta.regulation of the .. PMAs' 

voluntary power and transmission rates, the commission also has 

limited authority to order them ~o provide transmission service. 

Each PMA, with the exception of Southeastern, owns or operates 
92 

-6-

electric power transmission facilities that are used for the sale 

of electric energy at wholesale. As such, Alaska, Bonneville, 

Southwestern and WAPA are "transmitting utilities" as defined in 

section 3(23) of the Federal Power Act, as amended by the Energy 

Policy Act of 1992. This means that the Commission can order 

them to provide transmission services, upon application and 

pursuant to certain procedural requirements, under sections 211 

and 212 of the Federal Power Act. There are special provisions 

(section 212(i) of the Federal Power Act) that apply only to 

Bonneville. To date, the Commission has not received any 

applications under section 211 asking the Commission to order any 

of these PMAs to provide transmission services. The Commission 

cannot order the PMAs to provide transmission services under any 

other provisions of the Federal Power Act nor do we regulate 

their rates under any other provision of the Federal Power Act. 

The Commission has no licensing authority over the 

hydroelectric generating facilities from which the PMAs market 

power. 

T:::ansfer of PMA Facilities 

The Secretary of Energy has recently proposed to study and 

prepare separate .plans_ to_ transfer .. control .of. the .. facilities and 

functions of southeastern, Southwestern and WAPA to non-federal 

entities. In addition, H.R. 310 was introduced in the House of 

Representatives on January 4, 1995. H.R. 310 authorizes and 
93 

-7-

directs the Secretary of Energy to sell the physical assets, and 

terminate the operations, of the PMAs. 

The regulatory consequences of any legislation will, of 

course, depend upon the specifics of any adopted proposal. 

Depending upon who acquires the PMA assets, that entity could 

become subject to Commission regulation as a public utility under 

Part II of the Federal Power Act. In addition, there are 

implications for the Commission's hydroelectric licensing 

authority under Part I of the Federal Power Act. If the PMAs' 

hydroelectric power facilities become non-Federal facilities that 

use surplus water at a government dam, they would be subject to 

mandatory licensing by the Commission, unless exempted, or unless 

a special licensing regime is established, by the legislation. 

Transmisaioa/Sales for Resale Issues 

If the acquiror of PMA facilities is a public utility, ~. 

an investor-owned utility that owns or operates facilities used 

for transmission in interstate commerce or sales for resale in 

interstate commerce, it would be regulated by the Commission. 

The Commission would regulate the rates, terms and conditions of 

transmission in interstate commerce, and sales for resale of 

electric energy in interstate-- commerce,- by··such public utility. 

This would include transmission and sales involving the newlyacquired PMA facilities. All rates, terms and conditions would 

have to be just, reasonable, and not unduly discriminatory or 
94 

-apreferential under sections 205 and 206 of the Federal Power Act. 

The Commission also would regulate any merger, acquisition or 

disposition of jurisdictional facilities by the public utility, 

as well as its accounting practices and possibly issuances of 

securities. 

If the acquiror of PMA facilities is not a public utility, 

for example if it is a municipality or cooperative, the 

commission would not have the rate or corporate regulatory 

authority. We would, however, have limited authority under 

sections 211 and 212 of the Federal Power Act to order 

transmission services, on a case-by-case basis, over the newly 

acquired PMA transmission facilities. 

The issue of future jurisdiction over PMA transmission 

facilities is particularly important given competitive changes in 

the electric utility industry and the Commission's recently 

proposed requirements for the majority of owners and controllers 

of interstate transmission. If the acquiror of PMA assets is not 

a public utility, it would not be subject to these requirements, 

discussed below. 

Open Access Bu1eaakinq . P;opoaal 

On March 29, 1995, the Commission issued a notice of 

proposed rulemakinq that would require all public utilities that 

own or control interstate transmission facilities to provide non-
95 

-9-

discriminatory open access transmission services (Open Access 

NOPR). PUrsuant to our authority to remedy undue discrimination 

under sections 205 and 206 of the Federal Power Act, we propose 

to require that all public utilities offer transmission services 

that are comparable to the services they provide themselves when 

they ·use their own transmission systems to make wholesale sales 

or purchases of electric energy. 

We believe that open access is necessary to eliminate 

existing utility practices that are unduly discriminatory and to 

have competitive bulk power markets in which all wholesale 

sellers can reach all wholesale buyers. We concluded that 

ordering transmission service on a case-by-case basis under 

section 211 of the Federal Power Act, by itself, is not 

sufficient to remedy undue discrimination. This is because 

section 211 service is not a substitute for open access service, 

~, service on request. Many competitive opportunities will be 

lost if customers have to go through the procedural requirements 

of a case-by-case request. 

The proposed rulemaking recognizes that in order for bulk 

power markets to be fully competitive, at a minimum all 

transmission · faci1i ties, · includ·inq · those · of ··the PMAs and other 

non-public utilities, should. be available for wholesale 

transactions under tariffs of general applicability. However, 
96 

-10-

under existinq laws, the Commission does not have authority to 

order open access transmission _by non-public utilities. While we 

can order these entities to provide access on a case-by-case 

basis under section 211, we cannot order them to provide open 

access.-

certain of the PMAs, notably Bonneville and WAPA, own 

siqnificant transmission facilities. These facilities should not 

be used in the future to block competition and should not be 

immune from havinq to offer open access transmission services. 

Both Bonneville and WAPA have joined the Western Reqional 

Transmission Association, a voluntary reqional transmission qroup 

(RTG) comprised of public utilities and non-public utilities who 

have aqreed to provide open access to other aembers of the qroup. 

We do not know how Bonneville and WAPA plan to implement their 

open access commitment. Moreover, there is no assurance that 

comparable transmission will be available if their transmission 

facilities are sold. Nor have they aqreed to provide open access 

to non-RTG members. 

If any sale or transfer of the PMAs' transmission facilities 

is to a public utility, the facilities would, under current law, 

be subject .. to .any_ open.. .access .. .require.ent finally adopted by the 

Commission. In the event they are not sold or transferred to a 

public utility, I would recommend that the leqislation 
97 

-11-

specifically require that non-discriminatory open access 

transmission services be provided by the entities who purchase 

the transmission facilities under tariffs subject to the 

jurisdiction of the Commission. 

·By4roelectric Licensing Issyes 

If Congress does not intend to make PMA hydroelectric 

generating facilities subject to the Commission's licensing 

jurisdiction, proposed legislation should specifically exempt the 

facilities from Part I of the Federal Power Act. Because such an 

exemption might result in the facilities being subject to 

regulation by a state regulatory authority, the congress, if it 

decides to exempt the facilities from FERC's licensing authority, 

should also address the appropriate role, if any, for state 

regulatory authority. 

If PMA hydroelectric generating facilities are made subject 

to the Commission's jurisdiction, the legislation should provide 

guidance as to what, if any, special status these facilities 

would have. Absent instructions to the contrary, the Federal 

Power Act would require us to commence licensing proceedings for 

such facilities. The Federal Power Act requires the Commission 

to give equal- considera-tion to-the- developmental and 

environmental values of a project. Even assuming that the dams 

at which the generating facilities are located remain federal, 
98 

-12-

and therefore beyond the co .. ission's jurisdiction, we would have 

jurisdiction over power qeneration facilities located at those 

dams. They would have to be licensed. A Commission license 

could, for example, require a reduction in qeneration in order to 

benefit water quality and other resource values. The imposition 

of appropriate environmental mitiqation and enhancement measures 

typically affects the economic benefits of a licensed project. 

Moreover, the licensinq of some of these facilities could take 

several years. Clearly Conqress should address these important 

licensinq issues in order to facilitate the transfer of the PKA 

facilities. As I said earlier, resolvinq the uncertainties about 

licensinq should facilitate the sale of the PKA facilities and 

enhance the taxpayers' return on the facilities. 

summarv 

As Conqress considers transferrinq the facilities and 

functions of the PMAs to non-Federal entities, I urqe you to 

consider the importance of PMA transaission facilities in the 

context of the siqnificant competitive chanqe occurrinq in the 

electric utility industry. Any leqislation should ensure that 

the facilities are operated on an open access basis so that the 

new owners of those facilities cannot use transmission monopoly 

power to block competition. I a·l-so ··recommend that the 

leqislation clearly indicate who has responsibility for 

requlatinq the hydroelectric qeneratinq facilities that are 
-13-

transferred. We would be pleased to work with the Committee and 

your start to address these important issues. 

I would be happy to answer any questions you may have. 
100 

Statement of 

Charles E. Bayless 

Chairman, President and CEO 

Tucson Electric: Power Company 

On Behalf of the Edison Electric: Institute 

Before the Subcommittee on Water and Power Resources 

House Resources Committee 

U.S. House of Representatives 

On the Potential Transfer of the Power Marketing Administrations 

Out of Federal Ownership 

May 18,1995 
101 

Good morning, Mr. Chairman and Members of the Subcommittee. I am Charles E. 

Bayless, Chairman, President and CEO of Tucson Electric Power Company, a shareholder-owned 

electric utility which serves over 294,000 customers in southern Arizona. I am here today on 

behalf of the Edison Electric Institute (EEl). EEl is the association of the nation's shareholderowned electric utility companies. Member companies of EEl generate approximately 79 percent 

of all the electricity in the country and provide electric service to 76 percent of all ultimate electric 

customers in the nation. We appreciate the opportunity to appear today to explain why we 

support the sale of the Power Marketing Administrations (PMAs) and the principles we believe 

should govern the sale. 

My primary message is that privatizing the PMAs can yield substantially more funds for 

the federal Treasury than the net present value of the outstanding PMA debt while also providing 

rate protection to current customers. There m electric utilities interested in purchasing the 

PMAs. Tucson Electric is one such company. We have "put our money where our mouth is" by 

making a bid for some of the Phoenix-area assets of the Western Area Power Administration 

(W AP A) that is significantly above the net present value of the outstanding debt for those assets. 

It includes an agreement that, as a result of the sale, rates for current customers will not rise 

above what they would have absent the sale. 

SALE OF THE POWER MARKETING ADMINISTRATIONS 

EEl's member companies support the sale of the PMAs' transmission systems and the 

associated federal hydroelectric generating facilities currently operated by the Army Corps of 
102 

Engineers and the Bureau of Reclamation. 

We believe sale of the three PMAs currently under consideration - the Southeastern, 

Southwestern, and Western Area Power Administrations- makes sense for a number of reasons. 

It is an opportunity to reduce the size and cost of the federal govenunent. It can add billions of 

dollars to the federal Treasury at a time when painfUl cuts are of necessity being made elsewhere. 

It can reduce the federal government • s role in generating and transmitting electricity while 

expanding opportunity for other electricity suppliers. And it can further the nation • s energy 

policy, which promotes competition in the wholesale electricity market. 

Whether these goals will be achieved, or lost, will be determined largely by the terms and 

conditions of the sale. The overarching principle to guide the terms and conditions of sale should 

be to maximize benefits to the federal government and to the taxpayers, who are the "owners" of 

the facilities and the electricity they generate and market, while providing protection from 

significant rate increases to current customers. 

The majority ofPMA customers are federal and state agencies, municipal electric systems 

and electric cooperatives, who by law are entitled to PMA power on a preference basis at the 

lowest possible rates. Shareholder-owned electric utilities purchase small amounts of excess 

PMA power, on a non-preference basis, at rates which vary depending on the circumstances of 

the sale. 

The proposed sale ofPMA transmission and generation assets raises complex issues. The 

issues which will most determine the level of benefits to taxpayers and to the economy as a whole, 

however, fall into four basic categories: first, the sale price, and how it should be set; second, 

protection of current PMA electricity customers from undue rate increases; third, who shall be 

2 
103 

allowed to bid on the facilities; and founh, how the sale should be financed. I will address each of 

these areas briefly. 

The Sale Price 

In its Fiscal Year 1996 budget, the Administration estimated 1 price of$4. 4 billion for the 

three PMAs based on the net present value of the PMAs' projected repayment of the federal 

investment. We believe this sale price, as well as others being considered in Congress, is 1 gross 

undervaluation of these assets which short-changes the federal Treasury and the American 

taxpayers. To put it simply, the PMAs are worth more- and an open bidding process would 

prove this. 

EEl commissioned The EOP Group, a Washington D.C. consulting finn which specializes 

in identifying government-created business opportunities, to conduct 1 market-based stUdy of the 

PMAs. That study shows the combined value of the three PMAs to be just under $9 billion, more 

than twice the Administration's estimate. In addition, if the facilities are sold to taxpaying 

entities, the federal government could reap an income stream from taxes on revenue and interest 

whose present value exceeds S l billion. These figures are based on conservative financial 

assumptions using standard accounting methodologies. Attached to my written testimony is a 

copy of the EOP study, including the assumptions. 

Tucson Electric Power, when formulating its bid for WAPA's Phoenix-area assets, 

calculated three values. The first was market value, which was based upon open market sales of 

comparable assets, and was close to S l billion. The second value was based on the cash flow 

from the existing contracts and was roughly $500 million. The third, the net debt value, was 

3 
104 

closer to $300 million. Anyone acquirins the ISieiJ It $300 miDioa wiD receive an asset worth 

roughly Sl billion. 

The potential sale price of these assets bdps refute the claim being made by opponents of 

a sale that the government will Jose a significant cash ftow by selling these assets. This simply 

isn't true. The current cash flow is not a "profit;" it is merely a repayment of taxpayers' dollars 

used to build and operate these W:ilities. Because of lpCCial rules used by the PMAs, they 

actually pay back to the Treasury 1m than what the programs really cost the American taxpayers. 

However, as indicated earlier, sale of the PMAs to a tax-paying entity would yield an ongoing 

cash flow for the government. 

Protection For Customers 

We recognize the need to allay concern about the impact of a sale on rates paid by the 

PMAs' current customers. EEl asked T'bc EOP Group to examine this issue and calculate the 

potential rate impact from sale of the three PMAs. T'bc EOP Group projected that, even under a 

•worst case• scenario, where the sale occurs with DO transition time and DO special protections for 

ratepayers, and assuming the $8.9 billion sale price, almost 85 percent of current preference 

customers would experience an increase in rites ofless than five pcn;ad. 11lat is less than the 

actual, historical increases many of them have experieDced due to variations in westher or other 

factors. 

The remaining customers could be protected by nw:hanisms JVCb as a limit on nte 

increases as a result of the sale; the use of rebates to ofl'set iocrases; nte caps; a phasHn 

approach; or some combination of these. The EOP study estimates that inclusion of nte 
105 

protections in the sale would lower the potential sale value by ten percent at most - if that. (This 

assumes no customer would experience a rate increase of more than five percent in the lint five 

yeara, with rates then gradually moving to market.) That still leaves a potential cash infusion for 

the Treasury of more than $8 billion, plus the tax revenue stream that can be achieved through the 

sale. This-remains substantially more than the present Administration and Congressional 

estimates. Clearly, the range of possible, workable options has not been fuUy explored, and it 

should be. 

EEl believes that Congress should address the issue of rate protection up front in 

legislation authorizing a sale. One of the terms and conditions of the sale could be rate 

protection, using one of the mechanisms stated above. In fact, specifically including rate 

protection in the sale legislation is the S!llh! way to assure concerned constituents that a sale will 

not significantly raise their electric rates. Additional protection for current customers can be 

provided by a requirement that the purchaser honor existing contracts. 

The argument that current ratepayers can be protected only by seUing these assets to 

preference customers at the net present value of the current debt is specious. This approach 

provides no rate protection, especially in a competitive electric market where government-owned 

utilities and electric cooperatives, whose rates are not subject to review by the Federal Energy 

Regulatory Commission (FERC) or by state commissions, will be utilizing every means to keep 

their own rates to retail customers low and accrue additional revenues to help finance business 

opportunities. 

Based on Tucson Electric's estimate of a $200 million difference between the net debt 

value ofW APA's Phoenix area assets and the cash flow from existing contracts, the PMAs' assets 

s 
106 

represent a potential cash cow - c:uh which lhould benefit aD American taxpayers, not just a 

minority of electric consumers. It is important for Congress to understand the one-to-one 

con-espondence between rates and value; the lower the rate path, the less the government will 

receive from the sale. This is a trade-off which Consress must resolve. . 

Eligible Purcbasm 

By specifically addressing the rate protection issue in legislation. Congress can then 

authorize an open sale process, and let the market xt the price and choose the purchasen. EEl 

advocates a sale process that is open to shareholder-owned utilities, electric cooperatives, 

municipal electric systems, and non-utility generators. Only a sale that is open to an qualified 

bidders will achieve the highest possible payment to the Treasury. 

One of the questions regularly raised is whether an open sale with prices based on the 

market will realistically attract any buyers. Because ofTucson Electric's bid, I can speak from 

personal experience: The answer is a wholebeuted "yes. • We are pursuing this bid, at a price 

that will bring the government a higher cash payment than it originally estimated, as well as an 

income stream and ratepayer protections, because we strongly believe it's a good investment for 

our customers and our stockholders. Can the federal government afford to foreclose the option 

to obtain greater benefits through similar agreements around the country? Doing so will be an 

expensive mistake that will substantially reduce cash tlow to the Treasury and limit investment in 

electricity systems. 

There are a number of other parties who have expressed interest in bidding on various 

PMA assets. Limiting buyers to preference customers wiD only hold down the purchase price, 

6 
107 

and is not necessary to ensure ratepayers are protected. This approach perpetuates protectionism 

for preference c:ustomera and limits taxpayer benefits to a select few. 

We were extremely disappointed when the Administration proposed selling the PMA 

assets in a closed process to the preference customers. The U.S. Department ofEDerJIY has been 

actively engaged in encouraging other nations to privatize their enerJY sectors. Secretary 

O'Leary has a.veled to a number of countries to promote the benefits of privatization. As the 

Secretary stated in testimony earlier this year, "By cresting a framework where market discipline 

replaces state domination over the economy, fair and open competition can work to improve 

investment climates ... Yet most in&astructure projects, including those in the eneray sector, have 

fallen exclusively in the domain of the state, subjecting them to bureaucratic inefficiency and 

excluding foreign participation. • It is ironic that the Department is reluctant to help achieve the 

aame benefits of privatization within the U.S. electric industry. Why does the Administration 

encourage my company to invest in energy projects overseas but oppose my ability to invest in 

energy projects in this country? Its actions abroad are inconsistent with the legislation it has 

proposed here. 

We also are disappointed in the assumption included in the House and Senate budget 

resolutions to make the PMA sale a closed one. It simply does not make sense, as Congress 

lltrives for a balanced budget, to leave billions of doUars on the table &om privatization of the 

PMAs' assets. 

Some proponents of a closed sale argue that only the preference customers should be able 

to purchase these assets because they have an "equity investment• in the PMAs. This araument is 

an absolute myth. That's like saying just because I buy my groceries &om Safeway or Oiant, I 

7 
108 

have an equity investment in the building or in the Safeway corporation, or for that matter, in the 

fanns that produced the food. The preference customers are buying power; buying a service or a 

commodity does not automatically grant ownership in the selling company or its facilities. In fact, 

the American taxpayers "own• the PMA facilities because they have built them and paid for their 

operation with tax dollars. So, in essence, ell taxpayers have an "equity investment" in the PMAs, 

even though only a few of them have ever benefitted from the facilities. For years the vast 

majority of taxpayers have supported a program from which they received no benefit. The 

residents of Ohio, Hawaii, and New Jersey, for example, have supported the PMAs through their 

federal taxes even though the PMAs do not sell electricity in those states. All taxpayers deserve 

to get the best sale price for these facilities because ell taxpayers have paid for them. 

~ 

If benefits to the Treasury are to be maximized, it is imperative that federelly subsidized 

financing 1121 be used to finance the sale. lbis would include tax-exempt bonds or loans provided 

by, or guaranteed through, agencies such as the Federal Fmancing Bank or the Rural Utilities 

Service. To allow buyers to finance purchase of the PMAs with funds that are, in effect, provided 

by the federal government would simply trade one federal subsidy for another. 

The Energy Information Administration concluded in a 1990 study that more than $1 

billion a year already is lost to the federal Treasury because the PMAs operate under special rules. 

For example, they have kept old debt, with very low interest rates, on their books decades after it 

would have been amortized by a private company. The study shows that the PMAs in effect 

receive an interest rate subsidy worth about $1 .2 billion per year, compared to paying interest 

8 
109 

rates equal to private sector rates. 

Sale of the PMAs offers the opportunity to end this subsidy. That benefit to taxpayers will 

be negated, however, if the government reaches right back into taxpayers' wallets to finance the 

sale. There is a more appropriate source of capital. It is private financing. I know from 

experience there arc any number of sources located around the country who would be happy to 

discuss financing the purchase ofPMA assets. 

Other Issues· Transmission Access and Facility Licensing 

The PMAs, in particular W AP A, own significant transmission systems which operate as 

part of the country's integrated transmission grid. However, as an entity of the federal 

government, the PMAs have been exempt from FERC jurisdiction, with limited exceptions. In 

the Energy Policy Act, Congress gave FERC the authority to order utilities to provide access to 

their transmission systems to other utilities, non-utility producers and other participants in the 

wholesale electricity market. Just recently, FERC issued a major proposed rule which would 

require shareholder-owned utilities to file open-access tariff's with the Commission. Each 

shareholder-owned utility must provide transmission services to third parties at rates, terms and 

conditions comparable to those it provides itself. Ironically, FERC does not have jurisdiction to 

apply this sweeping rule to transmission systems owned by the PMAs - or, for that matter, to the 

transmission systems owned by electric cooperatives or government-owned utilities. EEl feels 

strongly that the PMAs' assets, upon privatization, should be subject to FERC's fuU jurisdiction. 

Any transmission access regulations adopted by FERC should apply equally to the PMA facilities 

being sold. 

9 
110 

Another issue the sale must address is the licensing of hydro fac:ilities. Unlike federal 

hydroelectric fac:ilities, electric utilities must obtain a license for their hydro facilities from FERC. 

FERC'a hydro licensing process is arduous, second only to the Nuclear Regulatory Conunission'a 

nuclear licensing process in terms of cost, scope and overall length. It can take anywhere from 

five to fifteen years to obtain a FERC hydro license. 

This co111Jl1itment of time, money and resources absolutely necessitates that Congress 

address the issue oflicensing in legislation authorizing the sale of the PMAs' assets. Otherwise, 

it wiD be virtually impossible for any interested puty to obtain the financing necessary to purchase 

these assets. Just as no bank wiD make a loan to purchase a house without knowing that there is a 

clear title to the property, investment firms wiD be unwilling to finalize financing without knowing 

that the purchaser of a hydro fac:ility wiD definitely obtain a FERC license. 

Congress can approach the licensing process in several ways. For example, it can continue 

to exempt these facilities from the FERC licensing process under Part I of the Federal Power Act. 

These facilities have been operated by the federal government in accordance with environmental 

laws and multipurpose requirements for as long as SO years without a FERC license. 

Another approach would be to capture the current operating conditions of the facility as a 

FERC license, with a specified minimum license term. These conditions would include, among 

other parameters, minimum ftow practices, generation schedules and water quality requirements. 

Because the purchaser would operate the facility in a manner identical to the federal government, 

the surrounding environment would not be impacted as a resuh of the sale. In fact, because of 

FERC' s authority to administer and enforce the terms and conditions of the license, the facility 

would be subject to improved regulatory oversight. In addition, under FERC's licensing process, 

10 
111 

any interested party can file a complaint with FERC that the licensee is not abiding by the 

conditions of the license. 

THE PMA SALE; A BRQADER CONTEXT 

While the issues just discussed are ones Congress must address in setting the sale, it is 

important as well to consider the PMAs' sale within the fuD context of an increasingly competitive 

wholesale electricity marlcet and the extent to which federal subsidies to government-owned 

electric utilities and electric cooperatives distort this marlcet. 

Federal Subsidies to UtUities 

During roughly the first four decades of this century, the federal govenunent instituted a 

number of programs and policies to spur development and economic growth into what were then 

primarily remote, rural areas of this country. One of the goals was to ensure that rural and smalltown America had electric service. To help accomplish this, the govenunent began selling surplus 

power from federal dams served by the PMAs. This electricity was sold with a preference for 

municipal purposes and, later, electric cooperatives. In the 1930s, rural assistance was extended 

when the Rural Electrification Administration was established to provide low-interest financing to 

electric cooperatives to help build electric systems in rural areas. The Tennessee Valley Authority 

(TV A) also was established to provide flood control protection and electric service in the 

Tennessee Valley region. 

These programs have served the nation well and accomplished their mission. In the early 

1930s, only about 12 percent of rural America had electricity. Today, more than 99 percent of 

11 
112 

rural America is electrified. Yet only one out of ten electric cooperatives' customers are fiumers 

or ranchers. Ironically, the benefits of the federal subsidies do not reach the majority of rural 

Americans today. This is because the majority of rural Americans receive electric service from 

shareholder-owned utilities, who do not receive these subsidies. Shareholder-owned utilities 

provide electric service to almost 60 percent of Americans living in rural areas with fewer than 

1,500 people, or in unincorporated rural areas. Small-town America also is predominantly served 

by shareholder-owned utilities. Almost 80 percent of rural Americans living in areas with a 

population between I ,500 and 2,500 people receive electric service from shareholder-owned 

utilities. This Committee may be interested in knowing, for example, that shareholder-owned 

utilities serve almost 90 percent of rural Americans in California, 80 percent in Alaska, 78 percent 

in Arizona, 74 percent in Utah, 70 percent in Oregon, and more than 60 percent in New Mexico. 

Currently, government-owned utilities or electric cooperatives serve golf courses in Hilton 

Head and Myrtle Beach, South Carolina; ski slopes in Aspen and Steamboat Springs, Colorado; 

and posh shopping areas and resorts in Scottsdale, Arizona. It is interesting to note that Salt 

River Project provides federally subsidized power to Scottsdale, one of the wealthiest 

communities in America, while Tucson Electric Power, a shareholder-owned utility, serves the 

Navajo Tribal Utility Authority in the remote rural northeast comer of Arizona. 

In spite of these changes, preference and other subsidy programs to government-owned 

utilities and electric cooperatives continue. These programs help prove the axiom that federal 

programs not only don't die, they don't even fade away. In fact, sometimes they even get bigger. 

The TV A recently commissioned a study which advocates its selling power outside the TV A 

fence, thus expanding TVA's role as an electricity supplier. And federal subsidies to government12 
113 

owned utilities and electric cooperatives currently cost the federal Treasury and American 

taxpayers more than $8 billion in lost revenues wery year. Another $3 billion in foregone revenue 

is lost to state and local governments. 

Government-owned utilities, for example, are exempt not only from federal income taxes 

but also from state income taxes and, in many cases, other taxes, such as property taxes. They 

finance their investments with tax-exempt funds and have preferential access to low-price federal 

hydroelectric power from the PMAs. Electric cooperatives also are exempt from most federal 

taxes and from state and local income taxes. They receive loans and loan guarantees from the 

federal government at interest rates below market rates. They also are preference customers of 

the PMAs. The total amount offederal, state and local revenue foregone each year because of all 

these subsidies is $11 billion. 

In contrast, shareholder-owned electric utilities paid $24 billion in taxes in 1993. 

Shareholder-owned electric utilities not only pay the highest effective marginal tax rate of any 

industry, they also pay more in federal, state and local taxes than any other industry in this 

country. Yet, every year, representatives from the electric cooperatives claim that shareholderowned utilities are the most heavily subsidized type of utility. What they don't teD you is that the 

"tax subsidies" available to shareholder-owned utilities, such as accelerated depreciation, are tax 

code provisions available to any tax-paying corporation. These charges are particularly 

interesting coming from entities that are generally exempt from having to pay any income taxes 

even though they provide the same services to American consumers as shareholder-owned 

utilities. If public power continues to be upset with the "tax breaks" that shareholder-owned 

utilities enjoy, we have an easy answer: make them subject to the same tax system, with the same 

13 
114 

ao-ealled "tax breaks" shareholder-owned utilities and other tax-paying corporatio111 receive. 

Federal subsidies to government-owned utilities and electric cooperatives obviously have 

serious impacts on American taxpayers and this country's energy use. Even though all Americans 

pay higher taxes to fund these subsidies, the benefits reach fewer than one out of every four 

American consumers. The subsidies also exacerbate the federal deficit. As Congress confronts 

painful budget choices, doesn't it make sense to reexamine these subsidies when spending 

reductions in school lunch programs and Medicare and national defense programs are being 

debated? These subsidies also undennine efforts to use energy wisely and protect the 

environment by encouraging some consumers to use more electricity than they otherwise might. 

The essential question Congress must address is what public policy role, if any, subsidies 

and preference should continue to have in our national energy policy. They are at odds with 

efforts to cut federal spending. And they are at odds with recently-passed laws promoting 

wholesale competition. 

Competitive Electricity Markets 

Proponents of proposals to seU the PMAs' assets through a closed sale to only preference 

customers ignore the realities of an increasingly competitive electricity market. Like the airline, 

banking and telecommunications industries, the electric utility industry is experiencing growing 

competitive pressures. Competition will continue to grow due to technological developments, 

legislative initiatives such as the Energy Policy Act of 1992 and evolving federal and state 

regulation. 

Electric utilities used to build almost all of the generating plants required to serve their 

14 
115 

customers' needs. Now, non-utility generators provide more than SO percent of utilities' new 

capacity needs. FERC's opening of transmission services in the wholesale market will further 

accelerate wholesale competition. 

In addition to this increasingly competitive wholesale electricity market, a growing number 

of states are looking at ways to make retail electricity markets more competitive. Some states are 

considering proposals to allow individual consumers to choose their electricity supplier. These 

proposals are extremely controversial and raise significant issues, including their impact on smaller 

customers, environmental and social programs, recovery of utility investments made under the 

current regulatory compacts and federaVstate jurisdiction. 

Utilities are moving aggressively to respond to these competitive pressures by 

restructuring their operations, cutting costs, downsizing and developing new opportunities to 

meet their customers' needs. However, for all electric consumers to benefit from competitive 

wholesale markets, it is imperative for federal, state and local governments to eliminate the 

subsidies they provide to certain types of utilities. In a free-enterprise system, federal subsidies to 

utilities are contradictory with efficient competition. 

CONCLUSION 

An open sale of the PMAs will promote competition in the wholesale electricity market. 

A closed sale will not. A closed sale will only perpetuate government subsidies and preference 

treatment to certain types of electricity suppliers, actions that are inconsistent with policies 

promoting efficient competition. If the economic efficiencies of wholesale competition are to be 

realized by all of society, federal subsidies to power suppliers must end. 

IS 
116 

We urge Congress to move forward with sale of the PMAs. We urge that it be done 

through an open sale that maximizes value to the federal Treasury. And we believe that such a 

move will enhance the development of wholesale competition, to the benefit of all American 

taxpayers. 

16 
Asset Valuation Estimates 

of Market Prices on Resid

•• ' ·· -~· • ·~~~-..... ...... 

Std. DCF 

Net Unpaid President's Valuation 

Book Federal Budget Using Marke

Value lnvt!!m!DI E!timatt Ratts 

Southeastern 1.539 1,007 909 1,892 

(SEPA) 

Southwestern 797 699 612 1,815 

(SWPA) 

Western .MIL .J.m 2.863 5.182 

(WAPA) $6.913M $5,139 M $4,384M $8,889M 

Average Wholesale Rates Impact on Monthly Avg R

%of Customers Im

PMA Market1 by Increases 

Cents/kwh !:;ents/kwh Otg~ 0V

SEPA 1.89 3.11 94% 

SWPA 1.23 2.76 73% 

WAPA 1.81 3.09 90% 0

1 Based on prices for resale of 20 IOUs In SEPA area, 151n SWPA area, and 29

2 Impacts on customers of municipal distributors and cooperatives • 

Increases passed through proporflonately to residential, commercial, Indu

Using unDkely assumption of Instantaneous change from current to market 

The EOP Group, Inc. 
IMPACT OF MARKET PRICES ON RESIDENTIAL 

COOPERATIVES AND MUNICIPAL DISTR

~ of Residential Customers Impacte

1.::.5 s~ -1o~ 

Southeastern 94~ 6% 

(SEPA) 

Southwestern 73~ 17~ 

(SWPA) 

Western 90~ 8~ 

(WAPA) 

•Increases passed through proportionately to residential, commercial, indus

customers. Using unlikely usumption of instantaneous change from current to m

period for transition. 

The EOP Group, Ine. 
Definitions for Asset Va

Estimates 

"Net Book Value" •• Latest annual report statement of net utility pla

Progress (CWIP) 

"Unpaid Federal Investment" •• Latest annual report statement of fe

borrowings from Federal Govemment to be paid 

"President's Budget Estimate"·· Privatization Valuation of PMA used 

"Std. DCF Valuation Using Market Prices" •• The discounted cash flo

standard techniques assuming Its prices are the current market 

are determined by averaging the prices for resale by the large

area. 

The EOP Group, Inc. 
DCF Analysis Assum

... , ... -' 

After transHion to market, no rate Increases or demand Increases du

No changes In raw material costs or other expenses, other than dep

expense used In determining tax liability, during the 20-year peri

Tax depreciation: ACRS appRed to the tun purchase price over 20 ye

balance method and half-year convention 

Purchase price reftects fair value of assets, therefore there Is no goo

amortization 

No working capital Is required 

IOU average Income tax rate of 27.4% 

Purchase of PMA financed with 50% debt, 50% equity 

8.75% discount rate. 
121 

CE --

.-.. -, "-~ 

' .. ----·· - .. --

. 

COMPETITIVE ENTERPRISE INSTITUTE 

TESTIMOSY OF 

CLYDE WAYNE CREWS, JR. 

FELLOW IN REGULATORY STUDIES 

COMPETITIVE ENTERPRISE INSTITUTE 

BEFORE TilE: 

SUBCOMMJ'ITEE ON WATER AND POWER RESOURCES 

COMMI'ITEE ON RESOURCES 

U.S. HOUSE OF REPRESENTATIVES 

MAY 18, 1995 

1001 Connecticut A~nue, NW • Suite1250 • Washington, D.C. 10036 • Telephone: (101) 331-1010 • Fax: (101) 331-0640 
122 

Good Morning, Mr. Chairman, my name is Clyde Wayne Crews, Jr. and I am the 

Fellow in Regulatory Studies at the Competitive Enterprise Institute. I am very grateful 

to the subcommittee for the opportunity to appear today. It is a great pleasure for me 

and for my organization. CEI is a Washington-based public interest group established in 

1984 with an annual budget of about $2 million and a current staff of 24. CEI works to 

educate and inform policymakers, journalists and other opinion leaders on market-based 

alternatives to political programs and regulations. CEI also engages in public interest 

litigation to protect property rights and economic liberty. 

The Competitive Enterprise Insti•ute wholeheartedly supports efforts to privatize 

the Power Marketing Administrations (PMAs). We view the current interest in 

privatization as merely one manifestation of today's wide scale public commitment to 

fundamental governmental reform and taxpayer savings. In last year's elections, 

Americans unambiguously called for limited government and an end to federal 

overreach. This is a time for stripping away large layers of government rather than 

halfhearted efforts to make inherently indefensible or inefficient programs work. We 

need to do this not to cause pain to consumers, but for precisely the opposite reason: to 

remove artificial benefits to some producers. and consumers that threaten to prevent all 

Americans from sharing in the benefits of the coming deregulated energy environment. 

OVERVIEW 

The 129 federally owned plants that make up the five PMAs generate about 6% 

of the electricity sold in the United States according to the Congressional Budget Office 

in its February 1995 document Reducing the Deficit: Spending and Revenue Options. The 

PMAs sell wholesale power to legally stipulated "preference customers," the municipal 

utilities and rural electric cooperatives. Current law requires that the power generated 

by the PMAs be sold at cost rather than the market price that non-preferred customers 

face. These non-preferred customers are the investor-owned utilities who sell most of 

the power generated in the United States. 

While we may debate the proper selling price for the PMAs, or the precise 

techniques needed to protect current affected customers in the event they experience 

"rate shock" beyond a tolerable level during the transition to a fully private system, 

certain issues of fairness should be beyond debate but unfortunately are not. The core 

issues in this debate are two, and they center on the basic legitimacy and fairness of the 

PMAs: 

( 1) Certain groups are getting preferential access to cheap federal power while oth.ers do 

not enjoy this privilege. The roughly 75% of power consumers who are serviced by 

investor-owned utilities ought to have the right not to subsidize--whether directly or 

indirectly--the 25% who are serviced by the PMAs at below market rates. While the 

PMAs have something of a noble history in electrifying the U.S., "rural" is no longer 
123 

2 

synonymous with "poor," and the most blatant abuses of subsidized energy have started to 

benefit the well-off in embarrassing ways. You'll look a long time to find poor farmers 

in "rural" Hilton Head and Vail. And as far as the subsidies to Las Vegas are 

concerned, Martin Gross put it best in his book The Government Racket: Washington 

Waste from A to Z. When you "stroll leisurely down the gaily lit Strip (at Vegas), 

remember that you're about to lose twice. Once at the slots, and the second time when 

you realize that it's your electricity that's lighting up the night." 

(2) Power generation is a commercial activity in which the government has no business 

and no rational basis for being a player. This is especially true today, given that 

government's continued involvement--particularly the selling to preferred po.r~ies--will 

prove highly disruptive to retail and wholesale wheeling innovations as they become 

more widespread and their benefits to consumers become more apparent. Soon we are 

likely to have choices among power companies paralleling those we now have in long 

distance phone companies. We are moving toward a fluid marketplace in which all 

power is market priced rather than regulated based upon cost, as has been the case 

historically. The existence of the PMAs should not be allowed to undercut this 

revolution. 

Certain developments provide hope. As everyone knows, the Clinton 

administration has proposed selling marketing rights for three of the five PMAs for an 

estimated $3.7 billion, although there is legitimate debate about whether that price is too 

low. And the Senate, less than 48 hours ago by a vote of 74-25, passed S. 395, a bill to 

authorize the sale of the Alaska PMA Given these developments, plus other positive 

signs like unprecedented interest in Congress, provisions in the Energy Policy Act of 

1992 that serve to promote wholesale competition in electricity, the increasing 

importance of the independent power producers, and the constantly improving 

interconnection of utilities, we have an opportunity now to significantly improve 

competitiveness in the electricity market. This opportunity should not be sacrificed 

merely for the sake of special interests that benefit from below-market-price sales. 

There are two key ways in which continued existence of the subsidized PMAs 

threaten the future competitiveness of the energy market. One is the investor-owned 

utilities' lack of access to power generated at PMA facilities. The other impediment is 

that even though municipals and co-ops in any given PMA region legally may purchase 

power generated outside the PMA region, they have no incentive to do so, since even the 

economies generated by wheeling are not yet a match for the guarantee of at-cost 

purchase. A system that will be most efficient for energy consumers is one in which all 

producers are free to sell to any buyers, and any buyer is free to purchase from any 

seller. The PMAs preclude the existence of such a marketplace. 
124 

3 

ADDRESSING THE ARGUMENTS AGAINST PRIVATIZATION 

In addressing the arguments against privatization--primarily the claim that the 

PMAs are not subsidized--it ought to be pointed out at the outset that it is technically 

illegal for the government to study the question. Thanks to an amendment attached by 

Senators McClure and Sasser to the Continuing Appropriations Resolution for FY 1983, 

and to renewals in subsequent law thereafter, the use of funds by the government for the 

purpose of conducting "any studies relating to or leading to the possibility of changing 

from the currently required 'at cost' to a 'market rate' method for the pricing of 

hydroelectric power" has been prohibited. That means it is technically against the law 

for the executive branch to even consider this issue. 

This law is hard to fathom as anything other than a way to hinder the 

determination of the nature of the subsidy PMAs receive and to protect PMAs and their 

beneficiaries from losing their current comfortable status. 

Argument #1: PMAs cover their costs and are not subsidized 

The PMAs are demonstrably subsidized in several ways, all of which serve to tilt 

the playing field in favor of the municipal utilities and rural co-ops relative to their 

investor-owned counterparts: 

(a) Favorable rates to prefe"ed panies: Current law requires that PMAs sell power 

to municipals and co-ops at cost. CBO states in Reducing the Deficit that the 

average price charged for electricity by the PMAs to municipal utilities and rural 

electric cooperatives (the "preference customers") is 2.5 cents per kilowatt-hour 

(kwh). At the same time, CBO reports that the 1992 average price of electricity 

for non-PMA wholesale transactions was 4.5 cents, meaning the PMAs are selling 

power to their preferred customers at just a little over half its market value. 

Other estimates find PMAs selling power for less than half its market value. 

CBO proposes that marketing this power to the highest bidder would result in an 

additional $1 billion per year to the Treasury, which is an approximate and 

conservative measure of the rate subsidy provided to the PMAs by taxpayers and 

non-PMA ratepayers. Those who are not either municipal utilities or rural 

electric cooperatives rarely have access to these low prices. Also it is not clear 

that PMAs are passing these low rates on to their customers. 

(b) Low-rate loans with flexible terms: PMAs as a group owe the federal 

government more than SlO billion for the cost of construction of existing plants, 

but they are paying it back on extremely flexible repayment schedules such as 45 

or 50 year repayment periods. Further, they are paying that money back at a 

subsidized rate of about 3.25%. Since the government borrows money at about 

8%, taxpayers eat the difference. The PMAs can selectively pay off debt, paying 

off higher rate debt first while leaving lower rate debt on the books, an option 
125 

4 

rarely available to private firms. Nor do PMAs depreciate their assets according 

to Generally Accepted Accounting Principles as private concerns do, and thus 

they overstate revenue. 

(c) Tax advantages: Investor-owned utilities must pay taxes. Municipal utilities are 

exempt from federal and state taxes, and co-ops often are exempt. Municipal 

utilities also may issue tax exempt securities, while co-ops receive subsidized 

credit through the Rural Utility Service (formerly Rural Electrification Service). 

This 'business" structure--in which PMAs price at cost in a discriminatory manner 

while their municipal and co-op customers enjoy favorable capitalization and often 

pay no taxes--is on a collision course with private c.:>mpetitors who do not have 

these advantages. Either the favorable treatment must go, or the new competitive 

developments must go, because they ultimately cannot coexist in the electricity 

marketplace of the future. 

(d) Annual federal appropriation: The PMAs received an appropriation of $345.3 

million in fiscal year 1994 and $272 million in fiscal year 1995. These sums mean 

that over a billion dollars go to the PMAs every few years. Needless to say, 

investor-owned facilities do not get this benefit. 

Some might say, even if PMAs are subsidized, why is that so bad? Aside from the 

issue of relative disadvantage for competitors due to selective access to the low cost 

power, subsidies are actually damaging to society. Taxes, for their part, are widely 

known to create "deadweight" losses to society by driving a wedge between supply and 

demand and cutting off trades that otherwise would have taken place. These lost trades 

are unseen by the public: they do not make the nightly news but simply evaporate. Less 

well known but equally important is that subsidies like those the PMAs enjoy create 

deadweight losses as well. Artificially lowering the cost to the producer will make him 

willing to supply more at any given price--or in economic jargon, shift out his supply 

curve. But the real resource cost represented by the original pre-subsidy supply curve 

does not change, and an excess of resources is consumed by power purchasers over what 

they actually paid for them. These resources are lost forever to society despite the fact 

that they would have been more highly valued in other uses. 

Argument #2: Electricity rates will increase for PMA customers 

The problem of rate increases is overstated since PMAs are rarely the exc:lusive or 

dominant supplier of power, but to the extent it is true privatization of PMAs can be 

structured such that impacts are negligible or otherwise minimized, or even a net plus for 

the PMA consumer. No matter the legislative or logistical difficulties, the problem is not 

so insurmountable that we need to sacrifice the prospect of an electricity industry of 

extraordinary productivity for the sake of the survival of an essentially socialistic 

enterprise. The reason for sale of the PMAs is not to cause pain for customers but to 

improve the efficiency of the industry so that all customers and future generations 
126 

s 

benefit from the coming waves of innovation. Moreover, the corollary to subsidized 

power users paying too little for their power and potentially facing a rate shock is that 

non-subsidized users are paying too much. The economies to be gained from combining 

and integrating PMAs with existing infrastructure are critical to benefiting consumers 

overall. Freeing up the entire market for a future in which electricity is wheeled across 

state and regional lines with consumers able to select vendors as they select phone 

companies promises to keep everyone's rates as low as they can possibly be. 

Argument #3: PMA consumers have an •equity ownership• in the PMAs 

This argument stetns from a serious miscon-:eption of the concept of ownership. 

The core features of ownership are the rights of disposal and transfer of the property in 

question. PMA customers certainly do not enjoy this right, but merely the right to the 

electricity that they have contracted for and consumed. The fact that PMA customers 

through their bills have partly paid to service the debt of the PMAs is not relevant: every 

customer of every firm that has borrowed money in some sense helps cover that firm's 

financing costs, since all private firms must charge enough for their product to at least 

break even. 

If customers actually owned the PMAs, the PMAs would already in a sense be 

privatized, and we could set about negotiating with current owners about buying the 

facilities rather than waiting for the government, the owner in fact, to make a 

privatization sale. Furthermore, it is especially ironic for a user of a subsidized service 

or product to claim an ownership stake in the firm that produces it. Investor-owned 

utilities and their customers who have been paying the market rate for electricity from 

non-utility generators--more than what customers of PMAs pay--are not claiming that 

they own the non-PMA generating facilities or that they have a right to halt the sale of 

such facilities. In reality and in justice, since taxpayers have been paying full price for 

their own electricity while also subsidizing the PMAs it is more accurate to say that they 

are the "owners" of the PMAs and thus have the right to transfer ownership of them 

through privatization. 

Argument #4: Selling the PMAs will result in environmental degradation 

CBO noted in Reducing the Deficit that selling electric power at below market 

rates, since it increases demand and leads to overconsumption of electricity relative to 

what consumers would purchase at market rates, is inconsistent with the government's 

energy conservation objectives. And the deadweight losses generated by energy 

subsidies, some of which may be environmental in nature, have already been discussed. 

In fact, it is the PMAs thetnselves that are susceptible to the charge of damaging the 

environment. Moreover some privatization proposals, such as President Clinton's, seek 

to minimize environmental impacts by selling only transmission facilities. Issues that 

would arise in a more comprehensive privatization, such as the impact of the 

privatization of massive federal datns on irrigation systems, wetlands, flood control, 
127 

6 

wildlife preservation or recreation can be addressed through reasonable conditional sales 

that reinforce these goals where they are appropriate. 

Argument #5: Privatization proceeds could not legally be used lor deftcit reduction 

The simplest response to this criticism is that Congress has the power to do what 

it wants in this regard. If it so chooses, it can alter budget process law so that proceeds 

from PMA sales reduce the deficit. The President's FY 1995 budget indicates that he 

will request a legislative fiX so that sale proceeds would apply toward deficit reduction. 

Draft language to privatize the PMAs prepared by Congressman Foley (R-FL) would 

accomplish this objective by crediting sales proceeds to "miscellaneous receipts" in the 

budget. 

WHAT SHOULD BE DONE 

We are a country whose leaders of both political parties in many a speech 

applaud foreign nations that are undergoing painful transitions to market economies.-

The pain they endure is caused not by the arrival of capitalism, but the previous absence 

of it, because it is difficult to shake out established political interests as our own PMA 

debate illustrates. Nations around the world are taking steps toward privatizing their 

power generation assets and other infrastructure, and U.S. financial services and 

consulting firms, some of whom I believe are present today, have provided much of the 

know-how. These firms can certainly apply that knowledge and experience to the U.S.A, 

which is merely a mixed economy rather than a centrally planned one. 

Ironically, at the same time our executive branch is prohibited by law from 

studying the impact of a switch to market pricing of hydroelectric power from cost-based 

pricing, last year's foreign operations appropriations bill provided several hundred 

million dollars in funding for Russia and the other former Soviet Republics to ease their 

transition to a market economy, a transition which includes at least partial privatization 

of the energy sector. In addition, $8 billion of the Mexico aid package has already been 

distributed to Mexico and another $2 billion is about to be. One condition placed on 

this funding is that in exchange for support of the Peso, Mexico is to vigorously pursue 

privatization of its governmental programs, including the energy sector. 

We should do at home as we ask others to do. Congress should heed the call of 

the electorate for smaller government and take the following actions with regard to the 

PMAs, recognizing all the while that the interests of current PMA consumers can be 

taken into account and satisfactorily addressed. 

(1) Restrictions on government studies of proposals to switch hydroelectric pricing from 

cost-based to market-based should be eliminated immediately. 
128 

7 

(2) While all PMAs should be privatized, the Congress might consider initially dealing 

with the problem by establishing a commission similar the Military Base Closure 

Commission. The commission would assemble a package of facilities to privatize, 

perhaps across PMA regional lines, submit it to the President for revision, and then hold 

an up or down vote. This procedure obviously can be generalized to the govenunent at 

large, as Senator Mack has done with his Spending Reduction Commission which looks 

at the broad array of govenunent programs, but here I emphasize just PMAs. 

Alternatively, the Congress could attempt to privatize the five PMAs individually from 

the easiest case to the hardest, applying the knowledge gained to the greater difficulties 

at the next level. This has begun with Senate passage earlier this week of the bill to 

privatize the Alaska PMA, widely considered the simplest case since there are only 2 

power plants at issue in Alaska. 

(3) Congress should specify legislatively that the proceeds from privatization shall go 

deficit reduction. 

( 4) As we take steps toward full privatization, Congress should begin to implement full 

market pricing for the PMAs as CBO suggests, which would reduce the deficit by 

approximately $1 billion annually. This could facilitate the march toward privatization if 

user groups are given an opportunity to purchase a certain percentage of their PMA on 

favorable terms during the transition to market pricing. 

NOTE ON THE MECHANICS OF PRIVATIZATION: 

While I'm happy to simply make the previous suggestions and leave the mechanics 

of privatization up to the investment bankers, the Heritage Foundation suggested a 

method in 1986, based on the British experiences with Britoil and British Telecom, that 

may be worth investigating since it helps to address the concerns of customers who 

potentially could face rate shock but also allows a certain less-than-majority percentage 

of the stock of the newly privatized firm to be sold at higher post-initial-offering rates, 

thereby heightening the amount of deficit reduction. The idea is to create a package 

whose benefits are distributed in such a way that all parties--PMA customers and 

taxpayers--can potentially be better off with privatization compared to the status quo. In 

rudimentary and simplistic terms it could work something like this: 

(a) a 51% controlling interest in the PMA would be offered to the public at the 

initial valuation, with current customers of each PMA given the option to purchase stock 

in proportion to their use of power (perhaps to be paid for in installments on future 

electric bills). A minimum of 10% of this 51% block of stock could be reserved for 

small investors like residential or small business customers of the PMA. These small 

buyers would also receive an option to buy additional shares in the future at the original 

price if they bold their shares for a prescribed minimal length of time. Heritage states 

that this allows small investors or former customers to benefit from any increase in value 

that privatization brings. 
129 

8 

(b) The remaining 49% share of stock would be temporarily retained by the 

government and then sold at the most attractive price. This way the taxpayer wins from 

any increase in stock value post-privatiution, because all the additional funds could be 

earmarked for deficit reduction. 

CONCLUSION 

Privatization of the PMAs is long overdue, but even it is merely a first step, a test 

case, toward limiting the reach of a government that seems to regard no activity as 

beyond its capability or proper scope. While not easy, there are ways to minimize or 

even eliminate any hardship associated with PMA privatization, and the benefits to be 

gained make privatization an unambiguous plus for consumers. 

The core issues in this debate are the unfairness of requiring one class of 

Americans to subsidize the power needs of another, and the impropriety of having 

government run commercial enterprises competing against and even excluding large 

chunks of the private sector from access to their output. The latter is especially ominous 

because government's presence in the marketplace threatens the potential for lower 

nationwide electricity rates down the road as competition in interstate and inter-regional 

wheeling heats up and electricity vendor choice becomes a reality for consumers. The 

notion that some buyers of electricity should be prohibited by law from bidding--without 

subsidies--on the output of a large chunk of our nation's electricity generating capacity is 

alien to American business practices and to what we know to be the prerequisites for 

efficiency and minimum prices in the nationwide marketplace. The potential 

participation of all of America's generating and transmission capacity is essential in the 

future marketplace of retail wheeling if we are to supply the electricity needs of 

Americans most efficiently and at the least cost. 

If PMAs do disrupt the otherwise inevitable coming of retail wheeling and 

consumer choice, their annual costs to society will be far greater than their annual 

appropriation, the below market rates, and the tax advantages municipal utilities and 

rural co-ops now enjoy--only the public won't be able to directly perceive those costs. 

These are the pernicious "hidden costs" of economic regulation that are difficult to 

tabulate but that nonetheless make the nation worse off whenever and wherever they are 

imposed. 

### 
130 

INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS 

OPPOSinON TO THE SALE OF THE FEDERAL 

POWER MARKEnNG ADMINISTRAnONS 

Page 1 of2 

The federal hydropower program has provided the basic structure for real 

competition between the consumer-owned electric systems and the investorowned utilities. 

Federal power customers supported the construction of transmission 

facilities, in lieu of building their own, in order to avoid the expensive 

duplication of facilities and reduce environmental impacts. They are now 

dependent on those federal facilities. 

Public power and cooperative systems are highly integrated and 

interdependent with the federal systems. 

The value of the whole power system is much greater than the sum of the 

values of the individual facilities. 

System diversities, both geographical and in facilities, are accommodated to 

maximize the overall system operational efficiencies. 

The following considerations, in their aggregate, would negate the benefits of any sales 

proposal to the taxpayers: 

The reduction in revenues to the U.S. Treasury, if investor-owned utilities are 

allowed to claim tax incentives on facilities purchased, will significantly offset 

revenues gained from the sale of the PMAs. 

Federal installations (military, DOE laboratories, etc.) will be faced with large 

rate increases when they lose their federal power, resulting in increased 

appropriation requests. 

The proposal is anti-competitive since 75% of cooperatives (and other 

preference customers) already have rates above those of their competitors 

and any increase in rates could be catastrophic. (Ultimately the situation 

woulu lead to less competition.) 

Concur with identical statements by National Rural Electric Cooperative Association 

(NRECA) 
131 

lntemational Brotherhood of Electrical Workers 

May 17, 1995 

Page 2 of2 

The PMAs operate as a self-sustaining "no-cosf' program of the federal 

government. PMAs are actually projected to return more than $1 .323 billion 

in revenues to the Treasury over and above the appropriations request for 

FY 1996. 

The Department of Energy (DOE) is currently completing a 20 year cash flow 

projection comparing revenues from the proposed sale of the PMAs to 

leaving the PMAs as they are now. We believe that analysis will show that 

the Treasury will receive more than $1 billion more if we reject the sale. 

There is also a misconception among sale proponents that the PMAs can operate more 

efficiently in the private sector. While in general, we are not opposed to privatization 

proposals when they make sense, in this case privatization is not the best choice. The 

facts are: 

The PMAs own and operate more than 32,000 miles of high voltage 

transmission lines, and have 2,000 miles under contract. The systems 

employ modem technology to provide the most efficient dispersal of 

electricity to federal power customers. 

The PMA systems are used to buttress the power capacity owned by the 

private sector, to provide peaking power, to provide base-load generation, 

and in some cases, to dispatch federal and private sector power plants, in a 

highly efficient and reliable way. The value of the systems is much higher 

than the sum of their parts. Dismantling the systems would diminish the 

efficiency of these technological resources. 

The PMA systems ensure that no single sector of the electric power industry 

can secure a monopoly position. 

Concur with identical statements, March 27, 1995 letter to House Speaker from 52 

co-signing Members of Congress. 
132 

a National Rural FJectric V, Cooperative Association 

1800 Ma.,uchuscus A~uc. N.W. 

Washin;wn. D.C. 2CXU6·188J 

Telephone: C202J 8S7-9.S00 

TT -1202!8S7-211!0 

TESTIMONY OF 

Glenn EqUsb 

Enc:udve Vlc:e President 

NatloDBI Rural Electric Cooper11dve Association 

before tile 

U. S. Hoae of Represeatatlves 

House Resources Committee 

Water and Power Resources Subcommittee 

WaJIIillctoR, DC 

May 18, 1995 
133 

Testimony of Glenn English page 2 

Chairman Doolittle, Members of the Committee, for the record, I am Glenn English, executive 

vice president of the National Rural Electric Cooperative Association (NRECA), the association 

of the nation's I ,000 nonprofit, consumer-owned rural electric systems, which provide electric 

service to more than 25 million people in 46 states. 

The nation's rural electric systems and their consumers are vitally interested in proposals to 

privatize the federal power marketing administrations. More than 600 rural electric systems in 

34 states purchase all or pan of their power supply from the power administrations. 

Rural electric systems and the federal government wrote one of the first "Contracts with 

America" when the federal government built these multi-pUIJIOSC water projects. 

