Federal Power: The Evolution of Preference in Marketing Federal Power
Published: 2001-02-08T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Congress has enacted many statutes that designate types of customers or geographic areas for preference and priority in purchasing electricity from federal agencies. In general, the preference has been intended to (1) direct the benefits of public resources--relatively inexpensive hydropower--to portions of the public through nonprofit entities, (2) spread the benefits of federally generated hydropower widely and encourage the development of rural areas, (3) prevent private interests from exerting control over the full development of electric power on public lands, and (4) provide a yardstick against which the rates of investor-owned utilities can be measured. The applications of various preference provisions have been challenged several times in the courts, which have directed a power marketing administration (PMA) to provide power to preference customers. In other instances, they have supported the denial of power to such customers. The characteristics of the electricity industry have changed. During the last 20 years, competition has been replacing regulation in major sectors of the U.S. economy. Several proposals have come before Congress to restructure the electrical industry, including some that would encourage the states to allow retail customers a choice in selecting their electricity supplier. As it debates these proposals, Congress has continued to consider the role of preference in the PMA's sale of electricity.

section_title: Letter
paragraphs: For decades, the power marketing administrations (PMA) of the  Department of Energy (DOE) have provided electricity, generated largely at  federal multipurpose water projects, to customers in over 30 states. To  guide the PMAs’ efforts in marketing electricity, the Congress and the  courts have directed the PMAs to give certain customers preference.  Generally, preference is the opportunity to obtain priority access to federal  power that has traditionally been sold at rates generally below those of  other sources. Preference provisions come into play only when a potential  customer that does not have preference (such as an industrial user or a  commercial power company) and a preference customer (such as a  municipally owned utility or a rural electric cooperative) want to buy  federal power and not enough is available for both. As we enter the 21st  century, the electricity industry is restructuring from one dominated by  regulated monopolistic electric utilities to one that increasingly allows  customers to choose their source of electricity. The Congress continues to  consider legislation dealing with this industry’s restructuring, including the  role of preference in the PMAs’ sale of electricity.
To help in congressional deliberations on the future role of the PMAs and  their preference customers, the Subcommittee on Water and Power asked  us to (1) identify how federal legislation and major relevant court cases  have, over time, directed the PMAs to give preference to particular  customers in purchasing electricity and (2) discuss the status of preference  in the PMAs’ electricity sales in light of the restructuring of the electricity  industry.
To do this, we reviewed power-marketing and land reclamation statutes  that contain provisions providing such preferences, which are referred to  as preference clauses or provisions. We also reviewed numerous legislative  proposals, as well as numerous judicial and administrative cases, that have  interpreted and applied the portions of various statutes that confer  preference. A list of the statutes, court cases, and administrative rulings we  reviewed appears in appendix I. A table showing the extent to which the  PMAs are selectively affected by various preference-related statutes is  contained in appendix II.
subsections: section_title: Preference Clauses and Beneficiaries Have Evolved Over Time
paragraphs: Preference clauses have existed throughout the history of federal power  legislation and have been directed to a variety of customers and regions of  the nation. The Congress has mandated preference in the sale of electricity  by federal agencies in a number of power-marketing and land reclamation  statutes. The idea of establishing public priority or preference in the use of  public water resources dates back to the 1800s, when the Congress decided  to keep navigable inland waterways free from state taxes, duties, and the  construction of private dams. The Reclamation Act of 1906, which is also  referred to as the Town Sites and Power Development Act of 1906, is  generally considered the federal government’s entry into the electric power  field. The act grants preference in the disposition of surplus hydroelectric  power from federal irrigation projects for “municipal purposes,” such as  street lighting.
