But the government share will dramatically increase in the future unless the government utilities are restricted from using their extensive government subsidies to compete in the newly emerging, national competitive marketplace for electric power. The government utilities are heavily subsidized, to the disadvantage of the private utilities. They are exempt from federal income taxes and are allowed to use tax free local government bonds to raise capital to build new plants and finance their operations. The federal government also grants these government owned utilities low cost power generated by federal hydroelectric projects. Government utilities are also exempt from most state and local taxes.
Electric utilities are no longer natural monopolies restricted to separate local service areas.
Due to new technology and encouragement from the Federal Energy Policy Act of 1992, companies can sell their electric power across the country in a national, competitive market. If government utilities can compete, however, with the advantage of the massive subsidies described above, they will greatly expand over time and eventually take over most of the market, directly contrary to the goal of privatizing public enterprises where possible. That bill would prohibit government utilities that sell electricity in the general marketplace outside of their direct service areas from issuing new tax-exempt government bonds to finance generation or transmission facilities. It would also impose federal income taxes on the sale of electricity by a government utility outside its service area. This bill would solve the problem, as government utilities could no longer use their subsidies to compete against private utilities in the national market.