The plan was-and is-to recover most of the costs of these projects through the sale of electricity 

generated by these projects. Rural electric systems and municipally owned systems agreed to 

purchase federally generated electricity under long-term firm power contracts even though the 

federal hydropower from each new project was more expensive than then-conventional 

alternatives, i.e., thermal plants. 

To put this in perspective, there was some question, as the nation was turning to the peaceful usc 

of the atom, as to whether these federal projects would ever be economical, since many believed 

that nuclear power would provide electric power so plentiful and cheap that it would not pay to 

meter it. 

Even so, consumer-owned systems agreed to the partnership with the federal government through 

the hydropower program because the projects provided economic development benefits in the 

local areas and the federal power gave them independence from the investor-owned utilities who 

controlled much of the power supply at that time. 

Consumer-owned electric systems have faithfully honored their side of the partnership by 

repaying a major pan of the original investment, with interest. they have built many decades of 

equity investment in the power facilities of the multi-purpose projects. 

This equity investment is more than monetary: It includes other complex and less tangible facets. 

• 

• 

• 

The federal hydropower program has provided the basic structure for real 

competition between the consumer-owned electric systems and the investor-owned 

utilities. 

Federal power customers supported the construction of transmission facilities, in 

lieu of building their own, in order to avoid the expensive duplication of facilities 

and reduce environmental impacts. They are now dependent on those federal 

facilities. 

Public power and cooperative systems are highly integrated and interdependent 
134 

Testimony of Glenn EngUsh page 3 

• 

• 

with the federal systems 

The value of the whole power system is much grater than the sum of the values 

of the individual facilities. 

System diversities, both geographical and in facilities are accommodated to 

maximize the overall system operational efficiencies. 

The membership of NRECA, at its annual meeting this year, resolved to oppose any privatization 

proposal which would result in increased electric rates to rural electric consumers. I have 

attached a copy of that resolution to this testimony. 

Rates and costs are high priority considerations for rural electric systems. 

First, 70 percent of rural electric systems already have electric rates that are higher than their 

neighboring utilities. In IS percent of the cases, the rate disparity is 40 percent or more. 

Second, the electric utility industry is entering an era of unprecedented competition. The 

traditional recognition of state-regulated, noncompetitive electric utilities may, indeed, already 

be a relic of the past. 

Rural electric systems, because they must invest more per consumer, receive less annual revenue 

per mile of line, have fewer consumers per mile of line, and with higher rates, are already in a 

competitively disadvantageous position, and any increase in electric rates would be disastrous. 

Third, rural electric systems compete with another distinctive disadvantage: The amount of 

federal assistance that flows to competitive electric systems. 

The Committee may not be aware that investor-<>wned utilities receive federal assistance of $5 

billion each year through the tax code. This compares to $1 billion each year for municipal 

systems and $265 million each year for rural electric systems. 

In the oompetitive electric utility industry, that enormous subsidy to the investor-<>wned utilities 

is an equally enormous competitive advantage. 

Rural electric systems, responding voluntarily to the call of the Congress to reduce the cost of 

government, came forward and cooperated in the legislative reforms that resulted in interest rate 

increases for rural electric loans and, equally important in this day of budget deficits, cut the cost 

of the rural electric lending program by 57 percent. 

I would point out to the Committee that the investor-<>wned utilities have not demonstrated that 

same sense of civic responsibility and have chosen instead to attack and decry the modest 

assistance received by rural electric systems. 
135 

Testimony of Glenn English page 4 

Now, the investor-owned utilities, with their deep pockets, made possible in part because of the 

$5 billion a year in tax breaks they get from the U. S. taxpayers, want to bid up the price of the 

federal power marketing administrations. 

They apparently do not want to compete in this new electric utility environment: They'd sooner 

buy out their competition. 

We believe that the sale of the power marketing administrations to investor-owned utilities is 

anticompetitive. 

When the investor-owned utilities posed arguments in the early 1980s to renew their licenses to 

continue to operate dams on federal waterways, they said, repeatedly and emphatically, that they 

had invested heavily in the facilities and to take them away after all that investment would 

simply be unfair. 

We agree with that argument. Consumer-owned electric took a risk to participate in the federal 

hydropower projects. From day one, they have invested, month by month and year by year, in 

those projects, and now they have a substantial equity investment in them. 

We believe that equity position should be honored. 

We were disappointed to find that the privatization of the power marketing administrations was 

included in the House and Senate budget resolutions. However, the Budget Committee 

recognized the equity investment of rural electric systems, and I quote: 'The proposal essentially 

recognizes the de factD property rights current customers have in these assets." 

We continue to oppose any proposal to sell the PMAs that would result in increased electric 

rates. Nearly 30 million consumers in 34 states would be adversely affected by such rate 

increases. 

We believe that federal and state preference customers, as well as consumer-owned utilities, will 

be harmed by increases in electric rates. 

Even if proceeds from the sale of the PMAs could be applied to deficit reduction, it does seem 

counterproductive to sell valuable federal assets oo the one hand while raising the electric rates 

to that same federal government on the other hand. 

Chairman Doolittle, I appreciate the opportunity to put the views of the NRECA membership 

before the Committee. I will be happy to answer any questions you might have. 
136 

TESTIMONY OF A. JOEL CONNOR 

VICE PRESIDENT-WHOLESALE MARKETING FOR 

ALABAMA POWER COMPANY 

BEFORE THE SUBCOMMITTEE ON WATER AND POWER RESOURCES 

OF THE COMMITTEE ON RESOURCES 

OF THE UNITED STATES HOUSE OF REPRESENTATIVES 

May 18, 1995 

I. INTRODUCTION 

My name is Joe Connor and I am Alabama Power Company's Vice President for 

Wholesale Marketing. I am a graduate of the University of Alabama where I was awarded a 

bachelor of science degree in electrical engineering in 1965. Upon graduation, I began work 

for Southern Company Services, Inc. in the Power Pool Section. I joined Alabama Power in 

1981 as the Manager of Electric System Planning and Power Contracts and later became 

General Manager with additional responsibility for the Fuels Department. In 1990, I was 

named Manager of Support Services at Miller Steam Plant. In 1993, I was elected Vice 

President-Operating Services, which included responsibility for daily operations of Alabama 

Power's fourteen hydro developments. I assumed my present position earlier this year. 

I am honored to have the opportunity to appear before the subcommittee to discuss 

Alabama Power Company's hydroelectric maintenance program. As a strong proponent of 

hydropower, I appreciate the time and effort the subcommittee is spending on the issue of how 

best to utilize the hydropower facilities currently owned and operated by the Federal 

government. 

The purpose of my testimony is to provide the subcommittee with an example of how 

an investor-owned utility that has a number of hydro projects licensed by the Federal Energy 
137 

Regulatory Commission ("FERC") maintains these facilities. Though Alabama Power may 

have some unique components in its hydro maintenance program, overall, I believe that we are 

fairly typical of most FERC licensees in this n:gard. As a result, I believe that by providing 

an overview of our maintenance program, I can give the subcommittee a good feel for how a 

government-owned facility would be cared for and maintained if it were privatized. I trust that 

as the subcommittee learns more about the plant rehabilitation and maintenance programs of 

licensees such as Alabama Power, especially in comparison with the limitations of such 

programs at many government-owned hydropower developments, the subcommittee will 

understand why I believe that many of these facilities can be best and most efficiently operated 

through privatization. 

D. ALABAMA POWER COMPANY'S WSTORY OF HYDROELECTRIC POWER 

Alabama Power has a long history of hydroelectric generation. Beginning with the 

construction of Lay Dam in 1912, Alabama Power constructed six dams prior to 1930. Seven 

additional dams were constructed in the 1960's, and our last facility was built in 1983. 

Although Alabama Power began building fossil plants in the 1930's and a nuclear plant in the 

1970's, hydroelectric power remains a vital part of our energy mix. Our hydro facilities on 

the Coosa, Tallapoosa and Warrior Rivers represent approximately 1,600 megawatts of 

generation capacity, which is 16% of the our total capacity. This capacity provides our 

customers with efficient, low cost and environmentally sound peaking power. Our fourteen 

hydro developments also provide some 155,547 acres ofreservoir and 3,132 miles of shoreline 

for recreational opportunities for the general public. 

2 
138 

Since their construction, Alabama Power bas been the sole owner and operator of these 

fourteen facilities. We believe that our history of success in hydro operations is in large part 

related to our commitment to maintain these projects so that they can be operated as efficiently 

as possible. As we fulfill this commiunent, I believe that Alabama Power will continue to 

generate hydropower for the benefit of Alabamians well into the next century. 

III. TilE GOALS OF ALABAMA POWER'S MAINTENANCE PROGRAM 

Alabama Power's hydroelectric maintenance program is based principally on two 

fundamental goals. Our first goal is to maintain the facilities in order to maximize each unit's 

efficiency and availability. If a unit is not properly maintained, its operations will become less 

efficient, resulting in a decreased amount of kilowatt hours of energy that can be generated. 

Moreover, by neglecting these units, probletns may develop that lead to a forced or 

unscheduled outage at the facility . If a unit is not available to the system operators, Alabama 

Power will be forced to use an alternative and most likely more expensive source of generation 

in order to meet our customers' energy needs. Thus, the availability factor measures the 

percentage of time a unit is available for generation. Obviously, an unscheduled outage 

reduces a unit's availability factor. As a result, Alabama Power's maintenance program is 

designed to prevent such outages and maximize the energy potential of the water resource. 

A second and sometimes competing goal of our maintenance program is to minimize 

the cost of maintaining our projects. As the electric industry becomes more competitive, 

utilities such as Alabama Power are constantly looking for ways to cut costs. However, we 

must also ensure that our generating facilities are operable so that service to our customers is 

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not compromised. As a result, Alabama Power is committed to devoting the resources 

necessary to allow our hydro projects to meet our operational requirements. Even though 

hydropower is a very old technology, new improvements in equipment are being developed that 

can result in operational efficiencies. In our maintenance program, we are constantly 

evaluating these technological improvements to determine whether the benefits are worth the 

costs of purchasing, installing and maintaining this new technology. If we believe that the 

benefits do outweigh the costs, Alabama Power is willing to make the capital improvements 

in order to enhance the value of our hydro facilities. 1brough balancing the interests of 

maximizing unit efficiency and availability with maintenance costs, Alabama Power is able to 

ensure the economic, safe and long-term reliability of our hydro projects. 

IV. WORKFORCE 

Because labor costs represent a significant percentage of Alabama Power's maintenance 

budget, work force management is an essential component of our maintenance program. 

Indeed, because of the dedication of our employees and the culture that exists within our 

organization, we consider our work force to be one of our greatest strengths not only in the 

hydro maintenance program but throughout Alabama Power. 

One of the most important reasons why our work force is such an asset to the hydro 

maintenance program is that we have well trained, highly skilled and highly motivated 

employees who take a personal interest in the success of our hydro operations. Alabama 

Power's supervisory staff is comprised of highly experienced individuals who have special 

training in technical and management disciplines and substantial experience in hydro operations. 

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The balance of our work force is drawn from a pool of employees who typically have a strong 

background in power plant construction or maintenance. Much of this work force is comprised 

of multi-craft Hydro Journeymen. This employee classification includes individuals with 

electrical, mechanical and operational skills. One reason for the success and productivity of 

these Hydro Journeymen is Alabama Power's extensive training program. For example, in 

1994, we provided each employee in this classification with an average of 120 hours of 

technical training. This training was largely developed internally, using the expertise, 

knowledge and experience of employees throughout Alabama Power's hydro program. 

The employees who participate in hydro maintenance are highly motivated for at least 

two reasons. First, they are acutely aware of the importance of hydro in our generation mix 

and understand that the low cost energy produced by these facilities will play a dramatic role 

in ensuring that Alabama Power is able to maintain its position in today's competitive world. 

Second, Alabama Power has a compensation system that includes a pay for performance 

incentive program. In short, our employees know that the better job they do, the higher their 

income will be. 

Because Alabama Power is blessed with a well trained and highly motivated work force 

that has a unique understanding of and appreciation for our hydro projects, Alabama Power's 

maintenance program will continue to be successful. 

V. PLANT OPERATIONS 

One of the most important aspects of Alabama Power's maintenance program is its day 

to day project operations. We believe that by operating these projects wisely, we can reduce 

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the number of unusual and unexpected maintenance problems. Under our operating guidelines, 

we typically operate our projects at the unit's "efficient gate" or "best gate." This method of 

operation is contrasted with "full gate" in which the maximum amount of water possible is 

allowed to pass through the turbine. While "full gate" operations yield more energy during 

periods of generation, the project cannot be operated for as long as with a best gate setting 

because the available water supply is depleted sooner. 

By operating our units at "best gate," we can maximize the generation from the limited 

quantity of water available. This result is possible for a variety of reasons. First, this gate 

setting, which is determined specifically for each unit, produces the maximum horsepower to 

the generator shaft with the smallest amount of water. Second, the tailrace level during 

generation is lower than would be at full gate, which results in more "head" for the project. 

To put it simply, the more head (meaning the distance the water has to fall), the more energy 

that can be generated. Third, at best gate, the generator and all associated equipment at the 

project are operated within design limits. Operating the plant in this fashion reduces the wear 

and tear on the units, thereby maximizing the life expectancy of all plant equipment. 

Alabama Power's plant operators also have available to them a significant amount of 

data regarding the units they are operating. For example, they have instruments that constantly 

monitor such variables as vibration and the temperature of the unit. If the temperature gets too 

high or there is too much vibration, the operator can adjust the flow of water through the 

turbine in order to minimize the stress on the unit and improve its efficiency. Obviously, 

making these type adjustments also reduces the need for maintenance and helps minimize 

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unnecessary forced outages at the plant. It also provides the plant operator with information 

that is helpful in planning maintenance activity at future scheduled outages. 

Finally, in the event of an operational problem, Alabama Power can bring to the project 

the necessary personool needed to resolve the problem. Such personool include other hydro 

plant crews, fossil plant crews, power generation and engineering suppon groups, power 

delivery substation maintenance crews, licensing expens and regulatory compliance suppon 

groups. In addition, we are able to call upon the expertise of Georgia Power Company, a 

sister company within the Southern electric system, and the system's engineering and technical 

suppon company, Southern Company Services, Inc. With Alabama Power and Georgia Power 

having a combined total of approximately 2600 megawatts of hydro capacity (an amount 

roughly equivalent to the capacity within the Southeastern Power Administration), our projects 

have a wide range of expertise available at almost a moment's notice. As a result, we are often 

able to resolve many operational problems without having to take a unit off-line. 

VI. ROUTINE MAINTENANCE 

During normal plant operations, Alabama Power is constantly performing routine 

maintenance at the projects. This aspect of Alabama Power's maintenance program begins with 

daily inspections of the projects. For these daily inspections, we have developed a checklist 

of potential problem areas. Most of the items on this daily checklist do not contemplate any 

specific action other than simply making observations. For electrical and mechanical systems 

and components that do not require daily inspection, we have prepared checklists that are used 

on either a weekly, monthly or annual basis. These various checklists serve two functions. 

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First, they are used to evaluate the plam's operating conditions and to detect any system or 

component that may be showing signs of wear or need of attention. As maintenance issues are 

discovered, these problems are either resolved during normal project operations or are 

scheduled to be addressed during the next outage. 

Second, these weekly, monthly and annual checklists cootain numerous action items that 

serve preventive or predictive maintenance purposes. For example, plam personnel will clean 

and lubricate various systems and components in order to avoid significant operational 

problems that could result in an unscheduled outage. By pedorming this routine maintenance 

during plant operations, we are able to observe and correct small problems before they become 

big and expensive problems. In addition, this routine maintenance also helps to keep unit 

efficiency high. 

VD. SCHEDULED OUTAGES 

As you might expect, the peak demand on Alabama Power's electric system occurs 

during the summer and winter months. Accordingly, during these periods, the pedormance 

of our hydroelectric facilities is critical. In cmler to ensure the full and efficient operation of 

these projects during the peak period, we remove these projects from service during off peak 

periods (spring and fall) to pedorm scheduled maintenance that cannot be accomplished during 

plant operations. For most of our projects, only one outage a year is necessary. Typically, 

these outages are conducted during the fall because there is usually lower flow in the rivers in 

the fall than during the spring. Several of our projects also require a spring outage because 

of the nature of the turbines installed at these projects. 

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The outage for each project is scheduled and coordinated by Alabama Power's Reservoir 

Management group to ensure that too many units are not off-line at any one time. To 

determine when an outage is to occur, Reservoir Management uses an in-house computer 

system developed by Alabama Power called the Hydro Optimization Management System 

("HOMS"). HOMS allows us to maximize the operations of our fourteen hydroelectric plants 

by allowing for centralized and coordinated scheduling, management, and operations. Using 

real time telemetered data of rainfall and inflow in the watersheds, HOMS accurately predicts 

the water flows that each hydro project can expect, which allows us to schedule our outages 

in a way that maximizes the use of this water. Furthermore, we may lower the reservoir a few 

days before the outage to allow additional water storage capacity in that reservoir. This 

efficiency measure taken to prevent water spillage during the outage is also determined by our 

HOMS system. 

Our Holt and Bankhead projects are located on Corps of Engineers' reservoirs, which 

were constructed by the Corps for flood control and navigational purposes. While the Corps 

owns and operates the dams at Holt and Bankhead, Alabama Power owns and operates the 

powerhouses and generating equipment. As a result of this dual ownership, close cooperation 

between Alabama Power and the Corps is essential. To this end, Alabama Power has for over 

30 years coordinated its power operations with the Corps to ensure that its flood control and 

navigation purposes are met. Moreover, during outages at Holt and Bankhead, Alabama Power 

coordinates closely with the Corps so that the Corps will be prepared to modify its operation 

of the dams as necessary. To assist the Corps in this regard, we share our calculations and 

predictions of potential changes in river flow conditions, as determined by HOMS. 

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A typical outage for an Alabama Power hydro facility is approximately 7 to 14 days. 

Because electric load demands constantly change, river conditions change as the weather 

changes, and because our hydroelectric capacity is among the cheapest sources of generation 

on our system, Alabama Power wants to minimize the amount of time these units are off-line. 

Accordingly, outage crews, which are comprised of Alabama Power employees, usually work 

around the clock to complete the maintenance activity as quickly as possible. To assist these 

crews in performing their outage work, Alabama Power has developed a standard checklist to 

ensure that each unit is thoroughly inspected and that all preventive and predictive maintenance 

activity is accomplished on time. In addition, these crews address the various maintenance 

items identified during the routine inspections described above. 

Although there are many different maintenance items addressed during an outage, a 

brief discussion of repairing cavitation damage will provide a good example of outage activity. 

During generation, the water pressure on the turbine blade and other metallic surfaces around 

the turbine causes cavitation. This cavitation results in cracks and boles in the metal. Because 

the turbine is completely flooded during generation, it can only be repaired by draining the 

water from the unit during an outage. Even though these holes and cracks caused by cavitation 

are relatively small, over time, the presence of cavitation in the turbine causes significant losses 

of efficiency. As a result, during outages, we typically inspect the units to determine the extent 

of the cavitation damage and make repairs where necessary. To repair such damage, we weld 

the cavitation and the cracks and then sand them to a smooth, polished finish. By spending the 

time and money to perform this relatively routine maintenance item, the turbine will have an 

extended life expectancy, which will save us money over the long term. / 

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VIII. PLANT REHABILITATION 

Most of the maintenance items addressed during a scheduled outage are relatively minor 

and routine. However, from time to time, substantial capital improvements are required to 

replace worn equipment in order to allow continued efficient operations. For example, we 

know that items such as a unit's turbine assembly are not going to last forever, and that we will 

need to replace such pieces of equipment periodically. For these types of maintenance items, 

Alabama Power typically makes budgetary plans as many as ten years in advance to ensure that 

there is adequate money available for these capital expenditures. 1brough this plant 

rehabilitation program, we are constantly conducting studies designed to identify long-term 

needs and to prioritize those needs so that we can levelize both budget impacts and work loads. 

Moreover, through these studies, we have been able to formalize our operation and 

maintenance procedures. Because these procedures are generally followed at all of our 

facilities, our hydro maintenance program has become much more consistent and effective. 

The success of our plant rehabilitation program is evidenced by the fact that the Electric 

System Board of Ireland has contracted with us to evaluate their hydro operations and 

maintenance programs for possible improvements. We have been pleased to help this Irish 

utility improve its hydro program and are honored that Alabama Power was selected to serve 

as a model of how a successful hydro maintenance program can be run. Though we are very 

proud of our 75 years of hydro operations, we are constantly searching for ways to improve 

our maintenance program. 

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IX. CONCLUSION 

Because Alabama Power historically has been dedicated to maintaining its hydro 

projects, these projects continue to be operated efficiently and for the benefit of our customers 

who receive tremendous value from this low-cost source of generation. We believe that the 

success of our maintenance program is demonstrated by the fact that our program goals are 

continually being met. Generator unit availability for the past five years has been at 96.4% 

compared to an industry average of91.3% in this same general time period. During this time, 

Alabama Power has experienced a minimal amount of unscheduled maintenance outages. 

Moreover, the cost of maintaining these projects is under control. Since 1976, our enviable 

plant availability factor has been achieved while our maintenance costs have been reduced by 

7%. Our high availability factor and our low maintenance costs are two of the reasons why 

Alabama Power Company has some of the lowest electric rates in the country. In short, we 

believe that Alabama Power is meeting one of its major responsibilities as a steward of the 

valuable natural resources in Alabama by operating our hydro facilities as efficiently and cost 

effectively as possible and doing so for the benefit of our customers. 

Again, I appreciate the opportunity to discuss Alabama Power's hydro maintenance 

program and I hope that my testimony will prove helpful to the subcommittee's understanding 

of how a government-owned facility could be maintained if privatized. Alabama Power looks 

forward to the subcommittee's further consideration of the privatization issue and eagerly 

awaits the opportunity in the near future to use its hydro maintenance program to enhance the 

productivity of a government-owned facility. 

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TESTIMONY OF BRUCE C. DRIVER 

SPECIAL COUNSEL TO 

THE LAND AND WATER POND OF THE ROCKIES 

BEFORE THE 

WATER AND POWER RESOURCES SUBCOMMITTEE OF THE 

BOUSE COMMITTEE ON RESOURCES 

ON THE TRANSFER OF THE POWER MARKETING ADMINISTRATIONS 

PROM FEDERAL OWNERSHIP 

ON BEHALF OF 

THE LAND AND WATER POND OF THE ROCKIES 

NATURAL RBSOURCBS DBFBNSB COUNCIL 

GRAND CANYON TRUST 

MAY 18, 1995 
149 

INTRODUC'l'l:OH 

My name is Bruce Driver. I am Special Counsel to the Energy 

Project of the Land and Water Fund of the Rockies {"LAW Fund") . My 

business addres.s is 2260 Baseline Road, Boulder, Colorado 80302. 

I am appearing today on behalf of the LAW Fund as well as the 

Natural Resources Defense Council { "NRDC") and the Grand Canyon 

Trust. I appreciate the opportunity to present to the Subcommittee 

our positions on PMA asset transfer. 

The LAW Fund is a non-profit regional environmental law center 

serving the Rocky Mountain, Intermountain and Desert Southwest 

states of the American West. The LAW Fund • s Energy Project 

advocates the adoption of measures that minimize the adverse 

environmental impacts of meeting the demand for electric energy 

services in our region. In this regard, we promote greater 

attention of the region's utilities to energy-efficiency and 

renewable resources in ways that avoid significant electric rate 

increases. 

To advance our positions, we intervene in state PUC 

proceedings in Arizona, Colorado, Nevada, New Mexico, Utah and 

Wyoming. As well, since 1991 we have represented environmental 

interests in the public procedures surrounding the Western Area 

Power Administration's {"Western•) attempts to deal with customer 

contract extensions and Integrated Resource Planning. We also work 

with some of Western's current customers on-the-ground to help 

devise ways in which they can promote energy conservation and 

renewable resources on their systems. In short, we believe we are 

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well-acquainted with electric utility issues here, including how a 

transfer of Western's assets may affect broad public interests in 

the region . 

The focus of my testimony is on the transfer of assets used in 

the generation and transmission of electric power marketed by 

Western. All of the states in which we are active on electric 

issues are served by utilities who purchase from Western, rather 

than from either the Southeastern or Southwestern Area PMAs. 

Substantively, our testimony addresses the impact of an asset 

transfer on two primary public interests that are broadly supported 

in our region: (1) Promotion of sound utility practices, in 

particular utility diversification into renewable resources and 

energy-efficiency investment through Integrated Resource Planning 

and (2) Mitigation of damage to the natural environment of the 

West's river systems attributable to the construction and operation 

of federal dams . 

Of course, the transfer of Western's assets implicates other 

federal policy issues, principal among them deficit reduction, the 

impact on electric rates and the downsizing of the federal 

government . These are obviously important issues and, thus, we 

integrate them into our recommendations. 

SUIOIARY OP IO.JOR POINTS 

1. Highly important, but poorly understood, issues surround 

the transfer of Western's assets from federal ownership, management 

or control. In our view, deciding first to sell or otherwise 

transfer control of Western's assets and then figuring out how to 

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protect these interests is putting the cart before the horse. As 

a result, we prefer that Congress act now only to remove the ban on 

the ad!ninistration studying the transfer of these assets. but 

refrain from deciding whether to transfer until a study is 

completed. 

2. We are well aware, however, of the momentum to privatize 

the PMAs. If a speedy decision to privatize is inevitable, we urge 

Congress to condition the transfer of Western assets on protection 

of important Public interests. aroong them Integrated Resource 

Planning. fish and wildlife. recreation. irrigation and water 

supply. 1 

3. In our view, however, conditions may be incapable of 

protecting some significant public interests. For example, selling 

Western's transmission assets could further balkanize our region's 

transmission system and undermine the development of competitive 

wholesale electric markets in the West. Furthermore, selling the 

generating turbines raises the specter that the West's rivers will 

be run primarily to meet utility needs to the disadvantage of other 

river values. Neither of these developments would be in the public 

interest. As a result, we urge Congress to consider transferring 

control over only the entitlement to use power generated by the 

dams. but not the transmission or generating assets themselyes. 

4. Over the long run, significant deficit reduction 

For example, one possible condition, applicable in the 

Colorado River Basin, is the establishment of a trust fund, 

financed by a very small charge added to the sale price, for the 

purpose of paying to restore the habitat of endangered fish. 

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attributable to transfer of Western's assets can be obtained only 

at the expense of electric rate increases. We are sympathetic to 

the notion that the transfer of Western's assets should not lead to 

rate increases. On the other hand, there are economic efficiency 

benefits from letting the price of power from federal resources 

approach its market value and, thereby, providing significant 

deficit reduction. Congress should carefully weigh the relative 

values inherent in reducing the deficit and avoiding rate increases 

attributable to asset transfer. 

5. If there is to be a transfer of Western's assets, 

Congress should encourage vigorous competition within the electric 

industry--investor- owned. municipal and cooperatively-owned 

utilities as well as independent power producers and others--to see 

who would offer the best package to protect and enhance important 

public interests. It follows that an automatic preference to 

existing Western customers to take control of these assets, as 

suggested in the administration's proposal, is inappropriate. 

POLICY ISSUES AND THEIR IMPLICATIONS POR ASSET TRANSFER 

In this section we discuss important public policy issues 

raised by the transfer of Western's assets as well their 

implication for congressional action. 

A. The need to promote the sustained orderly development of 

renewable resources and customer energy-efficiency in 

this region through Integrated Resource Planning 

In 1993 and 1994 the LAW Fund conducted a series of meetings 

in our region with interests who have a stake in the future of the 

electric industry here--utilities, renewable resource developers, 

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environmentalists, tribal officials, coal and gas interests and 

many others. In addition, on our behalf a survey of public opinion 

was undertaken regarding the support for clean energy policies in 

the six states in which we are the most active. 

As a result of this work, we can say that there is strong 

support in this region for the electric industry playing its part 

to mitigate adverse environmental impacts it has helped to cause as 

well as to take further steps to protect and enhance the natural 

environment here . 

electric 

Many say they are willing to absorb an increase 

in their rates, especially if it would reduce air 

pollution. In particular, many support the sustained, orderly 

development of the region's copious renewable resources as well as 

utility programs to help their customers conserve energy . 

Support for these policies stems not only from the 

environmental advantages of renewable resources and energyefficiency, but also from their economic benefits. In this regard, 

these resources provide important resource diversification 

advantages that can protect the region against price hikes in the 

fuel of the region's conventional utility resources, in particular 

coal- and natural gas- fired powerplants. And they reflect an 

understanding of how the region's quality of life and economy 

depend on a clean environment . 

In recent years western states and then Congress and Western 

have begun to exercise leadership in promoting renewable resources 

and energy-efficiency. The principle vehicle by which these 

resources are promoted is Integrated Resource Planning ( • IRP" l . 

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IRP is a procedure in which utilities consider renewable resources, 

customer efficiency improvements and other electric resources for 

addition to their system to meet financial and public objectives, 

such as low electric rates, system cost reductions, resource 

diversification and environmental improvement . 

In Section 114 of the Energy Policy Act of 1992, Congress 

required Western to promulgate an IRP regulation for its utility 

customers. In August, 1994 Western proposed IRP rules along with 

policies to govern the extension of contracts for some its regions. 

Also included in this package of measures is a resource pool that 

may be used to mitigate environmental problems on the rivers or to 

back up intermittent renewable resources, like wind and solar 

generation, acquired by Western's customers. This package of 

measures is, generally speaking, wise and appropriate. We believe 

that it represents a rough consensus among Western's customers and 

other interests, like ours, regarding how to balance progressive 

energy policies with the need for certainty of power source and low 

electric rates. 

Western is involved in promoting IRP in two other ways. In 

most years Western purchases a considerable amount of electricity 

to meet contract obligations as well as to firm and shape the 

federal hydro resource. In 1993 alone, roughly 40\ of its 

expenditures went towards the purchase of electricity for these 

purposes . In December, 1994 Western proposed to use IRP principles 

in its purchase of electricity. At that time Western also proposed 

to apply IRP to its transmission construction program, including 

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considering whether energy conservation might enable the agency to 

reduce the need for new transmission capacity and save money. We 

applaud these actions. They are an example of how a federal agency 

can promote the broad regional public interest in efficiency and 

environmental improvement through sound IRP. 

We are deeply concerned that this package of proposals will be 

lost in an asset transfer. This would be unfortunate because we 

believe this package is supported by the region. As a result, we 

urge Congress not to authorize any transfer of Western's assets 

without conditions that protect IRP and the resource pool . 

B. The need to promote competition in wholesale electric 

power markets in the West 

Spurred by provisions of the Energy Policy Act of 1992 that 

opened the nation's transmission grid, competition in wholesale 

electric markets is slowly developing in our region . The benefits 

from wholesale market competition are numerous, including lower 

utility costs of service , lower electric rates, greater system 

reliability and environmental protection. We support the 

development of wholesale electric competition in the West. 

Coordinated transmission operation, planning and expansion is 

essential to the development of wholesale market competition. 

Without coordination of the transmission system, growth in 

wholesale electric markets will be stunted . At this time, the 

region's transmission system is fractured among many utility 

owners, increasing the difficulty of coordination. Western's 

transmission system, while not operated as one system throughout, 

adds stability to the region and contributes to coordination. 

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We do not see how selling Western's transmission assets is 

consistent with the need to coordinate transmission in the West. 

In this regard, We'stern has over 600 customers. Even if only a 

subset avail themselves of the opportunity to become transferees, 

ownership or control of the system will pass from one entity to 

dozens, scores, perhaps even hundreds of utilities. While it is in 

theory possible to require these transferees to coordinate 

operation and planning of the new assets they own, we are skeptical 

that this outcome will come easily . In particular, in the new era 

of competition in electric service, now spreading even to the 

retail side of the business, there may be competition for sales and 

service territory among the transferees, complicating coordination. 

As a result, we believe that the coordination needed for the 

development of wholesale markets may best be facilitated by leaving 

ownership and control of the t~ansmission assets with Western . 

C. The need to mitigate the impacts of dam construction and 

operation on riverine environments and to protect other 

non-power uses of western rivers 

Western markets power from over 50 dams in our region with a 

combined rated capacity of over 10,000 megawatts. While these dams 

provide an incomparably low-cost power resource that has sustained 

rural and municipal economies throughout the West, they have also 

caused damage to fish , recreational amenities and other aquatic 

resources in the region . In recent years, a consensus has 

developed that this damage should be mitigated . 

For example, under the Grand Canyon Protection Act of 1992, 

the Secretary of the Interior is directed to operate Glen Canyon 

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157 

Dam on the Colorado River in such a manner as to protect, mitigate 

adverse impacts and improve the values for which the Grand Canyon 

National Park was established. Plans are under development by the 

Bureau of Reclamation to do so. Similarly, the U.S. Fish and 

Wildlife Service manages the Recovery Implementation Program for 

Endangered Fish Species in the Upper Colorado River ("RIP") to 

reverse the damage done to certain fish species attributable, in 

part, to construction and operation of Colorado River dams . 

Our concerns are but one example of a larger reality : The 

major rivers in the West that serve to generate power are also used 

and enjoyed for other purposes, including irrigation, water supply, 

recreation and the support of fish and other species. Westerners 

support these other uses with passion. And while we fight with 

each other over how much protection any one of these uses should 

receive, we respect each other's values and, ultimately, the need 

for balance in operating the West's river systems . 

Against this backdrop it is proposed that the federal 

government privatize the ownership, management or control of the 

power generating turbines contained in the federal dams from which 

Western markets electricity. In our view, once a utility is in 

control of the operation of these turbines, hard-to-resist 

pressures will build to operate the river to maximize the river's 

value to the utility, likely to the detriment of other uses which 

westerners support. The balance which an operator like the Bureau 

of Reclamation can bring to the operation of the rivers to meet 

multiple uses is jeopardized . 

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As a result, transfer of control over the turbines to 

utilities appears inappropriate. Privatizing the control over the 

entitlement to the power output of the dams, as operated by the 

federal government to meet multiple uses, should be sufficient. 

D. Other important policy issues 

1. Deficit reduction and rate increases. 

One of the possible benefits of a transfer of ownership, 

management or control over Western's assets is deficit reduction. 

That is, sale of these assets will produce a one-time infusion of 

cash to the federal treasury that has been estimated at upwards of 

$2.5 billion. And a sale would remove the need for annual 

appropriations, adding additional flexibility to system operations 

as well as reducing the need for some federal employees. 

At the same time, the U.S. Treasury would lose the stream of 

annual revenues generated by Western's rates for the sale of power 

to its customers, which over time reimburse the Treasury both for 

capital and operating costs. In this context, whether the transfer 

of Western's assets will help reduce the deficit depends critically 

on the asset transfer price. 

The administration's asset transfer legislation proposes to 

set a minimum price for PMA assets equal to the net present value 

of the principal, interest, and capitalized deficit payments which 

the U.S. Treasury would be entitled to receive during the remaining 

period for repayment of these obligations. The intent, we 

understand, is to avoid rate increases attributable to the 

transfer, a laudable goal. However, seen over the entire period in 

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159 

which current repayment obligations are due, a sale price 

established under this formula offers no deficit reduction at all . 

By definition, a price based on the net present value of repayment 

obligations should equal the stream of revenues which Western's 

ratepayers would have paid the Treasury for the power Western 

markets . Thus, over time there is no positive gain to the Treasury 

from such a sale. That the President may be permitted, under the 

Administration's proposal, to score the cash receipts for a sale of 

the federal assets as an offset to direct spending for deficit 

reduction purposes does not overcome this fact. 

Thus, if Congress wants to use the transfer of Western's 

assets to reduce the deficit, it wi~l have to authorize a sales 

price that will have the effect of raising rates. On this matter, 

we are sympathetic to those who believe that the asset transfer 

should not result in electric rate increase. In this regard it is 

not clear that the benefits to the national economy attributable to 

real deficit reduction of at most a few billion dollars from an 

auction of Western's assets to the highest bidders are not 

outweighed by the negative impacts on it from electric rate 

increases in the western states. 

On the other hand, there are resource allocation benefits from 

letting the price of power from the federal dams move towards its 

market value . That is, letting the price reach its market value 

would communicate a price to users that is much closer to the 

incremental cost of power than a 

obligations. This would encourage 

11 

price based on repayment 

utility customers to make 
160 

investments in cost-effective energy conservation measures. 

However, pricing power on the basis of its value rather than its 

cost is the exception rather than the rule in this country. In the 

end, whatever the efficiency benefits of allowing the price for 

power from the federal dams to rise above repayment obligations, 

raising the rates for this power will meet with opposition in the 

region. 

2. Possible unintended consequences of asset transfers 

Any entity that is able to take control of a portion of 

Western's assets, especially at a sale price that avoids rate 

increases, will have an advantage in competitive markets. We think 

that this advantage may be pressed through predatory competition, 

namely using this low-priced and valuable resource to cherry-pick 

or steal the retail customers of neighboring utilities. Of course, 

such activity is not now lawful in most situations under state 

public utility law . However, several states, including California 

and New Mexico, both states in which Western now markets power, are 

considering legalizing these practices for retail customers. In 

our view, "retail wheeling, • as these practices are known, may 

become the law in more than a few states within 5-10 years. If so, 

the potential to use low-cost Western assets for this purpose may 

be irresistible to some . One way Congress could guard against the 

use of power from the federal dams for this purpose is to vest the 

entitlement to the power with the geographical territory now served 

by utility purchasers rather than with the utilities, themselves. 

Another unintended consequence of an asset transfer 

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implemented without rate increases may be to set the stage for the 

extraction of the market value of these assets by transferees 

through sales to other more wealthy third parties. In other words, 

a transferee purchasing these highly valuable assets could turn 

around and sell them to the highest bidder, among other things 

cashing out the federal subsidy. Again, one way to guard against 

this would be to vest the entitlement to the power with the service 

territory rather than the utilities. Another is to lease the 

assets rather than sell them . 

COMPETITION TO PROTECT PUBLIC INTERESTS 

The foregoing indicates our skepticism at this time regarding 

the consistency of a Western asset transfer with broad, regional 

and even national public interests. In this regard, we urge 

Congress to look before it leaps and not to forget that 

privatization is not an end in itself, but a means to meet 

underlying public interests. 

If Congress is determined to privatize now, however, we 

propose privatization only with conditions to protect public 

interests. And we urge serious consideration whether privatization 

of tr~nsmission and generating assets, as opposed to the 

entitlement to use the power from the dams, should be transferred. 

In addition, the core of any move to privatize should be 

vigorous competition between utilities and others interested in 

taking control over the entitlement to use power from the dams or 

the physical assets themselves to see who can best protect the 

public interest. That is, we propose that Congress require 

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162 

bidding among potential asset transferees to see who will offer the 

strongest package to protect public interest . As such, we oppose 

a preference for these assets to be vested simply because a utility 

is a present customer of Western's or for other reasons without 

regard to protection of public benefits. 

Among the criteria of such an open bidding process should be 

the following: 

Which utility or independent power producer would use the 

hy~~ resource in the context of IRP? 

Which would agree to subordinate its operation of the 

turbines, if they must be transferred, to other river purposes? 

Which would agree to operate its part of the transmission grid 

as part of an integrated, coordinated entity? 

Which would use the hydro resource to help "firm up" 

intermittent wind and solar resources? 

Which would agree to use the cost advantages inherent in the 

ownership or control of the federal hydro resource to leverage 

acquisition of renewable resources? 

Which would agree to aggressively help its customers improve 

the efficiency with which they consume electricity? 

Which would agree to contribute money to a trust fund to 

restore Colorado River fisheries? 

And so on. 

We note that implementation of this competitive bidding 

proposal would be a way of letting the market determine who is best 

positioned to protect public interests which have been mainly the 

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province of the federal government . We also note that our 

competitive bidding proposal would be facilitated by establishment 

of a sales or other asset transfer price that is not appreciably 

above that established as a minimum in the administration's 

proposal. 

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Statement of Alan Richardson, Deputy Executive Director 

American Public Power Association 

before the Subcommittee on Water and Power 

of the House Committee on Resources 

May 18, 1995 

American Public Power Association is the national service organization representing the 

interests of the nation's 2,000 local publicly owned electric utilities operating in 49 

states, Puerto Rico, the Virgin Islands, and Guam. More than 550 such systems 

purchase power from federal power marketing agencies (PMAs), including·the Western 

Area Power Administration, the Southwestern Power Administration, and the 

Southeastern Power administration. In addition, approximately 600 rural electric 

cooperatives purchase power from these PMAs. A list of all public power purchasers of 

federal power is attached. 

As indicated in the attached resolution approved by the APPA Legislative and 

Resolutions Committee on Aprill8, APPA opposes the sale of the PMAs, but supports 

actions that would protect and enhance their benefits for the federal government and 

publicly owned electric utilities. 

The reasons for APPA opposition include the following points: 

1. Sale of PMAs Would Result in Significant Rate Increases 

First and fore~ost, this is an electric consumer protection issue. Approximately 1,100 

consumer owned electric utilities (public power systems and rural electric cooperatives) 

purchase power marketed by Southeastern, Southwestern and Western Area Power 

Administrations. These not-for-profit utilities provide power to nearly 32 million 

consumers in 29 states. Their primary goal is to provide this electricity to their 

consumer-owners at the lowest possible cost. Our opposition to any sale is finnly 

grounded in the very high probability that any sale will increase rates for these electric 

consumers. 

Opposition to sale based on concern over increased rates is shared by many other 

organizations. including the Consumer Federation of America. CFA, the nation's 

largest consumer organization representing 240 consumer groups with a combined 

membership of 50 million Americans, has consistently opposed sale of the PMAs. 

CFA's executive director, Steve Brobe<:k, recently had this to say about proposals to sell 
165 

the PMAs: "The consumer position on sale of the PMAs, then, is very clear. Do not sell 

income-generating public assets that keep electric rates down, especially in high-cost 

areas, in return for a one-time payment to the ~-·easury." 

Concerns over rate increases of consumer owned utilities have intensified as private 

power companies have raised the prospect of a bidding war for the purchase of the 

PMAs. If the PMAs were sold to private power companies, the Congressional Research 

Service suggests that rates would rise by $1.2 to $1.3 billion a year, and PMA power 

would be removed as a "competitive check on private utility costs and rates." CRS said: 

In a sense, this alternative brings the fundamet;(tal issue of Federal hydropower 

marketing policy to a head. Since the 1930s, it has been the policy of the 

Federal Government to market Federal power at cost, encouraging its use. As a 

result, an entire infrastructure has developed which has significant regional 

economic implications. Such Federal encouragement of regional development 

was (and still is in the view of many) an appropriate role for the Federal 

Government, particularly in rural areas where private incentive was lacking. For 

those whose economy and way of life are tied to this system, this market pricing 

alternative must be considered among the worst of the alternatives discussed in 

this report. The sensitivity of this situation is suggested by the language of 

current law (P.L. 102-337) prohibiting the study of this option: 

Sec. 505. Notwithstanding any other provision of this Act, subsequent 

Energy and Water Development Appropriations Acts or any other 

provision of law hereafter, none of the funds made available under this 

Act, subsequent Energy and Water Development Appropriations Acts or 

any other law hereafter shall be used for the purposes of conducting any 

studies relating or leading to possibility of changing from the currently 

required 'at cost' to a 'market rate' or any other noncost-based method 

for the pricing of hydroelectric power by the six Federal public power 

authorities [5 PMAs and lVA], or other agencies or authorities of the 

Federal Government, except as may be specifically authorized by Act of 

Congress hereafter enacted. 

This approach may maximize the receipts to the Federal Treasury. However, it 

may also maximize the pain to the consumers and regional economies affected 

by the change. 

In addition to these consumer owned utilities, some 165 federal and state agencies buy 

electric power directly from federal power marketing agencies. In 1993, they purchased 

nearly 6 million megawatt-hours of electric energy, and paid a power bill of 

$107,133,899. Attached is a list of the agencies, their power purchases, and their power 

bill. 

Investor-owned electric utilities have announced that rates charged by three of the 

PMAs would increase markedly if they are purchased by IOUs. Their trade association, 

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166 

the Edison Electric Institute, has concluded that the rates for the Southeastern Power 

Administration will rise by 64.6% with sale of that agency to IOUs, the Southwestern 

Power Administration by 124.4%, and the Western Area Power Administration by 70.7%. 

All of the federal and state agencies that purchase power direcdy from these PMAs 

would realize increases in their electric bills by the percentages indicated, the EEl 

analysis shows. To cover these extra expenses, taXes or fees would have to be raised or 

services curtailed. The entities involved include U.S. Air Force bases, federal research 

laboratories, state medical facilities and prisons, educational institutions, U.S. Navy 

stations, national parks, U.S. Army posts, and gov•·. nment water projects. 

2. PMA Power Has Important Economic Implications for Three Regions 

Concern over the consequences of a sale of the PMAs is not simply a matter of what 

happens to the residential customer at the end of the line. It is also a critical issue for 

local economies served by current PMA customers. The vast majority of these consumer 

owned utilities are located in small cities, towns and rural communities. The economic 

consequences from a sale of the PMAs muld be disastrous. 

A 1995 study shows that availability of hydroelectric power from federal dams has 

significant implications for the economies of the three regions served by the Western 

Area Power Administration, the Southwestern Power Administration, and the 

Southeastern Power Administration. 

A summary of data for 29 affected states shows that nearly 32 million people are served 

by public power systems or rural electric cooperatives that buy federal power. These 

residential users are employees and/or customers of commercial and manufacturing 

establishments which also are served by public power systems and rural electric 

cooperatives that buy federal power. 

In total. adding up 29 states where public power systems and rural electric cooperatives 

purchase and resell federal power, commercial firms have annual sales of $5 79 billion, 

pavrolls of S7q.9 billion, and employment of more than 4.2 million persons. 

Manufacturing firms account for value added annually in excess of $80 billion, payrolls 

adding up to $30.5 billion, and employment of nearly 1.3 million persons. 

These numbers describe the economic base of the communities served by public power 

systems and rural electric cooperatives in 29 states where federal hydropower is 

marketed by the Western Area Power Administration, the Southwestern Power 

Administration, and the Southeastern Power Administration. Cost-based charges for 

federal power have been an ingrained part of this economic base from the beginning of 

the construction program that resulted in the creation of 130 federal water resource 

projects with electric generating capability. 

Consumer-owned electric utilities signed up to buy federal power in days when it might 

not have been the best economic deal. and they paid into the Treasury millions of 

dollars that have built up the substantial equity in the Western Area Power 

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Administration, the Southwestern Power Administration, and the Southeastern Power 

Administration. It would be unfair to sell the output of federal dams to the highest 

bidder and wipe out an earned right which stretches over a period of nearly 50 years 

and represents an investment on which consumer-owned utilities and their customers 

rely. 

"Electricity is an integral part of the modern economy, and in particular, low-cost PMA 

power has been used as a vehicle to stimulate economic development," the 

Congressional Research Service pointed out in a March 7 report. 

In an era of global competition, the price of ill!_ elements in sales and production 

become important to commercial firms and manufacturers, including electricity. To 

raise arbitrarily the price of power from federal dams by allowing private parties to use 

the facilities as profit centers with market rates could only jeopardize the viability of 

existing businesses in the 29-state area of the U.S. The effect is like levying a special tax 

on one element of the population-those served by public power systems and rural 

electric cooperatives-so as to wipe out prior commitments and to endanger jobs and 

family income. 

3. Issues of Equity and Fairness 

Consumer-owned electric utilities have been partners with the federal government in 

the development of the nation's water resources. Their commitment to purchase power 

from multi-purpose water projects has helped to underwrite scores of navigation, 

irrigation and flood control projects developed throughout the country. In the face of 

substantial opposition from private power interests, they provided the political muscle 

that resulted in the creation of infrastructure projects that benefit the entire nation. 

They signed up to buy federal power in days when it might not have been the best 

economic deal, and they paid into the Treasury millions of dollars that have built up the 

substantial equity in the system. It is unfair to wipe out the earned right to this 

financial interest which stretches over a period of nearly 50 years, and represents an 

investment in which consumer-owned utilities rely. 

Economic development in communities served by utilities that purchase federal power 

has been influenced by the availability of this resource. To pull the rug out from under 

these cities and towns is a breach of this very successful and long term federaVnonfederal partnership in resource development. 

Sale of the PMAs also raises a question of fundamental fairness. Ten years ago, the 

Congress was struggling with policy questions regarding rights and priorities in the 

relicensing of non-federal hydroelectric facilities. Congress resolved those issues 

through the enactment of the Electric Consumers Protection Act. This legislation 

protected customers of utilities holding expiring hydroelectric licenses, avoided 

unnecessary cost increases, and did not disrupt the competitive balance that exists 

between private power companies, public power systems and rural electric cooperatives. 

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168 

Not long after this Act was passed, Senator Richard Shelby, the bill's primary sponsor in 

the House who was subsequently elected to the Senate, urged his Senate colleagues to 

oppose sale of the PMAs for the same reasons many had supported his relicensing bill --

"to protect electric consumers who are entitled to and rely on PMA power and to 

encourage competition in the electric utility industry." (Letter from Senator Richard 

Shelby to his Senate colleagues, January 17, 1987.) 

4. Sale of the PMAs Could Undermine Competition 

Contrary to the claims of some private power companies, the federal power marketing 

program was not designed simp!y to electrify rural America. The right of first refusal, 

or preference, extended to consumer owned not-for-profit utilities was intended to curb 

monopoly power by ensuring a source of power supply for competing types of electric 

utilities, specifically public power systems and rural electric cooperatives. This procompetitive aspect of the federal power marketing program could be seriously 

undermined by a sale of the PMAs. 

Private power companies argue that rural America has been electrified, and the 

transmission access provisions of the Energy Policy Act of 1992 ensure that· all utilities 

can reach a multi rude of power suppliers. They then suggest that since the historic 

justifications for this right of first refusal have either been met or are no longer valid, 

these assets should be sold to the highest bidder, which will of course be the largest 

entities with the deepest pockets. 

In fact. sale of the PMAs could seriously undermine the transformation of our electric 

utility industry from one governed by regulation to one more dependent on 

competition. A vigorous competitive market demands both a multirude of sellers and 

buyers. The number of potential purchasers of bulk power within the ranks of the 

investor owned utility community is steadily diminishing through consolidations and 

mergers. Consumer owned utilities, as potential purchasers of bulk power, continue to 

exert a strong and extremely beneficial effect on the market. However, if federal power 

were to be stripped from the more than 1.100 purchasers of federal power, or if its price 

were to increa~e. their continued economic viability would be seriously threatened. 

They would become easier targets for private power companies, many of whom are 

already engaged in expanding their market share through the acquisition of their 

consumer owned utility competitors. 

5. IOU Proposals Would Raise Electric Rates 

Federal power marketing agencies sell power at cost to consumer-owned electric 

utilities, who have the first right to purchase, and the PMAs make available transmission, 

which is integrated with facilities of public power systems and rural electric cooperatives 

to avoid duplication, cut costs, protect the environment, and enhance efficiency. Selling 

PMA facilities and output of federal dams to investor owned utilities would create a 

competitive imbalance, and give private power companie~ the chance to monopolize 

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169 

purchase rights in a manner that harms all consumers. It would destroy a 

FederaVconsumer-owned utility partnership that has existed for decades. 

On average, investor-owned electric utilities have the highest rates of any of the utility 

ownership segments in the United States at retail. Contrary to their claims, this is true 

not because utilities of other ownership get some kind of special assistance, but because 

IOUs are not as efficient or seek large profits for their shareholders or are controlled by 

state commissions that impose operational obligations. 

In 1993, average revenue per kilowatt-hour, adjusted for common sales composition 

(residential, commercial, and industrial) was 7.2 cents for IOUs, 6.5 cents for rural 

electric cooperatives, and 6.1 cents for public power systems. 

Average wholesale prices charged by IOUs in the several PMA areas bear no necessary 

relationship to true "market" prices in those areas. The lowest single supplier price in a 

particular region would serve as a more accurate proxy for that region's "market" price. 

Edison Electric Institute says utilities will buy PMAs based on prices for resale of 20 

IOUs in the Southeastern Power Administration service area, 15 IOUs in the 

Southwestern Power Administration service area, and 29 IOUs in the Western Area 

Power Administration. However, potential bidders who are aware of the direction of 

change in the electric power industry ( 100% of such potential bidders) will not be willing 

to buy PMA asse ts valued on the basis of regulated prices they themselves will be unable 

to force on the market. 

The thrust of the IOU argument is that electric rates should be raised to their average 

costs rather than reduced to market levels. In other words, consumers would be called 

upon to pay more, not less. 

6. PMAs Pay Back Principal With Interest 

Customers of the federal power marketing administrations are required by law to pay 

back the investment in federal hydropower facilities with interest. They are doing so, as 

shown in the table below: 

Status of Repayment as of September 30, 19931 

(cumulative dollars in millions) 

Interest Cumulative 

Power Power Opention & Purchased paid repayment Unpaid 

invesrmem2 ~ maint.lO&M) ~ thru 1993 rhru 1993 investment 

' All data are on accrual basis of accounting. except as noted, and are based on the best 

information available. 2 The power investment to be repaid includes irrigation and other non power investment assigned 

to power for repayment for Bonneville and Western. 

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170 

Alaska 203 144 52 0 53 39 166 

Bonne\·ille 12.2605 34.723 5,572 20,825 3,914 2.412' 9,848' 

Southea!ltern 1.442 2,323 1.043 65 781 435 1,007 

Southwestern 997 2.042 688 520 536 298 699 

Western 5 631 .!.!..llQ' ...1.ill 3 013 !.ill ~ .l.ill' 

PMATo1a1 ~ ~ .1.1...Ui!i 22-W liJl.ll llU ~ 

There may be federal programs that don't work but this isn't one of them. The Federal 

power program pays for all the investment- with interest- and covers O&M, 

renewals and replacements plus supporting agriculture. The program is not subsidized. 

It is a self-supporting capital budget item, not an income/expense entry. 

7. Federal Power Marketing Agencies Provide a Steady Revenue Stream 

If the government sold the federal power marketing agencies, taxpayers would lose a 

steady stream of revenue which over time would exceed in value the price of a sale of 

these assets. 

The Congressional Research Service tabulated in a report dated March 7, 1995, 

appropriations and receipts of four PMAs whose revenues go to the U.S. Treasury. The 

report showed the following for FY 1995: 

PMA Aeeroeriations Estimated Receiets 

($millions) ($millions) 

APA 6.5 11.2 

SEPA 22.4 159.2 

S\\TPA 21.3 92.5 

WAPA 225.1 378.5 

CRS calculated that these PMAs provided net positive receipts to the U.S. Treasury of 

$243.7 million, after subtracting PMAs' FY 1995 appropriations and use of prior year 

balances. 

In commenting on the Clinton Administration's proposal to sell four of the PMAs, CRS 

pointed out that while the U.S. Treasury would receive a windfall in receipts when 

monies saved overwhelm the revenues lost as a result of the sale, as the foregone 

revenues exceed the saving appropriations in the years after the sales, the cash flow 

actually would contribute to the deficit. "Thus, the fiscal advantage to the Federal 

Government of selling the PMAs is time-limited," CRS said. "Over the standard five-

' Cash rather than accrual basis. 

• The unpaid investment does not include construction work in progress or capitalized deficits. 5 Net of income transfers of $109 million. 

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171 

year scoring period, the Administration estimates the net receipts at $3.675 billion. Yet, 

if the sale were scored over a longer period, the net receipts would be less. In theory, if 

receipts were scored over the life of the projects involved, the net receipts would be 

zero." 

8. Sale of Assets Does Not Reduce the Deficit 

No matter how you change "scoring" rules, selling federal assets like the federal power 

marketing agencies does not reduce the federal deficit. 

Economist Alfred Kahn has said: "Selling off Government assets doesn't do a single 

thing that we want to reduce the federal budget deficit. It doesn't relieve the pressure 

on interest rates caused by the Government recourse to capital markets: it merely 

changes the instruments that Government sells." 

Harvard professor Martin Feldstein, former chairman of President Reagan's Council of 

Economic Advisors, noted about deficit reduction claims in 1986 that: 

The administration claims that the Treasury receipts from these safes will 

reduce the deficit. At first glance this may seem legitimate. But in 

actuality these government asset sales would be no different from the sale 

of more government bonds. 

Although government accounting methods would make it look as if federal spending 

and receipts are in better balance, these asset sales would do nothing to lessen the 

burden of the deficit. That burden occurs because government borrowing to finance the 

deficit preempts savings that would otherwise be available for private investment in 

plant and equipment and in housing construction. The administration's proposed asset 

sales would preempt private savings every bit as much as a federal sale of new debt of 

the same value. 

9. Multi-Purpose Projects Require Coordinated Management 

Multiple-purpose water projects generate electricity, which is sold at rates to recover the 

investment in power facilities, plus interest, and in many cases subsidize irrigation. 

These projects also provide flood control, navigation, municipal and industrial water 

supply, wildlife protection and conservation, recreation and salinity control. No nonfederal party can step in and act as a surrogate for government in handling these 

functions. Who decides the priorities on the use of water - the public interest or 

private pocketbooks? Why should the government sell the cash register and keep 

unprofitable functions? Would "cream skimming" be allowed so purchasers could pick 

and choose the best parts? 

Agricultural producers in the West benefit from special PMA pumping rates for 

irrigating arable land. Higher rates resulting from a PMNpower output sale could not 

8 
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only raise farm costs but actually make major products uneconomic, a result that would 

dump failed investment in the laps of taxpayers. 

Little homework has been done on this issue. What is for sale? How would it be sold? 

Who will set the price? How much will rates go up? Will taxpayers lose money? If it is a 

wash, why sell? What happens to existing laws governing these projects? Will federal 

dam operating expenses be adversely effected? Are there taX consequences? What 

happens to the federal-state water studies? Would PMA contracts with consumer-owned 

electric utilities be sold? If so, what, if any, price protection would exist? Has the sale 

been analyzed to compare a reasonable period of revenue stream with sales receipts to 

determine what is in the best interest of the taXpayers? What would the government do 

with the proceeds? 

1 0. Sale of PM As Would Require Massive Changes in Federal Law 

The idea of a PMA sale is fraught with complexity. The Alaska Power Administration 

has been proposed for sale for seven years, and no deal has yet been consummated -

even though it is a fairly simple proposition involving two small single-purpose 

hydropower projects. The other PMAs are much more complex. · 

There are literally hundreds offederal statutes relating to the sale of the PMAs. Among 

the questions that must be addressed are constitutional issues involving impairment of 

contracts; outstanding obligations and lawsuits related to existing bilateral and multiparty operating practices;Native American, Mexican, and Canadian treaty rights; 

statutory processes for review of planning, environmental protection, procurement 

approaches, operational practices, administrative actions, and public meetings; and 

employee rights under civil service laws, policies, and retirement provisions. 

As an example of the problem, consider laws controlling the Bureau of Reclamation, 

which produces electricity at hydropower projects throughout the West. A codification 

of these laws through 1982, requires five volumes and covers 3,368 pages. 

An overriding .fact about the sale of the federal power marketing agencies and output of 

federal dams is that it could arbitrarily raise electric bills at a time when many Americans 

are finding their budgets squeezed. President Clinton pointed out in his State of the 

Union address this year that many people are "working harder for less, they have less 

security, less income, less certainty that they can even afford a vacation, much less 

college for their kids, or retirement for themselves." One thing these people do not 

need is an increase in their electric bills. But that is what could happen if these federal 

resources are sold. 

11. U.K. Privatization Not All It's Cracked Up To Be 

"Privatization" is driven more by ideology than by economics. In the United Kingdom, 

an Oxford University study shows that" ... the outstanding feature ofthe history of the 

British electricity supply industry since the announcement of the privatization reforms 

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173 

has been the major transfer of resources that has occurred from consumers of electricity 

to owners of networks and power stations ... . In short, investors have enjoyed the 

electricity experience, but the consumers have not .... " 

"Britain's massive utilities-privatization effort, touted as the model for the world, is 

starting to show its flaws," the Wall Streetjournal reported on March 30, 1995. 

Excerpts from the news story state this: 

"Soaring stock prices at the privatized utilities and fat paychecks for executives who run 

them have :: iggered a privatization backlash in the past month. Utilities executives are 

being hauled before the House of Commons to answer questions on their bonuses. 

Consumer groups question why household bills are rising even as company profits go 

through the roof. 

"Even Stephen Littlechild, the British academic who dreamed up the industry's rate 

scheme nearly a decade ago, has conceded in the past week that he misjudged how 

much money the privatized electric companies could make under the existing rate 

system." 

*** "Mr. Littlechild. who is also the government's electricity regulator, says he is considering 

changing the regulatory setup for Britain's 12 regional electricity companies, privatized 

in 1990. The rate system, set last August, called for price cuts of as much as 18% 

beginning in April, and it limited future rate increases to annual inflation minus two 

percentage points. 

"Now Mr. Littlechild says he is considering toughening the formula or even forcing 

companies to refund money to customers, a move that analysts say could cost the 

industry as much as !2.3 billion ($3.67 billion)." 

"What he's done has blown a hole in the system," says Tony Gilland, an analyst at the 

Center for the Study of Regulated Industries in London. "People are now seeing the 

free market as· the cause of our problems." 

*** "Between privatization in 1990 and the end of 1994, profits for the regional electricity 

companies more than doubled, according to the Center for the Study of Regulated 

Industries. At some water companies profits nearly quadrupled. 

"Though Mr. Littlechild says he knew of these gains when he agreed on a plan for 

electricity rates in August, he was still comfortable that the system was working. It wasn't 

until late last year, when Trafalgar House PLC launched a takeover of Northern Electric 

PLC. a regional electric company, that his faith was shaken. Though Trafalgar offered 

to pay !1 .2 billion for the company, Northern Electric argued that the bid was too low 

and launched a counterattack to persuade its shareholders to reject the deal. 

10 
174 

"The sweetened Northern package included !500 in perks for shareholders, money that 

Mr. Littlechild didn't even know Northern Electric had. 

"That shock, as well as new evidence of hefty bonuses for many utility executives, 

prompted Mr. Littlechild to wonder if had been too easy on the companies, and 

whether all of the companies had been honest about their finances when the current 

rate package was drawn up. 

"Andrew Home. corporate affairs manager for Northern Electric, acknowledges that the 

episode has only fed a public perception that shareholders have triumphed over 

ratepayers under the current system. 'For the next several months there is going to be a 

fair amount of uncertainty,' he says. 'Customers can probably expect cuts in some 

form.'" 

Observers say that the United Kingdom, in effect, substituted a cartel for a state 

monopoly. Competitive markets did not develop, industrial rates have risen by as much 

as 60%, and some utility executives who previously received modest salaries have 

become millionaires from a culture of high salaries and lucrative share options. 

12. Projects Are Valuable Public Assets 

Sale proponents would have the government sell the assets - power output - and keep 

the liabilities- non-income producing project functions like navigation and flood 

control. At multiple-purpose projects, this is similar to keeping the store but selling the 

cash register. 

When the construction costs and interest are fully repaid, the government will own 

power plants free and clear and they can continue to produce money for the Treasury. 

II makes more sense to keep these valuable revenue-producing power plants than to sell 

them. 

Improve Operations of PMAs For Benefit of Consumers, Government 

The :\merican Public Power Association's Legislative and Resolutions Committee, on 

April 18, 1995, reaffirmed its strong and continued opposition to the sale of the federal 

power marketing administrations and lVA. At the same time, the Committee 

recognized that opportunities exist to enhance and preserve the value of these federal 

assets for consumer-owned utility customers and for the federal government and that 

such opportunities could involve greater mstomer involvement in PMA, Corps and 

Bureau operations. 

APPA was directed to pursue a process leading to recommendations to that end. The 

following guidelines for the enhancement of the PMAs for the benefit of consumerowned utilities and the government were developed by an ad hoc task force of members 

of the American Public Power Association: 

II 
175 

I. Exclusive right to the transfer of responsibility or control goes to existing consumerowned utilities and state power agencies that presently have federal power 

allocation. 

2. Consideration shall be no more than required to pay present value of outstanding 

debt adjusted to account for assumed risks. 

3. All existing contracts are honored, as well as renewed. 

4. Transfer of responsibility or control shall be accomplished on a project, system or 

regional basis, as appropriate. 

5. Adequate time is allowed to negotiate details, and all present consumer-owned 

utilities and state agencies who presently receive federal power have an effecrive 

opportunity to participate. 

6. Environmental responsibilities must be clearly defined. 

7. Customer enforceable cost-control measures are established for the Corps of 

Engineers and the Bureau of Reclamation. 

8. Piecemeal "cream skimming" is avoided. 

9. Existing federal statutory requirements imposed on the PMAs are revamped or 

repealed, as appropriate, to recognize changes in responsibility or control. 

I 0. Power and transmission services shall be provided at cost-based rates. 

I should point out that the above guidelines were developed by an ad hoc task force . 

They have not been officially endorsed by APPA's policy committee or its membership. 

However, the task force included several APPA members from each of the regions 

sen·ed by the PMAs (except Alaska) and they clearly reflect the concerns of most 

members of the Association. 

For the most part, the guidelines are self-explanatory. However, a few additional 

comments are offered in clarification. 

First, APPA believes that principles of equity and fairness demand that an exclusive right 

to the transfer of responsibility or control must be provided to existing consumer-owned 

utilities and state power agencies that currently have federal power allocations. 

Anything less than an exclusive right will bring other potential transferees into the 

picture, thus delaying any transfer. 

Second, this right should be extended to ~customers, not customers as of some 

indeterminate date in the future, for example as of the date of any transfer. Many 

current consumer-owned utility purchasers are receiving power under contracts of 

relatively short duration. In some cases, these contracts are month-to-month contracts. 

12 
176 

The House Budget Committee recommends a preference for existing customers at the 

date of any transfer. Protracted negotiations could extend beyond the current contract 

terms. If contracts have not been renewed, a likely prospect given the uncertainties of 

the future of this program, existing customers might find their interests foreclosed due 

to nothing more than the passage of time. And yet, these customers are clearly the 

entities designed to be protected by the House Budget Committee recommendation. 

This issue of timing should be addressed, perhaps by establishing a date certain for 

locking in the rights of existing customers. 

Third, consideration for any transfer should be no more than required to pay present 

value of outstanding debt, and this amount should then be adjusted to account for 

assumed risks. Because Congress has prohibited studies of the transfer of the PMAs, 

there remains great uncertainty as to what is for sale, and what a reasonable price 

actually is. This is apparent from the widely divergent figures contained in the Senate 

Budget Committee ($1 .6 billion) and the House Budget Committee ($4.1 billion) 

measures. Anv transfer will carry with it attendant liabilities, from costs of 

environmental impact statements if required, to uncertainties over the availability of the 

resource. If a transfer is to be pursued, consumers must be held harmless. If they are 

not, experience with privatization in other countries suggests that the privatization 

effort is likely not to succeed. The clear definition of environmental responsibilities 

between the potential transferees and the federal government, set forth in the 

guidelines, is obviously a critical element that must be taken into account in negotiating 

a reasonable transfer price. Likewise, statutory requirements currently imposed on the 

PM.-\5 must be examined, revamped or repealed ;,s appropriate, and again the price 

paid must reflect any residual transfer of responsibilities to the transferees. 

Fourth, , adequate time must be provided. In a hearing on privatization before the 

House Committee on Government Reform and Oversight, subcommittee on 

government management,information and technology, Andrew Jones, senior manager 

of Arthur Anderson responsible for coordinating its world-wide privatization activities, 

counselled against haste. "One of the most significant pitfalls that legislators can fall 

into is trving to drive the process too fast'' he noted. This is good advice to follow here. 

More than 1,100 consumer-owned utilities are currently purchasers of PMA power. It 

would obviously be impractical as well as unwieldy for each of these individual systems to 

participate in any transfer negotiations on their own behalf. And from what we can 

gather, they would not follow that course. Instead, they would work cooperatively within 

their own regions, utilizing existing umbrella organizations and perhaps forming new 

organizations to serve as their agents. Sufficient time is required for new organizations 

to be established. It is, of course, possible that not all current consumer-owned utility 

customers will choose to participate. However, it is essential that they all have an 

effective opportunity to participate, as well as adequate time to do so. 

Fifth, it appears that little attention has yet been paid to the roles of the Bureau of 

Reclamation and the Corps of Engineers. But these two agencies are critical to the 

success of any transfer. Setting aside for the moment transmission facilities, the PMAs 

are simply marketers of power from Bureau and Corps dams. No transfer can succeed if 

13 
177 

customer enforceable cost-control measures for the Bureau and Corps are not taken into 

account. 

Finally, balkanization of the PMAs, and the federal generation and transmission 

facilities, must not be allowed. Discrete systems, both generation combined with 

transmission, must be preserved, and cherry-picking" or "cream skimming" must be 

prohibited. 

The above guidelines and additional comments only scratch the surface. You will, I am 

confident, receive many recommendations should you proceed with any proposal to 

transfer the PMAs to non-federal control. Should you move forward in the context of 

the budget reconciliation process (or even if you pursue the course of separate 

legislation) you will need to fashion a framework for any transfer that is sufficiently 

detailed to ensure that Congressional will is carried out while at the same time allowing 

adequate flexibility to allow the crafting of different solutions for different PMAs. 

I must state again that the above guidelines and additional comments were developed to 

enhance the value of the PMA assets and resources for current consumer owned utility 

customers and the federal government. These guidelines can all be accomplished by 

means short of sale, for example through contracting out of activities, or through the 

execution of long-term lease arrangements with existing customers or their agents. 

Concluding Comments 

APPA remains opposed to the sale of the PMAs, for all of the reasons outlined above. 

While Congress has consistently supported this position in the past, even going so far as 

to prohibit the expenditure of funds to study the sale of any of the PMAs save Alaska, it 

is clear that the Administration as well as majorities of both the House and Senate 

Budget Committees now hold different views. 

The Administration has forwarded legislation calling for, first, a study, and subsequently 

the transfer, of ownership. management or control of Southeastern, Southwestern and 

Western Area Power Administrations. By suggesting transfer of management or control 

in addition to transfer of ownership, the Administration has apparently left open the 

possibility that at least some of its goals, such as reducing federal expenditures, and 

reducing the number of federal employees involved in PMA operations, can be 

accomplished through means short of sale. We believe this is clearly the case, and these 

more limited and probably more realistic options must be considered. 

While we remain adamant in our opposition to a sale, we are gratified that the House 

and Senate Budget Committees as well as the Administration are concerned over the 

consequences for consumers, local economies and industry structure that would result 

from a change in the current program. It is apparent that responsible policy makers in 

Congress and the Administration want to prevent rate increases and preserve the very 

significant benefits that have grown out of the federal partnership with consumer owned 

electric utilities. With respect to this last issue, keeping faith with the federaVconsumerowned utility partnership, we are particularly pleased that the House Budget Committee 

14 
178 

has explicitly recognized the de facto equity that current federal power customers have in 

the PMA system. Breaking faith and destroying this partnership now would only 

further undermine the current sentiment of distrust in the federal government that now 

seems so prevalent. 

Before closing, I would like to offer for your consideration the results of a public 

opinion poll recently commisioned by AI'PA together with the National Rural Electric 

Cooperative Association. We conducted this poll to find out what the public thinks 

about sale of the PMAs. This nation-wide poll of 1,000 voters was undertaken by 

Hamilton & Staff. We found strong support for current federal policies that encourage 

the pluralistic electric utility industry, including the present policies that govern the 

PMAs. We also found that consumers fear turning over federal hydroelectric assets to 

private, profit-making electric companies. 

While there may be a split in opinion on the abstract idea of "privatization," the poll 

shows that when you get down to the specifics of the federal power marketing agencies, 

by a margin of nearly 3-1. the public opposes the sale. But, if there is to be a sale, an 

initial69% preferred a sale to not-for-profit electric utilities with only 15% preferring a 

sale to profit-making utilities. As the poll progressed, opinion hardened to 74% 

favoring sale to not-for-profit utilities, to 14% for private, profit-making utilities. 

Obviously, APPA hopes you will listen to our advice and abandon the idea of a sale of 

the PMAs. But if in the end our advice is ignored, you must above all else protect 

consumers, protect local economies of communities currently dependent on their 

continued access to federally generated power, and you must not abandon the current 

course of promoting competition in the electric utility industry. Stated differently, in 

whatever course you pursue, you must prevent rate increases and protect the interests of 

the more than 1,100 consumer-owned electric utilities whose current systems and future 

resource plans are based on continued access to federal power at cost based rates. 

Thank you for the opportunity to testify this morning. I look forward to responding to 

your questions. 

Attachments: · 

List of public power customers of SEPA. SWPA and WAPA 

Resolution adopted by APPA Legislative and Resolutions Committee, April 18, 1995 

List of federal and state agency purchasers of SEPA. SWPA and WAPA 

15 
179 

Public Power Systema that Received Power from SEPA. SWPA or WAPA in 1993 

U!!lyNimo ~ 

SouiMuaem .._ AdriooWnllali 

~~ Ulllill Al 

AleMander City City of AL 

a.-Eleclrtc & Wrbl Sen! AL 

cay of Alhlnl ~ AL 

City of Florenc:e ~ AL 

Courtlnl Eleclrtc Depal1mlnl AL 

C4lllrrwt "-a-d AL 

Oeclllur ~ Al 

Oollwn cay of AL 

E~cayof Al 

Fllrliope cay of Al 

Foley City of (RMenl utlla) AL 

Fort Payne lmprooen•il AWii Al 

GU!Umllle Eleclrtc a-d AL 

HartfOid City of AL 

Hartselle ~ AL 

Hunlsvlle ~ AL 

Lafayelle City of AL 

l.allelt cay of AL 

w-na cay of Al 

Muscle Shoals Eleclrtc a-d AL 

Opalikll City of Al 

Piedmont cay of AL 

Robeltsdale Cily of AL 

RusuiMIIe Eleclrtc Dept. AL 

Scc1tsboro Eleclrtc "-8c.r Al 

Sheffield Uliitlea AL 

Sylacauga City of AL 

T.,..,.. Electric Dept. Al 

TroyCityof AL 

Tuscumbll Eleclrtclty Dept. AL 

Tuskegee Cilyof AL 

Cllattahooc:Me City of FL 

Quincy City of FL 

Acworth City of GA 

Adel Cily of GA 

Albany Water Gaa & Ughl Comm GA 

e.n-vllle Cily of GA 

Blakely City of GA 

Brinson Town of GA 

BufOid City of GA 

c.lro cay of GA 

~Cityof GA 

Cllmllla City of GA 

Cartemtlie City of GA 

Chic:karMugll Eleclrtc SyDn GA 

College P8rk City of GA 

Comnwcit cay of GA 

CcMngiGn cay of GA 

Crisp Counly "-Comm GA 

Dellon City of GA 

~Cityof GA 

Dougla cay of GA 

1:.1 Point City of GA 

EllertGn cay of GA 

Ellavlllecayof GA 

Flirbum cay of GA 

F~ W1r lQI & Bond Comm GA 

Fcnylh City of GA 
180 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

\JtilllyName ~ 

Fan v~ Utility Comm GA 

Gn1nMIIe City of GA 

Gllfl"m City of GA 

Hampton City of GA 

Hogansville City of GA 

Jaclcson City of GA 

La Fayette City of GA 

La Grange City of GA 

l.awrenc:e'JIII City of GA 

Mansfiejd Town of GA 

MariellaCityoA GA 

Monroe WtJI.er Light & Gall Comm GA 

Monticello City of GA 

MoullrleCityoA GA 

Newnan Wtt s-- & Light Comm GA 

Noraoss City of GA 

Palmallo City of GA 

Quitman City of GA 

Sandersville City of GA 

Sylvania City of GA 

Sytvestar City of GA 

Thomaston City of GA 

Ttoorr.sville City of GA 

W85hir9onCityof GA 

Wesl Poinl City of GA 

Whigham City of GA 

Benton Electric System KY 

Bowling Gr-. Munici~ utll KY 

Franklin Electric P1ant Board KY 

Fulton Electric System KY 

Glasgow Electric Plant Board KY 

Henderson City Utility Comm KY 

Hiclonan Electric System KY 

Hopkinsville Electric System KY 

Mayfield Electric & Water System KY 

Monticello Electric Plant Board KY 

Murray Electric System KY 

Paducah PCMW System KY 

Princ:eton Electric Plant Boerd KY 

Russellville Electric P1ant Board KY 

Aberdeen Electric Depertment MS 

Amory Electric & Water Dept. MS 

Canton Municipal Utililiea MS 

City of lila Bene MS 

City oA Leland Electric Dept. MS 

Clarlcsdale Public Utilities MS 

Columbus Light & WtJI.er Dept. MS 

DUnlnl Light & Wi/.et Dept. MS 

Greenwood UliNties Commission MS 

Holly Springe Elec:lric Dept. MS 

K.oaciusko Light & Water Dept. MS 

Louisville Eleclric System MS 

Macon Eleclric Department MS 

MuniCipal Energy Agerq of MS MS 

New Albany Light, Gas & Water MS 

Okolona Electric: Department MS 

Oxfon:l Electric Depeo1nw't MS 

Phlladelphlll Utllitiea MS 

Public Service Commission oA y MS 

Star1MIIe Eleclric System MS 

Page2 
181 

Public Power Systems that R-wed Power from SEPA, SWPA or WAPA in 1993 

UU!l!y NI!JW ala 

Tupelo Watw & Light Dept. MS 

Watw Valley Eleclric Dept. MS 

WW. Point Eleclric SyURI MS 

Apex Town of NC 

Ayden Town of NC 

BelheYin Town of NC 

Benson Town of NC 

BOitic Town of NC 

Chenyvtlle City of NC 

Clayton City of NC 

Concofd City of NC 

~City of NC 

Dallas Town of NC 

Drexel Town of NC 

Edenton Town of NC 

Elizabeth City City of NC 

Enfoeld Town of NC 

Farmville Town of NC 

Fayetteville Public Wor1as Comm NC 

Forest City Town of NC 

Fremont Town of NC 

Gastonia City of NC 

Grantte F.U. Town of NC 

Greenville Utilities Comm NC 

Hamilton Town of NC 

Hertford City of NC 

Hobgood Town of NC 

HOOkerton Town of NC 

Huntersville Town of NC 

Kings Mountain City or NC 

Kinston City of NC 

La Grange Town of NC 

Landis Town of NC 

Laurinburg City of NC 

Uncolnton City of NC 

Louisburg Town of NC 

Lumberton City of NC 

Malden Town of NC 

Monroe City of NC 

Morganton City of NC 

M\lrphy Electric Power Boerd NC 

NewBern City of NC 

Newton City of NC 

Pikeville Town of NC 

Pineville Town of NC 

Red Springs Town of NC 

Robersonville City of NC 

Rocky Mount City of NC 

Scotland Neck Town of NC 

Selma T ootn of NC 

Shelby City of NC 

Smithfield Town of NC 

Statesville City of NC 

Tarboro Town of NC 

Wake Forest Town of NC 

Washington City of NC 

Waynesville City of NC 

Wilson City of NC 

Windsor Town of NC 

Abbeville City of sc 

Pagel 
182 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

Uti!lly Nlml S1lll 

Bllrnberg Cly ol sc 

Belo .... Ciyor sc 

Cllnlan Combined Utility Sys sc 

DueWI.tCiyol sc 

Easley c1y or sc 

Gaffney Cly or sc Ge«getown Cly or sc 

~Ciyor sc 

~Ciyor sc 

'---Ciyor sc McColmlck Town or sc Newberry c1y or sc 

Orangeburg Cly or sc Prolperly Town or sc Rock Hil Cly or sc 

SenecaCiyor sc 

South Carolina PSA sc 

Union Clyor sc 

WeltrnlrwW City or sc 

Wirvwboro Town or sc 

~ utllilles ac-d TN 

Benton Colroly TN 

BoliYw Electric tleplrtmenl TN 

Brilllol T- Electric Sys TN 

Bruwnaville Electric s~ TN 

Carroll Colroly Eleclrlclll Dept TN 

Challllnooga Eleclric P<Mw b TN 

City ol Alcoa Utilltiea TN 

City or Malyvllle TN 

Cllllbvllle Dept. or Eleclricly TN 

C~Utilitias TN 

Clinlcn Utilltiea ac-d TN 

Columbia p._,. System TN 

Cookeville Electric Department TN 

CiMnglon Electric System TN 

Dayton Electric Department TN 

D~ Electric Department TN 

[)yafsburg Electric: System TN 

E~Eiectric:Sy&tem TN 

Erwin Utilities TN 

Etowah UliWes Department TN 

Fayetteville Electric: System TN 

Gallatin Dept. or El8ctricity TN 

GrMrwviUe Light & P-Syst TN 

Harrlman utility Board TN 

Hurnboldl Utilitiel TN 

Jackson Utility DMsion TN 

Jellico Electric: System TN 

Johnlon City P-Beard TN 

l<nDlvile utilities ac-d TN 

La Follelle Electric: Dept. TN 

l..awrencebutv p._,. System TN 

lebanon Electric: Department TN 

Lenoir Cly Utililiea Board TN 

Lewisburg Electric System TN 

Lexington Electric: System TN 

louden Utilitiee TN 

McMinnville Electric: System TN 

Memphia Ught, Gas & Wrl.er Oiv TN 

Milan Dept. or Public Utilitie TN 

Page4 
183 

Public Power Systems thM Rec:.ived Power tom SEPA, SWPA or WAPA in 1893 

Morrllluwn 1.-y ~ TN 

Mount..._.."- s~ TN 

Murfl..tlaro Eleclrlc Dlpt. TN 

,....,... Eleclrlc SeMce TN 

Newbern I.Jghl & WWI o.pt. TN 

NMwpolt ~a-ll TN 

Oek Ridge Eleclrlc ~ TN 

1'8111 a-ll fit~ UUiilla TN 

P"'--d Eleclrlc ~ TN 

Ripley,_ & Llglt Compwly TN 

Rockwood Eleclrlc utility TN 

Sevier County Eleclrlc s~ TN 

~"-Svam TN 

Smlllwlll Eleclrlc Syan TN 

Sonw..-. Elec:trlc o..,.,tmer;t TN 

ap.rw Eleclrlc s~ TN 

Springfield Elec:lrlc TN 

SwMtwiUr ~ ec.d TN 

Trwolon Light & W* Dlpt. TN 

T~~Boerd TN 

Union City Elec:trlc Syam TN 

Wf11111Jtr! County Municlplll Elect TN 

~"-Syam TN 

Bedfonl City fit VA 

~Townfit VA 

8rillol Vlrginll ~ VA 

Culpeper Town fit VA 

o.rMie City fit VA 

Elkton Town fit VA 

FIWIIdin City fit VA 

Hanllonburg City fit VA 

Martlnr;jle City fit VA 

Rlldfonl City fit VA 

Richllnda Town fit VA 

S.lem City fit VA 

W•kelleld Town of VA 

Southwestern"- Admlnlstrllllon 

A~CIIyfit AR 

~CIIyof AR 

ClalbW!e Light & W* Co AR 

Jonesbonl City fit AR 

P.agould Light & w• Ccmm AR 

1'8111 City of AR 

Piggott City fit AR 

Anthony City fit KS 

AUQ~Sa, City of KS 

Baldwin City, City of KS 

Chanule, City fit KS 

C'-Y Cent. Public~ KS 

Coif~ City of KS 

Colby, City of KS 

Gamllll, City fit KS 

Herington, City of KS 

Holon, City of KS 

~of KS 

Ioiii, City of KS 

~City City of KS 

~ Munici!* EAifliY AQrq KS 
184 

Public Power Systems that Received Power from SEPA. SWPA or WAPA in 1993 

Uti!j!y Name ~ 

LaC-. City of KS 

l..lndlborg, City of KS 

Mulvane, City of KS 

Neodesha, City of KS 

Norton, City of KS 

Oakley, City of KS 

Oberlin, City of KS 

Osawatomie, City of KS 

Ottawa, City of KS 

Sharon Springs, City of KS 

St. Francis, City of KS 

Wam8fl0, City of KS 

Welinglon Mun!c:iplll Uti!iliea KS 

Winfield, City of KS 

Abbe'JI!Ie, City of LA 

City of Alexandria LA 

Erath, Town of LA 

Gueydan, Town of LA 

Jon.ville, City of LA 

Kaplan, City of LA 

Lafayette City of LA 

louisiana Energy & Power Auth LA 

Minden Light & Water Dept LA 

Morgan City, City of LA 

Natchiloct- City of LA 

New Roads, City of LA 

Plaquemine City light & Water LA 

Rayne, City of LA 

Ruston LA 

St. Martinville, City of LA 

T etrebonne Pariah Utilities Dept LA 

VIdalia, Town of LA 

Vonton Eledrlc Ughf Dept. LA 

Welsh, City of LA 

Winnfield, City of LA 

Albany, City of MO 

Bethany, City of MO 

Butler, City of MO 

Cabool, City of MO 

Cameron, City of MO 

CampbeU, City of MO 

Carthage City of MO 

Centralia, City of MO 

Chilicothe, City of MO 

Columbia Water & light MO 

Farmington, City of MO 

Fayette, City of MO 

Frederic:ldown City Light & Power MO 

Fu~on City of MO 

Gallatin Municipal Utilities MO 

Hannibal, City of MO 

Hermann City of MO 

Higginsville City of MO 

Independence Power & light MO 

Jackson Utilities & Public Works MO 

Kennell City of MO 

Kirkwood, City of MO 

Lamar City of MO 

L.aPlala, City of MO 

lebanon, City of MO 

Page6 
185 

Public Power Systems that Receiwd Power from SEPA, SNPA or WAPA in 1993 

UU!i!y Name all 

MKon ~ Ulllltiea MO 

MUien Cly oK MO 

MwCIIIne Munic:l!* Ullllliea MO 

~ ~ Ullllliea MO 

~.Ciyot MO 

MIIM, Cly of MO 

Miaol.d Jt ~ EUC MO 

Monroe Cly, Cly oK MO 

New Maid City of MO 

NblaCiyoK MO 

Odeua, City of MO 

o-.vtlle, City of MO 

"-~myra, City of MO 

Pllll, Cly oK MO 

Popllr Bluff Cly oK MO 

Rlch*ld, Cly oK MO 

Rodcpolt, City of MO 

Rolli Municlplll ~ MO 

Salisbury, City of MO 

Shelbina, Ccly of MO 

Sikeston Cly oK MO 

Sillier, City of MO 

Springfield Cly oK MO 

Stanberry, City or MO 

Thayw City or MO 

Trenton Municipal Utilitlee MO 

Uniomlllle, City oK MO 

v....-rie, City or MO 

W~le. City or MO 

West Plelnl CityoK MO 

Claremofe, City of OK 

~CityoK OK 

Copan Public Works Alihorlly OK 

Cu.hlng, City or OK 

Duncan City or OK 

Eldorado City or OK 

Goltry Public Works Alihorlly OK 

Gtancl RNw Dam Alihorlly OK 

~CityoK OK 

~Cityof OK 

laxington Town of OK 

Manitou CityoK OK 

Miami, City oK OK 

Olclahomll Munlclpel P-A~ OK 

OIUIIae City oK OK 

P-. cltyor OK 

Pryor, City oK OK 

Purcell City oK OK 

Ryln Town oK OK 

Sallsaw, City of OK 

Sldltook Town oK OK 

Spiro Cly oK OK 

Sllllwlllw utlllllea Alihorlly OK 

~ Utility Dept OK 

Stroud, CltyoK OK 

T8hlequeh Public Works~ OK 

WlifiOIM/If PUblic Works "'*' OK 

Walters Public Works Aulhorlly OK 

WIMU Cly of OK 

Y.reCityoK OK 

Plga7 
186 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

U!H!!y Namt Sllll 

Btowrwvtlle Public lJtJIItlee Board TX 

City of Jasper Ughl & P- TX 

Gtanbuly, City of TX 

H111n11, City of TX 

Ubelty Mun1c:i!* Electric Sya TX 

l.Mnglton Municl!* Elec:lrtc TX 

Plalna, Clly of TX 

Sam Rayburn Municipal Pwr Agny TX 

Sanger, City of TX 

Seymour, City of TX 

Wlltherfotd Municipal utility TX 

Whllesbato, City of TX 

Westem Aiel P-Administration 

Ak-Chln Indian Community AZ. 

Arizona Power Authortly AZ. 

Arizona P-Pool Asaociltion AZ. 

City of Fredonia AZ. 

City of Mesa Eledrlc utility AZ. 

Electrical Dlst No3 Pinal Cnty AZ. 

Electrlcal Dist No4 Pinal Cnty AZ. 

Electrical Dlst No5 Pinal AZ. 

Elecltical Dist No6 Pinal Cnty AZ. 

Electrical District No. 2 of P AZ. 

Maricopa County M W C Dist 11 AZ. 

Na11ajo Tribal Utility Auth AZ. 

Page City of AZ. 

Roosevelt Irrigation Dislriet AZ. 

Roosevelt Water Consvt Dist AZ. 

Safford City of AZ. 

Sal River Proj Ag I & P Dist AZ. 

Thatcher City of AZ. 

T ohomo O'Odham Nation AZ. 

Wellton-Mohawk lrr&Drain Disl AZ. 

Wickenburg Town of AZ. Alameda City of CA 

Anaheim City of CA 

Azusa City of CA 

Banning City of CA 

Biggs City of CA 

Burbank City of CA 

Calaveras Public Pwr. Apenr;y CA 

california Dept-wtr Resources CA 

Colton City of CA 

East Bay Municipal Util Dist CA 

Glendale City of CA 

Gridley City of CA 

Hayforlc PUD CA 

Healdsbu"g City of CA 

Imperial Irrigation District CA 

Lodl City of CA 

Lompoc City of CA 

Los Angelea City of CA 

Metropolitan WI/A« District CA 

Modesto Irrigation Dislriet CA 

Needlee City of CA 

Northem Californioo Pow..- Agny CA 

Palo Alto City of CA 

Pasadena City of CA 

Redding City of CA 

PageS 
187 

Public Power Systems that Received Power from SEPA, SWPA Of WAPA in 1993 

IJUI!!y Na!lll all 

R,...,....cayoA CA 

R......._ClyoA CA 

SaclwTw1to Munic:lplll UUI Dllt CA 

San FI'MCieco City & Caunty ol CA 

Santa Cln Cly oA CA 

Shatta Dim ""- Pub Ull Dllt CA 

Shasbl L.ak8 CA 

~CounlyWA CA 

Trinity County Pub Utll Dllt CA 

Tuolumne County Pub "-AQrrf CA 

Tutlock Irrigation Oislrlcl CA 

Ukiah cayoA CA 

VenmClyoA CA 

Artc..u Rlvw P-AUhorily co 

Aspen CityoA co 

Burlinglon cay oA co 

Cent« cay oA co 

City oA longmont co 

City or l.olleland Oepartment oA co Colorado Springs City ol co 

Deb cay oA co 

o.n-WtiM ee-l co 

E._ Pn Light & P-Dept. co 

Fleming City oA co 

Fort Collins Light & P- Dept co Fort~CityoA co 

Fouraln, City of co 

Frederick T--. oA co Glenwood Springs City oA co GUMison City or co Haxtun T--. oA co 

Holyoke City oA co 

Julelburg City oA co 

La Junta Munlc;ipel Utilitiea co 

L.amarCityoA co 

Las Anima. Municipal Ught & Pwr co 

Oak Cleek T--. or co 

PIM!e Rlvw p.,.. Aulhorily co 

Springfoekl Municipal Utilllle co 

T--.oAHolly co 

Tr1nldlod Munlcfpel P-& Ught co 

WrayCityof co Yuma City or co 

Aleron City of lA 

A1111 City oA lA 

Alton City or lA 

AnlbiCityoA lA 

Anthon City oA lA 

Atlantic cay oA lA 

Alxelillcayol lA 

BredaCityoA lA 

CoonRapidaClyoA lA 

Coming City of lA 

on.on cay oA lA 

Fonda CltyoA lA 

Font.nele City oA lA 

Glidden City oA lA 

GtMIIirGir City oA . lA 

Har18nCityol lA 

HatUey cay oA lA 

'"-ge9 
188 

Public Power Systems that Received Power from SEPA. SWPA or WAPA in 1993 

Utility NI!DI ~ 

Hawarden City of lA 

Hinton City of lA 

t<imballton City of lA 

L.aka Park City of lA 

L.aka v- City of lA 

~City of lA 

Lenox City of lA 

Manilla Town of lA 

Manning City of lA 

Maplelon City of lA 

Milford City of lA 

Mulc:8line City of lA 

Neola City of lA 

New Hamplon Mooicipll Light Pilnt lA 

Onawa City of lA 

Orange City City of lA 

Paullina City of lA 

Primghar City of lA 

R-CIIyof lA 

Rock Rapids City of lA 

Sanborn City of lA 

Shelby City of lA 

Sibley City of lA 

Sioux Center City of lA 

Spencer City of lA 

Stanton City of lA 

VIllisca City of lA 

WaJ L.aka City of lA 

Webster City, City of lA 

Woodbine City of lA 

Arcadia, City of KS 

Ashland, City of KS 

BelleWie, City of KS 

Beloit, City of KS 

Buriingarne, City of KS 

Cawker City, City of KS 

Centralia, City of KS 

Dighton, City of KS 

EnterpriM, City of KS 

Gardner, City of KS 

Glasco, City of KS 

Glen Elder, City of KS 

Hil City, City of KS 

Lakin, City of KS 

Unc:oln Center, City of KS 

Lucas, Cllyof KS 

Mankato, City of KS 

Osage City, City of KS 

Osborne, City of KS 

Seneca, City of KS 

St Marya, City of KS 

Stockton, City of KS 

Washington Mu111ci1* "-Plllnl KS 

Ada City of MN 

Adrilln Public utilitiea Comm MN 

AleQndria City of MN 

Austin, City of MN 

Blmeavllll City of MN 

eer.onCityof MN 

Blooming Prairie Public Utll MN 

Page to 
189 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

U!ftl!y Name .s!illi 

Brackervklge City of MN 

Detroit 1..11kea City of MN 

East Gnlnd FO!Ica City of MN 

Elbow Lake City of MN 

Fairfax City of MN 

Falnnont Public UtiQties Comm MN 

Foaton City of MN 

Gnlnd Manila Public utilities MN 

Granite F.U. Town of MN 

HalsladCityof MN 

Hawley Public Ulllitiea Comm MN 

Henning City of MN 

Jaclcscn City of MN 

Kandiyohi City of MN 

Lake City, City of MN 

Lake Plllk City of MN 

Lakefield City of MN 

Lltchfoeld Public Utility Comm MN 

Luverne City of MN 

Madison City of MN 

Marshal City of MN 

Melroee Public utilltiea MN 

~City of MN 

Mora Municipaii.JtilltiM MN 

Mountain Lake City of MN 

New Prague Municipal util Comm MN 

Newfolden City of MN 

Nielsville City of MN 

North Branch, City of MN 

Olivia City of MN 

Ortonville City of MN 

Owatonna Public Utilities MN 

Preston Public utilitiea Comm MN 

Princ:elon Public Utilities Com MN 

Redwood Falls Public Util Comm MN 

Rochester Public Util~ies MN 

Sauk Centre City of MN 

Shelly City of MN 

Sleepy Eye Public Utility Comm MN 

SWhem MinMsobl Mun Pwr Agrry MN 

Spring V*'f Public IJtilltiM MN 

Sprlnglleld Public Utila Comm MN 

st James City of MN 

st. P- Municipal Elec Util MN 

Staples City of MN 

Stept.\ City of MN 

Thief River Flllla City of MN 

Tyler City of MN 

Wadena City of MN 

Warren City of MN 

Waaeca, City of MN 

Wela Public IJtilltiM MN 

Westbroc* City of MN 

Willmllr MunlciJ* Ulila Comm MN 

Windom City of MN 

Worthington Public Utilities MN 

Cavalier City of NO 

Grafton City of NO 

Hillsboro City of NO 

Hope City of NO 

Page 11 
190 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

lJtl!ly Name .. 

Lllkda Cly ol NO 

Mlldclock Cly ol NO 

Nolth-' Clly ol NO 

Park Rw Clly ol NO 

R~ NO 

Sharon Clly ol NO 

Sinon, Clly ol NO 

V*t Clly Clly ol NO 

Alliance, City or NE 

Ansley Cly ol NE 

Arnold Village ol NE 

Auburn Cly or NE 

Battle Creek, Cly ol NE 

Bayard, Clly ol NE 

Beatrice Clly ol NE 

Beavw City City of NE 

Benkelman, Clly or NE 

Blue Hill City of NE 

Bridgeport, City of NE 

Broken Bow Clly of NE 

Burt County Public Poww Dill NE 

Burwell City of NE 

Buller County RLnl PPD NE 

Cauaw.y Village of NE 

Cambridge City of NE 

Cedar-Knox Public Poww Dill NE 

Cerml Clly, Cltyol NE 

Chappell, City of NE 

Chimney Rock Public Poww Dist NE 

Cozad, City of NE 

Crete City or NE 

Cumlng County PPD NE 

Curtis City of NE 

Custer Public p.,..,... Dill NE 

David City City of NE 

Dawson County PPD NE 

De Will V~lage of NE 

Deshler City of NE 

Oorchesler, Village of NE 

Elk Creek, V~iage of NE 

Elkhorn Rural PPD NE 

Emerson, Cityol NE 

Failt>ury Clly of NE 

Falla City, City of NE 

Franklin City of NE 

FIWIOnl City of NE 

Gering, City ol NE 

Grand Island Clly of NE 

Glwll, Clly ol NE 

Gr.enwood, Village of NE 

H811inga City of NE 

Holdrege, Cly of NE 

H_,j Gr.-.y RLnl PPD NE 

Imperial, Clly ol NE 

lndillnolll City of NE 

KBR Rlftl Public "-Dill NE 

Klmbell, Clly of NE 

l..lllnl Clly of NE 

l.alngton, City of NE 

L.ilCCIIn Elec:trlc System NE 
191 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

UtiltyNaml Slall 

Ladgepole, City d NE 

Loup R._ Public - Dillricl NE 

Loup Valley Rural PPD NE 

Lyman, VIllage of NE 

LyonsCllyd NE 

McCook Public P~ Dial NE 

Mitchell, City d NE 

Mon111,VIIaged NE 

MUien, VIllage d NE 

Munlclpll Energy AQill'tGy d NE NE 

Nebraska City City d NE 

Nebraslca Public p~ Dillricl NE 

Neligh Municlpel- NE 

NOfTia Public P~ Disl NE 

North Central PPD NE 

North Platte, City of NE 

NorthNst Nebraska Rural PPD NE 

Northwest Rural PPD NE 

Omaha Public P~ District NE 

Ord City of NE 

Oxford VIllage of NE 

PenderCityd NE 

Pierce Cityd NE 

Plainview City d NE 

Polk County Rural PPD NE 

Randolph, City d NE 

Red Cloud City of NE 

Rooaeveft Public P~ Disl NE 

Sargent City of NE 

Schuyter City of NE 

Seward County Rural PPD NE 

Shickley VIllage of NE 

Sidney, City of NE 

Snyder, City of NE 

South Central Public P~ Dlat NE 

Southern Nebraska Rural PPD NE 

Southwest Public POINel" Dist NE 

Spalding V~lage of NE 

Spencer City of NE 

Slanton County PPD NE 

Sluart City of NE 

Superior, City of NE 

Syracuse City of NE 

Tecumseh City of NE 

Twin Valleys PPO NE 

Wahoo Clly of NE 

Waunela VIllage of NE 

WwyneCityof NE 

Wwyne County Public POINel" Dist NE 

West Point City of NE 

Wheat Bett PPD NE 

Wilber City of NE 

Winside VIllage of NE 

Wisner City of NE 

Wood River City of NE 

Vorl! County RUIIII PPD NE 

Azlec:Cityd NM 

Fmmlnglan City of NM 

GalupCityd NM 

Loa~Counly NM 

Page 13 
192 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

U!MyNimt -

Ra't Public SeMce Co. NM 

Truth or~ cayd NM 

Bouldlr cay cay d NV 

Cokndo R'- Convn d Newda NV 

Lb:oln County Pwr Diet 11 NV 

Ovw1an "-Diet liS NV 

Aberdeen so 

Al1ington cay d so 

AuRnCiyd SO 

B8dger cay d so ~Ciyd SO 

Big Stone cay d so ~Ciyd SO 

Blylft cay d so 

Burke cay d so 

Colm8n cay d so ~Ciyd SO 

FllllhCityd SO 

Flandruu Cltyd SO 

Fort Piaml City of SO 

~Cityd SO 

Hartland eon.umen Poww Diet so ~Cityd SO 

Howwd cay d so 

Langford Town d SO 

Madison cay d so ~~~Ciyd SO 

Millar cay d so 

MiMcuri 8aln Mun Poww AQny so Perlcer Cly of SO 

Pickstown SO 

Piaml Cly d SO 

~ooCIIyof so 

SiouiC F.US City of SO 

Tyndall cay d SO 

VennUiion City of SO 

Volga City of SO 

Wm~Cityof SO 

Wessingloo Springs City of SO 

White Clly of so 

WnwCilyd SO 

a.- City Corp UT 

Blending cay of UT 

~CiyCiyof UT 

Brigham Cly Corp UT 

Cly d Sanla Cllll1l UT 

Cly d Spanish Fane UT 

City of WMI*lgtoo UT 

EnterpriM City d UT 

Ephraim cay of UT 

Faltview Cly Corp UT 

FUlmOre Cly Corp UT 

Heblr L.igtt & Poww Co UT 

Helper City d UT 

Holden Town d UT 

HUITic:ane PCJMr Committee UT 

Hyrum cay Corp UT 

ll'llennoi.IUin Consumer "-Aaoc UT 

~ Cly Corpcnllon UT 

t<.nolh Town d UT 

l'llge 14 
193 

Public Power Systems that Received Power from SEPA, SWPA or WAPA in 1993 

lJti!j!y N.,. Slilt 

Kaysville City Corp UT 

L.tll City City of UT 

~Town Corp. UT 

Lagan City of UT 

ManU Light & p- UT 

Meadow Town Corp UT 

Monroe City City of UT 

Morgan City Corp UT 

MIPieasarll UT 

Murray City at UT 

Nephi City Corp. UT 

08k City Town at UT 

Paragonah Town at UT 

P..-.n City Corp UT 

Payson City Corp UT 

Price Mun~ Corp UT 

PrDIIO City Department of Energy UT 

Salem City Corp. UT 

Spring City Corp UT 

Springville City of UT 

St George City of UT 

Strawbeny Electric Serv Dlst UT 

utah Mooic;p.l P-Agarv:y UT 

Algoma Utility Commiasicn WI 

Alcadia Electric Utility WI 

Blacl< R'- Falls Municipal Elec WI 

Boecobel Municipal utilitiM WI 

Ceshlon, Village at WI 

Cedarburg Light & WrAer Comm. WI 

CityofCubaCity WI 

City of Kaukauna Electric & Water WI 

City of Oconomowoc Ulilitlel WI 

Columbus Water & Light Commisa WI 

Eagle River Light & Water Comm WI 

Elroy, City of WI 

Fennimore, City of WI 

Florence Utility Commission WI 

Hartford Utilities WI 

Hustisford utilities WI 

JeffefSOI'I Water & Electric Dept WI 

La Farge Municipal Elec Co WI 

lake M~ls Light & Watet Dept. WI 

Locli Municipal Light & Wal.er Ut~ WI 

Menasha Electric & WrAet Utili WI 

Merillan, City of WI 

Muscoda Light & WrAer Utility WI 

New Holstein Public Utility WI 

New Lisbon M~ Light & Water WI 

New London Electric & Water Util WI 

New Richmond City Utilitlel WI 

Riwr Falls Municipal Utility WI 

Slinger Utilitlel WI 

Sturgeon Bay Utilitlel WI 

SUn Prairie w- & Light Comm WI 

Two Rivera WeAer & Light UtiM WI 

VIOla Municipal Eletric Ulil WI 

Waterloo WrA« & Light Commiss WI 

Waunakee WrAer & Light Commiss WI 

Waupun Public Utililiee WI 

Westby Municipal Water & Light WI 

Page 15 
194 

Public'"-~ th8t Recaived '"-from SEPA. SWPA or W~A In 1Q93 

taNimt IIIII 

WhiiiMI ~ EIICilrlc Ull WI 

WlloaMin PIMc "-Inc S,. WI 

<:q~.WC wv 

Ollila cay Ill wv 

Lulk I.W1I & "-D..-1nwt wv ~ lrrlglllan Dlll*t wv Pine 11116 UgH. w .. & ,._ wv 

POWIII ~ Eledrlc Dill WV 

T~Ciyl/l WV 

To.ti/IFcrtiMwnle WV 

T-f/lou.n.y WV 

To.~ f/1 LJrVe WV 

w.-lllnd ~ EIICilrlc Dill wv ~~"-~ wv 

Source: tll83 Annuli R ..... tor"-~ Ado••M•wllld APf'A diilll t.e. 

lnclucM .--lhlt NCelw paww dlrec:lly flam PMAa llld'-lhlt NCelw PMA paww viii • ......._, 

N:h ••JalnlM:tion~. U. T-V...,A~M~a~t~J..-•~& ti&Wiillilloii ~. 

,..,e 
195 

Opposition to the Sale of the PMAs 

Proposals to sell the federal power marketing administrations (PMAs) keep turning up. 

Rep. Scott Klug (R-WI) has introduced legislation that would direct the Department of 

Energy to sell all five PMAs. The Republican Budget Initiative for FY 1995, released 

last year by the House Budget Committee Republican Caucus, called for selling all the 

PMAs and, pending disposition of these assets, selling the electricity generated at 

federal dams "to the highest bidder." Author of this proposal, Rep. John Kasich (ROH), is now chairman of the House Budget Committee, and his budget resolution for 

FY 1996 is expected to embrace a similar plan for disposing of the PMAs. Even the 

Clinton Administration is giving serious consideration to proposing the sale of at least 

some of the PMAs as part of its FY 1996 budget proposal. 

Nor has the Tennessee Valley Authority (IVA) been ignored in the latest round of 

privatization proposals. Representative Klug and Sen. Russ Feingold (D-WI) have each 

introduced legislation to disband TV A. But none of these elected officials have 

proposed the reduction or elimination of the billions of dollars in taxpayer subsidies 

enjoyed by investor-owned utilities. Public policy proposals that single out ·certain 

energy consumers to pay for deficit reductions or massive tax cuts should be labeled for 

what they are -- unfair and unacceptable. 

These proposals have been rejected in the past as bad public policy, and they continue 

to be bad public policy. As noted in previous APPA resolutions, the sale, transfer or 

other disposition of the PMAs or the federal powerplants and related facilities could: 

• threaten consumer-owned utilities and their customers with uncertainty of supply 

and significantly higher wholesale power costs; 

undermine the economic stability of more than a quarter-million manufacturing, 

wholesale, retail and service firms and more than I million farms benefiting 

from the federal power program; 

• threaten the ability of consumer-owned utilities to provide reliable electric 

service at competitive rates, thereby undermining electric utility competition and 

increasing monopoly in the electric utility industry; 

renege on existing repayment agreements between the United States and federal 

power customers; 

• impede the efficient operation of federal multipurpose water projects that 

provide flood control, irrigation, water supply and recreation; and 

• eliminate a reliable, long-term source of revenues for the U.S. Treasury. 

NOW, THEREFORE, BE IT RESOLVED: That the American Public Power 

Association reaffirms in the strongest possible terms its opposition to the sale, of the 

federal power marketing administrations or TV A or the powerplants and related 
196 

facilities for the production and transmission of electricity and that APPA shall pursue a 

process that will enhance and preserve the value of the assets for consumer-owned utility 

customers and the PMAs. 

BE IT FURTHER RESOLVED: That APPA reaffirms its commitment to the 

preference principle and cost-based pricing of hydropower generated at federal dams. 

Approved by the Legislative and Resolutions Committee of the American Public Power Association on 

Aprill9, 1995. 
fltJPMA_oo __ OIIwO_I!_ 

Sou,..: PMA Annuo/ Ropolla 

F_.or 

Ggvtrmwp!l Enlly Jillll ~ fMA.fmlll;l 

AlASKA DEPT Of FISH & GAME AK SG 

--- 

2 U.S. AJR FORCE F 

--- 

3 U.S. ARMY COIIPS Of ENGINEERS F 

--- 

4 U.S. BUREAU OF INDIAN AFFAIRS F 

--- 

s U.S. BUREAU Of MINES F 

--- 

8 U.S. BUREAU OF RECLAMATION F 

--- 

7 U.S. DEPT Of ENERGY F 

--- 

8 U.S. NAV'I F 

--- 

8 f7. SILL ARMY DEPARTMENT OK F 

--- 

10 MCALESTER ARMY AMMUNITION PLAN OK F 

--- 

11 VANCE AIR FOIICE BASE OK F 

--- 

12 BUR Of RECLAMATION: PROJECT USE loZ F 

w_...._ __ 

13 BUR OF RECLAMATION: PROJECT USE loZ F 

_...._ __ 

14 BUR Of RECLAMATION: PROJECT USE loZ F 

w_...._P __ 

1$ CHANDlER HEIGHTS CITRUS loZ SG 

w_...._ __ 

18 COLOIIADO RIVER AGENCY loZ F 

w_...._P __ 

17 DOLORES PROJECT loZ F 

w_...._ __ 

18 ED-liMARtCOPA loZ SG 

_...._ __ 

18 E~ PINAl (SRP) loZ SG 

_...._ __ 

20 E0-7 loZ SG 

w_...._ __ 

21 GILA BEND AIR FORCE loZ F 

w_...._P __ 

22 lUKE AlA FORCE BASE loZ F 

w_...._ __ 

23 MARINE CORPS AIR STATION YUMA loZ F 

w_...._P __ 

24 NAVAJO AGRI PROJECTS INDUSTRY loZ F w_....__A

28 OCOTUO WC otSTRICT loZ SG 

w_...._ __ 

28 PAGE MUNI WATER ~S loZ F w-A--A

27 PAGE VISITOR CENTER loZ F 

w_A ___ 

28 PHOENIX AREA OFFICE loZ F w_...._P..,

28 QUEEN CREEK IRRIGATION otST. loZ SG w---

30 SAN CARLOS IRRIGATION PROJECT loZ F w--P-

31 SAN TAN IRRIGATION otSTRICT loZ SG W....-rtAr. PCM

32 WllUAMS AlA FORCE BASE loZ F w_...._P..,

33 YUMA IRRIGA liON Of STRICT loZ SG w_A,.P..,.Admlnlltn

34 YUMA PROVING GROUND loZ F W_A,_p_

35 AMES RESEARCH CENTER (NASA) CA F W-A-P..,.Ad

311 ARVIN-EDISON WD CA SG W-ArwoP_

37 BANTA-CARBONA 10 CA SG w--P-

Page 1 
1tNI'IIM_ .. _____ 

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38 BEAlE AIR FORCE BASE CA F w-..--

311 BROAIMEWWD CA SG 

---

40 BYIIOfi.8ETHAIIY 10 CA SG 

---

41 CAUF. MEDICAL FACLNN:AVL CA SG w-..--

42 CAliF. STATE UIIIV. SACRAMENTO CA SG 

---

43 CAliFORNIA STATE PARKI & REC. CA SG 

---

44 CAUFOR!BA STATE PIIISONifOlSOM CA SG 

---

«< CN/1' PARI<ll RESERVE~ CA F 

---

.. CASn.E AIR FORCE BASE CA F 

---

47 Dot. VIS DAM WAREHOUSE CA F 

---

48 DE~UioWIT ll CA SG 

---

.. DEUEL VOCAT10NAI.IH811TUTE CA SG 

---

110 DOl! ·LAWRENCE SERKELEY LAI CA F 

---

II DOl!· LAWRENCE LM,._E CA F 

---

62 DOl! -liTE 300 CA f 

---

53 DOl! · ITAHPORD LINEAR ACCEL CA f 

---

54 EA&T CCINTM COSTA 10 CA 80 

---

II EDW,._ AIR FORCE BAlE CA F 

---

5I " · MOJAVE- TIIISE CA F 

---

17 OEOROE AIR FORCE BASE· CA F 

---

5I OLIHfi.(:OI.UIA ll CA 80 

---

5I JAMEII) CA 80 

---

110 KERN-1\JIARE WD CA 80 

---

II UNOBAY.aTRATHMOIIE ID CA SG w-..--

112 LOWEll TULE RIVER 10 CA 80 

---

83 MARE ISlAND NAVAL IIHI'YARD CA F 

---

54 MCLELLAN AIR FORCE BASE CA F 

---

15 NAVAL AIR ITATION • LEMORE CA F 

---

II NAVAL AIR STATION - MOffETT CA F 

---

17 NAVAL~. STATION· STOCKTON CA F 

---

II NAVAL RADIO STATION· OOION CA F w-..--

• NAVAL SECURITY • SKAGGS ISIANO CA F 

---

70 NAVAL SUPPORT· TIIEASURE IS. CA F 

w-..,..__

71 NAVAL WEAPONS STA .• CONCORD CA F w-..--

n NORTHERN CALifORNIA YOUTH CTR. CA SG w-..--

73 NORTON AIR FORCE BASE CA F 

---

74 PATTERSOHWD CA SG 

w-..--

75 1'110\IIDENT ll CA SG 

---

78 RAG GUI.CII WD CA SG 

w---

n RECLAMATION DIST. 20315 BOOSTER CA SG w-..--

Pogo 2 
fHJPMII_Io __ OflwG_,_E_ 

Sou,..: PMA AllfHifl Repotto 

Fodenllct 

~Enlly .Sllll ~~ 

78 RECI.AMA TION DIST. 2035, MAIN CA SG w---

711 SAN JUAN SUBURBAN WD CA SG w---

80 SAN LUIS WD, FliT JE CA SG w-..--

81 SAN LUIS WD, I<AWAN CA SG 

---- 

82 SANTA CLARA VALLEY WD CA SG w---

83 SHARPE ARMY DEPOT CA F w-..AnoP

84 SHASTA OFFICE CA F w---

85 SIERRA CONSERVATION CENTER CA SG w---

88 TERRA-BELLA ID CA SG w-..Ano

87 TRACY DEFENSE DEPOT (ARMY) CA F w-..--

88 TRAVIS AIR FORCE BASE CA F w-..--

88 TRAVIS WHERRY HOUSING (AF) CA F w-..Ano

1111 UNIV. OF CALIFORNIA, DAVIS CA SG w-..Ano

81 USIA DIXON RELAY STATION CA F 

---

112 WEST STANISLAUS ID CA SG w---

83 WESTLANDS WD ASSUMED PT. DEL. CA SG w-..Aroo

84 WESTLANDS WD PUMPING PLT.I&-1 CA SG w-AnoP

115 WESTLAND$ WD PUMPING PLT. t7-1 CA SG w---

88 WESTSIDEID CA SG w---

97 ARAPAHOE & ROOSEVELT NATL F. co F w-..--

98 ODE · ROCKY FLATS co F w-..--

98 NATIONAL PARK SERVICE co F w-..Ano

100 PETERSON AFB co F w-A ... --

101 POWER OPERATIONS OFFICE co F w---

102 PUEBLO ARMY DEPOT co F w---

103 SILT WATER CONSERV. DISTRICT co SG w-AnoP

104 U.S. AIR FORCE ACADEMY co F W-AnoP

106 UINTAH WATER CONSR OIST co SG w---

108 FERGUS FALLS STATE HOSPITAL MN SG w-Aroo

107 SW MINNESOTA STATE UNIVERSITY MN SG w---

108 WILLMAR REGIONAL TREATMT. CTR. MN SG w-Aroo

108 HAIDLEPUMP MT SG W-AnoP

110 HAMMOND PUMP MT SG w-AnoP--I

Ill KJNSEY IRRIGATION DISTRICT MT SG w-Aroo

112 MONTANA STATE WATER/HELENA MT SG WeltemArMPCIII

113 MONTANA STATE WATER/SIDNEY MT SG W..tem AIM Power A.dnWI

114 SCHOOL DISTRICT 121 MT SG W..temAreiPOiil

115 US BUR IND AFFAIRS FRAZERIVALY MT F w-.m Ar. Power Adrninis

118 US BUR IND AFFAIRS/3-MILE PUMP MT F Well.n A,_ Power Adminl

117 GRAFTON STATE SCHOOL NO SG w-.m Are~ Power Admini

Page3 
,..,,..,._ .. _____ s..n:. PMAAntwlll~ 

F-or 

Gcwr!nw*f E4r .lillll ..lillll.lilld. fiiUDIIII:I 

111 MClEAM-SHERIDAN NO so 

---

118 NO STATE HOSPITAL-JAMESTOWN ND so w---

120 -TH ON<OTA MilL a ELEVATOR NO so w---

121 -TH Do\KOTA STATE SCHO<liJtlEAF ND so 

·---

122 -TH Do\KOTA STATE SCHOOIJSCI. ND so 

---

123 -TH Do\KOTA STATE UIIIOTTINEAU NO SG 

---

124 -TH Do\KOTA STATE WTR. COMM. NO 80 

---

125 UNIV. OF N. ON<OTNOIWIO FORKS NO so 

---

1:111 US BUR OF 1ND AFFAIRSIIELCOURT ND F 

---

127 IEATRIC STATE DEVELOP. CENTER NE 80 

---

1:111 HAIT1NOI R£OIONAI. CEHTEII NE 80 

---

128 NElli. STATE OFC. IIIJlG.UNCOLN NE 80 

---

130 NElli. STATE I'ENITEHTAIIY NE 80 

---

131 I'EIIU IT ATE COLI.lOE NE IQ 

---

lSI UNIV. OF NElli. - UfiCOLN NE IQ 

---

13:1 UNIV. OF NElli.·- NE 80 

---

134 WAYNIITATE COLI.lOE NE 80 

---

135 001-AI.IUQUEIIQUE OPEIIATION Hill F 

---

135 NOLLOMtoN AIR FOIICE IAIE Hill , ---

1:r7 IOIITLANO AIR FORCE IAIE Hill F 

---

135 IOULDEII CITY OFFICE NV , ---

131 BUR OF R£~TION: PIIOJECT USE NV F 

---

1«1 DEPT. OF ENEIIQY NEVAD.\ 01'£118. NV F 

---

141 NEWS Alii FORCE IAIE NV F 

---

142 ELI.IWORTH AIR FORCE lASE 80 F 

---

143 -THERN STATE UNIVJAIIERDEEN ID SG 

---

144 REDFIELD aT ATE HOIPITAL ID SO 

---

1411 S. IIAK CEMENT P1.'HT ID 80 

---

1411 I. IIAK HUMAN IVC8 CT!WANKTON ID SG 

---

147 I . IIAK SCHOOL OF MilES a TECH 80 SG 

---

1. I . IIAK STATE I'ENITENTAIIY ID 80 

---

1. S. IIAK STATE 8CHOOUI'LAIIKINN ID 80 

---

1110 8. Do\K. IT ATE UNIVJIIIDOKINGS so SG 

---

151 SPRINGFIELD CORRECTIONAL FACIL SD so w---

152 UNIV. OF 8. Do\KJVERMIWON ID SQ 

w---

153 BUR OF RECLAMATION: PROJECT USE UT F 

---

154 CENTRAL UTAH WATER CONS OIST. UT SQ 

---

1!6 DEFENSE DEPOT OGDEN UT F 

---

1M DUTCH JOHN CNIIP UT F 

w---

157 tiLL AIR FORCE lASE UT F 

w---

Pogo4 
1H.JPMA_IO_Md0fhw--

Sourct: PIIA Annulll Repotta 

F-..« 

G<r.wryTw!tW FrUy bit b!L!iiM. fM6..fmll!il 

I !Sa METROPOUT AN WTR !liST/SALT U< UT F 

_...,.. __ I !Ill TOOElE ARMY DEPOT UT F 

w_...,.. __ UIO UNIVERSITY OF UTAH UT SG 

w_...,.. __ 101 UTAH STATE UNIVERSITY UT SG 

w_...,.. __ 102 WEBER BASIN CONSERVANCY DIST UT SG 

w_...,.. __ 103 BUR OF RECLAMATION: PROJECT USE WY F 

w_...,.. __ 1114 FRANCIS E. WARREN AFB WY F 

_...,.. __ leiS GOSHEN IRRIGATION !liST. WY SG 

_...,.. __ Sourw: 191l3AnnuoiR_.Ior_-.g_. 

P-5 
202 

Alliance for Power Privatization Testimony for May 18, 1995 

Statement of George A. Schreiber, Jr. 

Managing Director 

Sector Head, Regulated Industries, Technology and Finance 

PalneWebber, Inc. 

On behalf of the Alienee for Power Privatization 

before the Subcommittee on Water and Power Resources 

House Resources Committee 

U.S. House of Representatives 

On the Privatization of the Federel Power Marketing Administrations 

and Assoc:lated Generation Fecilitles 

May 18, 1995 
203 

The Alliance For Power Privatization 

70 7 Pennsylvania Avenue, N. w. 

Suite BOO 

Washington, DC 20004 

(202} 508-4042 

Good Morning, Mr. Chairman and Members of the Subcommittee. I am 

George A. Schreiber, Jr., Managing Director, Sector Head, Regulated Industries, 

Technology and Project Finance of PaineWebber, Inc. I want to thank you for the 

opportunity to provide testimony on the privatization of Power Marketing 

Administrations (PMAsl. Review of this issue is long overdue and you and 

Chairman Young are to be commended for providing leadership over this process. 

We have extensive experience worldwide in the privatization of government owned 

assets. 

I am here today on behalf of the Alliance for Power Privatization (Alliance) 

and PaineWebber, Inc. The Alliance is an organization that is comprised of 

interests which are seeking privatization of U.S. government-owned and subsidized 

electricity assets. The Alliance is made up of independent power producers, 

investor owned utilities, investment banks, power marketers and other interested 

parties. 

PaineWebber is a major full-service securities firm with a national franchise 

engaged in four principal businesses: retail sales and marketing, institutional sales 

and trading, investment banking and asset management. PaineWebber provides 

financial services to individual and institutional investors, corporations, state and 
204 

local governments, and public agencies in the United States and abroad . We have 

extensive experience worldwide in the privatization of government-owned assets, 

including the privatization of the electric industry in the United Kingdom. During 

1994, PaineWebber underwrote over $40 billion of domestic new issues for 

corporate clients and booked revenues in excess of $4 billion. PaineWebber 

currently has nearly $200 billion of client assets under control. 

Global capital markets have demonstrated that privatization of Federal 

government-owned electricity assets can be accomplished In a manner which will 

produce successful results to all panies. There are three primary benefits to 

privatization of electricity assets. First, the Federal government can raise a 

significant amount of capital, an imponant consideration in light of federal 

financing requirements. Second, federal, state and local governments will garner 

on-going tax revenues from these assets being placed on the tax rolls. Third, the 

Federal government will be withdrawing from an activity in which it is no longer 

needed. All of this may be accomplished while providing competitive services to 

all classes of customers. In order to maximize proceeds, these facilities should be 

offered to all financially viable, interested panies. 

The Clinton administration has recently valued PMA assets at $4.5 billion. 

This valuation appears to understate dramatically the potential proceeds which may 

be available from an open, competitive bidding process. Tariff considerations can 

be factored into the bidding process to eddress·concerns raised by customers. 

Obviously this will have an impact on the price actually paid for these assets. but 

- 2-
205 

the government will receive more proceeds with all the interested parties 

participating. Tucson Electric Power Company's bid for a subregion of WAPA 

indicates that the rate issue can be addressed in ways other than pursuit of a "fire 

sale" strategy. Indeed, it is the Alliance's belief that since these facilities were 

paid for by 11/1 U.S. tiiXfNI'/fH$, all U.S. taxpayers should benefit from the highest 

price possible as determined by the free market. 

Today I will review with you some of the activities which have been going 

on worldwide regarding privatization of government-owned energy assets as well 

as potential methods for valuing PMA assets for purposes of sale. In addition, I 

will identify potential methods for financing the purchase of the PMAs. Finally, I 

will briefly address the rate issue which has so many Congressmen and local 

representatives concerned. 

Section 1: Worldwide Privatization Activities 

Privatization crosses industry lines - it resulted in the sale of assets in the 

following industries: telecommunication, electric power, railroads, airports, postal 

service and water. Privatization also crosses ideological lines, Socialist 

governments in Spain and Greece, labor governments in Australia and New 

Zealand, populist governments in Argentina and Mexico, ex-communist 

governments in Hungary and Poland and Asian governments in Malaysia and 

Singapore all are privatizing various sectors of their economy. Significant amounts 

of capital have been raised worldwide. Later in my testimony, under the caption 

- 3-
206 

"Financing of the PMAs, • I provide an indication of the amounts provided by the 

global capital markets. 

The list of countries privatizing their electric power industry sector is even 

longer. ~Appendix A. The power industry, across the globe, and currently 

most intensely in the United States, is shifting from an industry defined by 

regulated monopolies to an industry driven and restructured by privatization and 

deregulation. The result of this change will be increased competition for individual 

utilities, both from other utilities and from non-traditional sources. 

The forces which have lead to the sale of government assets to investors, 

include the following: 

1. Economic Necessity. Privatization generates more efficient and 

competitive operations by allowing greater responsiveness to changing 

or growing economic conditions. 

2. Ideology. Consumers (and government) have observed and 

concluded that private ownership is more efficient than public 

ownership. It is not a service which should be provided by 

government. 

3. Technology. The profit motives drives management to pursue all 

possible technological advances in order to lower operating costs. 

4. Negative Impacts of Government Subsidies. Subsidies unfairly 

penalize taxpayers and serve to retard economic growth. 

- 4-
5. Competition. As international trade borders disappear and increasingly 

competitive markets emerge, privatization produces more efficient 

operations, reducing prices to customers which, in turn, makes them 

competitive in the global markets. 

It is ironic to note that the U.S. government is spending considerable 

sums each year to promote the benefits of privatization to foreign governments. In 

fact, the U.S. and Cuba are about the only nations which are not participating in 

the privatization trend. The U.S. government is reluctant to proceed with a 

privatization transaction that will garner the greatest proceeds and result in the 

most efficient systems. Nevertheless, the United States continues to own and 

operate the Power Marketing Administrations, which supply a share of the 

electricity available in certain regions of the country. This is occurring at a time 

when the Federal government continues to experience massive budget deficits 

which has lead to the issuance of large amounts of U.S. Treasury debt. It seems 

illogical for the Federal government to sail any asset at a discount when deficit 

reduction is so urgently needed. 

Section II - Valuation of the PMM. 

President Clinton's FY95 budget request estimated that some $4.4 billion 

would be received from the sale of the four smaller PMAs, the Western Area 

Power Administration, the Southwestern Power Administration, the Southeastern 

Power Administration and the Alaska Power Administration. Chairman Kasich's IR-

- 5-
208 

OH) House Budget has put forth a figure of $4.2 billion. In all cases, the 

Bonneville Power Administration and TVA have been left out of the equation . 

We believe these numbers are significantly below the amount the Federal 

government may receive from an open, competitive bidding process. The Reagan 

Administration, when attempting to pursue privatization of the PMAs. estimated 

potential proceeds to be in the range of approximately $13 billion. Why the 

varying degrees of valuation? Since 1986, the DOE and Congress have been 

precluded from studying or appropriating any funds to analyze the privatization of 

these facilities. As a result, there is some uncertainty within the federal 

government as to how to value these assets. There are basically three options for 

valuing PMA assets. Below is a brief synopsis of alternative analytical 

methodologies: 

• The unpaid balance of debt owed to the Treasyrv department. This 

method of asset valuation is sometimes called book value or historic 

cost valuation. It served as a basis for President Reagan's FY87 

budget. This figure reflects the amount of PMA debt owed to the 

Treasury at a given point in time. 

• The present yalye method. This method is based on the cash flow 

from the assets over a period of time which is then discounted back 

to today at a rate which approximates the cost of capital. 

• Replacement cost. To determine the replacement cost valuation of an 

asset, the current cost of building or replacing the existing facilities is 

- 6-
209 

estimated and an appropriate amount for depreciation is then 

deducted. Replacement cost of the PMA assets had been estimated 

in 1987 as a part of Reagan's budget to be as high as $86 billion. 

As discussed below, we believe a sale to the highest bidder is the 

appropriate course of action. Regulatory policies are currently in place to address 

concerns about the impact on rates. It should be understood that to achieve full 

value, all necessary licenses and permits, de facto or otherwise should be 

conveyed to the purchasers. 

Section Ill •• Financing of the PM~. 

We strongly believe that there is ample capital available in the private sector 

to finance the privatization of the PMAs. The structure of the privatization itself 

will have a significant impact on the government's success in attracting sufficient 

private market capital to this endeavor. 

Since 1977, privatization transactions have raised nearly $100 billion in the 

global capital markets. Nearly 40% of that capital has been raised since 1990. In 

the utility sector - which incorporates electric, gas distribution, water and 

telephone assets - approximately $46 billion has been raised in the global capital 

markets to fund privatizations since 1984. Over 60% of that capital has been 

raised since 1990. In addition, two major privatizations of government-owned 

utility assets are currently on the horizon: the privatization of Deutsche Telecom 

through a public equity offering sometime in 1996, which will generate estimated 

. 7. 
210 

proceeds of over $9 billion, and the privatization of the state-owned electric 

company of Italy. Clearly, utility assets worldwide have proven to be very 

attractive to investors. A PMA privatization, if properly structured, should enjoy 

similar success. 

The type of financing available to support the privatization of the PMAs is 

necessarily dependent on the structure of the privatization itself. Different forms 

of financing may be available to fulfill different objectives. In order to attract the 

capital necessary to privatize the PMAs, appropriate economic incentives should be 

offered to prospective stockholders in a post-privatized scheme. Ideally, the 

privatization process should be structured not only to maximize the benefit to the 

American taxpayers, which will come directly in the form of the proceeds realized 

as well as indirectly through the elimination of on-going taxpayer subsidization of 

the PMAs, but also to preserve the flexibility of the prospective purchasers of the 

PMAs to generate a reasonable return on their investment. 

Among the various financing methods that may find application in the 

privatization of the PMAs through the open bidding process recommended are onbalance sheet financing and off-balance sheet financing. On-balance sheet 

financing would rely on the financial strength of the purchasing entities themselves 

in order to meet the interest and principal payments on the debt incurred as well as 

to provide reasonable returns to the equity holders. Off-balance sheet financing 

would rely on the financial strength and cash flows of the assets purchased in 

order to meet the financial obligations of the purchasing entities and to provide 

- 8-
211 

reasonable returns. Either of these methods could be used to finance the purchase 

of all or part of a PMA's assets. 

While it is too early in the process to determine the exact form that the 

financing may take, we would emphasize the importance of allowing prospective 

purchasers the freedom and flexibility to structure their bids, from a financial 

perspective, in the manner that best meets their objectives. We are proposing an 

approach to privatization that would establish a bid management team with 

representatives from various constituencies, including Wall Street, to help ensure 

that such flexibility is preserved and that successful privatization transactions 

result. 

Section IV •• Rate Mitigation Procedures. 

Concern has been expressed that preference customers may be confronted 

with "rate shock"1 if future rates are set on the basis of the cost base of the 

successful bidder. It would not be in the taxpayers best interest if Congress 

overreacted to misleading comments surrounding the rate issue and "gave away" 

the PMAs at unrealistically low prices. Existing regulatory practices would be 

expected to minimize the likelihood of excessive rate increases to preference 

customers as a result of the privatization of the PMAs. Utility accounting rules 

promulgated by the Federal Energy Regulatory Commission require that the cost of 

utility plant as recorded on a utility's books and records be established on the basis 

I. "Rate lbock" ia a - ..t to refer to tbe IUddeo ....S aze.ble ~ ill a utility'• electric nlee 

....Wiina &om placiDa • IIIIi« aew fllcility ill .rvice. 

. 9. 
212 

of the cost of facilities to the first person to devote the property to utility service . 

Any premium paid by the purchaser of electric plant which is already in service is 

separately recorded as an acquisition adjustment. This accounting practice enables 

state regulatory authorities and the FERC to establish cost-based rates for electric 

service within their respective jurisdictions which are not unduly inflated by a 

revaluation of facilities when they are sold by one entity to another. 

Where it is determined that otherwise just and reasonable cost-based rates 

may nevertheless result in an burdensome rate increase to certain classes of 

ratepayers, rate increases to those customers may be mitigated in a variety of 

ways. Below is a brief review of the possible rate mitigation alternatives. 

• A phase-in or rate moderation plan. Under such a plan, the utility 

would provide for gradual rate increases over a limited number of 

years, thereby allowing customers to adjust to price increases. Any 

such plan would be an integral part of the purchase agreement which 

must receive regulatory approval of the FERC or the appropriate state 

regulatory authority. 

• A lengthening of the time oyer which the investment in the newly 

acqyired facilities are to be depreciated. Again, regulatory approval is 

needed. Lower depreciation rates require lower revenue to cover their 

cost, thus lowering the amount of additional revenues needed from 

customers. 

- 10-
213 

• An agreement to share with preference cystomers anv savings 

associated with the integratjon of the federally-owned electric utility 

assets with an jnyestor-owned utility system. Alternatively, a utility 

could offer to share with preference customers, through lower rates, 

by allocating a portion of enhanced profits resulting from increased 

off-system sales to third parties. 

We should also recognize that both wholesale and retail markets for 

electricity are becoming increasingly competitive. Under such circumstances, the 

focus of the competitive marketplace may be expected to minimize the ability of 

entities that acquire the generating assets of the PMAs to increase charges 

excessively to customers presently served by the PMAs. Current electricity market 

conditions, in the areas served by the PMAs, indicate that customers have 

alternative sources of electricity available at attractive prices. That being the case, 

purchasers of PMA assets are constrained by the amount of price increase that can 

be passed along to customers. 

The concern over rate increases has been used by opponents of privatization 

as a way to justify sale of the PMAs to preferred customers at artificially low 

prices or no sale of PMAs at all. Not only is this concern overstated, but it is 

inconsistent with today's market realities and government's need to raise capital. 

- 11 -
214 

Section V. An Appropriate Alternative for Privatizing U.S. Federal Electric 

Facilities. 

In a number of the countries in which privatization has occurred, the assets 

privatized were not sold in competitive market conditions . Instead, the assets 

were privatized into a market in which no competition among potential purchasers 

existed. For years, the English government owned and operated the electricity 

supply system. As a result, there were no private owners who had systems in 

place into which government assets could be integrated. The fact that no process 

was in place to review financial and operating results makes comparison with the 

U.S. system unrealistic. 

Here in the United States, the PMAs compete in a vigorous wholesale 

electricity market. This market has been stimulated by both the Energy Policy Act 

of 1992 and FERC by relaxing ownership regulations pertaining to generating 

facilities and by opening access to transmission. These regulatory changes expand 

the opportunity for more participants in the bidding process. Taking from the 

Alliance's wide range of experiences, the Alliance has developed the following 

hybrid approach to privatize the PMAs for the Committee's consideration: 

1. Enact authorizing legjslatjon. Congress could enact legislation that 

(al requires sale of Federal generation and transmission facilities by a 

date certain, (b) grandfathers existing operating conditions at 

hydroelectric generating facilities including minimum flows from the 

dams, (c) provides any necessary procedural amendments and license 

- 12 -
215 

assignment to facilitate timely transfer of facilities to the private 

sector, (d) to the extent possible, ameliorates adverse rate impacts 

through the aforementioned rate mitigation plans, (e) allows current 

"preference" customers to be relieved from current contract 

requirements if they so desire, and lfl eliminates laws that currently 

preclude the study of the Issue. 

2. Establish a bjd manaaement team. The Alliance suggests that an 

Asset Privatization Working Group be created under the management 

of the Treasury Department. Possible representatives for this Group 

could include the Department of Energy, the Bureau of Reclamation, 

the Army Corps of Engineers, the Department of Treasury, and the 

Office of Management and Budget. and individuals from outside the 

government including private Industry, investment bankers and 

economists. Alternatively, the Privatization Working Group could be 

made up of only members from outside government. In this regard, 

an RFP could be put out for particular subregions of the PMAs, which 

could include local Interests. In either case, the Asset Privatization 

Working Group would analyze all relevant issues and recommend the 

most effective method for privatization of the PMAs In a timely 

manner. 

. 13. 
216 

3. Prepare the bid package for each oroject facility or region. The Asset 

Privatization Working Group would provide a package that would 

ensure "transparency" for bidders and would include: 

Ia) An exact description of the facilities to be sold; 

(b) Historical operation and maintenance information; 

(c) Existing and future factors influencing output from each facil ity; 

(d) Known or potential environmental issues associated with the 

projects; 

(e) Requirements for water flow and reservoir management and 

their impact on plant operations; 

If) Sales commitments the purchaser must satisfy; 

(g) Disclosure of required or anticipated capital improvements; 

(h) Disclosure of transmission availability; 

(i) Names of parties that must be involved to be able to transmit 

power to customers; 

(j) Bidder requirements; and 

(k) Selection criteria which will include increase tax receipts to the 

extent a property is sold to the taxpaying American public. 

4. Issue the bjd package and publicly annoynce that bjds wjll be 

accepted at a date certajn. Receive and evaluate bids and announce 

the winner. This stage of the process might also involve further 

negotiations with the selected purchasers. 

5. Enact legjslatjon that allows transfer of the facilities to the highest 

bidder wjth all necessarv !jcenses and permjts jn olace. 

6. Transfer the assets and jssye necessarv licenses and permjts to the 

wjnnjng bjdder. Once the winning bidder has been identified, the DOE 

would transfer operation and control of the assets to the purchaser. 

During the time this process is underway, DOE or other relevant 

- 14-
217 

agencies would identify the laws which would need to be amended. 

These laws would, like the Alaska situation, be repealed, amended or 

replaced once the process has been completed. 

VII. Conclusion 

We believe that any federal privatization should achieve two basic goals: 

1 . Maximize proceeds to the Federal government in order to provide 

significant deficit reduction. All U.S. taxpayers deserve no less. 

2. Maximize competition so that all consumers, or, In this case 

ratepayers, will be the ultimate beneficiaries. 

In addition, we believe in privatization on philosophical grounds, our nation 

possesses the world's strongest economy, based on the notion of capitalism. We 

are watching an historical move in the former Soviet Union as that nation moves to 

a capitalistic, market-based economic. With the electoral revolution of last 

November, it would be highly ironic if the U.S. fails to return legitimate private 

sector enterprises to the business community. In the case of PMAs, it seems clear 

that a sale open to all will best meet these goals and we urge the Committee to 

privatize PMAs in such a way. 

Thanks to the Subcommittee for allowing me to share my thoughts on this 

very important subject. 

- 15-
218 

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qrkan)a) qivczr pomczr quthoritv 

P. 0. BOX 70 3409 south main LAMAR. COLORADO 81052 

(7191 336-3496 Jomes M. Henderson 

May 12, 1995 

Honorable Wayne Allard 

House of Representatives 

422 Cannon House Office Building 

Washington, D. C. 20515 

Dear Congressman Allard: 

General lv1onoger 

We understand that on May 18 the House Resources Subcommittee on Water and Power will hold 

a hearing on the possible sale of the federal Power Marketing Administrations. The Arkansas River 

Power Authority and its rilunicipal members continue to oppose the sale of the PMAs, especially the 

Western Area Power Administration. We again urge you to vote against privatizing Western at the 

expense of the people who receive service from consumer owned electric utilities such as our 

municipalities. 

As we have previously advised you, a sale of Western could have significant adverse consequences 

for the economies of our communities in Southeast Colorado. If we were to no longer have access 

to our allocation offederal hydropower, we estimate that replacement power will increase the total 

cost to our communities by $2.0-$2.9 million annually, a cost increase ofbetween 21-300/o. Cost 

increases in this magnitude will have devastating economic impacts on the fragile economies in 

Southeast Colorado. 

We aie attaching our previous letter of April 21 , 1995, opposing the sale of Western signed by the 

elected and appointed officials ofHoUy, La Junta, Lamar, Las Animas, Springfield, and Trinidad, the 

Board of Directors of the Arkansas River Power Authority, and the Board of Directors of Southeast 

Colorado Power Association. We respectfully request that you include this letter and the April21 

letter in the record of the Water and Power Subcommittee's hearing. We are enclosing I 0 copies for 

this purpose. 

Mellber 

Municipalities: 

Holly • 1.11 Junta • Lamar • Lila Anlmu • Raton • Sprlll{lfleld • Trinidad 
Honorable Wayne Allard 

Page Two (2) 

May 12, 1995 

220 

Please let me know if you or members of your staff have any questions on our position and how a sale 

of Western could negatively affect our communities. 

James M. Henderson 

General Manager 
221 

qrkan)CI) J.livczr poc.oczr quthoritv 

P. 0. BOX 70 3409 south main LAMAR, COLORADO 81052 

(719) 336-3496 James M. Henderson 

April21, 1995 

Honorable Wayne Allard 

House of Representatives 

422 Cannon House Office Building 

Washington, D.C. 20515 

Dear Congressman Allard: 

General Manager 

Attached is a letter opposing the sale of the Western Area Power Administration signed by 

elected and appointed officials of Holly, La Junta, Lamar, Las Animas, Springfield, and 

Trinidad, the Board of Directors of the Arkansas River Power Authority, and the Board of 

Directors of Southeast Colorado Power Association. As noted, all ofthese entities strongly 

request that you maintain a position in opposition to the sale of Western. 

We are encouraged by the statement in your letter of January II, 1995, to fun Henderson of 

ARPA that "you do not see that there would be any benefit to selling offWAPA". We urge 

you to reaffirm this opposition to the sale of Western. 

Please keep us informed regarding your views on this issue. 

ohnH.La~~ President . cJ---

~~~Lfu_ James M. Henderson 

General Manager 

Enclosure 

c: Doris Morgan, Director, SE Colorado District Office 

Norm Bailey, General Manager, Southeast Colorado Power Association 

Member 

Municipalities: 

Holly • La Junta • Lemar • Lea Anima• • Raton • Springfield • Trinidad 
222 

qrkan~a~ ~il>C!r pococn "'lu"• •u• •" v 

P. 0. BOX 70 3409 south main LAMAR. COLORADO 81052 

1719) 336·3496 

Honorable Wayne Allard 

House of Representatives 

SOUTHEAST COLORADO 

POWER ASSOCIATION 

901 W. 3rd. • P.O. Box 521 • La Junto, Colorado 

(719) 384-2551 (La Junto Area) • Toll Free: 1-800-332-8634 

422 Cannon House Office Building 

Washington, D. C. 20515 

Dear Congressman Allard: 

The elected officials and power board members from Holly, La Junta, Lamar, Las Animas, 

Springfield, Trinidad, and the Arkanasas River Power Authority, have joined our colleagues on the 

Board of Directors of the Southeast Colorado Power Association, to advise you of our strong 

opposition to the proposed sale of the Western Area Power Administration. 

The municipalities signing this letter provide electric service to a population base of over 20,000 

people in Southeast Colorado. Our cities and towns are all members of the Arkansas River Power 

Authority. ARPA obtains over 35% of the electricity needs for its municipal members from the 

Western Area Power Administration. Southeast Colorado Power Association is a cooperative 

association that provides electric service to approximately I 0,000 metered customers in rural areas 

ofProwers, Bent, Otero, Baca, Kiowa, Lincoln, El Paso, Las Animas, Crowley, Pueblo, Cheyenne, 

and Kit Carson Counties. SECP A buys its wholesale electric power from Tri-State Generation and 

Transmission Association which in turn obtains a significant portion of its power requirements from 

Western. 

We oppose a "privatization" sale ofWestern because it will raise electric rates for our consumers and 

negatively impact the economies in Southeast Colorado which we have been struggling to improve. 

We are encouraged by the statement in your letter of January 11, 1995, to Jim Henderson of ARPA 

that you "do not see that there would be any benefit to selling offWAPA". We urge you to reaffirm 

this position in the upcoming debates on the proposed sale of Western. 

Everyone is concerned with finding reasonable ways to reduce the federal deficit and balance the 

budget. We submit that a sale of Western won't accomplish these objectives, but it is certain to hurt 

our economy and the people in Southeast Colorado. Please consider the following: 
Honorable Wayne Allard 

Page Two (2) 

223 

Taxpayers do not subsidize Western's power program. It pays its own way. Consumerowned utilities make payments for federal power that fully repays the federal investment with 

interest and covers all operation and maintenance expenses. The financial commitments by 

power customers made possible the construction of the federal dams with their resulting flood 

control, navigation, recreation, and municipal and agriculture water supply benefits. We have 

honored our side of the bargain and we object to the federal government pulling the plug on 

our good faith commitments. 

Neither taxpayers nor consumers of electricity will be benefited if Western's public assets are 

"privatized". Purchase of Western by a profit motivated party will result in significant rate 

increases for consumers of municipal and rural electric utilities. Since electricity is an 

essential product, not a luxury, these rate increases will be viewed as tax increases. This 

phantom tax increase will trigger negative economic impacts in all of Southeast Colorado. 

The proposed sale of Western ignores customer equity contributed by municipal and 

cooperatively-owned utilities over the entire history of the federal power program. These 

commitments must be recognized. 

When many of the multi-purpose dams were built by the federal government, the hydropower 

cost exceeded alternative electric power production by coal, gas or oil burning power plants. 

Despite this fact, municipal and rural electric systems stepped up to the plate and signed long 

term power contracts to help pay the costs of the water projects. The hydro power provided 

the basis for competition, giving the smaller consumer-owned utilities an opportunity to 

survive and gain independence from the dominant investor-owned power companies. Selling 

Western would undermine economic development and competition. 

A combination of higher costs and decreased reliability of future power supply occasioned by 

a sale of Western will threaten local ownership and control of municipal and rural electric 

utilities. 

If selling off government assets is to be seriously considered, sell the losers not the winners 

like Western. 

Again, we urge you to oppose the sale of Western. We respectfully request that you keep us 

informed regarding your views on this issue. 

Sincerely, 

The Colorado communities of Holly, La Junta, Lamar, Las Animas, Springfield, Trinidad, the 

Arkansas River Power Authority, and Southeast Colorado Power Association, through their 

respective officials and board members as set forth on the attached signature pages. 
224 

CJloratlo Power AssociLdion Board of Direcf(ITS 

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ARKANSAS RIVER POWER AUTHORITY 

BOARD OF DIRECTORS 
226 

The T(IH.'IZ of Holly Board of Tru.~ees 

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227 

17re City of La Junta 

PowuBoard 
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Tht! City nf Lamar 

Cily Cntuu:il and !ofayor Ftiliries Board 

!125tL-

~J; Lee Lirley 

B:L/W~ Bill Wootten 

%47,?!~~-~ ,L--

Keith Nidey =t7'" 
229 

Power Board 
230 

The Tmwz nfSpringfu!ld lJoartl ofTnL'>Iees and .Uayor 

Mayor 

Trustee 

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Trustee 
231 

The City nfTriniJwl City Council tuul .Unyor 

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232 

STATEMENT OF THE SOUTHEASTERN FEDERAL POWER CUSTOMERS, INC. 

before the 

U.S. HOUSE OF REPRESENTATIVES 

HOUSE RESOURCES COMMITTEE 

WATER AND POWER RESOURCES SUBCOMMITTEE 

June 1, 1995 

The Southeastern Federal Power Customers, Inc. (SeFPC) represents 238 rural 

cooperatives and municipally-owned electric systems in the nine states of Alabama, Georgia, 

Mississippi, Kentucky, North and South Carolina, Florida, Virginia and West Virginia which 

purchase all or part of their power supply from the Southeastern Power Administration 

("SEPA "). The members of SeFPC are committed to providing reliable and economical 

power and energy to their customers. In some cases, SEPA provides as much as 25 percent 

of the SeFPC members' power needs and 10 percent of their energy needs. lbe role the 

Corps of Engineers ("Corps") and SEPA play in meeting these needs is vital to the well 

being of the more than 5.8 million customers of SeFPC members. 

The SeFPC members join the National Rural Electric Cooperative Association 

("NRECA ") and American Public Power Association (" APPA ") in opposing any proposals to 

sell the PMAs, whether wholly or by project, and support the comments submitted in this 

hearing by NRECA and APPA. However, if the sale is pursued, we urge that current power 

marketing administration customers be given an exclusive right to the transfer of the 

ownership, or the transfer of responsibility and control, of PMAs at a price that reflects the 

unpaid debt (!&, the present value of the future repayment schedule), taking into account 

risks the purchaser(s) necessarily will assume. 

The PMAs market hydroelectric power from dams that were constructed in response · 

to widespread flooding in various parts of the country. Congress realized that, in addition to 

flood control, the dams presented an opportunity to generate hydroelectric power that could 

be sold, with the revenues from the sale used to pay for the dam construction and operation. 

Federal Power Marketing Administrations were created to market this hydroelectric 

power in a manner consistent with the public interest. Congress decided that the public 

interest would be best served when the power was sold to not-for-profit consumer-owned 

power systems, such as municipally-owned electric systems and rural electric cooperatives. 

The PMAs market this power in a manner consistent with the public interest. Congress 

further decided that PMAs would develop cost-based rates that would recover debt repayment 

for the construction of the darns, all the cost of power facilities and power generation, all 

renewals and replacement costs, and all the expenses of the PMAs themselves. In addition, 

the power rates would contain a "joint co~1· allocation that would defray the cost connected 

with other purposes of the dams, such as recreation, navigation and purposes Congress might 

decide as new dams are built. 

We agree with NRECA and APPA that the sale of the PMAs, however structured, 

would violate principles of equity and fairness. PMA customers entered into a partnership 
233 

with the federal government to build a federal hydropower system at a time when it was far 

from clear that purchasing from Federal Power Marketing Agencies ("PMAs") would prove 

over time to be economic. The PMA customers have fulfilled their part of the bargain: 

every dollar invested by the government in the federal water resource projects is paid back --

with interest -- to the U.S. Treasury by federal hydropower customers within 50 years. The 

customers have now paid off 30 percent of the debt and, therefore, essentially have built up a 

30 percent equity position in the projects. In addition, through their rates, customers pay to 

the Treasury, overall, roughly 80 percent of the investment associated with all other uses of 

the dams and lakes they create. 

Federal hydropower is an essential ingredient in the mix of power resources relied 

upon by consumer-owned power systems. Although the federal hydropower was more 

expensive than other resources when the projects were first built, many eligible preference 

customers decided to enter into contracts for PMA power because it was an assured source of 

power which allowed the customers some degree of independence from the monopoly power 

of investor-owned utility systems. Over time, as PMA customers have steadily paid down 

the debt, this power has become cheaper in comparison to other sources. The net result is 

that this is a very economical resource for the customers. Federal hydropower is roughly 

equivalent to the low-cost generation resources owned by investor-owned utility systems. 

PMA rates have the same function in determining the cost of power for preference 

customers as do any older, less expensive generating resources of an investor-owned utility. 

The older, lower-cost units are simply blended with the new, higher cost generators to 

provide today's average cost of power. In neither type of utility is the lower cost of the 

older units a "subsidized" cost. It is merely a cost which has remained relatively fixed 

while, in contrast, the cost of newer resources has risen. Just as it would be unfair to 

deprive investor-owned utilities of their low-cost power, it would be unfair to deprive 

consumer-owned systems of their right to the depreciated low-cost federal hydropower. 

Contrary to the assertions of those who argue to sell the PMAs, PMAs do not result 

in subsidized utility rates for the nearly 32 million consumers in the areas where PMA power 

is available. Federal hydropower costs are low because many of the projects were built 

years ago, in an era of lower interest rates and lower costs. As discussed above, the 

government investment is being paid back through the steady stream of revenue by current 

hydropower customers. And, hydropower rates include no profit -- and the power is resold 

by non-profit, consumer-owned power systems. 

The partnership between the federal government and consumer-owned system has 

proven largely successful in terms of facilitating the economic development of the rural 

regions served by the PMAs, particularly in SEPA's case. However, it is not the case that 

PMAs have fulfilled their purpose and are no longer needed. Federal hydropower is more 

important than ever for consumer-owned power systems. With the advent of a more 

competitive electric utility industry, utilities with access to older, less expensive power 

resources are clearly in a better position than those with newer, more expensive resources. 

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To the extent that consumer-owned systems lose access to less costly hydropower, they will 

also lose ground in the competition-driven electric utility arena. If investor-owned utilities 

are allowed to purchase the assets of the federal power marketing agencies, their competitive 

posture will be greatly enhanced, while the current customers' competitive posture will be 

greatly eroded. 

Moreover, in reliance on their partnership with the federal government, consumerowned systems have not pursued alternative means of obtaining low-cost power. If SEPA is 

auctioned off to the highest bidder(s), it is no secret that certain investor-owned utilities are 

eager to purchase the systems or their assets. If investor-owned utilities integrate SEPA's 

assets into their system, undoubtedly costs to consumers in the area served by SeFPC's 

members will be significantly higher. While the exact amount of rate increases for SeFPC 

members will depend on the price at which PMAs are sold and the rates at which customers 

would buy the same or replacement power, we estimate that if SEPA power were no longer 

available, SeFPC members would be forced to pay approximately an additional $161 million 

annually for replacement power on a regionwide basis. And, as would be the case with any 

utility, consumer-owned utilities would be required, in order to stay in operation, to pass 

through a significant amount of the increased costs to ultimate consumers. In recent years, 

people everywhere in this country have been "hit hard" by rising prices, the tight job market 

and other economic difficulties. People in the poorer, rural areas served by SeFPC members 

should not be forced to absorb soaring electricity bills. In short, loss of low-cost SEPA 

power most likely will result in economic detriment to the rural communities served by 

PMAs, and could result in extreme financial difficulties for, if not the demise of, consumerowned utilities as well. 

This Subcommittee also should consider that sale of the PMAs is ultimately is not the 

best deal for the federal government in terms of deficit reduction. A March 7, 1995 report 

issued by the Congressional Research Service ("CRS Study") points out that the government 

would lose a stream of revenue flowing into the Treasury from four of the PMAs which 

represents net positive receipts to the government of $243.7 million, after deducting the 

amount of the PMAs' FY 1995 appropriations and use of prior year balances. The CRS 

Study explains that while during the years the sales are actually taking place, the Treasury 

will receive a "windfall," but that "as the foregone revenues exceed the saved appropriations 

in the years after the sale, the cash flow actually would contribute to the deficit." CRS 

Study at 7. The CRS Study concludes that the fiscal advantage of selling the PMAs is timelimited, and that, in theory, if the receipts from the sale of the PMAs are scored over the life 

of the water resource projects, the net receipts would be zero. Given the findings of the 

CRS, good business sense would seem to dictate that the federal government hang on to these 

assets which will be paid off free and clear within the foreseeable future. 

In addition, because of the Congressional prohibition of the use of federal funds to 

study divestiture of the PMAs, there are so many unknowns about the sale of the PMAs that, 

as APPA states in its testimony, the idea of the PMA sale is "fraught with complexity." 

Numerous questions must be answered before the PMAs can be sold off; some of the more 

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significant questions are: how the sale could and should be structured; how PMAs/their 

assets should be valued; what will be the net effect on the federal debt; how much will 

taxpayers be harmed; how numerous statutes pertaining to the sale of PMAs would have to 

be changed and whether other existing statutes should be amended (such as the Federal 

Power Act); how existing contractual obligations will be affected; who would control and 

maintain the multiple-purpose water projects with respect to their functions other than the 

generation of electricity u. flood control, navigation, salinity control, wildlife protection 

and others) and how could the water resource projects be functionally separable for the 

purpose of transferring ownership and/or control and maintenance of the other functions; 

and, who will determine how the use of water is prioritized. Even after studies are 

conducted, many of these unknowns are difficult, controversial policy issues that will take 

time to resolve. 

Even if Congress no longer believes it is bound to honor the partnership it entered 

into with consumer-owned utilities 50 years ago, Congress should give an exclusive right to 

the transfer of ownership, or of responsibility and control, of PMAs to customers that 

currently have federal power allocations, rather than auctioning off the PMAs (or their 

assets) to the highest bidder. If Congress pursues the sale of the PMAs to the highest 

bidders (which most likely will be investor-owned utilities with their deep pockets), investorowned utilities will be able to "out price" consumer-owned utilities. Therefore, investorowned utilities will have a strong competitive advantage over consumer-owned utilities and 

may even, over time, force consumer-owned utilities out of business. As a result, there 

would be even fewer competitors in the electric utility industry -- and robust competition will 

develop in the electric industry to the extent that there are a greater number of competitors in 

the electricity market, not fewer. Thus, if Congress does not sell the PMAs to the current 

preference customers, it would contravene its clear intent to promote the development of 

competitive bulk power markets, as expressed in its enactment of the Energy Policy Act of 

1992 ("EPAct"). 

If Congress transfers control of ownership, or responsibility and control, to current 

preference customers, the sale price should be adjusted to reflect certain risks and related 

factors the preference customers necessarily will assume. Such factors include: the costs of 

costs of environmental impact statements; maintenance requirements; the approximately 

$90.5 million that has been collected through SEPArates for Renewals and Replacements, 

but that has not been spent on projects; and the approximately $200 million over the next 10 

years that will be required to bring the projects up to reliable standards. Preference 

customers also should receive some protection on risks associated with changes in Federal · 

water policy. such as reallocation of water use or changes in stream flow requirements, that 

could impact upon the capacity values of the projects. Additionally, Congress should address 

necessary changes in relevant statutes, including the licensing of the projects under the 

Federal Power Act. 

Finally, we join APPA in urging that: (1) the right to the transfer of ownership, or 

of responsibility or control, of the PMAs be extended only to current customers, not 

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customers as of some indeterminate date in the future; (2) consideration for any transfer 

should be only that amount required to pay the present value of outstanding debt, adjusted 

for risk; (3) consumers are held harmless if there is a transfer; (4) the necessary changes in 

relevant statutes and other guidelines are made clear and are taken into account in the 

determining a reasonable transfer price; and (5) enough time is provided for consumer-owned 

utility systems to establish any reorganization necessary in order to accomplish a transfer. 

Thank you for the opportunity to submit written testimony in this hearing. I would be 

happy to respond to any questions. 

-5-

Respectfully submitted, 

~t;ht,L(~ 

G. Stanley Hill 

President 
237 

Teatintony of the 

Southwestern Power Resources Association 

Submitted to the 

Subcommittee on Water and Power, 

Committee on Resources 

May 18, 1995 

Mr. Chairman and Committee Members: 

This testimony concerning proposals to sell the federal Power Marketing Administrations (PMAs) 

is respectfully submitted on behalf of the Southwestern Power Resources Association (SPRA). 

SPRA represents the municipally owned dectric utilities and rural electric cooperatives that 

purchase electric energy and capacity from the Southwestern Power Administration (SWP A), one 

of the nation's five PMAs. 

SWPA, like the other four PMAs, is an agency of the Department of Energy that markets the 

hydroelectric power generated at federal water resource projects. SWPA's power is generated at 

24 multipurpose water resource projects operated by the U.S. Army Corps of Engineers [unlike 

the Bonneville and Western Area Power Administrations, SWP A and Southeastern Power 

Administration do not obtain any power from Bureau of Reclamation projects]. These Corps 

projects have an installed hydroelectric generating capacity of 2, I 58 MW, and in an average year 

generate 5,570 gigawatthours of dectricity. SWP A markets this capacity and energy to electric 

utilities and certain federal installations in six states - Oklahoma, Kansas, Missouri, Arkansas, 

Louisiana and Texas- giving first right of purchase, or "preference", to public bodies and 

cooperatives, in accordance with the provisions of Section 5 of the Flood Control Act of 1944. 

To integrate the operation of these hydroelectric generating plants and to transmit power from the 

dams to its customers, SWPA maintains 1,380 miles of high-voltage transmission lines, 24 

substations and 46 microwave and VHF radio sites. This sophisticated system is operated from 

headquarters in Tulsa, OK, with a dispatch center in Springfield, MO and maintenance crews 

based in"Springfidd; Jonesboro, AR; and Gore and Tupelo, OK. Twelve of the 24 generating 

plants are scheduled directly by SWP A, and 19 contribute to the interconnected system 

operations. Generation at the five remaining projects is used to serve specific customer loads. 

Southwestern's Customers 

SWPA has allocated power to 92 preference customers, including 10 generation and transmission 

(G&T) cooperatives, one distribution cooperative, three military. installations, 75 municipal 

utilities and three municipal joint action agencies. The G&T co-ops and joint action agencies in 

tum wholesale this power to dozens of other distribution co-ops and municipal utilities. 

The American Public Power Association recently commissioned R. W. Beck to quantifY, on a 

state-by-state basis, the benefits of power supplied by the PMAs. This study confirms that SWP A 

is accomplishing the mission set forth for it by Congress in the 1944 Flood Control Act to 
238 

"transmit and dispose of such power and energy [generated at Corps of Engineers multipurpose 

water resource projects] in such manner as to encourage the most widespread use thereof.." 

According to the Beck study, PMA power is distributed as retail electricity to more than 5.8 

million people in the six states served by SWP A. Commercial businesses receiving PMA power in 

these states generate sales exceeding $99 billion and provide employment to more than 764,000 

people earning wages in excess of$12.2 billion annually. PMA power also supports a substantial 

manufacturing base. The Beck study reports that manufacturers receiving PMA power in the six 

SWP A states produced goods with an added value of almost $9.3 billion. These same plants 

employed another 132,000 earning a payroll of almost $3 billion in 1993. 

Two important conclusions must be drawn from this study. First, SWPA power is an integral part 

of the economy in the six states it serves, and any interruption of its supply or increase in its cost 

would have major negative economic consequences for the region. Second, the allegation that the 

benefits ofPMA power are enjoyed by only a privileged few is false. This myth is being spread by 

investor -owned electric utilities and a few independent power producers salivating at the prospect 

of snatching these national resources to perpetuate and extend their market power, and by certain 

money-grubbing investment bankers who would sell their own mothers if they could make a buck 

in the transaction. Their motives are transparent, and they serve neither the national interest nor 

the public interest, but the interests of their shareholders. 

'If It Ain't Broke .. .' 

Congress understandably wants to terminate federal programs that don't work and, to achieve a 

balanced budget in the reasonable future, cut programs and agencies that don't produce 

reasonable results or returns on the federal dollars expended to support them. But the PMAs fit 

neither of these categories. Consider the following: 

• As quantified earlier, SWP A continues to serve its original mission to "transmit and dispose of 

... power and energy [generated at Corps of Engineer dams] in such a manner as to encourage 

the most widespread use thereof at the lowest possible rates to consumers consistent with 

sound business principles." Thus, it is achieving its purposes in a cost-effective manner. 

• Each year SWP A recovers, through the rates it charges for the wholesale power it distributes, 

all of its own operation and maintenance costs, as well as those incurred by the Corps of 

Engineers in operating and maintaining the hydroelectric power plants. Thus, it is not a drain 

on the federal Treasury. 

• In addition, SWP A returns to the Treasury substantial sums over and above its annual costs. 

For example, in FY 1994 SWPA recovered its costs and collected an additional $32.2 million. 

This money is used to retire the original debt incurred by the federal government to build the 

hydro plants and the attendant infrastructure required to deliver this power to SWPA's 

customers, plus interest. SWP A is well on schedule to retire the capital costs of its system. 

As of September 30, 1994, SWPA had returned $329.9 million of the original federal 

investment of about $10 billion, or about 33 percent. The original capital costs of 

constructing the hydropower facilities at Norfork Dam in Arkansas and Denison Dam on the 

2 
239 

Oklahoma-Texas border will be retiRd this year. In addition, SWP A has paid the Treasury 

$554.2 million in c:wnulative interest. 

Congress recognized these facts when it established budget scoring rules that prohibit counting 

revenues obtained from the sale of federal assets in determining annual deficits. Although 

revenues from the sale of the PMA assets would retire the long-term.federa/ debt acquired to 

contruct these tacilities, they would not mluce annual deficits. This is because Congress would 

be giving up a long-term source of IDIIU8l reverue in exchange for a one-time rec:eipt of funds. 

Now the Clinton Administration and the Coogress are prepared to abandon this policy in a smokeand-mirrors approach that will make it easier fur this Congress to show a balanced budget within 

seven years, but will make budgeting by future Congresses much more difficult by giving up a 

reliable source oflong-term revenues. 

The Clinton budget proposal calls for selling the Southwestern, Southeastern and Western Area 

Power Administrations at the net prae:nt value of the stream of revenues the PMAs would have 

generated in retiring their remaining debt. The Administration originally estimated this amount to 

be $4.5 billion. The budget resolution approved by the U.S. House of Representatives assumes 

that these same three PMAs would be sold for $4.18 billion. 

To their credit, both the Administration's proposal and the House budget resolution assume that 

the PMAs will be sold to their existing aJStomers. The House budget resolution specifically 

"recognizes the de facto property rights current customers have in these assets." SPRA is 

grateful that Congress acknowledges PMA customers have repaid a major portion of the nation's 

investment in water resource projects and, in many cases, agreed to contracts with an established 

price that originally was higher than prevailing wholesale rates. 

SPRA continues to believe that neither the Administration nor the Congress has demonstrated any 

real need to seU the PMAs. However, if the Committee is insistent upon moving forward with 

this proposal, SPRA offers the following COIJIIIIelltS on what would be necessary for its members 

to assume ownership and/or operation of SWP A and the Corps power plant tacilities: 

Exdusive rights to the trusfer or respoaslbllitr or control or SWPA mut go to couumerowned utilities and state power agencies tllat presently bave SWPA power allocations. The 

House budget resolution assumes that ownership ofSWP A assets and Corps power bouse 

facilities will be transferred to "the customers who (as of the sale date) buy the federal power." 

This is substantially different from the Administration's proposal that firm power customers of the 

PMAs would have the first right to negotiate a purchase of the assets from the Department of 

Energy. There are two problems with the Administration's proposal. First, by granting the PMA 

customers the "first right to negotiate," the Administration gives all the clout to DOE. If the 

customers do not accept any or all of the terms and conditions sought by DOE, the agency can 

threaten to open negotiations with other parties, leaving the customers in a "take it or leave it" 

position. 

3 
240 

Second, by limiting the first right of negotiations to "firm power customers," the Administration 

would deny this right to at least two SPRA members while at the same time granting it to another 

federal department. The Sam Rayburn Dam Electric Cooperative has a contract with SWP A to 

purchase all of the output of the Sam Rayburn Dam in Texas, while the Sam Rayburn Municipal 

Power Agency has a similar contract to purchase the output of the Robert D. Willis project 

downstream. Neither of these is a "firm power contract" -the customers get energy when the 

darns are capable of generating it, and when generation is unavailable due to hydrologic 

conditions, equipment failure or maintenance, the customers must arrange for themselves 

alternative sources of power. Because they are not firm power customers, they would apparently 

be denied the first right to negotiate purchase of SWP A assets under the Administration's 

proposal. 

On the other hand, among SWP A's firm power customers are three Department of Defense 

installations in Oklahoma. A strict reading of the Administration's proposal would indicate that 

the Defense Department would have the first right to negotiate for the purchase of SWP A assets. 

Surely the Administration did not intend that ownership of portions of the federal power system 

would merely transfer from one federal department to another. 

The House budget resolution language would not exclude the two Texas customers from the 

process. However, it would allow for the Defense Department to participate in the ownership of 

SWPA. In addition, offering ownership to every utility or agency that is an SWPA customer at 

the time the PMA is sold creates a problem of its own. From time to time, SWP A generates 

electricity that is surplus to the needs of its customers with allocations. This power is offered on 

the grid for purchase by others. By granting the right of ownership to all customers, this language 

would allow a utility that has made a one-time, small purchase of surplus energy to own a portion 

ofSWPA. 

Finally, the House budget resolution states that the existing PMA customers should form "private, 

tax-paying corporations" to purchase the PMA and power house assets. It is not clear that, in 

each of the six states served by SWP A, public bodies such as municipal utilities and joint action 

agencies have the authority to own stock in private, tax-paying corporations. For these reasons, 

SPRA recommends that, if the Committee insists on moving forward with this proposal, purchase 

ofSWPA assets and the Corps power houses should be limited to consumer-owned utilities and 

joint action agencies that presently have SWP A allocations. 

Consideration should be no more than required to pay present value of the outstanding 

debt. adjusted for assumed risks. According to tables in the House budget resolution, the 

resolution assumes SWPA would be sold in FY 1998 for $574 million. However, according to 

the most recent calculations by the Department of Energy, the present value in 1998 of the stream 

of payments that SWP A would generate for the Treasury would be about $370 million (assuming 

a 7 percent discount rate). This figure is substantially below the House budget assumptions, and 

should be used as the starting point for the maximum price for SWP A and the Corps power house 

assets. 

4 
241 

If the customers were to take over the assets and/or the operation of SWP A and the power 

houses, they would be assuming substaDtial risks and liabilities that are now borne solely by the 

government. Thus, the present value of the assets should be discounted to account for the fact 

that the government would be shedding these liabilities and the customers would be assuming 

them. 

Adequate time mast be allowed to aeptiate details of tile traasadioa. ud al CODSUmerowned utilities aad state ageacies that preseady bave u SWPA power alloeatioa aboald 

bave an effective opportunity to participate. As demonstrated earlier, SWP A is a complex, 

sophisticated system encompassing six states, with five offices and almost 200 employees. 

Negotiations will involve two federal agencies and up to 92 customers. Any negotiations to 

transfer ownership or control of the SWPA and Corps assets wiD take some time to hammer out. 

Because of their complex nature, any attempt to hasten these negotiations to a conclusion could 

lead to serious unintended conseq~ fur all parties involved. 

Environmental responsibilities mnst be dearty def'med. Will an environmental impact 

statement be required to efFect transfer of ownership or control ofSWPA? Will multiple EISs be 

required? If the "deal goes south" and is not consummated, who will bear the costs of the studies 

and negotiations? AU costs incurred or assumed by SWP A normally go into the rate base to be 

paid by the customers. Customers should be held harmless from assuming these costs if the 

government is unwilling or unable to ultimately transfer control of the agency to the them. 

Who will be given operational responsibilities for determining releases of water through the 

turbine-generators, the Corps or the new owners ofSWPA? If the Corps retains this 

responsibility, will the new owners ofSWPA be compensated for changes in water releases 

dictated by environmental considerations, new federal policies or impacts on other project 

purposes of the dams? If the successors to SWP A are compensated for these impacts, how will 

compensation be determined and paid? AU of these questions must be addressed, and the answers 

will impact upon the liabilities and risks assumed by SWPA's successors, which will subsequently 

impact on the value of the assets. 

Customer enfon:eable cost-control measures mnst be established for the Corps of 

Engineers. Presently the Corps operates and maintains the power houses and charges SWP A for 

these functions. These costs are in turn passed on the SWP A customers through their wholesale 

power rates. Neither SWPA nor its customers have much input into any decisions the Corps 

makes, and little power to correct what they might see to be "gold-plating" or overcharging for 

these services by the Corps. 

Allowing SWPA's customers to assume operation and maintenance of the power houses would 

solve many of these problems. Howeva-, the Corps also assigns "joint use costs" to each project 

purpose (including power) for its portion of the overall costs of operating and maintaining each 

lake and dam that is not specific to an individual project purpose. SPRA would propose that, if 

the customers ultimately purchase the power houses or assume operation of them, the price paid 

by the customer would constitute payment in fuU for all future joint use costs assignable to power. 

In the alternative, costs assigned by the Corps or any other federal agency to power operations 

s 
242 

should be made subject to tbe Administrative Procedures Act. This process would at least give 

the power customers some input into the decision-making process. 

Existing federal statutory requirements impo!ed on SWPA must be revamped or repealed, 

as appropriate, to recognize changes in responsibility or controL It has been widely assumed 

that, if the customers of SWP A were to purchase or take control of the agency's operations, 

substantial efficiencies could be achieved, thus holding down costs to consumers. However, those 

efficiencies will never be realized if the customers, as successors to SWP A, are not freed from the 

operating, hiring, acquisition, accounting, employee benefits and other requirements presently 

imposed on SWPA. If Congress wants the customers to assume operation ofSWPA, it will have 

to free them from these restraints and allow them to operate as utilities, not as a federal agency. 

II the customen are to purchase the power houses, they mast be given the right to upgrade 

or expand generating capacity at any Corps project authorized for power in SWPA's 

marketing area. At least two Corps projects from which SWPA markets power have blank 

penstocks to allow for additional generators to be installed. In addition, at least one dam with 

power production has a reregulation dam downstream where addition of two small hydropower 

units might be possible. Increasing the energy potential of several projects is possible by 

rewinding the generators or installing more efficient turbines. 

The purchase agreements for the assets of the Alaska Power Administration, which this House has 

approved, grant the purchasers the exclusive right to upgrade or expand the facilities at any time 

in the future without obtaining a license or other approval from the Federal Energy Regulatory 

Commission. If SWP A is to be sold to its customers, they should be afforded a similar exclusive 

right. 

FERC licensing or regulation should be avoided. When DOE negotiated the purchase 

agreements for the two projects of the Alaska Power Administration, it agreed tbe purchasers 

should be exempted from FERC regulation or licensing of the projects. The same exemptions 

should be extended to SWPA's customers if they assume ownership or operation of hydropower 

facilities. 

Provisions should be made for transferring ownenhip or operation of SWPA's 

telecommunications system. As mentioned earlier, SWPA owns 46 microwave and VHF sites. 

In addition, the agency is just beginning to add fiber optic cable to its telecommunications system. 

This facilities are vital for real-time data acquisition and control ofSWPA's multi-state 

operations. 

Because SWPA is a federal agency, its radio frequencies are not assigned and licensed by tbe 

Federal Communications Commission (FCC). Instead, its frequencies are assigned by the 

National Telecommunications and Information Agency (NTIA) oftbe Department of Commerce 

from among the spectrum reserved for federal use. 

If ownership or control of SWP A is transferred to its customers, provisions would have to be 

made to transfer the telecommunications facilities and spectrum, as well. In addition, the 

6 
frequencies on which SWPA's microwave system operates are highly coveted by emerging 

telecommunications technologies, such as persooal communications systems, for their outstanding 

propagation characteristics. Recognizlng the value of this spectrum and its importance in 

maintaining reliable operation ofSWPA's system. Congress in 1993 directed that PMA 

frequencies could not be reassigned and that they should be protected from any interference by 

other technologies that might ultimately share their spectrum. 

If Congress directs the transfer of ownenbip or operational control of SWP A to its customers, 

SPRA recommends that the FCC be legislatively directed to issue licenses for each of the SWP A 

transmitters that would protect them from any interference and would exempt them from any 

licensing fee or spectrum auction. 

SWPA's energy banks must be tnmsfened to the customen at no additional cost. 

Hydrologic conditions in river basins fluctuate between extremes of drought and tlood. In its 

earlier years of operation, SWP A had no process for capturing excess generation available in the 

"wet" years to draw up in dry years when the agency could not generate enough energy to meet 

its contractual obligations to its customers. In wet years the excess generation would be sold as 

surplus energy, and the additional reveoues would be used to make bigger payments on SWPA's 

outstanding debt. When insufficient hydroelectricity was unavailable in dry years, SWP A would 

be forced to raise its rates to recover costs of pun:hasing power from other sources to meet the 

demands of its customers. 

In an effort to levelize these fluctuations in rates, SWP A established "banking'' arrangements with 

utilities. In wet years, some ofSWPA's surplus generation sold to other utilities would be 

"banked" - rather than receiving direct payment. SWP A would have the right to obtain an equal 

amount of electricity from the utility when SWP A needed outside power in dry years. 

Because of an unprecedented number of high water years, SWP A's energy banks have become a 

substantial asset. As of April30, 1995, SWPA had aco•IDldated 1,668,362 Mwh in its energy 

banks. But it is important for the Committee to recognize that, in effect, this energy has already 

been paid for by SWPA's customers. Had the banking arrangements not been established, this 

energy would have been sold for cash, which would have been used to retire the principle owed 

by SWPA to the Treasury. This additiooal reduction in principle would have reduced the 

agency's annual revenue requirements, thus leading to a rate reduction to its customers. 

SPRA strongly endorsed the establisluncot of the banking arrangements by SWPA It has been an 

effective tool to levelize rate swings. However, the customers have already paid for the energy in 

the banks and should not be charged again if owoersbip or control of SWP A is transferred. 

Conc:lusion 

The points above illustrate that unraveling SWPA's hydropower operations from the Corps' 24 

multipurpose water projects is an extremely complex task. If the Committee goes forward to face 

this challenge, it should proceed cautiously. Tbe Committee should heed the advice of the House 

as expressed in the budget resolution that PMA customers have a de facto equity interest in these 

7 
244 

projects that should be protected by limiting any sale or transfer of ownership to consumer -owned 

utilities and joint action agencies that presently have a power allocation from SWP A The 

Committee should not overestimate the value of these assets, giving careful consideration to the 

risks and liabilities that would be assumed by the new owners or operators and that reduce the 

value of these assets. Great care should be taken to avoid any unintended consequences and to 

reduce the risks and liabilities through very specific legislative language. 

Finally, the Committee should answer the question: Is it worth it? 

a 
245 

Statement of Ken Weisel 

General Manager 

Missouri Joint Municipal Electric Utility Commission 

Subcommittee on Water and Power Resources 

House Resources Committee 

May 18, 1995 

Mr. Chairman, on behalf of the Missouri Joint Municipal Electric 

Utility Commission (MJMEUC), I submit this statement as part of the record 

for the oversight hearing on the possible transfer of the federal power 

mlrketing administrations (PMAs). The MJMEUC is a Municipal Joint Utility 

Commission that began operation in 1980. The Commission obtains for its 

members electric power and energy required to meet the needs of the 

municipalities and their consumer owners in the most economical manner. 

MJMEUC members purchase power and transmission from the Southwestern 

Power Administration (SWP A). 

We believe the Clinton Administration proposal -- and the plan recently 

adopted by the House Budget Committee -- to transfer or sell the assets of the 

PMAs is a short-sighted, one-time revenue raiser which will dismantle a 

successful federal program and result in lost revenues to the U.S. Treasury . 

The PMA sale idea is not only a bad idea, it's bad economic policy. 

And it's a bad deal for the country. The fact is, the federal power program 

works. Roughly 32 million people in 29 states are customers of the PMAs. 

The nation's five power marketing administrations-- Southwestern, Western, 

Bonneville, Alaska, and Southeastern -- deliver clean, economic hydroelectric 

power to consumer-owned electric utilities that serve these customers. In 

addition, 165 federal and state agencies are served by PMA power. Outside of 

parts of the northeast, the PMAs serve every region of the country. 

The program also pays its own way. It doesn't cost the federal 

government money, it brings money in. Rates for the power generated at 

federal dams are set by law to repay the full federal investment in the power 

facilities, with interest. Repayment of these loans, by the way, is on schedule. 

The PMA power program provides a steady stream of revenue paid 

annually to the U.S. Treasury, after subtracting federal appropriations. 

Indeed, the Congressional Research Service (CRS) estimates that PMA 

revenues offer net positive receipts of $243 million annually. If the PMAs are 

sold, the U.S. will lose a valuable source of revenue. When the capital costs 

and interest are fully repaid, the power facilities will continue to produce 

revenue for the U.S. government. 
246 

- 2 -

Mr. Chairman, we know it's fashionable these days to eliminate from 

many programs a role for the federal government. But in this case the role 

currently played by the government in the distribution and management of 

PMA power is not only desirable, it's necessary. 

For example, several of the facilities that make up the power marketing 

administrations are multi-function facilities -- they meet the electricity needs- of 

the region, and offer flood control, navigation, water supply, recreation, and 

wildlife conservation purposes. 

The federal government has been the agent charged with operating 

these facilities in a way that balances the many project interests for nearly half 

a century. Who else but the federal government will play such a role? Private 

business groups interested in making a profit? While generation of electricity 

is clearly a priority for electric consumers, other services performed by multipurpose facilities are both laudatory and important to the region's 

communities. 

The sale of the PMAs is an electric consumer issue. Millions of 

Americans face increased electric rates if the PMAs are sold or privatized. 

The Consumer Federation of America, the nation's largest consumer 

organization that represents more than 50 million Americans, has grave 

concerns about impending rate hikes, and has consistently opposed plans to sell 

the PMAs. In addition, the Congressional Research Service has estimated that 

if PMAs are sold to private companies, electric rates would rise as high as 

$1.2 billion to $1.3 billion a year. 

Sale of the PMAs could also undermine competition. The same CRS 

report suggests that if private companies purchased the PMAs, it would disrupt 

the current competitive balance in the electric utility industry between private, 

for profit companies, municipal utilities, and rural electric cooperatives. If 

sold to private power groups, says CRS, PMA power would be removed as "a 

competitive check on private utility costs and rates." 

We understand the pressures facing the Administration and Congress to 

come up with fast cash to help pay for tax cuts and help reduce the deficit. 

We don't understand, however, the logic in selling off the PMAs. If the PMA 

program no longer worked, was outdated, or past its prime, then we might 

appreciate the PMA sale proposal. But that's not the case. 

We urge you, Mr. Chairman, to stop this complicated, complex plan to 

sell the PMAs. We note that the proposal to sell the Alaska Power 

Administration is both fairly benign and noncontroversial. But after seven 

years of negotiation and deliberation, it's still not a reality. The current 

proposal to the sell the PMAs, far more difficult than the Alaska deal, also 

needs a great deal of deliberation. 
247 

May 15,1995 

The Honorable Wayne Allard 

House of Representatives 

422 Cannon House Office Building 

Washington, D. C. 20515 

Dear Congressman Allard: 

We understand that on May 18, the House Resources Subcommittee on Water and Power will 

hold a hearing on the possible sale of the federal Power Marketing Administrations, including the 

Western Area Power Administration (W APA). The Colorado Association of Municipal Utilities 

(CAMU), a service organization which repre~~e~~ts twenty-niue municipally owned electric 

systems and three joint action agmcy power suppliers serving over 565,000 citizens in Colorado, 

continues to oppose the sale ofWAPA and we again urge you to vote against privatizing WAPA 

at the expense of millions of Western citizens who receive service from consumer owned electric 

utilities such as our municipalities. 

A sale of W APA just doesn't make seose. Taxpayers do not subsidize W APA. It fully pays its 

own way, including all o&M, all investment with interest, and even a large portion of water 

users' and environmental costs. If this revenue producing asset is sold, there will surely be higher 

electricity costs to the rural citizens of Colorado. 

The purpose of the federal hydroelectric marketing program is to·assure that benefits from the 

development of a public resource, such as our national waterways, by the use of public funds, be 

made available directly to COIISIII1leiS through nonprofit public power communities and rural 

electric cooperatives. This benefit must never be allowed to provide a profit to a few investors at 

the expense of all the citizens of the country. 

We ask that you and this subcommittee take a position opposing such a sale due to the 

devastating impact it would have on the economy of Colorado cities and towns. We further ask 

that you include this letter in tbe m:ord of the Water and Power Subcommittee's hearing. We are 

enclosing 10 copies for this JIUI'P(IIe. 

Thank you for this opportunitY to present our concerns. 

Sincerely~ l, ~ 

Williaff~a(~ecu:ve Director 

Colorado Association of Municipal Utilities 

cc: The Honorable John Doolittle, Chairman 

House Resources Subcommittee on Water and Power 

cc: Members of House Resources Subcommittee on Water and Power 

Pfe Honorable Don Young, Chairman 

VHouse Resources Committee 

The Honorable George Miller, Ranking Member 

House Resources Committee 

2000 E. Horsetooth Road • Fort Collins, CO 80525-5721 

Phone, (303) 229·5300 • FAX, (303) 229·5344 
248 

~of ... CHANUTE, KANSAS 

May 12. 1995 

The Honorable Jonn Doolittle 

House Resources Subcommittee on water & Power 

1337 Longworth House Office Bldg. 

washington, D.C. 20515 

Dear Representative Doolittle: RE: Power Marketing Administrations 

The City of Chanute operates a municipal electric svstem currently serving 

approximately 5,500 residential and small commercial customers and purchase power 

through the Southwestern Power Administration. 

We oppose sale of the Power Marketing Admlnstratlons for the following reasons: 

1. The sale falls to recognize the equity Interest preference customers have In the 

original Investment through past, current and future payments. 

2. The sale would adversely affect the ultimate customer dependent on public 

power and would result in higher electric rates for residential customers. 

3. A sale would lead to higher power costs resUlting In a loss of competition and 

Ultimately impacting the price of goods and services especially those 

consuming significant amounts of energy. 

4. The sale would lead to further concentration In the power Industry, stifling 

competition and eliminating a publicly owned "benchmark" which serves as a check on private power costs. 

5. A sale would constitute a breach of the partnership between the federal 

government and preference customers that entered Into good faith agreements 

to pay for federally constructed facilities and purchase power output. 

6. A sale would result in higher energy costs for current preference customers and !:~~ f~dera! grwe'"nM~'1t, offsettinq anv short term gain to the u.~. Treasurv. 

In summary, It is bad public policy, a breach of good faith and a misguided attempt to 

address the federal deficit. we are strongly opposed to any sale and respectively 

request that the committee defeat any sale proposal and remove the federal Power 

Marketing Administrations sale from any further budget consideration. Please Include 

this statement in the record. 

~P~-- Robert H. Walker · City Manager 

cc: Subcommittee Members 

MEMORIAL BUILDING PO. BOX 907 CHANUTE, kANSAS 66720 
249 

COMMISSIONERS 

May 15, 1995 

The Honorable John Doolittle 

Jack. Phillip5 

Or. Friu Ehrt>n 

Bob freem.an 

House Resources Committee on Water and Power 

1337 Longworth House Office Building 

Washington, D.C. 20515 

RE: Power Marketing Administrations 

Dear Congressman Doolittle: 

KayPRts 

Ken Milk-r 

Hlllh W. t-Urri'son IU, C('n. Mflr. 

Federal hydro power represents 35-45% of the total annual energy requirements for the 

city of Clarksville, Arkansas, population 6,000 plus. It's cost is less than half of the energy 

cost from Clarksville's other supplier, a generation and transmission coop in Oklahoma. 

This coop's rate is less than half of the wholesale rate of Arkansas' largest investor owned 

utility. 

If the federal government sold its electric generation capability, the best that our citizens 

can anticipate would be an electric rate increase on the order of25%. The worst case 

scenario would be a 100"/o increase due to Clarksville citizens having to pay other costs 

attached by the acquiring investor owned utility. 

Those in the government who will make the decision should consider the worst case 

scenario since there are no guarantees that can be offered by way of rate protection. 

Notwithstanding some new tax to remedy the projected annual revenue reduction to the 

U.S. Treasury of S I. 5 billion, the sale of the Power Marketing Administrations should 

only cost the citizens of Clarksville $150.00- $600.00 per meter per year, which is a large 

sum of money in this community. 

Please include this letter in the official hearing record. 

Thank you, 

~~~f .,., ~~0 (: _ _ / 

gh . son 

General Manager 

HWH/mjh 

c<:: Mayor Vinson 

Senator Dale Bumpers 

Senator David Pryor 

Congressman Hutchinson 

.. ~ i 
250 

C#qo#lletrolt IlliteS 1025 Roosevelt Ave., P.O. Box 647 Detroit Lakes MN 56502 

May 15, 1995 

The Honorable Don Young 

Chairman 

House Resources Committee 

1324 Longworth House Office Building 

Washington, DC 20515 

Dear Congressman Young: 

Office of Public Utilities 

218-847-7609 

FAX 218-847-8969 

As a customer of the Western Area Power Administration (WAPA). the 

Detroit Lakes, Minnesota, Public Utilities takes this opportunity to voice 

our objection to the proposed sale of the federal Power Marketing 

Administrations (PMAs). Of particular concern to our community would 

be the sale and privatization of W APA. 

It is our understanding that the House Resources Subcommittee on Water 

and Power will be holding a hearing concerning the proposed sale of 

these federal facilities on Thursday, May 18. We request that our 

concerns be noted at this hearing and that they be included in the hearing 

record. 

Detroit Lakes, like many WAPA customers, is located in an area where 

competitive priced electricity is one of the few amenities which we have 

in order to attract business and industry. There is no doubt that Detroit 

Lakes would not be a W AP A customer today if the federal government 

had told us that the plan was to eventually sell and privatize these federal 

facilities. Detroit Lakes would have then definitely invested in other 

more secure base load electric generation instead of supporting 

repayment of a federal project whose benefits would later be taken from 

us in order to profit others. It must also be remembered that federal 

power was not always the most economical power supply available. 

Commissioners: DUANE P. WETHING, President 

ARNOLD A PORKKONEN 

JAMES THOMAS 

Curt Punt SUPERINTENDENT Richard Grabow 

SECRETARY 
The Honorable Don Young 

May 15, 1995 

Page 2 

251 

However, many public owned utilities, such as Detroit Lakes, contracted 

for this power with the belief that they would be investing in a long term 

power supply which would ultimately benefit their customers for years to 

come, while at the same time supporting programs which benefitted our 

nation in many other ways. It now seems somewhat ironical that the 

federal government seems so intent to sell these facilities and thereby 

substantially increase electric costs to the very same customers who 

supported and helped to make these federal programs a successful reality. 

It must also be considered that the federal power systems is unlike many 

federal programs in that it pays its own way, including interest on 

investment. In fact, WAPA's electric sales contribute significantly to the 

repayment of costs for irrigation, recreation, navigation and certain fish 

and wildlife mitigation programs which are also public benefits from the 

federal river dam projects. If the government sells W AP A, it is selling an 

asset that regularly produces revenue for the federal treasury. 

We firmly believe that the sale of these power marketing facilities would 

make no long term economic sense and even less political sense. 

Therefore, Detroit Lakes, Minnesota, strongly urges your support in 

rejecting the sale and privatization of WAPA as well as that of the other 

PMA's. 

We thank you for this opportunity. 

DPW:br 
May 16, 1995 

The Honorable John Doolittle 

House Resources Subcommittee 

on Water & Power 

1337 Longworth House Office Building 

Washington, DC 20515 

252 

DENISON 

MUNICIPAL UTILITIES 

W. BROADWAY& 7th ST. 

P.O.BOX518 

DENISON, IOWA51442 

712-263-<t154 

FAX712-263-8787 

RE: May 18, 1995 Congressional Hearing on federal Power Marketing Administration 

Dear Congressman Doolittle: 

As your House Resources Subcommittee on Water and Power holds hearings on the 

federal Power Marketing Administrations, (PMAs) please allow me to offer a view point 

from one of the customer-owned utilities that purchases power from one of the federal 

PMAs, WAPA. Our community of 6500 people has operated a municipal consumer 

owned electric utility since 1914. We have invested through rates in many types of power 

plants in the 81 years that we have been in operation. Since the early 1960's our rate 

payers have been investing in a power plant and high voltage electric transmission lines 

owned by the federal government. The dollars that we have sent to Washington, as we 

have purchased this electricity, has been sufficient to pay the principal, interest and 

operating expenses associated with the production and delivering of this hydroelectric 

power to my community. 

Those that are calling for the sale of these federal assets would have you believe that 

these projects are costing the tax payers of this country alot of money when in fact they 

cost the tax payers of this country, nothing. They pay there own way and return to the 

federal treasury, the cost of construction and operation. The mere fact that these projects 

are allowed to return that federal investment in a planned logical manner is being viewed 

as inappropriate when in fact it is both appropriate and the reason for the development of 

the Missouri River multipurpose developments that includes a vast array of interests 

ranging from recreation to water supply. Those that would argue for changing the rules of 

the game, now after decades of successful partnership between the federal government 

and consumer-owned utilities, failed to recognized how the consumer-owned utilities 

through rates have been paying for the very assets that you are now considering selling out 

from underneath us, that is wrong. 
253 

As the record of this public hearing is prepared I would ask that you include my few 

comments. On behalf of the customer owners of our municipal utility I would like to thank 

the committee for allowing us to share with you our great concern with the current 

initiative by some, to take away from us a power supply in which we have 35 years of 

equity. The discussion on this topic is critical to the success of a great many people and 

businesses. We appreciate the opportunity to share our thoughts with you. 

Respectfully, 

? .. ,<") ,l5·, /· .J.. / ')' ..,.l-_.} 

Brad Ro~s . ·-· -

General Manager 

Denison Municipal Utilities 

cc: House Resource Committee 

BR/clm 
WAADO 

Tunothy Cooper 

Bettyl.Jme 

WAJ>OC 

Bart>ara C. Brown 

Melvin A Pittman 

WAROO 

Threet W. Brown 

C. Ann Douglas 

~~ I \""11'01"-1 'I 

t .\...:11'01'\ I.'·' W~J~ 

404-765-1000 

June 1, 1995 

Honorable John Doolittle, Chairman 

House Subcommittee on Water & Power 

Resources 

1337 Longworth House Office Building 

Washington, D.C. 20515 

Dear Congressman Doolittle: 

These are the comments of the City of East Point, Georgia, 

submitted for the May 18, 1995, oversight hearing of your 

Subcommittee concerning the possible sale or transfer of 

federal Power Marketing Administration (PMA) projects. We 

request that this letter be made a part of the official record of 

your Subcommittee on this issue. 

East Point provides a full range of services to its citizens, 

including power service from power supplied by the Municipal 

Electric Authority of Georgia (MEAG). These comments do 

not necessarily represent the viewpoint of MEAG, and are 

submitted only on our behalf. 

We oppose any sale or transfer of any PMA project to anyone 

that only wants to use it for only a narrow purpose such as 

power production. Such a transaction would be contrary to 

public policy because it would necessarily lead to 

compromising the other public purposes for which these 

federal projects were established- water supply, flood control, 

and recreation, among others. These purposes together 

promote the greatest good for the greatest number, and 

should be preserved to protect the health, safety and welfare 

of the citizens in our nation's communities, Achieving all these 

purposes optimally requires a delicate balance in planning that 

our communities rely on the federal government to provide 

with input from their state and local governments. The needs 

for a federal governmental entity to accomplish these 

purposes optimally and fairly increases as the population and 

accompanying development near each PMA project increase. 
Honorable John Doolittle 

May 31, 1995 

Page 2 

255 

The federal government is the only branch of government that 

can insure that each State and its communities receive equal 

and fair treatment in assuring that PMA projects supply their 

present and future needs for sufficient drinking water supplies, 

navigation, flood control, recreation and maintenance of 

sufficient flows to offset the impacts of downstream urban and 

rural wastewater treatment flows. These public purposes 

currently relied on from the PMA's are viewed as predominant 

and are expected eventually to replace or significantly reduce 

the hydropower benefits the federal government has 

depended upon to recover the initial costs of and continual 

maintenance for the PMA projects. Therefore, it would be 

unrealistic to believe that investor owned utilities or the 

nation's communities would mutually benefit long term by the 

sale of the PMA's strictly for their hydropower capabilities. 

This would only lead to long term conflicts pitting the 

profitability of the hydropower portion of the PMA project 

against the health, safety and welfare of the communities 

dependent on these projects for the public purposes 

mentioned. 

It makes s:ense for the Subcommittee to consider the 

hydropower capabilities of the PMA projects as only a 

secondary purpose of them and not the true and longstanding public purpose originally intended of the PMAs. 

The other option presently considered, is the transfer of the 

projects to the current PMA's preference customers. This 

option would seem to make better sense than the previous 

option. The Subcommittee should consider whether this 

option would assure that the above-stated public purpose 

uses would be fairly allocated to communities who are not 

preferred customers. Probably not, and certainly not without 

an up-front understanding that revenues from the hydropower activities cannot be the controlling factor in the projects 

operations. Nor can it be the sole source of revenues that will 

continue the long term maintenance of the projects. The long 

term financing and management of the PMA projects under 

this or any option will require a combined effort and close 

coordination with all entities that have depended on the 

outputs of the projects. New methods of continued financing 
Honorable John Doolittle 

May 31 , 1995 

Page 3 

of these projects will most likley require a method of 

assessing costs based on benefits received. This method 

would be best handled using a flexible scale of benefrts, as 

benefits received will change based on the character of 

growth of areas around each PMA project. 

The City of East Point has seen first hand this changing 

priority of benefits since it is a community affected by use of 

the Buford Dam PMA project in the Chattahoochee River 

basin. All of the PMA project uses stated above, affect East 

Point to varying degrees. 

The City of East Point is a community that presently receives 

multiple benefits from the PMAs and that would therefore be 

affected by any sale or transfer of PMA projects. These 

benefits are: 

1. Through a long-established relationship of contracts, 

the City is one of Georgia's largest contract holders 

with Southeaster Power Administration. Through this 

arrangement the City has received reasonably-priced 

hydropower which has helped the City stay be 

competitive with investor-owned utilities by off-setting 

lhe higher priced purchased generation that was 

available during the 1970's. The City views future 

opportunities for replacing this electric resource in 

Georgia as diminishing. This is due to the lack of 

available waterways that will support hydropower and 

current policies of water resources authorities 

advocating off-steam storage for environmental 

reasons. If we were no longer competitive, the City 

would lose sales and be in a deteriorating position to 

provide local government services because this 

source of revenue would be gone. 

We would ultimately be impacted should a decision result in 

the sale or transfer of these projects. Originally, the purposes 

were for flood control with hydropower and recreation being 

as a by-product that provided for the economic means to 

recover the debt service associated with building the dams. 

Since this time, the nation has grown and the need for 
257 

Honorable John Doolittle 

May 31, 1995 

Page 4 

managing the nation's water resources has become an ever 

increasing critical factor. 

In closing, we urge the Subcommittee to refrain from selling 

the PMA projects presently, because: 

1. The purposes of flood control, fair allocations to meet 

present and future drinking water needs of cities and 

counties, recreation, water quality protection 

downstream, and other purposes besides power 

production, would not be met; 

2. Cities that have paid for this power over the years and 

have thereby paid for the projects, would eventually 

lose this important component of being competitive, 

and would default on federal loans to develop APPA 

members, and would have to raise taxes to provide 

basic services, because power service revenues 

presently being received, would instead go to investorowned utilities; and 

3. Control of investor-owned utilities could be secretly 

obtained by foreign governments hostile to the U.S., 

who could then shut off crucial power at crucial times 

to hamper our defence preparedness. 

Thank you for allowing us to comment on this proposal. 

R pectfully, /, ~ 

!/ <:" . ,·A'/ ) .. · ·- . --~ -; • , ..• }. ), {: 

Bruce S. DeBolt, Director 

Public Utilities ·Department 

BSD:jfs 
ENVIRONMENTAL 

DEFENSE FUND 

FOR DELIVERY BY FACSIMILE 

(202) 225-5929 

HARD COPY BY MAIL 

258 

May 25, 1995 

The Honorable John T. Doolittle 

Subcommittee on Water and Power Resources 

Committee on Resources 

0815 O'Neill House Office Building 

United States House of Representatives 

washington, D.C. 20515 

Dear Chairman Doolittle: 

Rod,y Mmmtuin Ojjice 

1405 Arapahoe Ave. 

Boulder. CO 80302 

(303 ) 440·4901 

Fen : .UJ.l • .J./t}.}W5:! 

On May 18, your subcommittee conducted a lengthy oversight hearing on the subject of privatizing several power marketing 

administrations (PMAs) within the Department of Energy. While 

the Environmental Defense Fund was unable to testify at that 

hearing, we have a longstanding interest in the potential fiscal 

and environmental benefits of privatizing the PMAs or, in the 

alternative, of marketing the electrical energy produced by these 

government-owned utilities at market rates. consequently, we are submitting these written comments for your review and 

respectfully request that they be included within the hearing 

record. 

As discussed in detail below, we have two principal recommendations: 

o First, no PMA sales should be authorized (and no budget savings assumed) until appropriate terms and conditions have 

been established; 

o Second, once those terms have been established, Congress should mandate that these assets be sold or transferred at 

their full value to the highest bidder. According to our preliminary calculations, a transfer or sale under these 

conditions would yield billions of dollars more in revenues 

Nurimwl Headquarters 

257 Park An:nue South 

New York. NY 10::)10 

(2 12) 505·2100 

100% Pos1-Consumer Recyd!ld Paper 

1875 Connec1icu1 Avo: ., N.W. 

Washington, DC 2<XXl7 

(2021 3M7-J5((1 

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15101 65M·MOOM 

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Raleigh. NC 2760 I 

(919) 821-77~:'\ 

I &00 Guudalupe 

Aus1in. TX 7K701 

(512147~ 5161 
The Honorable John T. Doolittle 

Page 2 

259 

to the United States Treasury than would a sale or transfer 

under the conditions proposed by the Administration; 

o Third, irrespective of when such sales take place, they 

should be properly "scored" from a budgetary point of view; 

and 

o Fourth, Congress should incorporate into the statute 

authorizing the sale or transfer of PMA assets a requirement 

that the federal hydropower facilities that form the core of 

western's generation assets be operated in a manner that 

fully protects public environmental resources. 

I . OVBRVIEW 

Recently, the Secretary of Energy transmitted to the Speaker of 

the House and to the President of the senate a proposal for 

legislation concerning PMAs. That legislation would authorize 

the Secretary to conduct such studies as are necessary to develop 

plans for the transfer of the Southeastern, Southwestern, and 

Western Area Power Administrations out of federal ownership. 

The Environmental Defense Fund has extensive experience with the 

Western Area Power Administration (Western) and other electrical 

utilities in the West, and we have several recommendations about 

how the electrical energy resource assets managed by western 

could be disposed of to maximize both environmental and fiscal 

returns. While we assume these recommendations would apply with 

equal force to the Southeastern and Southwestern Power 

Administrations, our experience with those entities is extremely 

limited. Accordingly, we have limited our specific comments and 

recommendations to the Western Area Power Administration. 

The Western Area Power Administration markets and transmits 

electrical energy within a 1.3 million square-mile geographic area that encompasses part or all of fifteen states in the 

central and western parts of the United States. The electrical 

energy marketed by Western is largely generated at fifty-five 

plants which are, in turn, operated principally by the Bureau of 

Reclamation and the u.s. Army Corps of Engineers. In addition, 

western's customers rely upon it to purchase firming energy from 

regional utilities on a least-cost basis -- in part because the 

amount of hydroelectric energy available for Western to market is 

not predictable from year to year. See Statement of Mr. William 
The Honorable John T. Doolittle 

Page 3 

260 

H. White, Deputy Secretary, u.s. Department of Energy, Before the 

Subcommittee on Oversight and Investigations, Committee on Natural Resources, u.s. House of Representatives (June 16, 1994). 

The Western Area Power Administration is the equivalent of a very 

large regional utility, by virtue of its statutory authority to 

market the hydroelectric energy produced at a number of federally 

constructed and maintained dams across the western United States. 

Although these federal projects were authorized to achieve 

multiple purposes, including irrigation, flood control, and 

recreation, the Bureau and the Corps frequently assigned 

hydropower production a higher priority than other statutory 

purposes. Consequently, these hydroelectric facilities have 

caused profound environmental impacts in the Colorado River and 

Missouri River basins. 

A. Hydroelectric assets and their environmental impacts. For 

example, Glen Canyon dam is a central feature of the Colorado 

River Storage Project (CRSP), which consists of four large 

storage projects on the Colorado River and its tributaries, as well as eleven participating projects throughout the upper 

Colorado River basin. "The general purpose of CRSP is to 

initiate the comprehensive development of the water resources of 

the Colorado River basin." Reclamation Projects Authorization 

and Adjustment Act of 1992, s. Rpt. 102-267, 102d Cong., 2d Sess. 

(1992). The more specific purposes of CRSP were to regulate the 

flow of the Colorado River, store water for beneficial uses, 

provide for reclamation, and to control floods. The Act also 

authorized the generation of hydroelectric energy, but only as an incident to these foregoing purposes. Id. 

Nevertheless, the production of hydroelectric energy became a dominant objective in daily operation of Glen Canyon dam. By the 

mid-1980s, the Bureau began to suspect that those operational 

goals were causing a number of negative consequences for the 

downstream environment within the Grand Canyon National Park. 

The Secretary of the Interior initially issued new interim 

guidelines to limit daily and seasonal operational flexibility at 

Glen canyon in order to alleviate those environmental impacts. 

And in 1992, the Congress formally adopted those interim 

guidelines as statutory directives and mandated that the 

Secretary exercise his authorities to "protect, mitigate adverse 

impacts to, and improve the values" for which Grand Canyon 

National Park was established. 

The Missouri is the other major river basin with hydropower 

facilities from which Western markets and distributes power. Six 

large mainstem dams (originally authorized under various 

Congressional acts passed between 1912 and 1945 and now commonly 
The Honorable John T. Doolittle 

Page 4 

261 

referred to as the Pick-Sloan Project) have been constructed and are now operated by the Army Corps of Engineers to provide flood 

control, hydropower, water supply, water quality, irrigation, 

navigation, recreation, and fish and wildlife benefits. These 

benefits, both real and alleged, have not come without their 

associated costs. In some months the range of instantaneous 

flows over a twenty-four hour period can exceed 80,000 cubic 

feet/second (cfs) with ramping speeds greater than 30,000 

cfs/hour. See Volume 4 (Hydraulic Studies -- Upstream from 

Gavins Point Dam), Master water Control Manual: Missouri River 

Draft Environmental Impact Study (July 1994). Such wide and 

rapid fluctuations can have very detrimental effects on natural 

systems including extreme changes in water temperature, release 

of waters supersaturated with nitrogen, bank erosion, and down 

cutting of the river bed, and inundation of river bank and 

sandbar nesting habitat. 

Clearly, facilities such as those in the Colorado and Missouri 

basins, which were constructed and are now operated by the united 

States, have tremendous potential for the production of 

hydroelectric energy. However, these federal assets were authorized as multiple-purpose projects, all of which must be 

carefully considered before the responsible entity can establish an operating regime that achieves a fair and environmentally 

sensitive balance among those varied purposes. Conversely, the 

transfer of Western's underlying assets would almost certainly 

create incentives for the management of the turbines at these 

federal projects to maximize hydroelectric energy production -- a situation that poses enormous problems for achieving goals as diverse as preventing flooding in the lower Missouri River to 

preventing beach erosion within the Grand Canyon. Before 

transferring either Western's assets or the right to market the 

energy produced at these facilities, the Congress must decide 

what entity will make the fundamental decisions about how these 

hydro facilities are operated. 

B. Transmission assets. Western also controls an extensive 

transmission system that is integrated with the transmission 

systems of other public and private utilities in the region. As 

others have testified before this Committee, coordinated 

transmission operation, planning, and expansion is essential to 

the continued development of wholesale market competition across the region, with its attendant promise of low unit costs for 

electrical energy. Any legislation that permits the piecemeal 

transfer of this transmission system likely would result in the 

further balkanization of the region's transmission system and 

would also likely impede the development of both wholesale and 

retail power markets. 
The Honorable John T. Doolittle 

Page 5 

262 

III. RECOMMENDATIONS 

It appears to us that while the transfer of Western's assets, or the transfer of rights to market hydroelectric energy produced at 

federal facilities, creates the opportunity for significantly 

increasing revenues to the United States Treasury, and could also 

promote efficient use of electrical energy, these proposals must 

first confront a number of difficult and complex obstacles. 

Rather than attempting to paint a clear and precise road map for 

the Committee, we have chosen to comment on how transactions like 

the sale of Western should be "scored" from an economic and 

financial point of view and to suggest several parameters that 

should guide the Congress in making decisions about the transfer 

of Western's assets. 

A. Budget scoring. In the above-referenced letters to the 

President of the Senate and the Speaker of the House, the 

secretary of Energy notes that the proposed sale price for 

western would be based on "the discounted net present value of 

the principal and interest payments that the Treasury would 

receive over time." Translating this formula into a sales price 

using the House Budget Committee Policy Assumptions underlying 

the fiscal year 1996 Budget Resolution produces a one-time 

payment in fiscal year 1998 of approximately $2.687 billion. 

Netting out offsetting losses in "mandatory receipts" (i.e., the 

annual principal and interest payments foregone in future years as a consequence of the sale) of $340 million per year for the 

period from fiscal year 1999 to fiscal year 2002 leads to a purported savings of at least $1.327 billion. The actual result: no federal savings whatsoever.' 

The above estimates do not include an additional $92-$230 

million per year in savings assumed by the House Budget Committee 

in the form of reduced discretionary outlays, nor other likely 

costs (such as those associated with the sale of tax exempt bonds as part of any such "privatization" effort). These estimates (as 

opposed to methodology) differ significantly from those assumed 

by the Administration, i.e., an estimated western sale price of 

$2.863 billion at the end of fiscal year 1998, with an offsetting 

loss of $194 million in Treasury receipts through fiscal year 

2000. (Statement of William H. White, Deputy Secretary of 

Energy, before the water and Power Resources Subcommittee of the 

House Committee on Resources, March 7, 1995.) Neither set of 

estimates is clear as to time frame, assumed discount rate, or assumed pattern of foregone receipts. 
The Honorable John T. Doolittle 

Page 6 

263 

This discrepancy between apparent and actual savings arises from a simple budgetary gimmick by which proceeds are assumed to be 

based on the discounted net present value of payments to the 

Treasury over the remaining life of the project, while the loss 

of those receipts is only considered over the 4-year period 

(1999-2002). By counting the difference as "savings," we are in 

fact borrowing against our future, and for a generation hence 

(after 2002) a $340 million budget gap is going to have to be 

filled. 

The Environmental Defense Fund cares about such matters because 

of the implications for both the budget and the environment and 

because we are certain that this kind of gimmick will be cited as a precedent for other asset sale proposals. Unfortunately, this 

is already the case for the proposed sale of the Alaska Power 

Authority, the Southeast Power Administration, the Southwest 

Power Administration, and -- though not yet part of the above 

budget documents -- the federal Central Valley Project and other 

Bureau of Reclamation facilities and assets. Moreover, in 

virtually every such instance, important public environmental resources are also at stake -- the very same resources that have 

been and continue to be impacted by a host of prior and current 

federal subsidy policies. 

To correct the flaw, we believe that, at a minimum, all budgetary 

considerations -- including the "valuation" or proposed sale 

price of federal assets, the loss of mandatory receipts, or other 

associated savings or losses -- should be based on th.e same essential terms as to time period, discount rate, and other 

relevant factors. In the above w.estern example, this would mean a one-time gain to the Treasury of $2.687 billion, and an associated net-present value loss of $2.687 billion, plus or minus any other discounted savings or losses associated with the 

sale, as proposed. Said another way: if asset sale receipts are to be scored as current-year income, only bona fide taxpayer 

savings should be eligible.' 

2 One way to generate "real" taxpayer savings, and to recoup 

therewith at least a portion of the associated taxpayer 

subsidies, is to put these projects out to competitive bid or auction once appropriate terms and conditions have been set. 

Recognizing that this approach raises concerns over potential 

ratepayer impacts, Mr. Robert Poole of the Reason Foundation has 

suggested that they "include provisions that make it easy for 

customers within the utility's service area to purchase stock at a discount, and possibly with payments made over time . " (See A 

Federal Privatization Agenda, Prepared Testimony before the 

Senate Budget Committee, March 7, 1995.) However addressed, 
The Honorable John T. Doolittle 

Page 7 

264 

B. Sale at market value. Despite our misgivings about the use of budget ploys used to camouflage the consequences of selling 

public assets, we do not reject the concept of asset disposal out 

of hand . To the contrary, as described in our recent testimony 

before the House Committee on Resources,' the Environmental 

Defense Fund sees considerable potential merit in an appropriate 

devolution of at least certain federal assets and facilities to 

any of a variety of non-federal interests. 

However, our fundamental guiding principle is that the sale or transfer of these assets should be structured in a way that is 

designed to maximize revenues to the United States Treasury. By that, we mean the Congress should mandate that these assets be 

sold or transferred at their full market value to the highest 

bidder,'rather than at the discounted present net value of 

expected future receipts. 

Our preliminary calculation suggests that the difference between 

the revenues a sale or transfer would yield under the 

Administration's proposal (which essentially values western's 

assets at 2 cents/kwh), and the revenues a sale or transfer would 

yield if the assets are valued at roughly their market value (4 

cents/kwh) adds up to approximately S15 billion. Clearly, 

authorizing the sale or transfer of these assets at their market 

value would significantly increase revenues that would be 

available for reducing the federal budget deficit. These 

policies would also encourage efficient allocation of electrical 

energy produced at federal facilities by sending a more accurate 

price signal to wholesale and retail customers. And the policies 

inherent in this approach would eliminate a series of subsidies 

that currently surround the marketing of electrical energy by 

Western and other PMAs. 

there "is no inherent reason why those who have long benefitted 

from the substantial taxpayer subsidies and preferences associated with the federal assets in question should continue to 

do so today as part of their proposed "privatization." 

"Transferring the Central Valley Project Out of Federal 

Ownership," Prepared Testimony of the Environmental Defense Fund 

before the Water and Power Resources Subcommittee of the House 

committee on Resources, April 18, 1995. 

• Of course, this assumes that the Congress will abandon the 

preference policy that is embedded in the Administration's 

proposal. 
The Honorable John T. Doolittle 

Page 8 

265 

c. General principles for an asset transfer. Given the 

extraordinary reach of and complex inter-relationships among 

these various proposals, ' it is unwise if not outright foolish 

to make budgetary assumptions now without a thorough 

understanding of the terms and conditions under which such sales 

would, in fact, take place. 

Accordingly, we respectfully urge that, whatever the policy 

merits of the asset sale proposals now being considered, no budgetary credits or savings be assumed until all relevant 

details have been worked out. 

Beyond the above budget concerns, we would like to suggest 

several additional principles or considerations against which to measure the sale of Western's assets. 

First, the provisions of current law that direct how federal 

hydro facilities may be operated, to protect the environment 

and to fulfill the non-energy related purposes of the 

federal facilities, should be reaffirmed; 

Second, the Congress should consider retaining ownership of 

both the federal facilities and the turbines located there, as well as Western's transmission system. This alternative 

would enable the Congress to force a significant downsizing 

at the PMAs, including substantial reductions in personnel, 

producing corresponding reductions in annual discretionary 

outlays. However, this approach would avoid the 

balkanization of the transmission system or the loss of a federal role in determining how federal facilities will be 

operated; 

Third, once appropriate terms and conditions have been 

established, a competitive bidding process open to all 

interests should be used. There is no reason why existing 

preferential customers should enjoy exclusive rights or preferences as potential buyers. Instead, the Congress should require that the federal government receive full 

market value for the assets that were developed at taxpayer 

expense, in order to protect the taxpayers ' fiscal interests 

and to promote economic efficiency . As one option that is 

consistent with a number of our recommendations, we encourage the Congress to consider directing that the 

5 One obvious example is the complex relationship between the 

western and the Central Valley Project sale proposals, including 

but by no means limited to their potential impact on the Central 

Valley Project Restoration Fund. 
The tlonorable John T. Doolittle 

Page 9 

266 

hydroelectric energy produced at federal facilities be 

conveyed to the highest bidder at periodic intervals; and 

Fourth, the Congress should insist that a small percentage 

of the proceeds generated by the sale or transfer of western 

assets be dedicated to a trust fund for the restoration of 

the environmental values that have been lost or damaged by 

construction and operation of hydro facilities throughout the region. 

In sum, Mr . Chairman, we do not reject out of band tiNt propoaala 

to transfer or sell tbe assets of Western and otber powar 

marketing administrations. Indeed, we believe that if conducted 

under the appropriate guidelines, such a transaction could yield 

significant revenues to the Treasury, while at the same time 

promoting the protection of environmental values within the 

Colorado and Missouri River basins. 

we appreciate the opportunity to comment on these issues, and 

would be pleased to discuss them with you at greater length. 

Sincerely, 

Daniel Luecke 

Environmental Defense Fund 

Rocky Mountain Office 

c. The Honorable George Miller 

Attn: Mr. Steve Lanich 
267 iil!:;ept. 

Progress through Service 303 · 4th Street NW • P.O. Box 322 • East Grand Forks. MN 56721 -0322 

May 10, 1995 

The Honorable John Doolittle 

House Resources Subcommittee on Water and Power 

1337 Longworth House Office Bldg. 

Washington, D.C. 20515 

Re : Congressional hearing on the federal Power Marketing Administrations 

Dear Representative Doolittle: 

We understand that the House of Representatives will conduct a subcommittee 

hearing on the federal Power Marketing Administrations (PMAs) on May 18, 1995. 

We offer the following statements and ask that they be included in the official hearing 

record . 

The City of East Grand Forks, Minnesota, has a municipally owned electric 

distribution sy stem which is now and has for many years been a wholesale customer 

of the Western Area Power Administration (WAPA) . WAPA is the city's primary 

wholesale electricity supplier and furnishes approximately 60% of the annual electric 

power purchased . The balance of our power is purchased under a wholesale coritract 

with Northern States Power Company . 

Sale of the Western Area Power Administration has the potential to 

substantially increase both the wholesale cost for electricity to East Grand Forks and 

retail rates for our customers. How substantially? If East Grand Forks had to 

replace the 60% of wholesale power we purchase from WAPA entirely or had to 

purchase it at rates similar to what we pay under our contract with NSP, our annual cost for that portion of our wholesale supply would increase from about 1. 1 million 

dollars to more than 2. 9 million dollars. This is an increase of about 1. 8 million 

dollars or about 168%. Some people may call this scare tactics. We believe it is 

proper and necessary to inform our customers of the possible consequence to their retail rates from any ac tions which mate rially affe ct the te rms, prices or conditions 

under which the City receives wholesale power from WAPA. 

I have attached copies of spreadsheets showing our current wholesale power 

costs and calculation of projected costs at prices similar to our current NSP wholesale contract price s. I have also attached calculations and summaries showing the 

projected impact on retail rates and ave rage annual utility bills for various customer classes. 

General 

Manager 

Dan Boyce 2/'i- 773.11 63 

Secretary of 

Commission 

Bonnie Abel 

773- 1163 

Distribution 

Superintendent 

James King 

773-051 5 

Water Plant 

Superintendent 

Gary Hultberg 

773-1511 
268 

The federal Power Marketing Administrations are required by law to sell power 

at the lowest possible cost consistent with sound business principles. PMA rates are 

required to recover all costs associated with constructing and operating the federal 

power program. This includes salaries, operation, repairs, maintenance, 

transmission costs and repayment of the federal investment in the hydropower 

facilities over a 50 year period, with interest . PMA revenues also support costs for 

multi-user projects including flood control, wildlife enhancement, navigation, 

municipal and industrial water supply, recreation and salinity control. The 

multipurpose nature of many of the hydropower projects and the operational balance 

required to meet the variety of competing needs and mandates would make it difficult 

for private parties to operate. The PMAs represent a long standing contract with 

the American people that works and makes money. 

It seems to us that PMAs are self supporting, revenue generating programs. 

Why then the various proposals to sell? Using the revenues from the sale of the 

Power Marketing Administrations to reduce the deficit or pay for a tax cut may be 

popular politics, but to us it looks like bad economics for our customers, our city 

and our region and our country . Sale of the PMAs would surrender a long-term 

revenue stream for a one time cash payment. It is like feeding up the seed grain and 

then wondering why we can't plant the next year's crop or selling the best milk cow 

in the herd when it is still producing. 

Some people argue that the PMAs interest repayment rates are too low. That 

is like having the mortgage company say that it could make lots more money on your 

home loan if they were charging you today's higher interest rate instead of the lower 

rate in your mortgage contract. True, but not fair and not part of the contract 

either. Others say that the government is losing money because the PMAs repay the 

debt with the highest interest first. Again, that may be true, but the PMAs are 

doing what most citizens do with their personal debt. Who leaves the most debt on 

the credit card or loan with the highest interest rate? Still others argue that the 

PMAs should be sold to the highest bidder for as much money as possible. That is 

like paying ones home mortgage for 20 years only to be told that you will have to bid 

against your neighbors for a one-time payoff of the mortgage. Either you lose your 

investment and your home or you have to refinance to pay off what you had to bid. 

Either way, it may cost you more and again it doesn't seem fair. 

Power purchases by Western and other PMA customers have helped to repay 

a significant portion of the original federal investment with interest. Sale of Western 

and the other federal Power Marketing Administrations to private parties would, in 

effect, wipe out this equity contribution paid by PMA customers over the years. If 

the PMAs were to be sold, give those who have paid the "mortgage" the first chance 

to refinance and buy them, and not in a bidding war either. 

Deficit reduction and tax cuts are reasonable goals, but at what expense and 

to whom? In looking at the proposed sale of WAPA and the other PMAs, one thing 

seems clear. Higher rates for electric rate payers and increased costs for doing 

business are a likely result. Public power customers desire reasonably priced, 

reliable electric power to help provide a secure and stable economic future for 

themselves, their families, their businesses and their communities. That is why they 

have chosen to own and operate their public power system. The citizen-customerowners of public power electric systems who end up paying much higher prices for 

electricity will not be winners in this process. The estimates for East Grand Forks 

indicate retail rates could rise from more than 30% to nearly 70% if the Western Area 

Power Administration wholesale power were unavailable or had to be purchased at 
269 

costs equal to our supplemental wholesale supply. Annual customer electric bills 

could increase from 20% to nearly 60%. Costs for other PMA customers may vary, but 

under most sale scenarios, it could mean higher rates. The short term budget 

results are not worth that long term economic impact. Sale of the PMAs to private 

parties for the highest price without rate protection for existing firm power 

customers seems like a selective federal tax on electric certain ratepayers. 

A sellout of the PMAs creates no winners - only losers:. the government from 

selling the "cssh register• and keeping the expenses, electric customers burdened 

with higher rates, and American business and industry struggling to remain 

competitive on the world market. Selling the PMAs could result in major increases 

in wholesale power rates, not achieve lasting long-term deficit reduction, sell assets 

that make money while keeping those that do not, and involve a long and complies ted 

legal process. We do not believe the sale of the PMAs is in the best interest of the 

country. 

We conclude our comments with the attached statement of policy principles 

which will guide our utility's consideration of various options regarding the transfer 

or sale of the federal Power Marketing Administrations. Thank you for considering 

our viewpoint on this issue which is so important to the long-term economic survival 

of so many communities including East Grand Forks, Minnesota. 

Sin5J)rely, 

))~~ Dan Boyce 

General Manager 

Water and Light Department 

303 4th Street NW 

PO Box 322 

East Grand Forks, MN 56721-0322 
270 

East Grand Forks Water, Light, Power and Building Commission 

East Grand Forks Water and Light Department 

The City of East Grand Forks through its Water, Light, Power and Building 

Commission has an allocation of power from the Pick-Sloan Eastern Division of the 

Western Area Power Marketing Administration which provides about 60 percent of the 

annual power supply needs of the City. 

Changes in the federal power program, including the potential sale of WAPA 

recently proposed by the Administration and to be considered by Congress, could 

severely and adversely affect East Grand Forks customers. 

We believe it is necessary to preserve the rates, terms and conditions under which 

East Grand Forks receives the portion of its power supply now represented by the 

federal power allocation and further believe it is necessary to preserve the City's 

equity interest in the Pick-Sloan Eastern Division power facilities. 

We believe that the following principles must be recognized in any action involving 

the federal power facilities: 

1. Public preference in the marketing of hydropower from federal dams must be 

maintained; 

2. No unnecessary or non-cost-based rate increases; 

3. The economic and competitive benefits associated with this fuel-free resource 

must be maintained; 

4. Existing federal transmission facilities must be used in a manner consistent 

with Section 211 of the Federal Power Act and resulting FERC policies; 

5. Customer control over operations and maintenance should be enhanced; 

6. Cost-effective upgrades and additions to existing facilities should be 

completed in a timely fashion, and 

7. The equity interest of current customers in the existing system must be 

recognized. 

We believe that continued federal ownership and operation of the PMAs is consistent 

with these principles and is the course of action which we prefer, and 

we further believe that transfer of the federal Power Marketing Administrations 

(PMAs) to parties other than existing firm power customers is completely 

incompatible with the foregoing principles, and finally 

we believe that a transfer of the PMAs to current firm power customers could be 

structured in a manner that is consistent with our stated principles. 
IMPACT OF SALE OF WAPA ON CUSTOMER AVERAGE ANNUAL BILLS 

East Grand Forks, Minnesota 

Water and Light Department 

Assumed: WAPA power purchased at existing supplemental contract price. 

This results in calculated average rate increase of 1.974 cents per kWh. 

This applies to all classes except Large commercial and industrial. 

Those classes have demand and energy billed separately. 

Average Average 

kWh Used cost per 

per customer customer 

Po

in

per 

Customer Type In 1994 year1994 from 

Residential general 8,499 $452.84 

Residential general with electric heat 14,336 $709.68 

Residential All electric 26,288 $1,103.01 

Small Commercial 50,429 $2,662.00 

Large Commercial 1,426,772 $63,971.00 

Industrial 38,935,650 $1 ,767,233.00 $

Municipal Departments 73,382 $2,491.95 

---------------
East Grand Forks, MN 

Water and Light Department 

Projected Rate Comparison 

Current retail Rates with existing Wholesale Power Costs vs 

Assumed: WAPA being sold and current rate no longer available 

Assumed: All replacement power costed at existing NSP contract rat

Note: Current NSP contract was result of market based negotiations, ie

Customer Rate Class 

Commercial general 

Residential general 

Residential all-electric 

Off-peak 

Municipal departments 

Large Commercial 

Winter season 

Summer season 

1994 Avg rate 

$per kwh 

$0.04787 

$0.04537 

$0.03933 

$0.02700 

$0.03220 

1994 Average 

energy rate 

$per kwh 

$0.03900 

$0.03750 

Projected average 

rate with WAPA 

power amount 

at NSP rates 

$per kwh 

$0.06524 

$0.06274 

$0.05671 

$0.04674 

$0.05194 

Projected average 

energy rate with 

WAPAamount 

at NSP rates 

$per kwh 

$0.05020 

$0.05010 

% 

Increase 

36.29% 

38.29% 

44.19% 

73.11% 

61.30% 

% 

Increase 

28.72% 

33.60% 
Assumed PMA (W AP A) was sold. 

1994 Use at 1995 Rates 

With all W AP A purchases replaced at NS

East Grand Forks, Mi

Water and Light Depa

1994 RATES AS AD

0.0467417 

YEAR MILL OFF CITY 

1994 RATE PEAK RATE 

MONTH ADJ 0.0467417 0.05194

---·------ ----------- ------------· ----------

JAN 19.8 $0.0467 $0.05

FEB 19.4 $0.0467 $0.05

MAR 19.8 $0.0467 $0.05

APR 21 $0.0467 $0.05

MAY 22.7 $0.0467 $0.05

JUN 22.2 $0.0467 $0.05

JUL 19.7 $0.0467 $0.05

AUG 17.3 $0.0467 $0.05

SEP 17.6 $0.0467 $0.05

OCT 17.4 $0.0467 $0.05

NOV 19.7 $0.0467 $0.05

DEC 20.3 $0.0467 $0.05

----------· ----------- -------------- ----------

19.74 $0.04674 $0.051
1994 RATES AS ADJ

0.027 0.0322 

YEAR MILL OFF CITY 

1994 RATE PEAK RATE 

MONTH ADJ 0.027 0.0322 

----------- ----------- -------------- ------------

JAN 3.3 $0.0270 $0.032

FEB 3.8 $0.0270 $0.032

MAR 4.7 $0.0270 $0.032

APR 5.5 $0.0270 $0.032

MAY 2.2 $0.0270 $0.032

JUN -1.3 $0.0270 $0.032

JUL 0.4 $0.0270 $0.032

AUG 2 $0.0270 $0.032

SEP 1.5 $0.0270 $0.032

OCT 1.8 $0.0270 $0.032

NOV 4.5 $0.0270 $0.032

DEC 6.1 $0.0270 $0.032

----------- ....................... .............................. ------------

2.88 $0.02700 $0.0322
hllar.ndforb, .......... 

..,..,_.LW!I~ 

Oo\TA ENTRY PftEAOSHf:ET FOfii"OftfJt COST lfrWOfUIMnoH 

\NtQI PCMER RA tt 'f'H)li&At.£ PCNIEJit COlT ADJUITWNl 

1-- ______ .,.,,.__ ------___ _, ------

1 1111 

I EN!II:OY kWt 1111 

I- --- DIMANO IHI...OV YOLTAOI 1111 DIMN«) t:,.:II:OY 

VIM IIMOfr4 MONTH I JfJII UIITO ICI'li.F • Ill..... COlT COlT OIICOUHT ,.T COlT llll kW kWt 

---------------------------IIII------

1-NHTP:M NO\IIMIUI u.- I.CI0'7,'1'44 t.m.- .,,'JIG ..,.. (M.WotJ m.a 1111 7,* ..,.

t•MrfTIII:M DICIMIIII: 11,117 1,117.a 1,1iiM.OI'I' -- JII,IDD ~ .... 1111 7_, U

11MMrfTIII:M JNNNft 11,117 1,117... 1,111... -- .. 1,331 ~ IM,DI 1111 II,ICD '1',71

IIM\WCTIIIIM Fllll:t..Wn' 1Uf4 1,11111,772 1.-.z:D .... 117,431 (14.141) .. ,Ill hll IO,:MO 1,7

IIM'IIIfft'IIIIM !MiliCH 11.JM ...... I-- IM,ID ... (IUOI) m,a 1111 1,... 4,7

IIM\WfTIIIIM ,.... ... 4,1 .. ,471 l,a,m a711 .... (11,711) m.- 1111 1,131 ~

IIM~M liMY 111• e.-.- 1.-..- Ill,. ..._. (Mal) .,... IIH 1- l ,llll

IIMMMIMM .11M! 11,711 1.-z,JCI m.• lll,al ..... {IUI:I) ·1- ~II totl I,JU

IIM......,.M M.V IO,IZI ........ of7U:rJ' ...... ..... (ti.MIII -- Ill u:tl ....

,.,.~.,. AUOUir u.m .....,. no.• t:k711 .. ,... (M.Oal m",IJO M uao 2.114

1 .. ....,. .. IP11Wllt 12.1122 Ut1.22t .,,,.. m.- ..,,.. ~ ••• n ...- ""

'"" .......,." OCT'OIIIt •:u,o 1.701.717 -.m • ·• • .m """ .,. n11 1.210 1.nu

IIMiflrlllrCTP. ~ 11.-z U41 ,.., l,oa.401 A1.014 111,110 (M.M) ... 1:8? lin 11 ,1a l ,e'IT

I .. IIIIIINllll:. DICDIIIII: tl,llt I,'M,171 1,IZZ.ID4 tt4.214 118,114 (IUDI) J10UI't 1111 11 ,1a I,D'!I

liMYWIM ~ 144,1?4 ~tiiiijii""""'iiiiM4 --.aili'(iiii.iji) ~-ffij--.;m-

1111 IIMNNTIII:M TOTAU ?l!:IO IZ,DZI,I:II UIM.!CI .. ,104 1321,111 (IZI,M) ...O,I'?S 11!1 54.- 12,Ca1

11M ~lUll TOTAU 71,... 11,.,,470 4,-.DI trl4,112 Dill.. (121,- .... 1111 D. 'I'll IUIZ

1111 

- ~---;;;;;ltOV---Ii.iiiiil;;-- cc;n---..:;;;----oo ---;:;;

~.. MII'ADIIMND 11,114 fON COlT: 1214,112 1111 ~M 

1111 v.m:.... WU'AI .. II:OV: c.aU71 ICW4 COlT: ...... m mt WNTVU4 

'Mtfiii:M ...,.AOUM.HO. n .tao fON COlT: .-.. nn WNTI.II:_

• HOft: N

_,. ... TOTAL!N!AO'I': tl,JM.t• kWt .... - ......

_.. ... TOTALOEMANO: 1:rt,'l'llfON COST: 

- .._ ..

WNTEII:M E~ COSTMM4 PU"C ID DIJTrT~ . ._. .

WHTEII:M ObWCI COITMNPU .. CH: .....,_ II..IMIE"M 

WINTE"M AC'T'UN. ENE.II:QV COST!WMt P!MCH· 10.01..,.11(W4 . .-. .

,,, .. ,,. .. ACTUt.l DDMN0 cotTIKW~CH ...... - SUMMEI':
&.tGr.ndFOib, ........... 

........... l!di.Vhl~ 

DATA ENTRY SPREADSHEET FOft f'OIAE.R COST INFORMATION 

PrlljldMII.M'I'~eo.t 

10113+11J$1r0tlll1 ...... ,.... 

'oWJ'Ao.n.I'ICI S:UO pwt<N 

kwhciiO'AolF $0.0011320plfi<WH 

IO.OOlliOPifi<WH 

1- ------wm-- 1 

I ENERGYI<WH 

I~ND DEMAND 

I llYi UPTOIIO'AolF >I!O'I.LF COST 

------------------ 111MIMNT'ER115 NOVEMBER 11,S82 5,007.744 l,ln.253 137,!»4 

111MWNTERII5 DECEMBER 13.1117 II,IS?',iO&I 1,124,0117 $44,214 

18lil!!i'MNTERII5 JANUARY 13,1117 S,IS?',iO&I 1,1181,084 $44.214 

llilliii5WNT'ER115 FEIRUARY 12,ll14 5,lll50,m 1,4511.222 $41,325 

llilliii5WNT'ERII5 ~!~ARCH 11,384 4,5ll0,02ll 1,2811,11117 $311,<1211 

11115WNTERII5 APRIL (1,5Qill 4,145.~ 1,32$,527 $30,707 

11115 Sl.IAERII5 MAY 12,155 5,250,115i 1,324,038 S311,IICIS 

11111!5 SUIAERII5 JUNE 11,7ell 5.252,342 1178,e55 $37,1151 

11115 JlM,ER115 JULY 10,3211 4.«11,81111 472,307 133,050 

1111115 SUIAERII5 AUGUST 11,573 4,11118,5.15 7JO,«<5 137.034 

llillill5 SUMMER 11!5 SEP'Tni8ER 12,822 5,11111,221 207,784 S«<.lDO 

1M SUMMERII5 OCT08ER 13,210 5,708,717 1152,279 $42,272 

1111115 WNTEII:liS NO\IEMIER 11,!iG2 5,l41,51J1 1,0Cl,«18 $37,!»4 

U.S WNTEfl:liS DECEMIER 13,817 s;7tlll,ll7ll 1.!22.~ $44,214 

CITY OF EAST GRAND FORKS 

LARGEPO'.'IIIERRATE 

'M10LESALE PCIYYER COST ADJUSTNENT 

---------11 _____

1111 

00 

ENERGY VOLTAGE 1111 DEMAND ENERGY 

COST DISCOUNT NET COST IHI KW KVv1-t 

--------1111---

$57,778 (14,744) SQ0,12ll 1111 7,454 3,8211,731 

S&l.d [S5,434) S103,24i 1111 7,1187 5,0111,1!50 

170,111111 ($S,1'l!O) 1108,440 1111 11,1103 7,7l2,1124 

SM,548 ($5,»4) 1102,4111 1111 10,340 li,744,S32 

SSJ.247 (1',4&4) S&5,1ll2 1111 11,44GI 4,1Sie,ee

S50,034 (S4.0l7) S711,704 1111 8,138 3.852.444 

S51i1,1711 ($4,1104) $113,171 1111 I,SSS \,5011,1120 

S63.Sieo (S4.582J W.04Iil 1111 2.011 1,7015,1148 

$-t2.&e (S3.7$5) S71.lll2 1111 4,eo1 3,053.4511 

SSO.I<C ($4,358) S82.817 1111 5,330 2,114,711:2 

SSO.ll22 (S4,!581l S81S.Il'52 1!11 .t,MS 3,510,77l

$51,452 (S4,illll) $84,737 1111 5,270 3,758.2<42 

s.ss.eso (S4,1187J SSII.D87 1111 11,3113 8,817.0015 

18!5.814 (S5,501) S104,527 1111 11,383 8,018.558 

~~~~~~ S41D.2n $877,!501 (SS1.03CI)SI.OS3.73&-iiij---.orn~ 

1111 IIIIII51MNT!RII5 TOTAlS 13,120 32,02SI,l131!1 8,254,1«1 $233,1184 SJSl,OII2 (S21il.ll52) $587,1113 1111 S4,8i!Jiil 32,050,171 

1111115SLIWIERII5 TOTALS 71,1!154 31,4111,470 4,«15,5211 S221i1.2113 $314,222 ($27,178) $518,3311 Hll 23,781! 15,1152,134 

..-... St.IMMERII5 

WNT!RII5 

WNTERII5 

WNTERIIS 

'MNTERSI5 

""'PAENERGY 

WAPAOE*ND 

""'PAENERGY 

WAPADEMAND 

TOTAL ENERGY 

TOTAL DEMAND: 

35,1152,811SI<Wi 

71,11541<W 

«~.283.mi<Wi 

13,1201<W 

n.ll4,1• KW-'1 

127,7Slii<W 

WNTERSI5 

....,. ... ENERGY COSTIK'o\tl PURCH: $0.0145111 MNl 

DEMAOO COSTIKWPURCH S4.S271 IKW 

WINTER 

"'"""'"" liS 

ACTUAL EN£RGY COSTn<WH PURCH 110.015118 MNl 

ACTIJALOEMAHDCOSTIKWPURCH $15.0111113 IKW 

(IN ORIGINAL RATE lASE) 

(IN ORIGINAL RATE BASE) 

lASE ENERGY COST 

lASE DEMAND COST 

CHANGE IN ACTUAL-BASE ENERGY COST: 

CHANGE IN ACTUAI.-IIASE DEMAND COST 

(IN ORIGINAL RETAIL RATE) 

(IN ORIGINAL RETAIL RATE) 

lASE ENERGY RATE: 

IASEOEMANDRATE 

11115 NEW WINTER SEASON ENERGY RATE: 

1~ ~WINTERSEASONOEMANDRATE: 

S0.012258 MNl 

$4_18 fKW 

S0-(11):)458 MNl use· SO.Iil08127 fKW USE· 

10.031515 MNl 

$4.20 IKW 

10.03110s.-w.H 

115.11$/I(W 

COST 

COST 

COST 

COST 

COST 

COST 

$287,047 

"""" 

""·"" 

""·"' 

S1,052,5e8 

""·"' 

S0.0035/K\I\H 

SO.IIIi!(W 

"" 

"" 

"" 

1111 

'" 1111 

SI.MAERSI5 

SUMUER 115 

'MNTERII5 

'MNTER 115 

• NOTE: NSP 

SI.MAERII5 

SI.MAERII5 

SI.MAERIII!i 

SUMMERIII!i 

SUMMER 1115 

SUMMERIII!i 

(IN ORIGINAL 

(IN ORIGINAL 

CHANG

CHANG

(IN ORIGINAL RETAIL 

(IN OI'I:IGINAL RETAIL 

lliCi

lliCi
PROJECTU) ~CO$ IHfORMA110f4 

E.~ Glwd FQIQ • ..._.... 

..,.... ..... LJFI~ 

~Colf~W'd 

PfojKtldiMV-~

.,....1.1-..11 1 .... 'IItocollall~-­

......_,: NOWAPA ....... *IIanlol'll:coNJKlrwtl' 

: ~epiKleiTIIf'lllllrWAP ~II..-oiNSP~IIoc:ornctflllll 

1iilfM.a5WAPA~ 

'NAPA o.-.d 13.20 per tt::N 

kwh•!lll1I.Lf IO c:ca:zoper~ 

IO otn31110per~ 

-·- CITY tY EAST GRAND FORKS 

L.ARGEPO'II'o£RRATE 

'NiOLESALE PO'II'o£~ COST AD.AISTMENT 

1- _______ .__ ---------1 _____

I 1 

I EHE~GY ~ Il l 

10£"""' --- DEMAND NI.~ Y VOLTAGE Il l OEMAHO ENl..OY 

YEAA SlASOH MQfm( 1 I(W IW TO .,..,l •IO•lf COlT CO-IT OtaCOUNT NCTCOIT IMI KW kWi 

-------- ------------------ ---11----

, .. 'MHTP. ~ u.- &JQ7,1._ 1.S77.2D 174.1• 1111.n11 10 ~- Il l 7.61 ua.nt 

,.,.'IWCTVtl5 otC(Jie£Jt IU11 t,lf7.101 1,124,(117 • . a 11 .. 1.. 10 w•• IRI 7.W1 Utt.• 

I-NrfTVII5 ..wtUAitl' U,l1T t,ll7.101 1 .. \.CIM -- Alt,OIII 10 SD.ott Il l 11.0 7.1SZ.Dt 

1-'I'IINTPW ' UIWUIY 12.l1• I,IIO,m 1,411,m 117.111 DJO,OQ 10 tl81.1118 1•1 10,54) t,744,132 

ltii5'MNTUW MMCI-4 U,3t4 ..-,.oa 1.-,111 m.•n IIIJI... 10 SDI,102 1•1 t... "'"'·"' 

, .. ~~• ~ •.• .t.••.m ua.m ..,_., 1111.m 10 Alt.711 IMI e.ue ~,-.z,..,. 

1-IUMM!~I5 W.Y 12.1• &,2(1D,- I,J:M,D ..... lt7UII 10 I;IJIO.d Il l I- U ot,al 

1-II.MMil. NNf 11.711 1,211Z,MZ ~ •.ur IISI,IIt 10 121"7,1. t• t 2.011 I, .... M 

1-....... 1'{15 MY IO,DI .t.tll .- 472,.101 lf7.1Z7 1111,. 10 1114.- tnt 4,101 2,053,a 

1•ll.MICJt• AUGUIT 11 ,m •.• .. no.• *A 11•.rte to I2D&.2D1 1!11 ..- 2.11•.m 

t•ILMIIlJtM llmMilll: 12.122 1,111.221 ZJ7,1Iol t7'0,.. SIM,1Iol to I2DIS,OII ~II .,_ 1,110,771 

t•IUIINlJtM OCTOHII: 1),210 1,1t11,111 m,m .... llf7.:zn 10 Ul7,100 nil U10 U'M,242 

1-WIN"r.Jt. NO'IlJMU 11 ,112 U41 ,111 1,045,0 m,GI Slf7.- 10 G41.- 1!11 ll,la U17,DOII 

III!IWIHllJt• DICMU tU17 1,7'11..,. 1,11Z2,CDI . .. Slll,l» to ~ Ull 11,_, 1Ufo.144 

!iii~~~~ 12,715,111 1827.D"""iiiii.iif--.. - $2,11:1,1J.t-iii--.:o10 81,17

"" IIIIWINTlJt• TOTALS T3,120 32,02t,a:JI 1,2&4,140 S417,013 Sl,oti.D 10 11,17!,27'7 1111 54,eet sz.ceo,m 

IIIIIII.IIIM:R. TOTALS 71 ,1&4 31,417.470 4,8,521 100,312 -.tw 10 I1,S11,8M Hll 23,7ee 1!5.1152,734 

IUJroNER• 

aUtoNE~• 

...,... 

'"""'"" ... ...,... ... ...,... ... 

WA,AlHl JtOY 

WA,ADlMAH~ 

WAI'A l HlJtOY: 

WAI'ADlMN«t. 

TOTAL lNlii:GY: 

TOTALOlMo\NO: 

·-- 71 ,1&4rtYtl 

40,213,1171K\Mi 

73,120 KW 

72,»1,1• IMti 

121,1*1 KW 

WIKTEit 111 lNI.I!.OY GOIT...w-ti"URCH.: 110.024181 IKIMI 

WIN"Tl.ltl& OOW.O COS IICWI'\I : .. t7:1CJ7 IKW 

WINTER111 ACTUAI.ENE RGYCOST..:WI-t : ~ .«:WH 

WHTE~111 ACl\IAi.DENAHD CO.STMW : S1'.21a2 !WI 

(1 N ORIOINAL RATE IIASE) 

(1N ORIGINAL RATEIIASE} 

IASf. f.Hllt.GY COST: 

IASl DlM>\NO COST: 

CHANGE IN ACT\IAL...,_SI! f.NlltGY COlT: 

CKANGE IN ACTI.IAI..&UI D£M,\NO COlT: 

(IN ORIGINAL f. TAll AATt) 

(IN ORIGI NAL RETAIL RA.Tt) 

&AS!. f.NEJtOYilATE: 

&ASf. DDMNOitATi 

1M Nf.WWNTI!Jt SI!AI ON Nf.~GY AATE: 

1M NlWWPri'Ttlt I!AaON~NDRATE 

IO.OI:lZIIIIICWH 

54.11 IKW 

10.01 .1lOII('Ml US!: 

13.C1411t11 flt:N UH. 

10.0355-'CWH 

54.2Dit<:N 

f0.0!502 SIKW4 ST.2S 11KW 

COlT 

COOT 

COlT 

con· 

COlT: 

coo• 

-.... k30.:112 

11 ,1181,225 

...... 11,.,.,.,513 ...,_, .. 

OI .«WH 

IUI5fr(W 

Ill 

"" 

"' Ill 

"" 

Ill 

lu.Nlll • 

I!JfriNEft. 

~RI5 

~R 1111 

• NOll:: NP 

~ll111 

~lll5 

,.,..,_ll 111 

st.Mo.:ll111 

~111 

~111 

[ftOftiOINA

(INORIGINA

CI1AHO

C~ 

(INOR101NALRETAIL

(INORIGINAl~ETAILi

1118

1M 
278 

~~irt®X 

May 12, 1995 

A Good Place To Live! 

Fairfax, 112S.E MN . ..... &5332 SI. • 507~7255 • City --Clerk-T,.... 

The Honorable John Doolittle 

House Resources Subcommittee on Water and Power 

1337 Longworth House Office Bldg . Washington D.C. 20515 

RE: Selling PMA's 

Dear Representative Doolittle: 

The City of Fairfax urges you to oppose the sale of 

the Power Management Agencies, specifically, western Area 

Power Administration. The City of Fairfax purchases 

seventy percent (70%) of its power from Western Area 

Power Administration and the balance from Northern States 

Power. 

Fairfax is located in rural Minnesota. The economy 

is dependent on the agricultural sector with a small 

commercial/industrial tax base. The loss of preference 

power would increase the utility retail rates by 50% in 

Fairfax. Forty percent of Fairfax population is 60 years 

and older and many on a fixed income . Residents in 

Fairfax are already experiencing an increase in utility 

rates due to the upgrades required in the wastewater 

facility and storm water detention requirements. 

The sale of Western Area Power and the increase in 

wholesale rates would cause a severe burden on the 

utility customers in Fairfax. The City Council urges you 

to oppose the sale of the P~~·s. Enclosed is a Resolution adopted by the Fairfax City Council on February 7, 1995. Please include the Resolution and 

letter in the official hearing record. 

Sincerely, 

FAIRFAX CITY COUNCIL 

PJ~ C?:4-l 

Marcia Pelzel ' 

City Clerk-Treas. 

Enc. 
May 15, 1995 

Honorable John Doolittle 

House Resources Subcommittee 

on water and Power 

1337 Longworth House Ollice Bldg. 

Washington D.C. 20515 

279 

FIIIIL~I COUNTY PUBLIC UTILITY DISTRICT 

Re: proposed sale of federal Power Ma!Xeting Administrations (PMAs) 

Dear Representative Doolittle: 

I am writing on behalf of myself and the Commissioners of Franklin PUD to tell you of the 

catastrophic impact sale of the federal power marketing administrations (PMAs) would have on 

our customers. Please include my lellllr in lheolliciaii8COid tor the Thursday, May 18, 1995 

hearing. 

The PMAs provide electricity to about 1,100 not-for-profit electric utilities, and directly or indirectly 

to about 57 million people in 34 states. Locally, our not-for-profit. cornmunity-oNned electric utility 

purchases 1 00 percent of the total electricity used by our community homes and businesses from 

Bonneville Power Administration (BPA). Franklin PUD pays the federal government for all costs 

associated with producing the power. 

Sale of BPA would hurt every citizen of Franklin County and jeoparaize the economy of every 

local business and our community aa a whole. If the PMAs are sold and cost-based rates 

abandoned, we estimate that our household customers' rates wil rise by at least 30 percent and 

our business customers' rates will also rise by the same amount 

Sale of the PMAs would hurt not only our community's economy but also that of the entire nation. 

The economy of Franklin County is agriculturally based. We produce wheat, vegetables, fruit, and 

wine grapes on irrigated land for our entire nation and for some international ma.Xets. Higher 

electric rates would necessarily mean higher irrigation costs for our farmers. Farmers, unlike 

manufacturers, are not able to increase prices to cover additional expenses of this magnitude. 

Many of our farmers would be unable to continue farming. Loss of these farms would immediately 

impact our local economy and eventually affect our entire country. 

Franklin County businesses also process foods and wines for the nation and the wortd. Increased 

operating costs for the businesses would be passed along to the consumer, resulting in higher 

food costs to everyone. 

The proposal to sell the PMA's is being touted as a deficit reduction move. However, it will not 

reduce the federal deficit in the long term. President Clinton haS PIOPo5ed selling the PMAs to 

obtain a one-time cash infusion over the next five years. This is a short tenn "fix" that will end in 

the year 2000. Currently, the PMAs are required by law to repay all their debt with interest, just 

like private businesses, and they do. That means selling the PMAs would actually result in the 

loss of a stream of revenue flowing steadily year after year into the Federal Treasury. 
280 

Selling the power generation at these federal facilities would divest our country of national assets 

that make money and help pay for those that don't. The federal government's oversight of 

national waterways includes flood control, navigation, irrigation, wildlife conservation, 

environmental protection, recreation, and salinity control. These are all non-income producing 

activities, unlike hydroelectric power generation, which raises money. The money raised by 

hydroelectric power generation now helps to cover the costs of some of these other activities. 

In addition, focusing on the PMAs distracts the federal government from the real work that needs 

to be done to get our country back on track. We are willing to work with our elected officials to 

end unnecessary programs that cost taxpayers money. And, indeed, there are many programs 

that have been created in Washington, D.C. that just don't work. But this is not one of them. 

America's power program is not subsidized by federal taxpayers. Instead, it pays its own way, 

with revenues being put daily into the Federal Treasury by the consumers who benefit directly 

from the hydroelectric and nuclear power generated. 

For these reasons, we urge you to oppose efforts to sell the federal power marketing 

administrations. Thank you for your consideration of our request and feel free to contact us any 

time for further information on this matter. Or contact Debbie Wesslund at the American Public 

Power Association, 2301 M Street, Washington, D.C. 20037; phone 202-467-2924. 

Sincerely, 

~UTILITY DISTRICT 

Kenneth A. Sugden 

Manager 

LTR 95-214 

cc: James V. Hansen 

Wayne Allard 

Richard Pombo 

Frank A. Cremeans 

WesCooley 

Helen Chenoweth 

George P. Radanovich 

William Thornberry 

Richard Hastings 

Nathan Deal 

Peter DeFazio 

George Miller 

Bruce Vento 

Sam Gejdenson 

Bill Richardson 

Calvin Dooley 

Maurice Hinchey 

Sam Farr 

John Shadegg 

Don Young 
281 

• 

City of Gunnison 

201 W. Virginia Ave., P.O. Box 239 

Gunnison, CO 81230 

I (303) 64H!OOO - (303) 64H!051 FAX 

The Honorable John Doolittle 

House Resources Subcommittee 

On Water and Power 

1337 Longworth House Office Building 

Washington D.C. 20515 

The Honorable John Doolittle: 

On Thursday, May 18th, the House Resources Subcommittee on Water and Power will 

hold a hearing on the federal Power Marketing Administrations. This hearing will explore what 

the sale or transfer of the PMA' s could mean to those that receive or otherwise benefit from 

federal power. This decision you are undertaking is crucial to many basic philosophies that this 

country was founded upon. Let me first state that I understand there is a serious problem with our 

countries finances and agree we must do many things to reduce an imposing deficit 

The premise of a free enterprise market system is one great strength of our society. The 

PMA's, while under government control, provide a microcosm of free enterprise. A product is 

offered to end users that are paying for the costs of the PMA operations and have been doing so 

since their inception. It makes no sense in the business world to sell off a money making 

enterprise. This move would be counterproductive to the intent of deficit reduction. The only real 

benefit from this sale would be a temporary influx of capital and we would lose the long term 

opportunity for financial gain. 

There is the question of who should control public lands and property. To take public 

property and put it in control of the private sector is a travesty. No private enterprise should 

benefit from the public resources without substantial benefit to the whole. This concept of 

individual profit being derived from public property is one that should receive a high level of 

scrutiny. Let the profit go to the public and not to private corporations and individuals. Our 

waters, forests, minerals, and other resources should be utilized for the profit of our public. 

The last point I will make is that these projects were built for public benefit. The 

infrastructure has served our nation well and continues to provide much public support. In return, 

the beneficiaries of these projects have and continue to pay for the cost of operation and 

retirement of debt. To take these projects away from the public would be a disservice to those 

that supported the projects when they were not quite the 'good deal' they are viewed as today. If 

mismanagement of these projects is a problem, fix the problem. Don't sell the PMA's that have 

been supported by users for many years. Don't give up our valuable resources for a quick fix 

scheme. Don't ignore good business management practices just to look good on paper. Let's 

rethink this unnecessary and unwise approach. Let's be smart with our government and 

concentrate on real problems. Please include this letter in the official hearing record. 
282 

TOWN OF HOLLY((.. 

May 15, 1995 

Honorable John Doolittle 

House Resources Subcommittee on Watei & Power 

Washington, DC 20515 

Dear Chairman Doolittle, 

"Colorado's Christmas City" 

P. 0. Box 4S8 

Holly, Colorado 81047 

Phone: (719) S37 -6622 

Fax: (719) 537-6621 

We understand that on May 18 the House Resources Subcommittee 

on Water and Power will hold a hearing on the possible sale 

of the federal Power Marketing Administrations. The Town of 

Holly continues to oppose the sa le of the PMAs, espec ially 

the Western Area Power Administration. We again urge you to 

vote against privatizing western at the expense of the people 

who receive service from co nsumer-owned electr·ic utilities 

such as our citizens. 

As we have previously advised you, a sale of We s tern could 

have significant adverse consequences for our local a nd 

regional economy. Our powe r supplier, the Arkansas River 

Power Authority, estimates that our wholesale power bills 

will increase by over 25% if we no longer have access to o ur 

alloc ation of federal hydropower. Cost inc reases o f this 

magnitude will ha ve dev astating economic impacts on o u r 

fragile e conomy . 

A sale of Western just doesn't make good sense . Taxpayers do 

not subsidize Western's power program. It fully pays its own 

way through charges for hydropower sold to consumer-owned 

utilities. If this positive revenue producing asset is sold. 

it will wind up costing citizens in the rural areas much more 

for their electr icity. Since electricity is a nec essity , not 

a luxury, unnecessary cost increases will be viewed by t he 

consumer as a tax increase. 

We understand that the Congress is facing enormous cha llanges 

to balance the budget. But if selling off valuable government 

assets is going to be seriously considered ................. ll! 

0 2 ··tile .. inner!'...l.i.h!L~~--~5! w..!,~-!!i.t U\W\Il M!Dinm~ •· 
283 

We respectfu lly request that you-t=·;,.,, , ,.tf't ttt.~t.t in the 

record of the Water and Power Subcommittee~s hearing. We are 

enclosing 10 copies for this purpose. 

Please let us know if you have any questions on our position 

or how a sale of Western could negatively impact our community. 

Sincerely, 

Anthony 

~'irJt/t.1t0 G~ia, Mayor 

cc: Honorable George Miller, Ranking Member 

House Resources Committee 

Members of House Resources Subcommittee on Wat er and 

Power 

Honorable Wa y ne Allard 

House of Representatives 

Honorable Don Young, Chairman 

House Resources Committee 
284 

KA NSAS K.\ ~S..IS 

Mt.: N ICIPAL ~l l':"lo"lCIP . 

ENERGY G" 

May 16, 1995 

The Honorable John Doolittle 

House Resources Subcommittee 

on Water and Power 

1337 Longworth House Office Building 

Washington, D.C. 20515 

Re: Congressional Hearing on PMAs 

Dear Congressman Doolittle: 

6330 l amar Avenue, Suite 110 

Overland Pork. Kansas 66202-4247 

(913) 677-288A 

(91 3) 677-0804 FAX 

As a representative of Kansas municipals, KMEA is concerned about the 

negative impact the sale of the PMAs would have on cities and other customers 

of the PMAs in Kansas. The federal power program is an important part of our 

members' electric utilities. 

We expressed our concem to the Kansas congressional delegation earlier this 

year by providing them with specific reasons the sale should be rejected (copy of 

the letter sent to Senator Dole enclosed). Clearly, KMEA is opposed to the sale 

of the PMAs. In the event the Committee recommends to sell the PMAs, KMEA 

will then support the position taken by the American Public Power Association 

(APPA) that they be sold to the customers, under the conditions contained in 

APPA's testimony. 

Your serious consideration of our position will be appreciated. Please include 

this letter in the ott:cial hearing record. 

Sincerely, 

~c~-:A Gilbert E. Hanson, Jr. 

General Manager 

GEH:db 

Encl. 
285 

May 16, 1995 

The Honorable John Doolittle 

Page2 

CC: Members of the House Resources Subcommittee 

on Water and Power (w/encl.) 

Chairman and Ranking Member of the 

House Resources Committee (w/encl.) 

Kansas Congressional Delegation (w/o encl.) 

Mr. Louis Stroup, Jr. (w/o encl.) 

Kansas Municipal Utilities 

P.O. Box 1225 

McPherson, Kansas 67460 

Mr. Alan Richardson (w/o encl.) 

American Public Power Association 

2301 M Street, N. W. 

Washington, D.C. 20037 
May 15, 1995 

Honorable wayne Allard 

House of Representatives 

286 

422 Cannon House Office Building 

Washington DC 20515 

Dear Congressman Allard: 

We understand that on May 18 the House Resources Subcommittee on 

Water and Power will hold a hearing on the possible sale of the 

federal Power Marketing Administrations. The City of Lamar 

continues to oppose the sale of the PMAs, especially the Western 

Area Power Administration. We again urge you to vote against 

privatizing Western at the expense of the people who receive 

service from consumer-owned electric utilities such as our 

citizens. 

As we have previously advised you, a sale of Western could have 

significant adverse consequences for our local and regional 

economy. Our power supplier, the Arkansas River Power Authority, 

estimates that our wholesale power bills will increase by over 25 

percent if we no longer have access to our allocation of federal 

hydropower. cost increases of this magnitude will have 

devastating economic impacts on our fragile economy. This is not 

the right federal asset to sell because it generates positive 

cash flow to the federal ~reasury and has historically allowed 

rural based economies to have access to a competitive source of 

electric power. 

We are attaching our previous letter of April 19, 1995, opposing 

the sale of Western signed by our Mayor. We respectfully request 

that you include this letter and the April 19 letter in the 

record of the Water and Power Subcommittee's hearing. We are 

enclosing 10 copies for this purpose. 

Please contact Leon Sparks, Superintendent, Lamar Utilities 

Board, if you or members of your staff have any questions on how 

a sale of Western could negatively affect our community. 

Sincerely, 

~tl!JU- ~rble 

yor Pro Tern 

CITY OF LAMAR 

102 EAST PARMENTER· LAMAR. COLORADO 81052-3239 · 719/336-4376 
Letter to Honorable Wayne Allard 

May 15, 1995 

Page 2 

Enclosures 

cc: Honorable John Doolittle, Chairman 

House Resources Subcommittee on Water and Power 

Members of House Resources Subcommittee on Water and Power 

Honorable Don Young, Chairman 

House Resources Commtttee 

Honorable George Miller, Ranking Member 

House Resources Committee 
April 19, 1995 

Honorable Wayne Allard House of Representatives 

288 

422 Cannon House Office Building 

Washington DC 20515 

Dear Congressman Allard: 

The City of Lamar has owned and operated a municipal electric 

utility for the benefit of our citizens for over 75 years. 

Competitively priced electric rates are vital to the economic 

well-being of our citizens. Unfortunately, efforts to improve 

our economy will be undermined by the proposals being circulated 

in Washington to sell off the federal Power Marketing 

Administrations, including the Western Area Power Administration. 

We obtain a significant portion of our wholesale electric supply 

from Western. 

We don't understand why a sale of these valuable federal assets. is being considered, especially since they generate positive revenue impacts to the Treasury. A sale will translate into 

higher electric rates for rural based communities such as Lamar. 

I am enclosing petitions, signed by over 75 of our citizens, 

registering their opposition to the proposed sale of the Western Area Power Administration. 

We are encouraged by the statement in your letter of January 11, 

1995 to Jim He~derson of the Arkansas River Power Authority that 

"you do not see that there would be any benefit to selling off 

WAPA". We urge you to reaffirm this opposition to the sale of Western. 

Please keep us informed regarding your views on this issue. 

Sincerely/) 

T~ 

1 11 

{.net Gehlhausen 

ayor, city of Lamar 

Enclosures 

c: Doris Morgan, Director, SE Colorado District Office 

LAMAR UTILITIES BOARD 

100 NORTH SEDDND · LAMAR, ODLDRADD 81052-2505 · 7191336·7456 
289 

PETITION 

OPPOSING THE SALE OF THE 

WESTERN AREA POWER ADMINISTRATION 

TO: Senator Hank Brown 

Senator Ben Nighthorse Campbell 

Representative Wayne Allard 

The persons signing this petition are either citizens of the City of Lamar, or customers of the 

City of Lamar Utilities Board, a municipally-owned electric utility, which serves the city of 

Lamar and a 167 square mile area around Lamar. 

A significant portion of the Board's wholesale supply of electric power is obtained from the 

Western Area Power Administration, a federal power marketing administration. We 

understand that proposals are being heard in Washington to sell the Western Area Power 

Administration to the highest bidder. We are greatly concerned that any such sale will raise 

our electric rates without providing any economic benefit to the federal treasury. 

Higher electric rates will cause further undue economic hardship in our community and other 

communities in Colorado that receive power from the federal government. Since electricity .is 

a necessity not a luxury, we view any increase in rates caused by sale of these valuable 

federal assets as nothing more than what it really will be-- A TAX INCREASE. We urge 

each of you to oppose the sale of the Western Area Power Administration. 

ADDRESS 

/1,., . ,cd IVy.(. Pa<...:.y't .I 

(Eleven Petitions like the above were submitted) 
290 

The Honorable John Doolittle 

HoWle Resources Subcommittee on Water and Power 

1337 Longworth House Office Bldg 

Waahington, DC 20515 

May 16,1995 -IllRE: Oppoaition to Sale of Federal Power~ Adminiatratiou 

The County of Loa Alamos would like to urge you to oppa. eft'orta to sell the federal 

power marketing administrations (PMAa). The propoeal will hurt every citizen of Loa 

Alamos County and jeopardize the economy rtf every local buaineaa, financially harm the 

residential electric cuatomen and affect the otability rtf the Loa Alamos National Labors· 

tory (LANL). 

The PMAa provide electricity to about 1,100 not-for-profit electric utilities, and directly or 

indirectly to about 57 million people in 34 states. Locally, our not-for-profit, communityowned electric utility receives an allocation rtfhydroelectric power from Western Area 

Power Administration (Western). Thia power providea 20 percent of the total electrical 

energy used by our community homes and buain- The utility pays the federal 

government for all the coats associated with produdion and delivery of the power. 

If the PMAa are sold and coot-baaed rates abudoaed, we estimate that our residential 

and business cuatomen' rates will rise by 14'J,. To make matters worse, our largest 

customer, the DOE's Los Alamos National Labaratory, rates will also increase by 14'J,. 

Approximately, 80% of the power received from Western is utilized to serve the LANL 

load. 

The sale of the PMAa will hurt our community' a -...y and that of the entire nation. 

Higher electric rates not only affect household electric bills, but mean higher costs for 

manufactured items produced by communities served by the PMAa. 

This proposal is being touted as a deficit reduction move. However, it will not reduce the 

federal deficit in the long term, nor will it generate as much income as has been 

projected. President Clinton has propoaed selling the PMAa to obtain a one-time cash 

infusion over the next five years. However, thia ia a short-term fix that will end in the 

year 2000. Currently, the PMAa are required by law to repay all their debt with interest, 

just like private businesses, and they do! That me8DI oelling the PMAa would actually 

result in the loss of a stream of revenue flowing &Uadily year after year into the federal 

treasliry. 

Selling the power generation at these federal facilitieo would divest our country of 

national assets that make money and help pay for those that do noL The federal 

government's oversight of national waterways includes flood control, navigation, 

irrigation, wildlife conservation, environmental protecticm, recreaticm and salinity 

control. These are all non-income producing activities, unlike hydroelectric power 

generation, which does produce income. The money raiaed by hydroelectric power generation now helps to cover the coats rtf some of theee activities. 
The Honorable John Doolittle 

Page 2 

291 

May 16, 1995 

In addition, foeusing on the PMAs distracts the federal government from the real work that needs 

to be done to get our country back on track. We are willing to work with our elected officials to 

end unnecessary programs that cost taxpayers money. And, indeed, there are programs that 

have been created in Washington, D.C. that just do not work. But thu u not one of them. 

America's power program is not subsidized by federal taxpayers. Instead, it pays it own way, 

with revenues being transferred on a regular basis into the federal treasury by the consumers 

who benefit directly from the hydroelectric power generated. 

For these reasons, we urge you to oppose efforts to sell the federal power marketing administra· 

tions. Please include this statement in the official hearing record. We thank you for your 

consideration of our request. Feel free to contact us any time for further information on this very 

important matter. 

Information copies: 

Pete V. Domenici, NM 

James V. Hansen, UT 

Frank A Cremeans, OH 

George P. Radanovich, CA 

John Shadegg, AZ 

Sam Farr, CA 

Bill Richardson, NM 

Jeff Bingaman, NM 

Wayne Allard, CO 

Wes Cooley, OR 

William Thornberry, TX 

Nathan Deal, GA 

Bruce Vento, MN 

Calvin Dooley, CA 

Sincerely, 

D. Chris Ortega 

Utilities Manager 

Steven Schiff, NM 

Richard Pombo, CA 

Helen Chenoweth, ID 

Richard Hastings, WA 

Peter DeFazio, OR 

Sam Gejdenson, CT 

Maurice Hinchey, NY 

Cy: The Honorable Don Young 

Chairman 

The Honorable George Miller 

Ranking Member 

House Resources Committee 

1324 Longworth House Ofc Bldg 

Washington, DC 20515 

Cy: Utilities Board 

County Council 

T. Biggs 

B France 

file 

House Resources Committee 

1329 Longworth House Ofc Bldg 

Washington, DC 20515 
292 

SIXTH AND COLORADO - P.O. BOX 489 

LA JUNTA. COLORADO 81050 

PHONE 719-384-2578 

May 15, 1995 

Honorable Wayne Allard 

House of Representatives 

422 Cannon House Office Building 

Washington, DC 20515 

Dear Congressman Allard: 

We understand that on May 18 the House Resources Subcommittee on Water and Power will hold a hearing on the possible sale of the 

federal Power Marketing Administrations. The City of La Junta 

continues to oppose the sale of the PMAs, especially the Western 

Area Power Administration. We again urge you to vote against 

privatizing Western at the expense if the people who receive 

service from consumer-owned electric utilities such as our 

citizens. 

As we have previously advised you, a sale of Western could have 

significant adverse consequences for our local and regional economy. Our power supplier, the Arkansas River Power Authority, 

estimates that our wholesale power bills will increase by over 25% 

if we no longer have access to our allocation of federal 

hydropower. Cost increases of this magnitude will have devastating 

economic impacts of our fragile economy. 

A s ale of Western just doesn't make good sense. Taxpayers do not 

subsidize Western's power program. It fully pays its own way 

through charges for hydropower sold to consumer-owned utilities. 

If this positive revenue producing asset is sold, it will wind up 

costing citizens in rural areas much more for their electricity. 

Since electricity is a necessity, not a luxury, unnecessary cost 

increases will be viewed by the consumer as a tax increase. 

We understand that the Congress is facing enormous challenges to ba l ance the budget . But if selling off valuable government assets 

is going to be seriously considered, sell the losers not the 

winners like the Power Marketing Administrations. 

We respe c tfully request that you include this letter in the record 

of the Water and Power Subcommittee's hearing. We are enclosing 10 

c opies for this purpose. 
293 

Please let us know if you have any questions on our position of how 

a sale of Western could negatively impact our community. 

Sincerely, 

Ardeth 

~~~ Sneath 

Mayor 

Letter to Honorable Wayne Allard 

May 15, 1995 

Page 2 

cc: Honorable John Doolittle, Chairman 

House Resources Subcommittee on Water and Power 

Members of House Resources Subcommittee on Water and Power 

Honorable Don Young, Chairman 

House Resources Committee 

Honorable George Miller, Ranking Member 

House Resources Committee 
-L-E!!ii 

UNCOLN ELECTRIC SYSTEM 

Walte• A. Canney,Adminislretor 

May 17, 1995 

The Honorable John Doolittle 

House Resources Subcommittee 

on Water and Power 

1337 Longworth House Office Building 

Washington, DC 20515 

294 

RE: Hearing May 18 oo Federal Power Marketing Administrations 

Dear Congressman Doolittle: 

1 1 th & ·o· Slreels 

P.O. Box 80869 

Lincoln, NE 68501-<l869 

402/4 75-421 1 

402/4 75-9759 FAX 

Administrative Board 

OscllrA.S.I'Idllerg 

Cr\lir 

S~~t_,P eo-n vq~,, 

Mery 8ills 

Cha<les """"' Ainold 

Werilyn &o<ch&ldl 

t.ljke Br .,~ r 

Getes l.1..,n1Ck 

sn.neyA. Sat>lor!V 

Aui5!enl Sttt<ei~J<Y 

Dougle•Curoy 

L~ Coun~ 

I write to express Lincoln Electric System's (LES) opposition to the proposed sale of the federal 

Power Marketing Administrations, particularly the Western Area Power Administration (WAPA). 

I respectfully request that this letter be included in the official heariDg record of the House Resources 

Subcommittee on Water and Power hearing on the federal Power Marketing Administrations that 

will be held May 18, 1995. 

Sale of WAPA will have a detrimental impact on Nebraska's ratepayers. The Clinton 

Administration has estimated that the sale of the Power Marketing Administrations would generate 

approximately $3 billion. However, this would be a one time gain for the government coffers with 

long-term consequences for Nebraska ratepayers. The altacbed analysis by NMPP Energy estimates 

that privatization of W APA would cost Nebcaska ratepayers in excess of$50 million annually. This 

would require rate increases for electric utilities throughout the state. I have also enclosed a copy 

ofLR 49, a Legislative Resolution expressing the Nebcaska Unicameral's opposition to the sale of 

WAPA. 

W AP A, as well as the other Power Marketing Administrations, has served the federal government 

and Nebraska ratepayer.; well. WAPA's ratepayers, including those in Nebraska, have repaid to the 

federal government a significant portion of the original investment, with interest. The current 

proposal is similar to paying on your home mortgage for 20 years and then having the bank kick you 

out of your home and selling it to the highest bidder. This proposal provides a one-time benefit for 

the federal government (bank), with long-tenn consequences for the ratepayer.; (mortgagee). 
The Honomble John Doolittle 

Page2 

May 17, 1995 

295 

Nebraska mtepayers cannot afford the long-tenn consequences of selling off the Western Area Power 

Administration. We respectfully urge your Subcommittee's opposition to this proposal. 

Sincerely, 

/{ l{r::_/t}6s~7u.·- ~a;ter A. Canney 

LES Administrator 

WAC/a! 

Enclosures 

c: Members of the House Resources Subcommittee on Water and Power 

Congressman Don Young, Chairman, House Resources Committee 

Congressman George Miller, Ranking Member, House Resources Committee 
296 

NMPPEnergy 

Comparison of Existing Public Ownership 

to Private Ownership of Federal System 

Based on Post-1989 Allocations 

Cost of Federal Power 

1994 Cwrenl Private 

C~/S~em WAPA Enerav Cost !11 OwnershiE! !21 lnaease 

MWh $ s s 

WAPAEastem 

mml2!1 

Ansley 364 $5,180 $14,560 $9,380 

Arnold 5,798 $82,506 $231 ,920 $149,414 

Aublm 12,743 $181,333 $509,720 $328,387 

Beatrice 11,380 $161,937 $455,200 $293,263 

Beaver City 1,311 $18,656 $52,440 $33,784 

Blue Hill 5,203 $74,039 $208,120 $134,081 

Broken Bow 11,558 $164,470 $462,320 $297,850 

Burwell 2,557 $36,386 $102,280 $65,894 

Callaway 3,885 $55,284 $155,400 $100,116 

Cambridge 2,461 $35,020 $98,440 $63,420 

Crete 13,701 $194,965 $548,040 $353,075 

Curtis 1,745 $24,831 $69,800 $44,969 

David City 6,449 $91,769 $257,960 $166,191 

Deshler 2,205 S31,3n $88,200 $56,823 

DeWrtt 2,617 $37,240 $104,680 $67,440 

Fairbury 13,841 $196,957 $553,640 $356,683 

Falls City 18,222 $259,299 $728,880 $469,581 

Franklin 2,418 $34,408 $96,720 $62,312 

Fremont 26,486 $376,896 $1,059,440 $682,544 

Grand Island 34,820 $495,489 $1,392,800 $897,311 

Hastings 46,453 $661,026 $1,858,120 $1,197,094 

Indianola 408 $5,806 $16,320 $10,514 

Laurel 2,394 $34,067 $95,760 $61,693 

Lincoln 140,000 $1,992,200 $5,600,000 $3,607,800 

Lyons 2,496 $35,518 $99,840 $64,322 

Madison 3,490 $49,663 $139,600 $89,937 

Nebraska City 36,234 $515,610 $1,449,360 $933,750 

Neligh 885 $12,594 $35,400 $22,806 

Ord 5,752 $81,851 $230,080 $148,229 

Oxford 2,571 $36,585 $102,840 $66,255 

Pender 2,832 $40,299 $113,280 $72,981 

Pierce 1,1n $16,678 $46,880 $30,202 

Plainview 2,726 $38,791 $109,040 $70,249 

Randolph 618 $8,794 $24,720 $15,926 

Red Cloud 2,958 $42,092 $118,320 $76,228 

0210t/V5 "-1•13 
297 

NMPP Energy 

Comparison of Existing Public Ownership 

to Private Ownership of Federal System 

Based on Post-1989 Allocations 

Cost of Federal Power 

1994 Current Private 

Cit~-:IS~-:stem WAPAEnerg~-: Cost{1) Ownershif:! {2) Increase 

MWh $ $ $ 

Sargent 1,933 $27,507 $77,320 $49,813 

Schuyler 23,857 $339,485 $954,280 $614,795 

Shickley 248 $3,529 $9,920 $6,391 

South Sioux City 7,415 $105,515 $296,600 $191,085 

Spalding 4,405 $62,683 $176,200 $113,517 

Spencer 425 $6,048 $17,000 $10,952 

Stuart 1,270 $18,072 $50,800 $32,728 

Syracuse 1,266 $18,015 $50,640 $32,625 

Tecumseh 4,041 $57,503 $161,640 $104,137 

Wahoo 10,397 $147,949 $415,880 $267,931 

Wakefield 1,271 $18,086 $50,840 $32,754 

Wayne 9,924 $141,219 $396,960 $255,741 

West Point 4,898 $69,699 $195,920 $126,221 

Wilber 8,770 $124,797 $350,800 $226,003 

Winside 2,462 $35,034 $98,480 $63,446 

Wisner 11 ,368 $161,767 $454,720 $292,953 

Wood River 684 $9733 $27 360 $17 627 

Sub-total 525,387 $7,476,257 $21,015,480 $13,539,223 

NPPD 704,450 $10,024,324 $28,178,000 $18,153,676 

OPPD 386,000 $5,492,780 $15,440,000 $9,947,220 

Total 1,615,837 $22,993,361 $64,633,480 $41 ,640,119 

State Agencies 

Beatrice Dev. Center 7,885 $112,204 $315,400 $203,196 

Hastings Reg. Center 5,584 $79,460 $223,360 $143,900 

Nebraska State Pen. 8,386 $119,333 $335,440 $216,107 

Norfolk Regional Ctr. 2,533 $36,045 $101,320 $65,275 

Peru State College 1,978 $28,147 $79,120 $50,973 

UNL 101 ,246 $1,440,731 $4,049,840 $2,609,109 

UNO 6,213 $88,411 $248,520 $160,109 

Wayne State College 1 944 $27 663 $77 760 $50097 

Total 135,769 $1,931,994 $5,430,760 $3,498,766 

Eastern Division Total 1,751 ,606 $24,925,355 $70,064,240 $45,138,885 

(1) WAPA Eastern Division average cost of 14.23 mills/kWh (does not include wheeling). 

(2) Private ownership cost of 40 mills/kWh (does not include wheeling). 

02/09195 Page 2 of 3 
C~/Svstem 

WAPAWeatem 

Q!m!2ll 

Alliance 

Bayard 

Benkelman 

Bridgeport 

Chappell 

Gering 

Grant 

Imperial 

Kimball 

Lodgepole 

Lyman 

MEAN 

Mitchell 

Morrill 

Mullen 

Sidney 

Wauneta 

Subtotal 

NPPD -Western Div. 

Tri-State - Neb. 

298 

NMPPEnergy 

Comparison of Existing Public Ownership 

to Private Ownership of Federal System 

Based on Post-1989 Allocations 

Cost or Fedenll P1994 Cwrant Private 

WAPAEneraY Cost {11 Ownership (21 

MWh $ $ 

8,992 $186,134 $359,680 

6,488 $134,302 $259,520 

1,432 $29,642 $57,280 

4,706 $97,414 $188,240 

5,022 $103,955 $200,880 

27,538 $570,037 $1,101,520 

1,698 $35,149 $67,920 

9,318 $192,883 $372,720 

3,154 $65,288 $126,160 

258 $5,341 $10,320 

2,196 $45,457 $87,840 

12,741 $263,739 $509,640 

6,89S $142,809 $275,960 

7,716 $159,721 $308,640 

636 $13,165 $25,440 

5,242 $108,509 $209,680 

3,154 $65,288 $126,160 

107,190 $2,218,833 $4,287,600 

14,149 $292,884 $565,960 

168,910 $3,496,437 $6,756,400 

lna'ease 

$ 

$173,546 

$125,218 

$27,638 

$90,826 

$96,925 

$531,483 

$32,771 

$179,837 

$60,872 

$4,979 

$42,383 

$245,901 

$133,151 

$148,919 

$12,275 

$101 ,171 

$60,872 

$2,068,767 

$273,076 

$3,259,963 

Nebraska Western Total 290,249 $6,008,154 $11,609,960 $5,601 ,806 

Nebraska 

Grand Total 2,041,855 $30,933,509 $81,674,200 $50,740,691· 

(1) WAPA Western Division average oost of 20.7 mills/kWh (does not include wheeling). 

(2) Private ownership cost of 40 mills/kWh (does not include wMeling). 

02109195 Poge 3 of3 
299 

RESOLIJTION 

LEGISLATIVE RESOLUTION 49. Iatroduecd by Beutler, 28. 

WHEREAS, the Cliatou Administration aud the Congress of the 

United Scaca are eousideriDg proposals to sell the five federal power 

markc:ting admini~Matious, including the Western Area Power 

.Adm.DJ.imatiou, in order to fimd a cax cut fbr middle-inc:ome 

Americans; aDd 

WHEREAS, Nebraska's publicly-owued electric utilities receive 

low-cost hydroelectric power ftom federal dams operated by the 

Wcstcm Area Power Administration, the University of Nebraska 

receives approximately eighty perc:cDt of its power from the Wcstcm 

Area Power Adminis1ratiou, aud the privatization of the Wcstcm Area 

Power Aclministratiou wiD ligoificautly increase wholesale power costs 

for et=mc Dtilitics statewide wbich will result in increased rates for 

Nebraska ratepayers; aud 

WHEREAS, Nebraska is the only aU-public-power state in the 

aatiou, with Nebraska's electric utilities offering rates among the lowest 

ten pcm:cnt in the natiou, aud selling the Western Area Power 

Administration will lessen this rate advaDtage which will dctrimeutally 

impact c:couomic development in Nebraska aud will also burdeu the 

c:xisting agricultarc aud business industry in Nebraska, including the 

filet that a portion of the federal hydropower allocated to Nebraska is 

spcci&ally designated for iniption pumping power; aud 

WHEREAS, the Nebraska Power Association has estimated that this 

proposal c:ould cost Nebraska ratepayers more than fifty million dollars 

annually, the proposal is UDilec:cssary aDd burdeusome, aDd the 

ratepayers pan:hasing eJcctricity through the Western Area Power 

Administration have repaid a major part of the original investment with 

interest. 

NOW, THEREFORE, BE IT RESOLVED BY THE MEMBERS OF 

THE NINE'IY-FOURTH LEGISLATURE OF NEBRASKA, FIRST 

SESSION: 

1. That the Legislature opposes the sale, traosfi:r, exchange, lease, 

or other dispolition of the WcstcrD Area Power Administration due to 

the sipificaut fiscal impact such a sale would , have on Nebraska 

ratepayers. 

2. That the Clerk of the Legislature transmit a copy of this 

resolution to the President of the United States, the President pro 

tempore of the United States Senate, the Spealu:r of the United States 

Honse of Rcprcscntativcs, and to the members of the Nebraska 

delegation to the Congress of the United States. 

Laid over. 
Municipal 

T Light 

& Power 

517 Walker St 

Wootile,IA 51579 

Ph. 712-647-2340 

300 

May 12. 1995 

I 

The Honorable John D little 

House Resources Subc lttee on Water and Power 

1337 Lonqworth House Office Bulldlnq 

Washlnqton, D.C. 20515 

Dear Hr. Doolittle: 

C

c ~- ) 

ROI}' Weis 

Superintendent 

Truslees: 

OonaldKenlcol 

Qa-eMim 

Charles Warne<, Jr. 

On Thursday, Hay 18, 1995, at 10:00 a.m., your conunlttee on Water and Fowet 'li I 

be holdlnq a hearlnq on the federal Power Harketlnq Administrations. ii would ...,..._ ,tin• ·tetter t1) be a · part of the raGord of that hearlnq. 

on behalf of our customers. and the utlllty, ·x &WI avalnat the aale of the rt-1 11 >' and wish to offer my support on the current federal power program. 

If enacted. such a proposal would have a major Impact on our cost of 

electricity. It could raise our rates anywhere from 30% t o 50%! We estimate that each of our customers would pay an averaqe increase of over $350.00 pet 

year. 

In addition to lncreaslnq power rates, selllnq off PHAs violates a fundamental 

principle underlylnq the dam facilities. The federal dams were built to serv" 

the public interest. Conqress very clearly Intended that power qenerated by 

federal dams should be treated as a public resource to help assist in econom i c development . The federal qovernment ' should not abandon Its commitment t o support and develop America in order to try and make a quick buck . 

Federal dams are multiple purpose facilities and must be manaqed fot m•>r<3 tha11 

just power qeneratlon. Dam manaqers must also consider functions like flood 

control, navlqatlon, water supply, lrrlqatlon, recreation, and wildlife 

enhancement. No private entity could properly or leqally balance these comple~. 

and often competlnq functions. Only the federal qovernment can serve tl1is t·r·l"-

Conoress previously considered an attempt by the ReaQCHl Administtati·:-n t 1) s <? l l c, ( feder a 1 hydropower resources and prompt 1 y passed I eQ 1 s 1 C\ t 1011 IHak i 11 9 it 

llleQal t o even study the Idea . That law Is still in force. 

I tu · Qe you to abandon any effort to sell off feder·al dams and a:o;soci;"tt~·l 

marketinQ a<;~encies because lt is bad economics. bad social policy, arHl La,1 

politics. 

Sincerely, 

~~ Rory Wels 

Superintendent 

C(: All m@mbers of House Resources 

Subconunlttee on Water & Power 

Don Younq 

Georoe Miller 
E-cutiw oaz-t.-: Ricl.ard Bad Moccuin 

....,._Tnl..., 

A.inil:.oirw Iii Saowt T rib- .J Fori. P.d., Poplar, Montana 

Ch.y.nn. Riwr Stow. T rib., 

e.,I.Butt.,s~tho.>.t. 

cbi,.....c-Trib., 

Boll EIJ.n., MontAna 

CIOW'Cnel.:Sw-.Trib., 

Fori. Thomf'lon, South D.lcot. 

O...I',W.Sio-Trib., 

FortTott.n, North Dakota 

Fort B.lb..p Tribe, 

Hul.m,Montan.& 

Kidt..poo T rib. of Kan.u, 

Horton,K..n.u 

Lower BnJ. Sio"" T ril.e, Lower Brule, South Dakota 

Norih.m Cl..,.nno T rib., Lam. De.r, MontAna 

o,Wasw-Tril.., 

Pino Rid,., South D.l.ot. 

O...h.Trib., 

WJtbill, N.ku!.. 

Poru:a T rib. of N.btu~a. 

Niob...ua,Nekuiu. 

Prairi• Band of Pota-tomi, 

May.&, Nrwou 

Ro..hud Siowt T rib., 

Roo.bud, South DJ.ot. 

S.c Iii Foz ol Miuouri, 

R-r..e, K.n.u 

Santee SioUJC T rib., Niok,.., N.ku!.. 

Sw..ton.W.hpeton Dakota 

Nation., South D.J.ota 

Starulint~ Roc~ Siouz T ri.be, Fort Y at., North Da~ota 

Thr..., Affiliated Tribe., 

N-Town,NortbDaltota 

Turtle Mountain Bam:! of 

Chippewu, North D.l.ota 

Winnebago Tribe of N. brulta 

Wmn.bago,N.brul.. 

Yan.lrton SiouzTril.e 

Marty,SO\IthD.I.ota 

301 

Mni-Sose Intertribal Water Rights Coalition, Inc. 

May 16,1995 

P.O. Box 2890, 514 Mt. Ru.Lmo,. Road 

R.p;d City, South Dal.ota 57709-2890 

The Honorable John Doolittle 

House Resources Subcommittee on Water and Power 

1337 Longworth House Office Bldg. 

Washington, DC 20515 

Dear Chairman Doolittle: 

Enclosed are two resolutions passed by the Mni Sose Intertribal Water Rights Coalition at 

its April 27, 1995 Board Meeting. ResolutiCin#95-16 opposes the Administration's proposal 

for the sale of the Western Area Power Administration (WAPA) while Resolution #95-17 

rejects current W AP A estimates of]lldialfiiecJand requests allocations of power to meet I 00 

percent of tribal needs. 

The Mni Sose Coalition is com@ 3 federally-recognized Indian Tribes possessing 

water resolJII:eSjn the Missouri .. · asin with .a cQ)llhiiJ,ed.membership.?fover I 00,000 

enrolled m~rQugbly ten percent of the Bureau of'I~diap AffairS'. seJ:Vice population. 

The main obj · · '·· ·· · · of the Coalition are to proViru:.a"rlitdiiUn to addreSS issues relating to 

the pro development of tribal water res~tlrces in the Missouri River basin and to 

provide technical assistance on be · 's membership. Mni Sose is engaged 

in active negotiations with , , ""'qeepower promised the Tribes under 

the 1994 Flood Control Act t8.ki#S'J8Dds of the Tribes to establish dams, 

·· ··ral-)l!i!ies. 

The Missouri River and its tributaries pf()yi(ie 8J)immense natural resource. It drains onesixth of the Nation and its 530,000 square:m;leb<isin is over 2,300 miles long. There are 28 

major reservoirs in the basin, including the third, fourth, and fifth largest reservoirs in the 

United States. Seven hydropower plants use the river for cooling purposes. Nearly four 

million people use the river for their water supply. Missouri River fisheries generate about 

5 million recreational visits each year valued at $175 million. 

Despite historical and legal rights to the water, the 23 Coalition Member Tribes have not 

participated fully or fairly in the benefits of the Missouri River water resources and its 

tributaries. Twenty-three percent of the I ,499, 759 acres taken for the construction of the 

dams and reservoirs under the Pick-Sloan plan were lands of the Tribes. Although the 

Federal government promised irrigation development for the Tribes and participation in the 

generation of electricity by the Pick-Sloan Project, the Tribes have not received these 

benefits. The rights of Tribes to share in these hydropower resources were recognized by 

Congress in the Energy Policy Act of 1992. 

T.lepho ... (605)343..6054. ....... FAX (605)343-•722 ....... BBS (605)343-0983 
302 

2 

Nearly 350,000 acres of the best of the tribal homelands were taken for the construction of 

hydropower dams in the upper Missouri River system with the pledge that the Tribes would gain 

access to low-cost hydroelectrical power. Nonetheless, the Tribes and their members still pay the 

highest electrical rates in the Nation even though the reservation populations in this area are listed 

by the Bureau of Census as the most impoverished areas in the Nation and thus have the least ability 

to pay. Receipt of preference power is desperately needed, not only for heating and light in 

individual homes, but to provide for municipal use and development of economies on the reservation 

homelands. 

The Western Area Power Administration is now in the final stages of completing an Environmental 

Impact Statement (EIS) necessary for the determination of allocation of Pick-Sloan generated 

hydropower to existing and new customers as current contracts expire in the years 2000, 2005, and 

2010. The Mni Sose Coalition has actively engaged with WAPA in this process and, for the first 

time in the 50-year history of the Pick-Sloan Project, is on the verge of receiving an allocation of 

power necessary to meet the needs of the Tribes in the Missouri River Basin. The threat of the sale 

of W AP A jeopardizes the success of this continuing and long-term effort. 

The Mni Sose Coalition strongly opposes the proposal for the sale of W AP A. If, in fact, Congress 

does decide that the sale ofW AP A should be authorized, then the Mni Sose Coalition insists that any 

legislation enacted recognize the historic injustice that has precluded the Tribes in the Missouri River 

Basin from receipt of preference power for over 50 years and include language in any such 

legislation that will recognize and protect the rights of the Tribes to receive I 00 percent of the power 

necessary to meet their current and future needs. 

The Coalition stands fliTJI in opposing the sale of W AP A and requests your support in protecting the 

rights and needs of the Tribes on any future action that may be taken. 

Sincerely, 

k.W/!td~a~ Richard Bad Moccasin 

Executive Director 

enc. 
303 

NI-SOSE latertri~al Water Rithh Coalition, lu+ 

Phone (60S) 343-6054 ·Fax (605) 343-4722 

PO Box U6, S 14 Mt. Rushmore Rd. 

Rapid City, South Dakoca 57709..0226 

MSC 95-16 

A RESOLUTION OF mE 

MNI SOSE INTERTRIBAL WATER RIGHTS COALITION, INC. 

A RESOLUTION IN OPPOSmON TO THE SALE OF FEDERAL POWER 

MARKETING ADMINISTRATIONS. 

WHEREAS, the Mni Sose Intertribal Water Rights Coalition, Inc. (hereinafter called Mni Sose 

Coalition), is a non-profit corporation that is dedicated to the preservation, 

enhancement, and protection of the water rights of Indian Tribes in the Missouri 

River Basin; and 

WHEREAS, the Indian Tribes, by virtue of inherent Tribal sovereignty and the acknowledgment 

by Congress of Tribal Authority in the area of environmental protection, are the 

appropriate sovereigns to protect the environment on and near the Reservations; 

and 

WHEREAS, the Mni Sose Coalition is comprised of twenty-three Indian Tribes located in the 

Missouri River Basin wilh vested interests in water rights; and 

WHEREAS, the Mni Sose Coalition promotes the health, education, and welfare of the member 

tribes, bands. nations and/or Indian communities; and 

WHEREAS, the Missouri Basin Tribes hold valuable reserved Winter's doctrine 

right to the use of water in the surface water and ground waters of the 

Missouri River Basin and seeks to protect, preserve, manage and utilize 

the water reserved by the Tribe and the quality of the water resource for 

present and future generations of the Missouri River Tribes; and 

WHEREAS, the Missouri River Basin Tribes are eligible to access low cost hydropower as defined in the Energy Policy of 1992; and 

WHEREAS, President Clinton in the Administration's 1996 Budget Proposal sent to 

Congress in early February has proposed sale or privatization of four federal 

power marketing agencies, including the Western Area Power Administration; and 
304 

WHEREAS, Such proposals have been made and rejected in the past as bad public 

policy; however, in a year when Congress and the Administration are each 

trying to outdo the other in "downsizing" the Federal Government to seek 

deficit reductions, the proposal now takes on new vitality; and 

WHEREAS, the sale, transfer. or other disposition of the power marketing 

administrations or the Federal power plants will undermine the economic stability of 

Indian operated and Indian owned utilities. and threaten the minimal advances made 

in economic development of Indian Reservations by imposing significantly higher 

wholesale power costs; and 

WHEREAS, the sale, transfer. or other disposition of the power marketing administrations or the 

Federal power plants will threaten the ability of Indian publicly owned utilities to 

provide reliable electric service at competitive rates~ thereby undermining utility 

competition and increasing monopoly in the electric utility industry; and 

WHEREAS, the sale. transfer, or other disposition of the power marketing administrations or the 

Federal power plants will preclude the formation of new Indian owned electric 

utilities by denying them allocations from new pools of electric energy as promised 

in the current power marketing initiatives ofWAPA; and 

WHEREAS, the sale, transfer, or other disposition of the power marketing administrations or the 

Federal power plants will threaten to sidetrack the progress which the power 

marketing administrations and their Indian utility customers have made toward a 

sustainable, renewable energy future; and 

WHEREAS, the sale. transfer. or other disposition of the power marketing administrations or the 

Federal power plants will cut off the beneficial services provided by power marketing 

agencies to Indian utilities, such as education, planning, design, and operational 

training: and 

WHEREAS, the sale, transfer, or other disposition of the power marketing administrations or the 

Federal power plants will impede the efficient operation of multipurpose water 

projects providing nood control, irrigation water supply, and recreation; and 

WHEREAS, the sale, transfer. or other disposition of the power marketing administrations or the 

Federal power plants will interfere with or ignore legitimate tribal interests in rights 

of way agreements and the transfer of such valuable rights without recognition of 

tribal interests; and 

WHEREAS, the sale, transfer, or other disposition of the power marketing administrations or the 

Federal power plants will renege on existing agreements or covenants between the 

United States and the Indian utilities and Indian consumers; now 

THEREFORE, BE IT RESOLVED: That the Missouri River Basin Tribes Tribe expresses in the 

strongest possible tenns its opposition to the sale, transfer, exchange, lease, privatization or other 

disposition of the federal power marketing administrations or the power plants and related facilities 

for the production and transmission of electricity. and. 
305 

BE IT FURTHER RESOLVED: That the Missouri River Basin Tribes Tribe urges Congress to 

once again ~ect the proposal to sell the PMAs or otherwise dispose of the hydropower facilities and 

the assets employed in generating federal power. 

BE IT FURTHER RESOLVED: the Mni Sose Intertribal Water Rights Coalition opposes any 

proposal for legislation to authorize or direct the sale of the Western Area Power Administration. 

If any such legislation is considered, the Coalition insists that such legislation provide for the 

allocation of hydro-power from the Pick Sloan Missouri Basin Program sufficient to meet not less 

than I 00 percent of the needs of the tribes. 

CERTIFICATION 

We, the undersigned President and Secretary of the Mni Sose Intertribal Water Rights Coalition, Inc. 

hereby certuy that the Mni Sose Board of Directors, of whom Sixteen, constituting a quorum, were 

present at a meeting hereof and duly called. noticed, convened and held the 27th day of April. 1995 

that the foregoing resolution was duly adopted by the affirmative vote of fourteen members. with 

None opposing. and Two abstaining. 

\ Gerald '"' 

Big Crow, ~~ 'pRESIDE r,~\1..w Mni Sose Intertribal Water Rights Coalition, Inc. 
306 

NI-SOSE lntertrl&al Water Rights Coalition, lac+~ Phone (605) 343-6054 ·Fax (605) 343-4722 • 

PO Box 226, 514 Mt. Rushmore Rd. 

Rapid City, South Dakota 57709-0226 

MSC 95-17 

A RESOLUTION OF THE 

MNI SOSE INTERTRIBAL WATER R1GHTS COALITION, INC. 

A RESOLUTION OF THE COALITION REJECTING CURRENT WAPA ESTIMATES 

OF INDIAN NEED AND REQUESTING ALLOCATIONS OF POWER IN THE FINAL 

RULE SUFFICIENT TO MEET ONE-HUNDRED PERCENT OF TR1BAL NEEDS. 

WHEREAS, 

WHEREAS, 

WHEREAS, 

WHEREAS, 

WHEREAS, 

WHEREAS, 

WHEREAS, 

the Mni Sose Intertribal Water Rights Coalition, Inc.(hereinafter called Mni 

Sose Coalition), is a non-profit corporation that is dedicated to the 

preservation, enhancement, and protection of the water rights of Indian 

Tribes in the Missouri River Basin; and 

the Indian Tribes, by virtue of inherent Tribal sovereignty and the 

acknowledgement by Congress of Tribal Authority in the area of 

environmental protection, are the appropriate sovereigns to protect the 

environment on and near the ReservationS ~ and 

the Mni Sose Coalition is comprised of twenty-three Indian Tribes located 

in the Missouri River Basin with vested interests in water rights; and 

the Mni Sose Coalition promotes the health, education, and welfare of the 

member tribes, bands, nations and/or Indian communities; and 

the Missouri Basin Tribes hold valuable reserved Winter's doctrine 

right to the use of water in the surface water and ground waters of the 

Missouri River Basin and seeks to protect, preserve, manage and utilize 

the water reserved by the Tribe and the quality of the water resource for 

present and future generations of the Missouri River Tribes; and 

the Missouri River Basin Tribes are eligible to access low cost hydropower as defined in the Energy Policy of 1992; and 

the Department of Energy proposes to issue a Final Rule establishing the 

resource pool for new customers to be served by the Western Area Power 

Administration in the years 2000, 2005, and 2010; now 
307 

THEREFORE, BE IT RESOLVED, that the Final Rule promulgated by the Department of 

Energy for allocation of power to be distributed by the Western Area Power Administration to 

new customers in 2000, 2005 and 2010, from hydro-power generated by the Pick Sloan Missouri 

aasin Program -- Eastern Division establish a resource pool sufficient to provide not less than 

100 percent of the current and future power needs of the Indian tribes in the Missouri River 

Basin. 

BE IT FURTHER RESOLVED, that Tribes of the Missouri River Basin reject the initial 

estimates of electrical requirements made by Western based on the concept of a single model. 

Tribes will take all prudent steps to develop independent estimates, based on the individual 

desires of the respective Tribes, using the following means, among other: 

Tribal staff and/or 

Western staff and/or 

TEECOMB financing 

CERTIFICATION 

We, the undersigned President and Secretary of the Mni Sose Intertribal Water Rights Coalition, 

Inc. hereby certify that the Mni Sose Board of Directors, of whom Sixteen, constituting a 

quorum, were present at a meeting hereof and duly called, noticed, convened and held the 27th 

day of April, I 995 that the foregoing resolution was duly adopted by the affirmative vote of 

Fourteen members, with None opposing, and Two abstaining. 

y 

ghts Coalition, Inc. 
308 

MEMPHIS LIGHT, GAS AND WATER DIVISION 

WilliAM S. CRAWFORD 

PRfSlOENT """'CEO 

May 15, 1995 

The Honorable John Doolittle 

House Resources Subcommittee 

on Water and Power 

1337 Longworth House Office Building 

Washington, DC 20515 

Dear Representative Doolittle : 

I am writing to request your opposition to the sale of the federal 

power market administrations (PMA's). Futhermore, I am requesting 

this letter be included in the official hearing record. 

It is of paramount importance that the PMA's not be sold now or in 

the future. The Southeastern Power Administration (SEPA) , the 

supplier of power to TVA, is vitally important to the ratepayers in 

Memphis and Shelby County, Tennessee. The sale of this and the 

other PMA's will most certainly lead to a substantial increase in 

electric bills, not only, to the ratepayers in the Tennessee 

Valley, but also, to millions of consumers in the U. S. 

This effort to sell the PMA's must be abandoned for there are no 

long term benefits from the sale. The PMA's are obligated by law 

to return all costs of construction, operation and maintenance for 

federal power production and transmission -- including principal 

and interest -- over a 50 year period. The existing equipment and 

infrastructure are valuable public property, and they become more valuable every year as the federal investment is retired. Once the 

debt is satisfied, the property will continue to be 

revenue-producing assets. 

The federal power program helps support the local economies of 

thousands of communities, large and small. On behalf of the 

ratepayers of Memphis and Shelby County, Tennessee, I am requesting 

that you oppose any effort to sell the four PMA's . 

Sincer;;r, . 

~<k~f c: Chairman /~~ Don Young 

Representative George Miller 

Larry Hobart, APPA 

P.O. BOX 430 MEMPHIS. TENNESSEE 38101-0430 TELEPHONE (901) 528-4151 FAX (901) 528-4321 
309 

NAVA.JO TRIBAL UTILITY AUTHORITY AN CNf£.RPR15( OF' TH ( NAVAJO TRIB£. 

May 26, 1995 

The Honorable John Dolittle, Chairman sub-co~~ittee on Water and Power 

Resources Committee u .s. House of Representatives 

Washington, D.C. 20515 

Re : Hearing on Potential Transfer of Power Marketing 

Administrations - May 18. 1995 

Dear Chairman Dolittle: 

In his prepared testimony and, it is reliably reported, during his 

responses to committee questions, Charles E. Bayless, President, TUcson Electric Power company, apparently acting on behalf of the 

Edison Electric Institute, aentioned the Navajo Tribal Utility 

Authority and the Navajo Nation. This requests that this response 

to his statements be included in the record accumulated by the SubCommittee on the Transfer of Power Marketing Administrations and 

particularly the hearings held on May 18, 1995. 

The Navajo Tribal Utility Authority is a wholly-owned public agency 

and enterprise of the Navajo Nation. Neither Mr. Bayless, Tucson 

Electric Power Company nor Edison Electric Institute has been 

authorized to speak for or on behalf of the Authority. 

In the course of his prepared remarks, Mr. Bayless contrasted 

distribution service by government owned utilities and electric 

cooperatives to certain areas (which EEI never fails to mention) wi th service by TUcson Electric Power to the Navajo Tribal Utility 

Authority, "in the remote rural northeast corner of Arizona . " 

One may infer from this statement that the TUcson Electric Power 

Company somehow distributes electricity to residents on Navajo 

lands and is also the most-favored supplier of electricity to the 

Navajo Nation. 

HomeOtt.ce. 

P.O Box \70 

Fort O.lilll'ltt. Anzona 86!104 {6021729-572\ 

Otstrict Qf1.ce Oasttct Ofhte. 

P.O. Box 37 P.Q Box 408 

Kayltnla. Arizona 86033 Tubli City. Anzona 861).t5 

!60:21 S97-3574 !602)283-5.t2t 

OIS1nt101tice: 

P.O. Bo• 1206 

Shoproek, New .... InDO 87420 

!50S) 368--'6:39 

Olstnct0f1iee Otslroc!Otlice 

P.O. Bo11 S49 P 0 Box S87 

o.ne_ Ariz:on11 86503 For1 O.loance. Amon• 86SOol 

(602) 67.ol-5470 (6021 729-5721 

Do!conOostrJCI 

I-I C 63 

PO Bo• SOli W.n$lo.ow, A11zon• S00.7 

!6021 657·3258 
310 

The Honorable John Dolittle, Chairman 

May 26, 1995 

Page 2 

Neither inference is true. The Navajo Tribal Utility Authority is 

the distributor of electricity and Tucson Electric Power Company is 

a brand new supplier of wholesale power, having been selected in 

1993 by the Navajo Authority for a short-term supply. Please note 

that the power supplied by Tucson is far more expensive than the 

rest of the wholesale electricity purchased by the Authority. 

There is no reason to believe that Tucson is or will be the 

preferred supplier to the Navajo Nation. 

In an effort to escape a bankruptcy filing and to create cash flow, 

l·!r. Bayless' Cc:npany underi>id ctt.~r ir.·Jer;to~ ,Ot'l'n-ed utili ties fo~ a 

substantial portion of the wholesale power supplied to the Navajo 

Tribal Utility Authority for resale to its customers. It is 

extremely important for the Committee to understand that the Navajo 

Tribal Utility Authority also is a preference purchaser of Colorado 

River Storage Project power, which is marketed by the Western Area 

Power Administration. 

Contrary to the flippant remarks Mr. Bayless is reported to have 

made to the effect that "the Navajo Nation would not be affected if 

the Western Area Power Administration slid into the Grand Canyon," 

the Committee should know that should the Navajo Tribal utility 

Authority lose the ability to purchase preference power from the 

Colorado River Storage Project and have to replace that power with 

additional power purchased from Mr. Bayless' Company at its current 

wholesale rate, the residential rate to consumers of the Navajo 

Nation (where unemployment approaches 40-50 percent of the 

available work force) will increase substantially. 

A substantial increase in the cost of a vital commodity such as 

electricity solely by reason of the fact that Colorado River 

Storage Project power marketing has fallen into the hands of the 

avaricious, investor owned community is intolerable and will 

constitute another instance of the failure of the ·Federal 

Government to live up to its obligations to the Indian Nations. 

A more beneficial and constructive Congressional action would 

simply allow the Navajo Authority to purchase all of its needs from 

Western Area Power Administration, displacing the onerous high-cost 

supply from Tucson Electric Power Company. 

The Navajo Tribal Utility Authority, as a public agency and 

enterprise of the Navajo Nation, will most assuredly be adversely 

impacted should the Western Area Power Administration, and 

particularly those portions of Western dealing with the Colorado 

River Storage Project, be sold at a public auction. 
311 

The Honorable John Oolittle, Cbairaan 

May 26, 1995 

Page 3 

It is also worth noting that without the Navajo Tribal Utility Authority contracting for a substantial block of TUcson's excess capacity, at the end of 1992, we believe TUcson could have slid 

into oblivion instead of the Western PMA sliding into the Grand 

Canyon. 

We appreciate the opportunity to have this response iDcluded ita tile 

CO..itt-•• record of the Hearing held on May 18 of this year. 

Very truly yours, 

Leland R. Gardner, Chairman 

Manageaent Board 
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Princeton Electric Plant Board 304 East Legion Drive 

P. 0. Box 608 

Princeton, Kentucky 42445 

Phone (502) 365-2031 

Fax (502) 365-5427 

May 15. 1995 

The Honorable John Doolittle 

House Resources Subconmittee 

on Water and Power 

1337 Longworth House Office Bldg. 

Washington, D. C. 20515 

RE: May 18 Hearing on the Privatization of the Federal Power Marketing 

Administrations 

Dear Senator Doolittle: 

Representing Princeton Electric Plant Board, Princeton, Kentucky, 

request your assistance in opposing any rrovement to eell the Federal Power 

Marketing Adninistrations. My reasons for this request a re stated as 

follows: 

Should our electrical system lose access to federal power, electric 

rates could increase as much as 19% in our ar:-ea. 

OUr customers have been paying for federal fac ilities through their 

power rates and have developed an equity in the system that would be 

wiped out by a sale. 

Electric sales from the federal power program produces revenues that 

help pay for flood control projects and wildlife enhancement. No 

private entity would manage these functions. Private managers would 

attempt to maximize profit rather than consider public interest. 

'!here may be parts of the federal government that don't work welL but the 

federal power program is not one of them. 

Please include this letter as a part of the official hearing record. 

'ltlank you. 

Sincerely, J. ?Jd ~~Vincent, General Manager 
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313 

Page 2 

ibe Honot'able John Doolittle 

May 15, 1995 

cc: Jame8 v. Ra.naen, ur 

!layne Allard, CX> 

Richard Poatx>, CA 

Frank A. cr-ns, a! 

~tee COoley, CR 

Helen Chenoweth, ID 

George P. Radanovich, CA 

William 'lbornberry, TX 

Richard Haatinga, lfA 

John Shade9'J, AZ 

Nathan Deal, GA 

Peter DeFazio, CR 

George Miller, CA 

Bcuce Vento, 1M 

Sam Gejdenson, CT 

Bill Richardson, It! 

calvin Dooley, CA 

Maurice Hinchey, NY 

Sam Farr, CA 

'1'1\e Honot'able Don Young 

O>airman 

House Resources Callnittee 

'1'1\e Honot'able George Miller 

Ranking llellt>er 

House Reeources Callnittee 
... ""' W. DaloDan-r 

CfTY ca.JNCILMEN 

WlftlaAIMyron Toerlng 

FlooaK. Vomon 

John Byl 

John Marie: Franken 

314 

CITY OF 

SIOUX CENTER IOWA512!50 

3351stAv.....N.W. 

Phone7121722-m81 

The Honorable John Doolittle 

House Resources Subcommittee on Water and Power 

May 16, 1995 

1337 Longworth House Office Building 

Washington, D.c. 20515 

FAX NO: 202/225-5444 

RE: Congressional Hearing on PMAs 

Dear Congressman Doolittle: 

CITY.......,... 

--

unUTES-

--- """"'- e-.-

cnv ATTOA<EY 

AogorEYona 

We strongly urge you to oppose the sale of the federal Power 

Marketing Agencies (PMAs). This letter is respectfully submitted 

for consideration by the House Resources Subcommittee on Water 

and Power at a hearing to be held on Thursday, May 18. Please 

include this letter in the official hearing record. 

The City of Sioux Canter is a rural based community with a population of approximately 5,500. Sioux Canter owns and 

operates its own municipal electric utility. The Sioux Center 

municipal utility begain purchasing power from the federal 

government in 1956, at a time when the federal government was atteapting to market hydro-power. our customers have bean 

helping service federal debt for the past 40 years, including interest. To now sell the PMAs, specifically the Western Area 

Power Administration, will be costly for our customers and is bad 

business for the federal government. 

Thera is misinformation among sale proponents that the PMAs are a drain on the taxpayer. The facts are: the PMAs operata a self-sustaining "no-cost" program for the federal government. 

PMAs are actually projected to return mora than $1 . 3 billion in revenues to the treasury over and above the appropriations 

request for FY 1996. The Department of Energy is currently 

completing a 20 year cash flow projection comparing revenues from 

the sale of the PMAs to leaving the PMAa as they are now . we believe that the analysis will show that the treasury will 

receive more than $1 billion more if the sale is rejected. 
May 16, 1995 

Page 2 

315 

There is also misinformation a.ong sale proponents that the 

PMAs can operate more efficiently in the private sector. We do not feel this is the case with the PNAs. The facts are: the 

PMAs own and operate more than 32,000 ailes of high voltage 

transmission lines, and 2,000 ailes under contract. The systems 

employ modern technology to provide the aost efficient dispersal 

of electricity to the federal power custoaera. The PMA systems are used to buttress the power capacity owned by the private 

sector, to provide peaking power, to provide base-load 

generation, and in some cases, to dispatch federal and private sector power plants in a highly efficient and reliable way. The 

value of the systems is much higher than the sua of their parts. 

Dismantling the systems would diainah the efficiency of these 

technological resources. 

The PMA systems also insure that no single sector of the 

electric power industry can secure a aonopoly position. 

In summary, sale of the PMAB would reduce revenues to the 

federal treasury, diminish the efficiency of the technological resources, diminish competition, and increase electric rates for 

millions of Americans. We urge you to do what you can to prevent the sale of the PMAa. Thank you. 

Respectfully yours, 

Al----P~ Harold Schiebout 

Utilities Manager 

HS/lv 

cc: House Resources Subcommittee 

The Honorable Don Young, Chairman 

The Honorable George Miller, Ranking Member 
.316 

TOWN OF SPRINGFIELD 

Melvin W. Brisendine 

Town Manager 

719-523-6524 

May 15, 1995 

Honorable Wayne Allard 

House of Representatives 

748 MAIN- P.O. HOX 4 

SPRINGFIELD, COLOI\Al)O 81073 

FAX 719-52~-6956 

INCORI'ORATID JANUARY 16. 1889 

422 Cannon House Office Building 

Washington, D.C. 20515 

Dear Congressman Allard: 

Carol j. Brown 

Town Clerk - Trcasurl'r 

Finam·c Dircetur 

We understand that on May 18 the House Resources Subcommittee on Water 

and Power will hold a hearing on the possible sale of the federal Power 

Marketing Administrations. The Town of Springfield continues to oppose 

the sale of the PMAs, especially the Western Area Power Administration. 

We again urge you to vote against privatizing Western at the expense of 

the people who receive service from consumer-owned electric utilities 

such as our citizens. 

As we have previously advised you, a sale of Western could have 

significant adverse consequences for our local and regional economy . 

Our power supplier, the Arkansas River Power Authority, estimates that 

our wholesale power bills will increase by over 25% if we no longer 

have access to our allocation of federal hydropower . Cost increases of 

this magnitude will have devastating economic impacts on our fragile 

economy. This is not the right f ederal asset to sell because it 

generates positive cash flow to the Federal Treasury and has historically 

allowed rural based economies to have access to a competitive source of 

electric power. 

We are attaching our previous letter of April 18, 1995, opposing the 

sale of Western signed by our Hayer. We respectfully request that you 

include this letter and the April 18 letter in the record of the Water 

and Power Subcommittee's hearing . We are enclosing 10 copies for this 

purpose. 

Please contact Darwin Hansen, Superintendent, Springfield Light & Power, 

if you or members of your staff have any questions on how a sale of 

Western could negatively affect our community. 

Sincerely, 

c);d ~~!.- Jay D. Suhler 

Mayor 

JDS/mm 

Encl. 
317 

Melvin W. Brisondinc 

TOWN OF SPRINGFIELD 14M MAIN · 1' .0 . IIOX 4 

Sl'lliNGFIEI.Il . C:OI.O IIAilO Klll7) 

l'l·IONE 719-523-4521' 

Town M:.nagcr 719-523-6524 

April 18, 1995 

Honorable Wayne Allard 

House of Repre sentatives 

INCORPORATED jANUARY 16. 1889 

422 Cannon House Office Building 

Washington, D.C. 20515 

Dear Congressman Allard: 

C:u·ul.l. Lh·nwn 

Tuwn Cle rk · Treasurer 

hn:llll"c DirccltH 

The Town of Springfield has mvned and operated a municipal electric 

utility for the benefit of our ci tizens for ove r forty-six (46) years. 

We are proud of our record in delivering low cost , reliable electric 

service to our citizens in rura . So utheast Colorado. But our track 

record is being threatened by the proposals being floated in Washington 

to sell off the federal Power Marketing Administrations, including the 

Western Area Power Admin istra t ion . We obtain a significant portion of 

our wholesale electric supply from Wester n . 

We don't und erstand why a sale of these valuable assets ore being 

considered, especially since they arc positive revenue producing assets 

to the Treasury and a sa l e will tr ans l a te into higher elec tric rate s 

for small, rura l based communities such as Springfield. 

I a~ enclosing petitions, signed by over 107 of our citizens , registering 

their opposition to the proposed sale of the Western Area Power 

Administration. 

\le are encour age d by the statement in your letter of J anuary II, 1995, 

to Jim Henderso n of the Arkansas River Power Autho rity that 11YOU do 

not see that there would be any benefit to selling off HAPA'' . We 

urge you to reaffirm this opposition to the sale of Western. Finally, 

we ask that you keep us informed regarding your views on this issue. 

Sincerely, 

~ xJ_ s;_;fd, 

Jay D. Suhler 

Mayor 

Enclosures 

cc: Doris Morgan, Director, SE Color.:1do District .Office 
Melvin W. Brisendine 

Town M:ma~ \! r 

719·52:t·6524 

318 

TOWN OF SPRINGFIELD 74R MAIN- r.o. nox • SPRINGfiELD, COLORADO RI07J 

PIIONE 719-52.1-452R FAX 719-523-6956 

INCORPORATED JANUARY 16. IRA9 

P E T I T I 0 N 

OPPOSING THE SALE OF THE 

WESTERN AREA POWER ADMINISTRATION 

C:troi.J. llrown 

Town Clerk ·1'rc:'lSlHt:r 

Finam·c Di n.:l·lur 

To: Senator Hank Brown 

Senator Ben Nighthorsc Campl>ell 

Representative Wayne Allard 

The persons signing this petition are c1t1zens of the Town of Springfield, 

Colorado. We receive electric service from the Town which is a municipallyawned electric utility . A significant portion of Springfield's wholesale 

supply of electric power is obtained from the Western Area Power Administration, a federal power marketing administration. We understand that proposals 

are being heard in to/ashington to sC!ll the Western Area Power Administration 

to the highest bidder . We are greatly concerned that any such sale will 

raise 0 1lr electric rates without providing any economic benefit to the federal treasury. 

Higher e!lcctric r<ttcs will cause f urther undue economic ha.rdship in our 

community and other communities in Colorado that receive power from the 

federal gove rnment. Since electr icity is a necessity not a luxury, we view 

any increase in rates caused by sale of these valuable federal a ssets as 

nothing more than what it really will be--a tax increase. We urge each of 

you to oppose the sale of the Western Area Power Administration! 

Kame 

~ 

Address 

.::::< 7 ktz.-r{<i s 5( ·:"j·iY//ui(}¢,{( (,;, df'' J;: 

? ' 

QrJI ftlt'St">'df-.(j; .5fo"'l"' {((>I/ C,:J <:i• ?3 I I 

S57 z;,ar,tt/, .:!inrt""!f'rda'(!.c gto7J 

':?008o/o ~~ i>c:o~\idd, Oo g';0?3 

/ 'J. o; >;.. HZ7-- f , -S?qci ~v gJu1. I ' 

/.t-u~/Oolleqe ~:>fie(, Ou R?u7~ 

_..;,'->? f' zZ7 .1'··.· ·4'#ct'-1' <;,-c-.~··-

i:t:11?/tf#&Z.;;". (Six addit~onal pages of names were submitted) 
May 15, 1995 

319 

CITY OF TRINIDAD 

P. 0 . Box 880 

TRINIDAD, COLORADO 81082 TELEPHONE (719) 8ftl-9843 

FAX NO. (719) 846-4140 

Honorable Wayne Allard 

House of Representatives 

422 Cannon House Office Building 

Washington, DC 20515 

Dear Congressman Allard: 

We understand that on May 18th the House Resources 

Subcommittee on Water and Power _will hold a hearing on the _ 

possible sale of the federal Power Marketing Administrations. 

The City of Trinidad continues to ·oppose the sale of the 

PMAs, especially the Western Area Power Administration. We 

again urge you to vote against privatizing Western at the 

expense of the people who receive service from consumer-owned 

electric utilities such as our citizens. 

As we have previously advised you, a sale of Western could 

have significant adverse consequences for our local and 

regional economy. Our power supplier, the Arkansas River 

Power Authority, estimates that our wholesale power bills 

will increase by over 25% if we no longer have access to our 

allocation of federal hydropower. Cost increases of this 

magnitude will have devastating economic impacts on our 

fragile economy. 

A sale of Western just doesn't make good sense. Taxpayers do 

not subsidize Western's power program. It fully pays its own way through charges for hydropower sold to consumer-owned 

utilities. If this positive revenue producing asset is sold, 

it will wind up costing citizens in rural areas much more for 

their electricity. Since electricity is a necessity, not a 

luxury, unn~cessary cost increases will be viewed by the 

consumer as a tax increase. 

We understand that the Congress is facing enormous challenges 

to balance the budget. But if selling off valuable 

government assets is going to be seriously considered, sell 

the losers not the winners like the Power Marketing 

Administrations. 
Honorable Wayne Allard 

May 15, 1995 

Page 2 

320 

We respectfully request that you include this letter in the 

record of the Water and Power Subcommittee's hearing. We are enclosing 10 copies for this purpose. 

Please let us know if you have any questions on our position or how a sale of Western could negatively impact our community. 

Sincerely, 

CrUoiA--

Robert W. Fabec 

Mayor 

xc: Honorable John Doolittle, Chairman 

House Resources Subcommittee on Water and Power 

Members of House Resources Subcommittee on Water and 

Power 

Honorable Don Young, Chairman 

House Resources Committee 

Honorable George Miller, Ranking Member 

House Resources Committee 
321 

Telephone (218) 681-5816 

City of Thief River Falls 

UTILITIES DEPARTMENT 

May 12, 1995 

The Honorable John Doolittle 

House Resources Subcommittee on Water and Power 

P.O. Box528 

Thief River Falls, MN 56701-0528 

1337 Longworth House Office Building 

Washington, D.C., 20515 

Subj: Sale of the Western Area Power Administration, one of the 

federal Power Marketing Administrations. 

Representative Doolittle, 

I requeet this letter be part of the record for the hearing on the sale of the Power Marketing Adainiatrationa. 

The City of Thief River Falla ia oppoaa4 to tha aala of the 

federal Power Marketing Administrations, The City purchases 62% 

of its energy from the Western Power Marketing Administration. An 

increase in the cost of this power will affect the cost of power to the citizens and businesses of our City. 

The City of Thief River Falls is located in the northwest area of 

Minnesota and has a population of 8,010. The City is working on economic development to attract industry and business. Low 

electric rates is one of the benefits the City can offer to new industry and business. An increase in power costs due to the sale 

of WAPA will affect our City's ability to compete in economic 

development. 

Agriculture is a maj9r industry in our area. Electricity is 

significant for the handling of agriculture products on the farm 

and at the elevators. An increase in electricity costs will 

adversely affect the income to the farm economy. 

An increase in power costs will affect the cost of living for the 

citizens of our City and the area around our City. 

Sincerely, 

~l~ Arlo L. Rude Director of Utilities City of Thief River Falls 
822 

POWER, WATER ANO SEWERAGE SYSTEMS 

901 SOUTH JACkSON STiffl 

TUt..LAHOMA. Tf:NNESSU ln .. 

The Honorable John Doolittle 

House Resources Subcommittee 

on Water and Power 

May 12, 1995 

1337 Longworth House Office Building 

Washington, D. C 20515 

Dear Congressman Doolittle: 

' · o. aox 711 

Please make my objection to the sale of the Power Marketing Administrations a 

part of the official record of the May 18 hearing. 

The power marlceting agencies are a source of low cost power benefiting millions 

across the country and providing revenue to the federal government. We should not 

succumb to the clamoring of those who would take this investment of the American and 

divert it to be used as a tool for profit benefiting a few. 

To sell the PMAs makes about as much sense as would selling the interstate 

highway system. There are things that are best provided by the government, and the 

Power Marketing Agencies fall in this category. 

Thank you for your consideration. 

Sincerely, 

TULLAHOMA UTILITIES BOARD 

~~~ General Manager 

Th'Lgmc 
323 

The Alliance for Power Privatization 

701 Pennsylvania Avenue, N. W. 

The Honorable John Doolittle 

Chairman 

Suite BOO 

Washington, DC 20004 

(202) 508-4042 

June 21, 1995 

Subcommittee on Water and Power Resources 

House Resources Committee 

1337 Longworth House Office Building 

Washington, D.C. 20515 

Dear Chairman Doolittle: 

I am writing to clarify my oral and written testimony presented before the 

Subcommittee on May 18, 1995. 

During oral testimony, the subject of Tucson Electric Power's (TEP) proposal 

to purchase a group of the Federal government's Power Marketing Administration 

assets in Arizona was raised. Congressman DeFazio inquired about the validity of 

this proposal in light of TEP's credit rating. The fact that TEP's outstanding debt is 

rated below investment grade by the national rating agencies does not bear on 

whether or not such a transaction can be financed. Indeed, the financing 

alternative chosen by TEP has nothing to do with TEP's outstanding debt. Under 

this financing structure, the credit support for the transaction is the assets that are 

being financed with equity support from third parties. Employing such a financing 

technique allows investors to make value judgments with respect to the cash flows 

emanating from the assets. From my review of the bid, investors would find the 

TEP proposal to be highly attractive. In fact, I have been involved in transactions 

with similar structures in my career and I am confident that a structure like this for 

Tucson could be completed successfully. 

The foregoing is intended to clarify and amplify on the aforementioned 

subject. If I can provide any additional information, please let me know. 

Thank you for allowing me to present testimony before the Subcommittee 

and for permitting me to present this clarifying information. 

cc: Kevin C. Fitzgerald 

a:;·IJSft~u !'it~/"' ~:orge A. Schreiber, Jr. 

on behalf of the 

Alliance for Power Privatization 
324 

FEDERAL ENERGY REGULATORY COMIISSION 

WMiaa'I-DCIIMa 

OffiCI Of THI CHAIII June 19, 1995 

The Honorable John T. Doolittle 

Chairman 

Subcommittee on Mater and Power Resources 

Committee on Resources 

u.s. House of Representatives Washington, D.C. 20515 

Dear Mr. Chairman: 

During your Subcommittee's May 18 hearing on the Sale of 

Federal Power Marketing .Administrations, you asked for a list of 

all acts and their requi~ts with which the Commission must 

comply in acting on an application to license a hydropower 

project. 

The enclosed list cites all principal acts and their 

requirements which apply to the COmmission's hydropower licensing decisions. The list does not include special, project-specific 

acts. 

I hope that this information is helpful. If I can be of 

further assistance in this or any other Commission matter, please 

let me know. 

Sincerely, 

~:A.~;e~ Chair 

Enclosure 
LBGXSLATXON WXTB WBXCH PERC LXCENSXNG ACTXONS MUST COMPLY 

Federal Power Act (PPA), 16 u.s.c. SS 791a-825r, as amended 

The Commission issues licenses to jurisdictional non-federal 

hydropower projects pursuant to Part I of the Federal Power 

Act (FPA), as amended from time to time. Recent amendments were enacted in the Electric Consumers Protection Act of 

1986, Pub. L. No. 99-495, and in sections 170l(a) and (d) of 

the Energy Policy Act of 1992, Pub. L. No. 102-486. Under 

the Federal Power Act, before licensing any project, the 

Commission must find the project to be best adapted to a comprehensive plan for improving or developing a waterway or waterways for beneficial public purposes, and it must be 

satisfied that the project meets the various other 

requirements of Part I of the Federal Power Act. 

Sections 1701(b), 2402, and 2403 of the Energy Policy Act of 

1992, Pub. L. No. 102-486 

These provisions, which were not amendments to the FPA, 

respectively define fishways, limit hydropower projects in 

units of the National Park System, and authorize the 

Commission to permit the preparation of environmental 

analysis documents by FERC-approved contractors paid by the 

applicant. 

National Environmental Policy Act, 42 u.s.c. s 4321, at seq. 

This act requires the Commission to analyze the potential 

environmental effects of a proposed action and of reasonable 

alternatives thereto. 

Sections 401 and 404 of the Clean Water Act, 33 u.s.c. ss 1341, 1344 

A prerequisite to issuance of a license is the project's 

receipt of state water quality certification, or waiver 

thereof, pursuant to Section 401 of this act. Most licensed 

projects also must obtain from the Corps of Engineers a dredge and fill permit pursuant to Section 404 of this act 

before they can construct the project. 

Fish and Wildlife coordination Act, 16 u.s.c. ss 661-62 

This act requires the Commission to consult with the u.s. Fish and Wildlife Service and the National Marine Fisheries 

Service before acting on a license application. 
National Historic Preservation Act, 16 u.s.c. S 470 

This act requires the Commission, before licensing a project, to consider the project's effects on any site, 

structure, or object included in, or eligible to be included 

in, the National Register of Historic Places, and to afford 

the Advisory Council on Historic Preservation an opportunity 

to comment. 

Endangered Species Act, 16 u.s.c. SS 1531-43 

This act requires the Commission to ensure that, inter alia, 

licensing actions do not jeopardize protected species or their habitat. 

Wild and Scenic Rivers Act, 16 u.s.c. S 1271 ~ ~· 

This act bars the Commission from licensing hydropower 

projects on or adversely affecting river segments designated 

as, or selected for study for possible inclusion in, the 

National Wild and Scenic Rivers System. 

Pacific Northwest Electric Power Planning and Conservation 

Act, 16 u.s.c. S 839 et ~· 

The act requires the Commission to provide "equitable 

treatment" to fish and wildlife; take into account "to the 

fullest extent practicable" the Northwest Power and 

Conservation Planning Council's fish and wildlife program; 

and consult and, to the "greatest extent practicable," 

coordinate actions with other relevant agencies. 

coastal Zone Manageaent Act, 16 u.s.c. S 1451 et ~· 

This act bars the licensing of a project within or affecting a state's coastal zone, unless the state concurs with the 

applicant's certification of consistency with the state's 

approved coastal zone management program. 

Wilderness Act, 16 u.s.c. S 1132 et seq. 

This act bars the licensing of projects within designated 

wilderness areas. 
-3-

Indian Preedom of Religion Act of 1978, 42 u.s.c. S 1996 

This act requires the Commission to avoid unnecessary interference with traditional Indian religious practices. 
IICBII 

Natiorw.f CooperatitN? Business Association 

328 

Statemc:nt of 

Russell C. Notar 

President and CEO 

Nalional Coopenlive Business Associalion 

submitlt:d to the 

Rc9oun:es Committee 

Subcommittee on Water and Power Resow-ces 

U.S. House of Reprcsentalives 

May 18, 1995 

Chairman Doolittle, rank.iug Member DeFazio, and distinguished Members c f this 

committee, I am Russ Notar, Presidcot and CEO of the Nalional Cooperative Business 

Association (NCBA). a national, cross-industry membership and trade association representing 

cooperatives which encompass over 100 million Americans and 47,000 businesses ranging in 

size from small buying clubs to Fortune 500 companies. 

Founded in 1916 and known for many years as the Cooperative League of the USA, 

NCBA 's membership includes cooperative businesses in the fields of housing, health care, 

finance, insurance, child care, agricultural marketing and supply, rural utilities and consumer 

goods and services as well as state and nalional associalions of cooperatives. NCBA represents 

cooperatives before Congress and the federal agencies and promotes and supports cooperatives 

in the U.S. and overseas through training and ta:hnical assistance publications and programs. 

I am pleased to submit this testimony on behalf of these cooperatives and their members. 

For the record, NCBA is strongly opposed to any proposals that would serve to, directly 

or indirectly, raise electric rates for consumers. Specifically, we are opposed to any sale of the 

power marketing administrations (PMAs) that would result in higher monthly electric bills for 

the consumers and businesses that rely on these agencies to light their homes and operate their 

businesses. 

R,.,senling Atnerlu's Cooper.rive Businsss Community 

1401 New Yor1< Avenue, N.W. • Suite 1100 • Washington, D.C. 20005·2160 

(202) 638-6222 • Fax (202) 638-1374 
329 

Statement of Russell Notar page 2 

The possibility of conswners having to bear the burden of this sale is bad enough. 

What makes this proposal even more disturbing is that the federal government is now reneging 

on a partnership formed long ago with the customers of not-for-profit, cooperatively-owned and 

community-owned electric utilities. 

These consumers have had equity investment of over a half century in the PMAs. 

Initially, when the federal government was constructing these multi-purpose dams, hydropower 

was more expensive than alternatives. Even so, cooperatively-owned and community-owned 

electric utilities agreed to the partnership because the dams provided much needed local 

economic development benefits, as well as the basic structure for real, stable competition 

between the consumer-owned and investor-owned utilities. 

Pulling the rug out from under these consumers now, simply put, is a breach of faith 

by the federal government. But to also sock these same consumers with a backhanded tax in 

the form of higher monthly electric bills goes beyond a question of fairness -- it is simply 

unacceptable. I urge you to use every available means to guarantee that electric rates do not 

increase as a result of a PMA sale. 

The National Cooperative Business Association is not alone in our opposition to higher 

electric rates. I want to take this opportunity to submit for the record a copy of a letter that 

was signed by the NCBA. along with twenty-four other national organizations, who join us in 

our opposition to higher electric rates for millions of hard working American families. 

Again, Mr. Chairman, I appreciate the opportunity to speak here today on behalf of the 

cooperative business association's member consumers and businesses. We appreciate the 

support of this Committee on this matter of vital importance to our membership. Thank you. 
The Honorable Newt Gingrich 

United States House of Representatives 

Washington, D.C. 20515 

Dear Representative Gingrich: 

330 

May 11 , 1995 

We are opposcd to the Adminislrlltion's propooed sale of the Southeastern, 

Southwestern, and Western Area Power Marketin& Adrninislrlltions (PMAs). We are also 

opposed to Conaressional effons to include the Bonneville PMA and the Tennessee Valley 

Authority (fV A) in this sale. 

If thesc valuable public resources are auctioned off to a profit-driven third pany. 

electric rates would increasc for tens of millions of consumers and the competitive balance of 

the electric utility industry would be destroyed. 

Power sales by thesc PM As cover all their operatin& costs and repay the facilities • 

construction costs, with interest. No 0111 is pttinr 11 fnt or 111blidiutl rillt. In fact, a March 

1995 Conaressiona1 Research Service Report (CRS) shows that the PMAs provide a lona-tenn 

source of revenue to the U.S. Treasury. 

This revenue is financed by the customers of over 1,100 not-for-profit, rural and 

municipal consumer-owned utilities that pay their own way by purchasin& power from the 

PMAs. These cons •mers cannot afford a government that raises their electric rates in what 

amounts to nothinr mo" than 11 hilldtn 141: increau. 

We are also concerned ahout the "balance of purposes" currently in place - namely the 

multi-purpose nature of the dams from which the PMAs market their power. These dams are 

federal projects that provide flood control, water and power supply and environmental benefits. 

They also safeguard recreation and navigation activities. We do not believe that a private, 

profit-driven entity can become a full partner in these interests at an almost certain loss of 

revenue. 

We urge you to reject any proposal to sell the PM As and the TV A and resist the shortsighted temptation of a one-time cash infusion to the goverrunent financed by taxilll elecU'ic 

consumers. 

Thank you for your serious consideration of our vi\:WS. 

Sincerely, 

~?.:-:.50( National Rural Electric Cooperative Association 

LNPI~ Larry Hobart 

Executive Director 

American Public Power Association 
/~lf.,L Stephen Brobeck 

Executive Director 

Consumer Federation of America 

~.lr.J-,.~ Leland Swenson 

President 

National Farmen Union 

Qf!;! 

International President 

331 

International Brotherhood of Electrical Workers 

~dLJ Wayne Nelson 

President 

Communicating for Agriculture 

Dean Swanson 

President 

National Rural Education Association 

~-~~ Charles M. Loveless 

Director of Legislative Affairs 

American Federation of State, Municipal 

and County Employees 

Victor Ashe 

President 

United Stales Conference of Mayors 

~~ Russell C. Notar 

President and CEO 

National Cooperative Business Association 

~t.&--J I Robert E. Barrow 

National Master 

National Grange 

·~ President 

National Council of Farmer Cooperatives 

~~ Richard 0. Fenske 

Immediate Past President 

Water Resources Congress 
~~~ c:-•----,-· 

Harry N. Cook 

President 

National Waterways Conference 

Economic Policy Instirute 

0--..J . .f~ ,{'~ L. Henry~ President 

Transportation Institute 

cJk,u ~rr;...__ Steve Halloran 

President 

National Fanners Organization 

Lorene Picciar»-Hanson 

Executive Director 

Rural Coalition 

332' 

1:[_~~ National Director 

American Agriculrure Movement 

~~u!~ President 

American Waterways Operators 

~.~ Executive Vice President 

Nati0111J Water Resources Association 

Fredrick 

#4- D. Palmer 

General Manager and CEO 

Western Fuels Association Inc. 

~thl Margaret Morgan-Hubbard 

Executive Director 

Environmental Action 

~~ Tom Halicki 

Executive Director 

National Association of Towns and Townships 
333 

June 13, 1995 

The Honorable John T. Doolittle, Chairman 

Subcommittee on Water and Power Resources 

Committee on Resources 

U.S. House of Representatives 

Washington, D.C. 20515 

Dear Chairman Doolittle: 

American Public Power Association 

2301 M Street NW 

Washington. D.C. 20037 ·1484 

202/467-2900 

Enclosed are my responses to Rep. Cremeans' questions transmitted to me on 

May 31, 1995. 

As requested, I am returning these responses together with a copy of the 

questions and answers on a 3 1/2 inch disk in WordPerfect file. 

Alan 

4~~u~ H. Richardson 

Deputy Executive Director 

Enclosures 
Questions For Alan Richardson, American Public Power. (Panel II) 

1.) I represent Ohio's 6th Congressional District. As you know, Ohio is not a 

recipient of PMA power. According to DOE, Ohio receives no benefits from 

electricity produced from federal power facilities. Mr. Richardson, it is my 

understanding that APPA claims that the current preference power customers 

have an equity stake in these facilities because they have purchased power 

from these facilities for so long. How, in light of the fact that PMA's have 

received appropriations monies from the federal government and been 

granted low or no interest loans, and when the federal government built the 

darns in the first place ... how can l explain to taxpayers in Ohio that they have 

no equity stake when other taxpayers claim they do and should receive an 

asset at below fair market value? 

2.) As a follow-up question, the APPA claimed in letters in 1993 that NRECA had 

stated that the tax-exempt status of bonds used by public power systems "results 

in [public power having] the lowest cost of capital of all utilities and 

contributes to their having the lowest rates." I would like to hear an 

explanation regarding the impact of the cost of capital on utility rates. 

3.) In the same letter, APPA wrote that "NRECA reports that more than 70 percent 

of all rural electric systems have higher rates than their neighboring 

utilities." Since there has bee.n a lot of discussion about rate hikes, I would 

appreciate a clarification of this point from all parties, as it would seem that 

rate hikes would not be much of a problem in areas served by coops, if nearly 

three-quarters of them have higher rates than surrounding utilities. 

4.) In a paper prepared by NRECA's Chief Economist, the NRECA claimed that 

your organization stated that "tax-exempt financing allows municipals to 

borrow at rates 25 to 30 percent less than what they would pay if the interest 

were taxable." NRECA's study went on to say that this subsidy reflects "a cost 

to the federal government of$1.2 billion for 1991" and that "whereas federal 

subsidies to other utilities are severely restricted, tax-exempt financing is 

available without limitation to meet all capital requirements of city-owned 

utilities ... " I would appreciate your comments on these claims. 
335 

Jun~ 13, 1995 

QUESTION 1 RESPONSE: 

This is a question of several parts, and based on several assumptions. 

Specifically: (I) that "Ohio r~ceiv~s no benefits from electriciry produced from 

federal power faciliti~s·; (2) wheth~r "current preference power customers have 

an equiry stake in these facilities" since "the f~deral government built the dams 

in the first place"; (3) that the PMAs have received "low or no interest loans"; 

and ( 4) that Ohio taXpayers have a real equiry interest and this should be 

refl~cted in a sale of the ass(ts at a price that reflects what they could yield if 

sold to the highest bidder. Each of these deserves an answer. 

It is true that no federal power is marketed in Ohio. But it is not true that Ohio 

residents do not receive benefits from the fed~ral power program. Relatively 

low cost federal power is an essential ingredient in goods and services produced 

in hundreds of communities and marketed throughout the U.S. and abroad. 

The irrigation assistance payments made by federal power customers helps 

hold down the cost offood and fiber, for the benefit of all consumers. The 

federal power program has fostered competition within the electric; utiliry 

indusuy by assuring a source of power supply for hundreds of public power 

systems and rural electric power cooperatives. All of these effects of the federal 

power program benefit consumers throughout the nation, including in Ohio. 

As to equiry interest, opponents of the existing federal program focus on the 

legal aspects of the concept of "equiry" without considering what is equitable 

under the circumstances. Federal power customers have repaid, through their 

power bills, a substantial portion of the federal invesunent in these power 

facilities. Relying on over SO federal laws assuring public power systems. and 

rural electric cooperatives access to this source of power, they have passed up 

other opportunities to build and own electric generation facilities. In some 

areas, they have tied their utilities to the federal transmission system. For 

them, nothing could have been more certain than repeated pledges by the U.S. 

2 
336 

Congress that federal power would continue to be available to them at cost-based 

rates. 

This reliance on the federal government clearly gives rise to an "equitable" 

interest in these resources. This interest is based on reasonable expectations that 

the federal government would not turn its back on its parmers in power and 

would not reverse decades of federal policy regarding the allocation of federal 

power. 

As to "low or no interest loans", the only .!lQ. interest loans are those made by 

the federal government to cover irrigation investments. These investments are 

repaid in part by the irrigators. Investments that cannot be covered by irrigators 

are repaid by power users. In this regard, if there are any subsidies in the 

federal power program, they flow from electricity ratepayers to irrigators. But 

these "subsidies" - accepted by federal power customers as a cost of developing 

these federal facilities - benefit not only the irrigators but all consumers of food 

and fiber. 

As to low interest loans, this is a relative matter. In today's market, the interest 

rates on some of the federal power facilities may appear low. But they were the 

prevailing interest rates for the federal government when these projects were 

authorized. They are akin to home mortgage rates three or four decades ago. 

Today, they seem low. But that doesn't mean the lender today can unilaterally 

alter those rates. That would clearly be inequitable. 

Finally, you have raised the question of how you can explain to your Ohio 

constituents how these assets can be sold for something less than "fair market" 

value. This, of course, assumes that these assets should be sold. In fact, there is 

no sound reason why the government should dispose of assets that have a net 

positive revenue effect. All taxpayers are very well served under the current 

system. 

Putting aside this question, there is another public policy issue that deserves to 

be addressed - and that is what is equitable for the taxpayers, including your 

Constituents in Ohio. Certainly, the U.S. Treasury should recover its 

3 
337 

investment, together with interest, if Congress elects to dispose of any of these 

projects. In no way does this work to the disadvantage of the taXpayers. 

When considering this issue, it is very important to keep in mind the totality of 

taXpayer investments in water infrastructure projects throughout the country. 

Collectively as taXpayers we have invested billions of dollars in federal 

infrastructure projects. Every region and every citizen enjoys the benefits of 

these investments. 

Attached for your information is an excerpt from a 1990 report that summarizes 

federal investments in federal water projects by region, and identifies the 

pere<ntage of those costs that are reimbursed by the beneficiaries of those 

projects. This data show that the total of all federal water project costs in the East 

North Central region of the United States (which includes Ohio) from initiation 

of the programs to 1980, is $29,999 million (expressed in constant 1985 dollars). 

Of this total, only $240 million, or 0.8 percent is reimbursable to the federal 

government. For Ohio alone, the total cost of all federal water project 

investments over the same period is $7,797 million, of which only 1.3 percent is 

reimbursable. Federal power customers in other regions, who are repaying the 

federal investment in federal power facilities, with interest, and subsidizing 

irrigation investments as well, might well ask why their taX dollars are being 

spent on projects in Ohio and elsewhere when the beneficiaries of those 

projects do not assume a similar repayment obligation. 

QUESTION 2 RESPONSE: 

It is true that the cost of capital for public power is lower than for cooperatives. 

But this is only a small part of the reason why the retail rates of co-ops are 

approximately 15 percent higher than public power rates. 

In 1993 the average embedded cost of long-term debt capital for public systems 

was 5.92 percent while the cost for co-ops was 6.46 percenL Also, for this year, 

the average retail rate of public power systems was 6.1 cents per kilowatt-hour 

while the rate for co-ops was 7.0 cents, or almost 14.8 percent higher. 

4 
338 

If the co-ops' embedded cost of debt capital was the same as public systems in 

1993 their average retail rate would have been 6.9 cents instead of 7.0 cents. Still 

13.1 percent higher than public power rates. 

QUESTION 3 RESPONSE: 

General economic factors that affect electric utilities are likely to affect all 

sectors of the industry. The fact that the rates for one group of utilities are 

higher or lower than another does not protect it from general economic 

impacts. 

For example, a general increase in short-run coal prices will affect co-ops 

regardless of whether their rates are already higher than surrounding utilities. 

The price rise would increase or lessen the rate disparity based on each utility's 

relative dependence on coal. 

QUESTION 4 RESPONSE: 

It is true that public power borrowing costs are lower than they would be if they 

were not tax-exempt. But I hasten to point out that this is because we are units of 

local ~ovemment and as such are entitled to jssue tax-exemvt debt. 

I will return to this point in a moment. But first I want to point out that NRECA 

fails to mention the fact that the borrowing costs of cooperatives are 

approximately 16 percent lower than they would be were it not for the federal 

subsidies available to them. 

In regard to the cost of tax-exempt financing to the U.S. Treasury, I contend that 

it is zero - unless we choose to change the way fiscal federalism has operated in 

this country for almost 200 years. To talk of tax-exempt financing as a subsidy 

in the conventional sense is mixing apples and oranges. 

State and local electric utilities- like police, fire, education, water, waste water 

treatment, public transportation, public parking, and other such services- are 

legitimate functions of state and local governments, purposively established and 

5 
339 

controlled by local citizens. An attack on the right of state and local 

governments to issue tax-exempt bonds to finance electric utility operations- by 

attempting to categorize these bonds as a subsidy- is an attack on the right of 

state and local governments to issue tax-exempt debt for any activity. 

The right to issue tax-exempt debt was not the result of specific congressional 

action intended as a subsidy in the conventional sense - such as investment tax 

credits and accelerated depreciation for investor-owned systems, and lowinterest loans and other RUS programs for the co-ops. It is a fiscal relation that 

has evolved between the federal and state and local governments based on the 

realization that the power to tax is the power to destroy. 

Accordingly, each level of government is sensitive to the others' respective 

governmental roles and functions, and the revenue raising instrUments used to 

fund the functions. For example, state and local governments are not allowed to 

tax the revenue raising instrUments of the federal government, and it is 

expected that the federal government will not tax the revenue raising 

instruments that state and local governments rely on. 

In regard to the annual dollar loss to the Treasury due to co-op subsidies, the last 

time APPA estimated this it was about three quarters of a billion dollars. This 

was based on 1987 data. Since then the amount of RUS debt on the co-ops' books 

has increased from $11 billion to $18.3 billion in 1993, or two-thirds. So it is 

reasonable to assume that three quarters of a billion dollars, although probably 

much too low, is still a good indicator of the magnitude of the cost to the 

Treasury. 

Finally, for NRECA to contend that subsidies to co-ops are "severely restricted" 

is inaccurate. The two-thirds increase in RUS debt recorded on the books of 

cooperatives during the 6 year period from 1987 to 1993 does not suppon their 

claim. As for the investor-owned systems, and I refer to them only because by 

inference they were included in NRECA's claim, their use of accelerated 

depreciation is not restricted. 

Attachment 

6 
r 

I 

I 

I 

I 

I 

I 

I 

I 

I 

I 

I 

340 

FEDERAL WATER PROJECTS 

COSTS 

COMPll.EDBY 

TRUMAN PRICE 

Public Power Council 

500 N.E. Mulmomah, Suite 729 

Ponland. Oregon 97232 

and 

ALEX RADIN 

Northwest Public Power Association 

9817 N.E. 54th Street 

Vancouver. Washington 98662 

February 1990 
341 

TABLE OF CONTENTS 

I. Executive Summary 

II. Federal Water Projects Costs 

1. Federal Water Projects Costs 3 

Summarized by Region and Rcimbursability 

(Millions of 1985 Constant Dollars) 

2. Federal Water Projects Costs 6 

Summarized by Agency and Purpose for States, Regions. 

and the Nation 

3. Federal Water Program Costs 13 

Summarized by Decades and Agency 

(From Initiation of Programs to 1989) 

4. Federal Water Program Costs 16 

Summarized by Agency (From 1980 to 1989) 

s. Federal Water Projects Costs 19 

Summarized by Region and Purpose 

6. Federal Water Projects Costs 22 

Summarized by Purpose and Agency 

Appendices: 

A. Federal Hydroelectric Plant Statistics 25 

B. Nine Minor Census Regions 40 
342 

EXECUTIVE SUMMARY 

This repon provides factual infonnation 

about the allocation of federal funds for water 

resource projects by region, state, federal agencies. and purposes served. 

The repon was prepared by Truman Price, 

Washington, D.C., representative of the Public 

Power Council, and Alex Radin, representing 

the Nonhwest Public Power Association. ConP"ssional Research Service data were augmented 

by information compiled by Mr. Price. 

An imponant aspect of this study is that it 

shows the extent to which the cost of federal 

invesunents in water resource projects is being 

repaid by the users. Elecaic power generation 

wd transmission facilities, irrigation projects 

and water supply are functions whose costs arc 

repaid. or reimbursed, to the federal treasury. 

The region served by the Bonneville Power 

Administration (BPA) compares favorably with 

the national average and with other recions in 

terms of the proponion of the federal investment 

'" ,..ater resource development that is being paid 

back to the federal government. Washington. 

Oregon. Idaho and the ponion of Western 

Montana served by BPA willrepay65percentof 

the tot.:ll cost of water resource development in 

those states, whereas the average to berepa.id by 

all mne census regions is 26.1 percent (Table I) 

Of the total federal funds spent for water resource projects from the inception of federal 

water programs to 1980, the largest amount, 

S81.9 billion, was spent for flood control: the 

second largest. $64.3 billion, was dcv01ed to 

navigation. These programs arc eonsidcral to be 

in the broad national interest. and their costs arc 

not reimbursed to the federal government. 

The cost of power facilities. S44.7 billion, 

represents the third largest expenditure in the period to 1980, and is being repaid in full to the 

federal treasury (Table 5). 

Because resources and needs vary from 

region to region, then: is not an equal disaibution of spending for water resoun:e projects for 

all regions. Thus. for example, expenditures for 

irrigation arc limited to western regions, because the fcdcral reclamation program is confined to the 17 western states. 

The study also identifies an important change 

occurring in fcderal water programs. During the 

last two decades. inveStments in flood control, 

navigation, reclamation and hydropower projects have been surpassed by funding for water 

quality projects such as municipal wastewater 

treallliCIIt systems. 

Spending by the Environmental Protection 

Agency (EPA) for water quality projects over 

the past 20 years has increased by $68.1 billion' 

over such expenditures in the preceding 20 years 

(Table 3). This shift in emphasis from federal 

investments in flood control, navigation, reclamation and power to waterqualil)' is expected to 

continue. It is likely that a greater share of 

federal investments for water projects in the 

future will go to large metropolitan regions, 

especially those in the east and the midwest, 

which have the greatest need for water pollution 

control facilities. 

' This r..- is 1arp t11an 11111 shown for wau:r quality in Tlblc S because Tlble S does not inclucleexpendiwres for lhe period 1980-1989. 
343 

FEDERAL WATER 

PROJECTS COST 

From time to time, questions are raised about 

the relative amount of federal funds !hat have 

been allocated for water resource projectS to 

various states and regions. A variety of additional questions are raised about how lhese funds 

have been spent for the several major purposes or 

project consauction. This repon is intended to 

provide factual information which can be used to 

answer such questions. 

Most or !he basic data for !his repon was 

compiled by the Congressional Research Serv· 

ice (CRS) in a repon entitled, "Computer Program Development for Water Resource Obliga· 

tions." The CRS material was assembled at !he 

request or Representative AI Swift of Washing· 

ton State to help evaluate the allocation offederal 

water project dollars over time. Figures included 

in the repon cover the period from !he initiation 

of water resource programs to 1980, and are 

presented in 1985 constant dollars. 

The study covers all major federal agencies 

which carry out water resource projects. includ· 

ing the U.S. Army corps of Engineers, Bureau of 

Reclamation. Tennessee Valley Authority, En· 

vironmental Protection Agency (EPA), and the 

Soil Conservation Service. 

Unfonunately, the CRS study did not provide a breakout of expenditures forcenain major 

project purposes. For example. it did not break 

out the expenditures for navigation. flood control. power, irrigation, and water supply for 

multiple purpose projects of !he Corps of Engineers and the Tennessee Valley Aulhority. Also. 

it did not include expenditures by the EPA for 

water quality programs made prior to passage of 

the Clean Water Act of 1972. Funher, it did not 

divide costs of multiple purpose power projects 

that are common to two states. Without such information the study could not provide an insight 

into a variety of questions relating to expenditure distributions by major project purposes, 

and !heir reimbursability to the U.S. Treasury. 

To make !he repon more comprehensive 

and useful, Truman Price, Washington Representativeoflhe Public Power Council, assembled 

independent data on allocation of costs for federal multiple purpose water projects !hat include hydroelecaic generation (Appendix A). 

He also obtained information fonn !he 9 regional offices of !he Corps of Engineers on 

water supply allocations and expenditures. 

Funher, he compiled information on water 

quality expenditures prior to passage of !he 

Clean Water Act of 1972, and obtained information on expenditures since 1980 from !he W.ter resource agencies. All of !his supplemental cost 

information was convened to 1985 constar· 

dollars using U.S. Depanment of Commert... 

price deflators.• 

The data are presented at lhrec basic levels 

of aggregation: 

I. States 

2. U.S. Census Regions (Appendix B) 

3. Nation 

In addition to these levels. a special aggregation is presented for !he Bonneville Power 

Administration service area. 

Accuracy of !he information is very close, 

but not absolute. For instance, minor COSts to be 

reimbursed from certain recreation facilities 

constructed since 1964 are not included. Also, 

costs associated wilh multiple pwpose power 

projectS are deflated using a single year for each 

' The della~<~r used 10 conven nominal doliln iniD 

COIIAIIIt dollars is lhe JI'DSS national pmdua implicit 

price clefllror for fedenl JQVemlnellt pun:hues or Jooda and services. 
·ecr-usuaUy half way between die yearc:on· 

p!OJ 0

· on started and the year the last unit c:om- stJ'UC • need producnon. 

~ The regional summary table (Table 1) and 

h detailed summary table (Table 2) indic:m: 

:h:t all states and regions of the Nllion have 

benefited from federal mvestments m wuer 

resource programs, although the diSU"ibulion of 

water resources. potenual for development and 

other factors make it impossible for each region 

to share equally in federal investments. For 

example. the greatestpo!ential forirriplion is in 

the West; thus, fedellll expendinues for Drip· 

tion have been limited to the 17 western stateS. 

The detailed breakout of costs, however, do 

not cover trends or include investments made 

srnce 1980. Tables 3 and 4, therefore. have been 

prepared to reflect trends and recent invest· 

ments. They show, for example, tlw expendi· 

tures by the Environmental Protection Aaency 

for municipal wastewater collection and lreat· 

ment facilities have been relatively recent and 

proponionately greater in comparison with the 

"' arer program investments of the other agen· 

ere>. EPA expenditures in the last20years have 

mcrca,ed by S68.1 billion over expenditures 

made dunng the preceding 20 years. By con· 

tra st. expenditures of all other agencies for the 

same penods have decreased by $7.0 biUion. 

The trend toward greater proportional in· 

vestments in water quality is expected tO continue . This shift in emphasis from feder.al investments 1n flood control, navigation, reclamation 

and power to water quality wiU mean that in the 

future a proponionately greater share of federal 

rnvesrmentS for water resource projeCts will 

likely flow to large metropolitan regions. especially those in the midwest and east. which are 

heavily impacted by the need for greater water 

pollution control. 

An important consider.ation in comparing 

relative federal expenditures by stales and regions is the extent of which those expenditures 

are reimbursable. This study includes power, 

irrigation and water supply as reimbursable 

expenses. Thus, in the area served by the Bon· 

344 

neville Power Adminislralion, 65.0 percent of 

die federal expendinues an: reimbursable, second only 10 die Mountain region in the percentage of expenditures that is reimbunable. The 

avenge amount 10 be reimbursed by all nine 

census regions is 26.1 percent. In addition 10 

costs directly amibutablc to cleclric power production and dislribution, customen of federal 

power projects also generally pay that portion of 

irriplion costs that are beyond the ability of 

irrigators 10 pay. and for certain fish and wildlife 

mitigation and enhancement measures. 

Table 5 summarizes federal water project 

costs by purpose and reinforces the point that all 

regions have benefited from federal water resource expendinues through a variety of programs. The largest amount spent until 1980 for 

a single purpose was $81.9 billion for flood control; the second largest amount. $64.3 billion, 

was for navigation. The cost of power facilities. 

$44.7 billion, represents the third largest ex· 

pense by function. but this amount is to be repaid 

in full to the federal creasury. 

Finally, Table 6 summarizes costs by pur· 

pose and agency. The Corps of Engineen has 

played the major role in the construction of 

power facilities (52 percent), naviiation (94 

percent) and flood control (86 percent). The 

Bureau of Reclamation has played the major 

role in irrigation (97 percent). 

In several of the tables, the column labeled 

"other" refen to various costs not included in the 

previous categories. They include costs associ· 

ated with recreation, fish and wildlife, water 

quality control, beach erosion control, scream 

flow regulation. area redevelopment and anad· 

ramous fish enhancement. With the exception of 

a very small portion of recreation COSIS, virtually 

all coSIS in this category are non-reimbursable. 

Federal water programs have expc:rienced 

consider.able change in recent years, bach in 

scope and emphasis. This report on federal wuer 

program expenditureS has been prepared 10 

provide an information base that may be used 10 

better answer emerging policy and program 

questions. 
345 

FEDERAL WATER PROJECTS COSTS 

Summarized by Region and Reimbursability 

(Millions of 1985 Constant Dollars) 

(From Initiation of Programs to 1980) 

Covers costs of the Corps of Engineers. Bureau of Reclamation, 

Tennessee Valley Authority, Environmental Protection Agency 

and Soil Conservation Service 

3 
... 

FEDERAL WATER PROJEC

Summarized by Region and Rei

(l\lillions or 1985 Constant Dolla

.. .. .. .. 10 .. 

()d ~, 

•S> .. 

C>· ~

-~KE

Figure 1 
a-thl'owtf 

AdrMIIs••tlon 

Waslinglon 

Oregon 

We 

Mcnana(Weslem) . 

TOTAL 

Census Region V 

Pacific 

~brUin 

Well Nortl Cenlral 

Well Soufl Central 

. Eut Nortl C.. II 

East South Cen~al 

New England 

Midcle Allar* 

SoufiAiric 

TOIII: Nnt Cansul 

Regions 

FEDERAL WATER PR

SUMMARIZED BY REGION 

(Millor11 of 1915 Co

From lnltialion of Pro

Tol.ll Rtl

Costs 

$19.383 $

9.194 

3.432 

2,117 

$34,126 

$56,359 

32,357 

31 ,533 

40,963 

29,999 , • .. 

32,287 

8,0M 

22,484 

26,419 

$210,411 

11 Covers costs ol1he Corps ol Eng'-s

Authorily, Envircnnenlal Prolldion Aq/lr

'21 Set Appendix e lor sl.lles willin eadlr
348 

FEDERAL WATER PROJECTS COSTS 

Summarized by Agency and Purpose 

for 

States, Regions, and the Nation 

(From Initiation of Programs to 1980) 

6 
.... 

$?8%6 snolO 

.. flTI sn I&J 

• '''t" FEDERAL W

Summarize

120.ooo-•---•ml--mt---•--- (Millio

0 

IOIIEVWPWII W.H. CliiTIW. W.S. CEiflliAI. E.H. CEHIIIAI. 

Fip· ~2 
AEGIOIWTAIE 

- ~~~ 

_ .. _ 

Wathnglon 

-- 17.115 u Ooogon 3.0111 

" - 1.011 

-two· .. "' '·'" TOTAL 112.119 S92 

...... 

....... II. liS S3 

Ooogon 3.101 .. -- 211 

How• TOTAl. iiU,IB m 

= 11,121 1201 

- 1,1111 

w,o.;ns 

Color .. 

HorrMolioo 

--- TOTAl. 12.713 1201 

--- .... 

-

- 153 

-- 147 

-- 1,472 331 

"* ... 

- TOTAl. 12.172 IJll 

--- - 11,401 

........ 

'*"- 721 

T- 321 

TOTAl 12.450 

.. -- -·· 

FEDERAL W"rER PROJECTS C

(Millions oi19415Consl1111 D-s} 

(From lnlllallon ol Programslo1980} 

CORPS OF ENGINEERS 

w ... , -gorlon Flood Olhtr 11 

- Supply Con•ol 

m 12 385 11.093 $149 13

11 1_8SS 2.130 19< 

" 401 42 

219 9! 

167 14.211 S3.14J 1411 14

112 12.311 11.093 1149 ll

11 1.115 2.1!0 

'" 

191 1,111 1,513 100 

221 J09 

211 150 3 

ma 11.131 10,195 1,141 1

1111 1121 1722 

" 401 41 

2 51 4 

2 .. 

1,190 

, 210 

40 

1 31 

1225 53.511 1151 1

1151 1291 

' 1.101 1~75 

71 2,951 4,GII 513 

331 191 I5D NO 

341 127 .. 

592 510 419 

104 438 2,174 

1525 11.913 110,212 12.010 1

129 53.411 14,419 5351 

4,110 1.4116 315 

153 1,011 2,195 431 

194 2.941 3,133 11 

1171 112.211 117,443 11,111 

TOTAL FOR IIUAfC IIEOION; 11

&.1. .... ........aa.. __ _..._... __,__._, _.. •• 
AEGIOH.'; lA IE 

--

Washngb'l 

·-~~·- (loop 

MotaniiW"•ml - IOTA 

Poe lit 

WattMgbt 

o..,. 

Crrlolouq 

Al.u 

Moo• TOTAl _ ..... 

....... 

...,...... -

C<iooldo 

........ ce 

an,... 

........ - IOTA 

W..r-Cinllll 

.... -........ i 

----

Konlll 

-- lOTAI 

•·•-con~~~~ 

l--IJIIMM 

,, .. lOT AI. 

.., 

FEDERAL WAlER 

Millions ol IU

!From lnlllotlon 

£mtronmenltl Soli 

Prottctlon Conservtdon 

Agtncy S.r-.lct 

S1J4 "5 

'2"l u 

131 II 

45 

" 

11.340 

$111 

1734 "5 

419 61 

4.7ft 451 

1l7 0 

397 " 

"·491 "I ' 

191 ~3 

I ll 18 

45 11 

375 47 

151 " 

314 73 

114 .. 

119 10 

11,419 1351 

lr.021 142 

518 2U 

165 69 

II 17 

117 22 

235 121 

355 234 

ll,194 1799 

1341 1110 

130 1)7 

431 119 

1,5111 913 

11.912 11~11 
FEDER"L W"T PRO.IEC"'IS COS

1 .. 0111 011MS Cont\ant '*. (Fra~a .._loft a1 Plo

REGION CORPS Of DIGINEERS 

STATE Powtt lrrlgllkln Wlttr Nlwlglllon F- O

'"""" eon ... 

EMI-C..II - $63 $1

,160 $-429 

lldigM 

1,&10 197 9

-

3.913 2.289 

- 73 

1.204 

1,032 

'OliO ·." 

.,. 104 2,7117 2.249 

lOTAL $63 Sill $10.704 $6

,196 $

bllloull Cenhl 

Knodty 

- Sl $2

.432 $2,412 $

T- 1127 

1,094 1,240 

-

-

2,319 100 

........... 3 

2,150 3,241 

TOTAL 11.191 $4 11.065 $7,593 $

':...... $211 $44 

,.....,.... 39 304 

Vennanl 21 314 

......... 7 114 

1,012 

llllldtlllllld 117 Ill 

Cannldlcol 11 204 119 

TOTAL $24 $1,531 $2

,541 

':'v. AIIIIIIC 12.237 $1,1131 

,......., 

1,419 511 

......,.. ... 69 1,7117 3,111 

lOTAL 169 $5

,523 11.073 $

a..AIIIIIIC 

..... 1194 117 

....,..,., 29 731 510 

o.tcl ol CaUIIIIil til so 

~ 264 I 1114 742 

Will~ 29 

l.lllS 1,616 

Narll Clotnl 224 24 641 631 

Scdlc.ab 464 671 Ill 

CllooiJII 1,455 1194 399 

FIDIIdl 17 

2,135 1,454 

lOTAL 12,474 113 11

.601 15

,747 $

0 -c... ....... $23,3111 1121 12.111 -- 110,454 _ ___m~ $7
FEDERAL WAlER PROJECTS C

(Millions ol1985 Constant Dollars) (From Initiation o

REGION Sotl Constrnlon TOiol 

STATE EPA Strvlct Co sis 

EatUior .. CtnWII 

w ......... $1 ,0J.l $10 $1.693 

MdlgM 2,7!;4 J.l 6,235 

- 3,073 Ill 9.38'l 

- 1,451 125 3.885 

Olio 2,574 12 1,1'17 

TOTAl $10,886 $424 129.999 

ENI Sou1h Ctnlnl 

Krildly $491 $136 $7.401 

T- 743 139 10.921 

- 417 112 7,652 

lolssi$Sipp 272 600 6,l)6 

TOTAl $1 ,923 $987 $32,287 

-Engllool 

More $413 $19 $718 

_...,.... 428 35 106 

v"""""' 168 10 513 

- 1.620 51 3.511 

-- 265 - 0 CiOI 

Comocil:lll 882 62 1,165 

TOTAL $3,776 $111 $8,080 

lllddloA-* 

-YOil $4,927 $91 $8,946 

_...., 2.846 55 4,966 

....... ,.. ... 2,613 138 1,572 

TOTAl $10,3116 $214 $22,.a4 

eo. A-* 

Dllloln $201 129 $1 ,217 

lllryWid 1,139 57 2.538 

DilnS Ill CciUNiil 218 0 353 

.....,.. 1,056 119 3,045 

Will VrQinll 467 154 4,122 

llariiCaollna 773 19 3.113 

Soli! Caollna 532 64 1,907 

Giorgia 154 227 4,072 

~ 1,542 53 5,282 

TOTAL ..... 1192 $21,419 

:: NlniCS.. ...... $47,tll $1,414 _$210,411 
REGION 

=VIlLE 

ADUINSTAATIOH 

Pll:ilc 

....... 

WN Cenlll 

WSCenlll 

EN. Cenlll 

E S. ConUI 

NowE,....S 

MdAIIrie 

So.Mnc 

Tout 

FEDERAL WATER PROJECTS COSTS 

SUMMARIZED BY AGENCY AND REGIO

(From Inception ol Programs to 1980) 

(Millions ol1985 Constant Dollars) 

CORPS OF BUREAU OF EHV

ENGINEERS REClAIIA OON 

$21.5!0 $11,065 

$21,968 $20.277 

7,480 23.030 

23,183 4,Jn 

34.327 1,835 

11,119 0 

17.967 0 

4,127 0 

11.114 0 

17,331 0 

$183,114 $41,311 

11~"--lianMIWI!atingAiuiiDided 

In Pll:ilc ll1d-Census Regions 
355 

Tucmn Electric Pt1uHN CompllfiJ/ 

220 Wee! Sixth Slreet 

1'0. llox 711 

Tuc:::tOn. Arizona 85702 

CharlnE.I!IayiChoi,.,.,. p,... • ..,. & C~~;o~ e-O<rieef June 22, 1995 

Congressman John T. Doolittle 

Chairman of the House Subcommittee 

on Water and Power Resources 

1526 Longworth Building 

Washington, DC 20515 

Dear Congressman Doolittle: 

(520) 884·3612 

FAX: (520) 884·3991 

Thank you for the opportunity to testify at your recent hearing concerning the 

privatization of power marketing authorities. As I stated at the hearing, I welcome the 

opportunity to submit additional written testimony in response to certain questions that 

arose. 

In particular, l .am responding to attacks made after I had departed, on Tucson 

Electric Power Company's (TEP) employees and management and our bid for certain of 

the Western Area Power Administration (WAPA) assets. I am clarifying the confusion 

created by witnesses concerning the payment of taxes. 

The attacks on TEP obfuscated the real issue currently before Congress, 

"Should the assets of the PMAs be sold?" To reach a decision on this question 

Congress must answer the relevant question "Is there a valid public value for public 

ownership of electric facilities and is this more valuable than Medicare or veterans 

benefits?" Is there value when electricity customers on one side of a street have a 

private power company and pay federal and state income taxes as components of their 

electric bill while people on the other side of the street don't and are given subsidy 

through public power? 

Once a bid is submitted for PMA assets by an investment grade company, the 

distracting rhetoric of the hearing will be exposed as a meaningless smoke screen. 

Congress will begin to address the key questions rather than argue inconsequential 

opinions. 

TEP's BID INTEGRITY 

Let me set the record straight regarding TEP's bid. First, the bid resulted from 

meetings with administration officials representing OMB, DOE and WAPA. Bid 

development necessitated an exhaustive review of WAPA contracts, rates, debt 

repayment schedules and financial statements. The TEP bid was not a sham, but 
356 

Congressman John T. Doolittle Page2 June 22, 1995 

would have produced value to federel and state governments in the purchase price and 

in the fact that ownership of these assets by TEP would result in income, property and 

sales taxes to federal and state agencies. 

TEP's BID IMPACT ON cuSTOMER RATES 

It was alleged that TEP could not make money on the transaction without a 

significant rate Increase. This opposite is the truth. Our offered purchase price 

assumed the current WAPA rates and rate methodology. Our offered price would have 

been adjusted upward if we were to consider rate increases. Completion of the 

acquisition under the proposed terms would produce a profit for TEP. Additionally, the 

economic efficiency of integrating WAPA and TEP assets would provide service and 

cost benefits to customers and additional profit potential to TEP. 

TEP't BID FINANCING 

Hearing comments erroneously alleged lhat TEP does not have any money and 

is insolvent. TEP had net earnings of $20 million and free cash flow after construction 

and interest payment of $85 million in 1994. TEP's past financial difficulties resulted 

from inappropriate diversification by former management. Those problems have been 

put behind us during the last 5 years by the new management team. 

Another allegation was that TEP would have to issue "junk bonds" in order to 

finance the acquisition. The proposed acquisition would not be financed on TEP's 

balance sheet. We proposed project financing, a financing technique used to finance 

hundreds of projects in the United States. Project financing is based on the credit 

worthiness of assets and the sales contracts entered into. As stated in our bid, 

financing is available to complete this transaction. We have contacted several large 

commercial banks and investment bankers who have assured us that they would 

finance the transaction that we proposed. 

Our bonds are not investment grade; but, our bond ratings have improved in 

each of the last two years and hundreds of millions of non-investment grade bonds are 

sold daily on the open market. Doing a new issue in this market is not a difficult task. 

The only intent of these hearing discussions was to keep the focus away from the real 

issues. 
357 

Congressman John T. Doolittle Page3 June 22, 1995 

TAX-EXEMPT FINANCING 

It was also noted that TEP was not in a position to oppose tax-exempt financing. 

TEP has tax-exempt debt outstanding. These financings were done pursuant to 

Congressional mandated provision for pollution-control facilities and two-county bonds. 

TEP's proposed transaction would not be done with tax-exempt financing as would a 

municipal or REA if we were to purchase the WAPA facilities. To the extent that 

Congress doeS not believe that existing tax incentives should continue, we would urge 

you to give them the same tfose scrutiny that you give any govemment program. 

TEft's MANAGEMENT QUES!!ONEp 

After my departure from the hearing room, a certain Congressman retumed to 

question not only TEP's financial condition but its management. I am proud of TEP's 

cumilnt management. Under it TEP was restored to financial health without bankruptcy, 

It has received the coveted "Points of Light" award for community responsibility, 

improved cash flow, has three executives, two nationally recognized as outstanding 

CEO and outstanding independent energy executive and a citizen of the year. 

Customer service surveys reflect an 80% improvement in satisfaction. TEP's bid is 

recognized as progressive leaderShip both in the federal government and in the electric 

utility industry. That's why we were asked to speak to you, the Committee, on behalf of 

the entire investor-owned utilities, some 200 strong, not just on our own behalf. 

THE TRUTH ON UI!UJY TAX PAXERS 

It was stated that neither TEP nor Commonwealth Edison pay taxes, with the 

implication that this was bact The allegation was made that I incorrectly stated that 

Salt River Project (SRP) does not pay taxes. This issue is central to the debate. We 

must distinguish between sales taxes, property taxes, and income taxes and must 

understand who pays. 

All utilities, private, public, investor-owned and co-ops and rurals pay sales 

taxes. 

Property taxes are paid by all investor-owned utilities, most REAs pay some 

property taxes and most municipals do not pay any. State staMes will cause this to 

vary. 

Federal and state income taxes are not imposed on publicly-owned utilities but 

are assessed on privately-owned utilities. 
358 

Congressman John T. Doolittle Page4 June 22, 1995 

The attention to TEP's not paying federal income tax last year obfuscated the 

real competitive issue. It is true that because of prior losses, we did not pay income 

taxes last year. TEP did pay alternate minimum tax and has paid millions of dollars in 

income taxes in prior years. 

The investor-owned electric utilities last year paid close to $7 billion in federal 

income taxes. Utility investors paid $5 billion in federal income taxes on the $15 billion 

in dividends. The majority of REA and municipal electric power companies last year 

paid no federal income taxes. The national economic value of correcting this tax 

gimmick should be evident. 

At a time when Congress is called upon to make hard decisions concerning 

programs that should be cut, Congress must act in the public interest. We point out 

that if federal aid was totally withdrawn from all public power entities tomorrow. the 

lights would stay on and the customers would still have service. Weigh the option to 

the immediate personal impact of cutting veterans' benefits, Medicare and Medicaid, 

etc. where people will lose benefits. Congress should first examine programs without 

public policy rationale. 

The federal government should proceed with the sale of the PMAs. Congress 

should specify that the existing contracts must be assumed by the purchaser to insure 

that rates do not rise faster than they would if the assets were owned by PMAs. The 

resulting bids will bring maximum value to the federal government, protect ratepayers 

and increase the quality of service. The loser is one who likes to compete from a 

position where a subsidy is needed to compete. 

Our bid was substantive and we are prepared to go forward. We are absolutely 

confident that we will obtain the necessary financing. Let Congress deal with facts, not 

obfuscation, debate not denial, and demonstrate principles not political defenses, and 

the American people will continue to support Congress. Please have your staff contact 

me for further information. 

Respectfully yours, 

Charles E. Bayless 

CEB:Ihk 
359 

PBESS RELEASE 

COMMITTEE ON RESOURCES 

U.S. BOUSE OF REPRESENTATIVES 

WASBINGTON, D.C.%0515 

(:lt2) ns.ne .. (:lt2) 2ZS.f761 -

(:lt2) -• or (2121 2ZS.Sf2t ru 

May 18, 199S 

Contact: Bob Faber (202) 225-8331 

CbairmaD Doolittle: "PMA Transfer Must Benefit Both Rate & Tax Payers" 

"The transfer of the Power Marketing Administrations out Of federal ownership 

should be a benefit to both the ultimate ratepayers as well as the taxpayers, • said John 

Doolittle, CbairmaD of the House Water and Power Resources Subcommittee. Increased 

efficiency and competition will put pressure on the market to reduce rates. This should 

go a long way to offset rate increase pressures. "Keeping these sales from adversely 

affecting rates is the easiest challenge we have in making these transfer," he said. 

The federal government no longer needs to be in the business of providing 

electrical power. There is a mature electric generation and distribution system run by 

local public and private power orpDizations. That system has grown up over the past 50 

years with about 110% of the electricity generated by investoro()WDed utilities (lOU's) 

and about 20% by the public sector power systems. Approximately 99% of Americans 

have access to electric power. 

Currently, the PMA's are experiencing deferred maintenance problems on lheir 

facilities. In addition, there is typically a 25% increase in efficiency when this type of 

facility is transferred out of national ownership. Doolittle observed that, • America has 

an active program throuahoot the world to encourage countries to transfer their nalional 

power companies into local hands. We should be implementing the same policies here 

at home.• 

There are public power policies that should be protected in the transfers. •we 

can and should provide for limitations on rate increases, to provide a smooth transition 

from the current situation, • Doolittle said at this morning's oversight hearing on the 

transfers of the PMA's. Tbe trend toward increased competition should be enhanced by 

this transfer, rather than frustrated thereby. And finally, the federal government should 

not be left with the liabilities while transferring tbe revenue-generating resources. 

Doolittle staled, •1 remain very concerned about our ability to reach these 

objectives effectively, if we limit all transfers to the existing public power entities. II is 

unfortunate that there are those wbo continue to say that the sale of these facililies will 

cause significant rate increases. • Tbe transfer of the PMA's out of federal ownership is 

an opportunity to raise si&nificant revenue to halanc:e the budget at a time when very 

difficult choices are facing the American public. At the same time we will make sure 

tbat ratepayers are protected in these sales. 

# # # 
360 

TESTIMONY To THE 

WATER AND POWER RESOURCES SUBCOMMITTEE 

HOUSE RESOURCES COMMITTEE 

UNITED STATES HOUSE OF REPRESENTATIVES 

MAY 18,1995 

BY GROVER G. NORQUIST 

PRESIDENT, AMERICANS FORT AX REFORM 

AND MEMBER OF 

CITIZENS AGAINST ENERGY SUBSIDIES 

My name is Grover G. Norquist, and I am President of Americans for 

Tax Reform (ATR), a 60,000 member coalition of individuals, taxpayer groups 

and businesses concerned with federal tax policy, spending reduction and a 

balanced budget amendment, and restoring accountability to elected officials. I 

am also testifying on behalf of Citizens Against Energy Subsidies (CAES), a 

coalition representing more than 500,000 American taxpayers. We thank you 

for the opportunity to provide the Resources Committee with our thoughts 

on the importance of fair-market privatization of the nation's Power 

Marketing Administrations (PMAs). At the outset, I wish to make it clear 

that neither ATR nor CAES receives any money from any government entity 

- federal, state, or local. 

ATR has been the taxpayers' voice supporting tax reform and reducing 

government spending since 1985. Our record supporting a more efficient 

government that costs less and is less burdensome to the American taxpayer 

is clear. In fact, last November's election results were a clear signal that the 

American voters want Congress to make the hard choices necessary to reduce 

federal deficits and alleviate the tremendous tax burdens we face. 
361 

2 

That election represented a dramatic cry from the American people for 

change. They want their representatives to take a hard look at this nation's 

budget and make the same kind of tough choices they have to make with 

their own budgets every single day. For a long time, Americans have had to 

re-examine their spending habits and determine how and where they can 

spend their hard earned money more effectively. They are simply asking the 

United States government to do the same. 

Tremendous progress has been made since January 4 toward 

streamlining government and reducing costs; however, there are difficult 

decision still to be made if we are going to get a government that works better 

and costs less. 

One policy that needs to be re-examined is federal subsidies provided to 

government-owned electric utilities and rural electric cooperatives. These 

subsidies represent an annual loss of federal revenue of more than $8 billion. 

Due to this decrease in federal revenues, the government has repeatedly 

turned to the American people as a source of additional income by increasing 

taxation. 

The federally-subsidized segment of the industry - electric utilities 

owned by state and local governments, and rural co-operatives - serve 

roughly 25 percent of the population and enjoy subsidies, preferences and tax 

exemptions amounting to $11 billion a year. And the federal government 

sells cut-rate subsidized power (usually from hydroelectric dams) in 34 states 

via the five federal Power Marketing Administrations. This subsidized 

power benefits only about 12 percent of American consumers. 

At the same time, shareholder-owned electric utilities, which provide 

electric service without these federal subsidies, provide electric service 
362 

3 

efficiently and reliably to more than three quarters of the population. In 1993, 

these utility companies paid $24 billion in federal, state and local taxes. 

These expensive programs translate into a heavy tax burden to the 

majority of Americans and represent a substantial and unfair transfer of 

revenues from three-fourths of the population to the other fourth. And, 

with what justification? Originally, these subsidies helped to electrify all of 

America. However, today more than 99 percent of all Americans have 

electricity. What's more, 60 percent of rural Americans are now served by 

unsubsidized shareholder-owned utilities. In fact, 76% of the nation's 

electricity consumers don't benefit from these programs at all. 

The U.S. government does not need to be in the electric business. The 

free market approach in energy is the best approach. The government needs 

to get out of the electricity industry - and privatizing the Power Marketing 

Administrations (PMAs) is the best place to start. The proposed sale of the 

PMAs is a clear response to the voters' cry for change. Governments all over 

the world are privatizing industries and the American electric utility industry 

should be no different. 

Some, including the Clinton Administration and some Budget 

Committee members, are proposing to structure a PMA sale that will generate 

less than a third of the revenues that a fair market sale would generate. Their 

approach is to get federal government out of the electricity business but not 

quite. It would give quasi-government entities a sweetheart deal that will 

cost the American taxpayer dearly. 

From child care tax credits to Medicare to school loans, each and every 

dollar spent by the federal government is under intense scrutiny. A fair 

market sale could net the American taxpayers almost $9 billion with no 

strings attached. 
363 

4 

In today's budget realities, that can go a long way. Although A TR 

believes any proceeds from this sale should go toward defidt reduction, we 

thought it would be instructive for the committee to consider the impact $9 

billion could have on today. For instance, $9 billion can: 

• provide 9 million families with two children a $500 tax cut per 

child; 

• pay the average annual prescription drug bill for more than 18 

million seniors; 

• pay for more than 90 percent of our nation's veterans 

compensation and pension programs for FYs 94, 95 and 96; 

• pay for the natioo.'s unemployment insurance program for FY 95; 

• fund the entire federal employee retirement program, including 

dvil service and military retirement for FYs 95 and 96 with 

almost $1 billion left over; 

• send more than 2 million children to Head Start for one year; 

• fund the entire Women's, Infants and Children's (WIC) 

nutritional program for almolt three yean. 

In addition. the federal treasury will gain other revenues from the sale, 

including inaeued tax revenues if private industry is allowed to purchase 

the PMA ueets. Some popoaa1a would sell the PMA's to other government 

entities with preferred low-interest federal financing. If the sale of the PMAs 

is not bued upon a .&ee, fair market approach. the COlt to the American 

taxpayer will be enormous. .A.merU:an taxpayers have a valuable auet that 

should be shared by all. not just a select speda1 inteNit group. Thil is just 

another attempt to use American taxpayer moaey for special intenlltl, and 

that's not what the voeen called for lut November. The American public: 

voted for a c:banp, not for inside deals. 
5 

America's electric power utilities are now entering a new era of 

competition that will bring enormous benefits and lower costs to all 

consumers. But for true competition to exist, all of the players must be able to 

compete on an equal basis. The federal government should not be 

subsidizing some at the expense of all American taxpayers. Instead, 

government policies should encourage a return to the free market where a 

level playing field invites competition and innovation which will ultimately 

benefit all taxpayers. 

That is why we formed Citizens Against Energy Subsidies (CAES), a 

diverse coalition of taxpayer, consumer activist, senior citizen and small 

business organizations. We urge you to support privatization of the Power 

Marketing Administrations (PMA's) through sale to the highest bidder, and 

without onerous restrictions on the sale of power. 

Current proposals to sell the PMAs for $3 billion to "preference 

customers" instead of through a free market projected to bring $9 billion don't 

respond to what the American taxpayers were calling for in the election. It 

simply doesn't make sense to leave almost $6 billion on the table simply 

because of a small but vocal minority. If these "special electricity customers" 

are concerned about potential rate increases, there are· ways to mitigate these 

rate increases until the free market can reduce electricity rates for all 

Americans, not just a select few. By following the Budget Committee's lead, 

you will simply be transferring a valuable resource from one government 

entity to another at bargain basement prices. This is no way to ensure a free, 

competitive market in the electric industry and it certainly isn't what the 

American voters called for last November. 

Any sale of this important national resource must be designed to 

protect not only the American taxpayer, but this nation's electricity 
365 

6 

consumers u weD. Aa such. we believe that any proposed PMA sale should 

be designed to meet the following goals: 

• Generate maximum revenues for the American taxpayers. This 

can be best accomplished by selling the PMAs at a fair-market, 

public auction to the highest bidder. This will allow all taxpayers 

who have financed these facilities through their tax dollars to 

recoup their investment. 

• Protect existing PMA customers from rate increases. A 

mechanism could be developed to protect consumers from 

dramatic rate increases but oolf for a limited time until freemarket benefits begin to occur. 

• Legislation lor the sale of the PMAs should prohibit federally 

subaidiw financing to purchase these valuable assets. 

financing the purchase of the PMAs with federally subsidiW 

funds is in fact a croll subsidy - simply trading one federal 

subsidy lor anolhel'. If public financing is utilized, it's impact on 

the federal tn!elury should be considered during the bidding 

PfOC28· 

A fair, free-market sale of the PMAs is exactly the type of innovative 

government ICtion the voters in November demanded. We won't see 

robult competition in the electric utility industry unlesa the federal 

government levels the playing field. Congn!ll can provide this, and several 

biWon doilan ot clefkit Nductioa. by privatizing the federal Power Marketing 

Administrations. 
366 

7 

You have before you an opportunity to embrace the same type of bdd 

experimentation that begot these federal subsidies in the first place. This 

federal program was designed to electrify America. It worked. But times 

have changed, and today's government policies must reflect our nation's 

needs today. It's time to move on and adopt energy policies that reflect 

today's realities. That's clearly a free-market sale of the PMAs. 

If Congress is going to take this step toward reducing government costs, 

take the time to construct a sale that will benefit all American taxpayers, not 

just a select few. Give the American taxpayer more bang for their buck. put 

all the PMA's on the open market and sell them for what they're really worth. 

Selling the PMAs can be a win-win situation. A fair market sale could 

net the American taxpayers almost S9 billion and consumers could be 

protected. This is exactly the type of government actiOIIS the voters called for 

last November. On behalf of ATR. CAES and more than 500,000 American 

taxpayers, please don't lose sight of our concerns. Thank you. 
367 

+(]II 

CDIIPETITIVE ENTERPRISE INSTITUTE 

For Immediate Release Contact: Greg Smith (202) 331-1010 

CEI TESTIFIES FOR PRIVATIZATION OF PMAs 

WASHINGTON DC, May 18, 1995 - "Privatization of Power Marketing Administrations (PMAs) is long 

overdue, but even it is a first step, a test case, toward limiting the reach of a government that seems to 

regard no activity as beyond its capability or proper scope," testified Wayne Crews, FeUow in Regulatory 

Studies at the Competitive Enterprise Institute. 

Crews appeared today before the House Subcommittee on Water and Power Resources to discuss 

proposals to privatize the five Power Marketing Administrations run by the federal government. He 

argued against the inequities created when the government alters the market price for electricity for 

preferred customers. "1be core issues in this debate are the unfairness of requiring one class of Americans 

to subsidize the power needs of another, and the impropriety of having government-run commercial 

enterprises competins against and even excluding large chunks of the private sector from access to their 

output, • Crews stated. 

Additional points made by Crews were: 

Certain groups are getting access to cheap federal power while others do not enjoy the privilege. 

The roughly 75% of power consumers who are serviced by investor-owned utilities ought to have 

the right not to subsidize the 25% who are serviced by the PMAs at below market rates. 

Power generation is a commercial activity in which the government has no business and no rational 

basis for being a player. Soon we are likely to have cboices among private power companies 

paralleling those we now have among long distance phone companies. 

A system that will be most efficient for energy consumers is one in which all producers are free to 

sell to any buyers, and any buyer is free to purchase from any seDer. The PMAs preclude the 

existence of such a marketplace. 

While all PMAs should be privatized, Congress might consider initially dealing with the problem 

by establishing a commission similar to the Military Base aosure Commission. 

The problem of potential rate increases is overstated since PMAs are rarely the exclusive or 

dominant supplier of power, but to the extent adverse potential exists, privatization of PMAs can 

be structured such that impacts are minimized or even a net plus for affected customers. 

CEI is a non-profit, non-partisan research and advocacy organization dedicated to the principles of free 

enterprise and limited government. For further information, contact Greg Smith, (202) 331-1010. 

1001 Connecticut A~ue. NW • Suite 12~ • Washington, D.C. 20036 • Telephone: (202)331-1010 • Pax: (202) 3ll-06ol0 
Ctllleneforo 

S<Mindkonomy 

12501-!SirHI PM 

Su•te700 

W0$1'11r'1Qion. DC 20005·3908 

(202J7U3870 FAX (202) 783·4687 

The Honorable John Doolittle 

Chairman 

368 

May18,1995 

Water and Power Resources Subcommittee 

House Resources Committee 

1337 Longworth House Office Building 

Washington, DC 20515 

Dear Chairman Doolittle: 

Citizens for a Sound Economy (CSEI urges y,ou to allow market forces to work in the 

utility industry without government interference. CSE does not believe the government belongs 

in the energy business. subsidizing select parts of the country with taxpayer dollars at the 

expense of citizens in areas that are not serviced by power marketing administrations [PMAs]. 

PMAs came into existence to help electrify poor, rural areas that did not have access to 

power generation. Now, in 1995, 99 percent of rural America has electricity. Overall, PMAs 

provide only about 6 percent of the nation's electricity. This taxpayer-subsidized electricity 

benefits a population that is no longer consistently poor or rural. 

Why does the government continue to subsidize government-owned PMAs when many 

Members of Congress today speak of the virtues of the competitive private sector? Privatizing 

public institutions such as PMAs will give further proof that Congress is re-evaluating the role of 

government down to its core and discarding ideas whose time has passed. 

PMAs should be sold in an open bidding process to allow the market to set the price for 

their assets. The House Budget Committee estimates that selling the Southeastern. 

Southwestern, and Western area PMAs could bring more than $4.7 billion in revenues. 

By selling the PMAs, taxpayers would benefit both from the profit brought by the actual 

sale of the PMAs !!ill! from the fact that new capital expenditures and operating deficits would 

be eliminated from the federal budget. 

CSE encourages Congress to privatize the PMAs and allow the market. not the federal 

government, to set the price of electricity . 

cc: House Resources Committee 

Sincerely, 

~JO,{C~o_ Paul B:&.ner 

President 
Paul A. Erickson u-...._. 

369 

605 NOI'th Broadway Wahoo. NE 68066 14021 443-3222 

May 15, 1995 

The Honorable John Doolinle 

House Resources Subcommittee 

on Water and Power 

133 7 Longworth House Office Building 

Washington, D.C. 20515 

Dear Congressman Doolittle: 

Donald J. Virgl 

Mo,or 

I am writing regarding the potential sale of the Federal Power Marketing Administrations ("PMAs"); namely, the 

Western Area Power AdminiJtnlion ("WAPA"). No doubt you've been inundated with statistics andfactoids. 

The aim of this lette£ is to demonstrate why the potential sale ofW AP A is a bad idea. Please include this letter in 

the official hearing record. 

When electricity is offered in a monopolistic environment, an effective and efficient pro-business, pro-economic, 

pro-local control, utility schemata is in a municipal utility's naturally-local accountability. W APA is a principal 

power supply for hundreds of these locally-regulated and accountable municipal utilities. Selling W AP A to the 

highest bidder could neptiwly-impact the economies of locally-controlled utilities receiving power from W AP A. 

Local control could be lost by new W AP A ownership, and higher cost power supply would raise electric rates 

for millions, while virtually eliminating the smallest of utilities as competitiveness is lost. 

WAPA is no model for efficiency. It is wrought with the typical federal bureaucratic waste. Even so, WAPA 

provides low-cost power to ultimately millions of Americans -- all the while serving as a profit center for the 

federal government after paying iu way. 

The recent de-bunking of the proposed sale ofWAPA (which has been biDed ostensibly for "deficit reduction"), 

has resulted in many rwnicipal utility customers understanding the folly of the idea. The proposed PMA sale is 

seen by many as no more than a ploy in the name of"down-sizing government", more political window dressing 

in a time when substance is needed. 

Please consider the following: 

• WAPA currently provides energy to many state and federal govenunent facilities. lfWAPA is sold, won't 

taxes increase because these government facilities will pay more for energy? If taxes don't increase, the 

deficit will. 

• WAPA currently provides navigation, irrigation and flood control along river watersheds. Won't taxes 

increase because these functions wiD not be paid for by the new owners? If taxes don't increase, the deficit 

will. 

• If the new owners carry out the flood control and navigation, won't electric rates for millions of Americans 

increase to cover these costs0 If electric rates don't increase. either taxes or the deficit will. Because. profitmotivated entities aren't going to do it for free. 
Honorable John Doolittle 

May 15, 1995 

Page2 

370 

• Since new owners ofWAPA will have to pay taxes on the profits they make, won't electric rates for millions 

of Americans increase to cover these costs? 

• !fWAPA is sold to preference customers (mostly cities) at the unpaid balance, won't local electric rates or 

local taxes increase for millions of Americans due to the cities' need to borrow the money to purchase 

WAPA0 How will the navigation and flood control functions be paid for then° 

• Many large investor-owned utilities are much like the federal government: Large, monolithic. impersonal. 

high-cost bureaucratic institutions. If you sell WAPAto these institutions, the result in some cases will be 

loss of local control of utilities to these organizations. Local accountability is lost. 

• The federal government agreed years ago that, if we purchased power (recently, through W APA), thereby 

paying off' the debt to eonstruct the facilities, we wpuld receive 1ow-<:est power in the future. Do we now · 

sell-off' the "golden egg" at fire-sale prices and abandon the agreements? 

If there's a need to tinker with the system, consider de-bureaucratizing the PMAs. Make them run more like 

businesses. Release them from the myriad of federal rules they face as a federal agency. Make them more 

efficient so the federal government can derive e\·en more profit from them Don't sell a profit center under a 

politicized myth of "down-sizing" Try fixing it first. 

Our country is feeling the negative impacts of unencumbered federal government largess and out-of-control 

spending. However, Congress's "triage of the patient" resembles an emergency room physician more worried 

about a patient's hangnail than his broken arm. So, instead of selling the PMAs, why not go after some tough 

cuts? Then ogain, can a Congress, incapable of eliminaling W.W.ll-era mohair subsidies created for wartime 

purpo!es, make meaningful budget decisions? For many, it remains to be seen. 

Please contact me if you need more information. Otherwise, please don't sell the PMAs unless first you fail to 

fix them. 

Sincerely. 

'73!iZ~ 
371 

8 ATLANTIC MUNICIPAL UTILITIES 

May 12, 1995 

The Honorable Wayne Allard 

House Resoun:es Subcommittee 

on Water and Power 

1337 Longworth Houae Office Building 

Washington, DC 20515 

Dear Representative Allard: 

(711) 243-1395 

15 Wert 3rd. Street 

P. 0. Box 517 Atlaoijc, Iowa 50022 

During the last few yean several proposals have emerged over the privatization of Federal Power 

Marketing Authorities (PMA's). If the PMA's are sold the negative consequences to the 

consumer-owners of Atlantic Municipal Utilities would be immense. I uk that you oppose the 

sale of the PMA's and stop the equivalent of a middle class tax increase on our consumer-owners. 

Atlantic Municipal Utilities is a preference customer of the Western Area Power Administration 

(WAPA), purchasing close to 36% ofourpowerfrom WAPA lfthePMA's are sold we have 

conservatively estimated that our replacanent cost for W AP A power would be approximately 

$1,469,440 anmWiy. nil coat represeats au annual iacrase of approdmately 51,041,713 

tbat would be paued oa to d AMU coaaumen. On the basis of our number of consumers 

AMU would have to initiate a 25% rate increue to generate the additional revenues needed to 

offset this increued cost. In a time when Couaren il propoaiog tu cull tllil propoaal would 

equate to a tu ioaeue for our couumen. Tbil iocreue would bave a dilproportiooate 

effect on our lower aad middle daas conaumen. 

Atlantic Municipal Utilities and the 136 other consumer-owned electric utilities in Iowa have a 

strong sense of pride in the efficient and low cost of power delivered to our consumer -owners. A 

rich tradition of low electrical rates among municipal electric utilities in Iowa and throughout the 

United Statea hu played an important role in economic development during the growth of this 

country. 

However, the sale ofPMA'a will mean some major changes in the electricity industry in Iowa. 

Privatization of electrical uti1ities in the United States hu traditionaUy meant 1111 increase in 

electrical rates. In 1993 the avenae revenue per lcilowatt-hour for investor-owned systems was 

20 percent above the avenge rate per kilowatt-hour paid by public power customen in 1993. If 

the PMA'a are privatized the customen of these Federal hydroprojects willaee a movement 

towards the maximization of profitl with a rate increase retlecting the avenge rates of investor-
372 

owned utilities in the United States. In addition, in the years since becoming a customer of 

W AP A we have created a great deal of equity with our investment in the hydropower structures 

and transmission systems that serve AMU. This equity would be lost if the PMA's are sold. 

The Federal government cannot alford to look past the long term implications that such an action 

will have on the consumer-owners of public power systems for the short term benefit of the sale 

ofPMA's. There may be parts of the federal government that don't work well, but the federal 

power program is not one of them. It pays its way with interest. 

Thank you for your time and action on this very important issue facing Atlantic Municipal Utilities 

4, 700 consumer-owners and several other public power communities throughout the United 

States. 

Sincerely, 

ATLANTIC MUNICIPAL UTILITIES 

~.l_~ 

John H. Bilsten 

Regulatory Compliance Specialist 

0 

92-403 (376) 

ISBN 0-16-047723-9