As the availability and sources of electricity have changed over time, the  types of preference clauses the Congress has included in legislation have  evolved. For example, with the Federal Power Act of 1920, preference  began to evolve from serving “municipal purposes” to serving particular  classes of users, such as public bodies and cooperatives. The 1920 act  required the federal government, when faced with breaking a tie between  competing equal applications, to give preference to states and  municipalities in awarding licenses for hydroelectric plants owned and  operated by nonfederal entities. The act defined a municipality as a city,  county, irrigation district, drainage district, or other political subdivision or  agency of a state competent under law to develop, transmit, utilize, or  distribute power. One primary benefit that the Congress sought in giving  priority to public utilities and cooperatives, which distribute power directly  to customers without a profit incentive, was to obtain lower electricity  rates for consumers. At that time, competitive rate setting was not used to  provide lower electricity rates for service from regulated monopolies with  dedicated service territories. The Congress has also provided preference to  specified regions of the nation.
The notion of providing public bodies and cooperatives with preference for  federal hydropower rests on the general philosophy that public resources  belong to the nation and their benefits should be distributed directly to the  public whenever possible. Under the various preference clauses,  preference customers are given priority over nonpreference customers in  the purchase of power. In many cases, the preference provisions of federal  statutes give the electric cooperatives, many of which are rural, and public  bodies priority in seeking to purchase federally produced and federally  marketed power. However, the courts have held that preference customers  do not have to be treated equally and that all potential preference  customers do not have to receive an allotment of federal power. Preference  provisions come into play only when a potential customer that does not  have preference (such as an industrial user or a commercial power  company) and a preference customer (such as a municipally owned utility  or a rural electric cooperative) want to buy federal power and not enough  is available for both.
The Congress initially granted preference in the sale of federal electricity to  public bodies and cooperatives for several reasons. First, it was a way to  ensure that the benefits of this power were passed on to the public at the  lowest possible cost, using cost-based rates, because the preference  customers generally were entities that would not incorporate a profit in  their rates. Second, it was also meant to extend the benefits of electricity to  remote areas of the nation using publicly and cooperatively owned power  systems. Additionally, the Congress gave preference to public bodies and  cooperatives to prevent the monopolization of federal power by private  interests. The rates charged by such nonprofit entities could then serve as a  yardstick for comparison with the rates charged by public and private  utilities. For example, the Boulder Canyon Project Act of 1928 encouraged  public nonprofit distributors to begin marketing power by allowing them a  reasonable amount of time to secure financing in order to construct  generation and transmission facilities. According to the House Committee  on Irrigation and Reclamation, one of the committees that drafted the 1928  act, the allocation of power rights between the preference and  nonpreference customers was expected to create competition among  various entities, ensuring reasonable rates and good service. These entities  included states, political subdivisions, municipalities, domestic water- supply districts, and private companies. The committee viewed the  preference clause as a bulwark against the monopolization of power by  private companies. Another, more recent embodiment of the premise that  public resources should be provided to the public without an effort to  profit from their sale is the Hoover Power Plant Act of 1984. This act gives  preference primarily to municipalities and others for power generated at  the Hoover Dam. It also authorizes the renewal of a preference power  contract with an investor-owned utility, originally entered under the  Boulder Canyon Project Act of 1928.
At about the same time as the Congress was enacting the Rural  Electrification Act of 1936 to encourage cooperatives and others to extend  their electric systems into nearby rural areas, it enacted other statutes that  affect how federally generated electricity is sold, especially to  cooperatives. The Bonneville Project Act of 1937, along with the earlier  (1933) Tennessee Valley Authority (TVA) Act, extended preference to  include nonprofit cooperative organizations. The acts also authorized the  construction of federal transmission lines to carry the power, thus  minimizing regional reliance on private power companies. The two laws  established a statutory framework of energy allocation policies in an era of  extensive federal hydroelectric development. The 1937 Bonneville Project  Act authorized the construction of federal power lines in order to transmit  the federal power as widely as practicable. The act states that preference  was provided to public bodies and cooperatives to ensure that the  hydropower projects were operated for the benefit of the general public,  particularly domestic (residential) and rural customers. The preference  clauses in the Bonneville and TVA acts were both viewed as yardsticks for  evaluating the rates charged by private utilities.
Preference for public entities and cooperatives is also found in the  Reclamation Project Act of 1939 and the Flood Control Act of 1944. The  Reclamation Project Act of 1939, which provides guidance for projects  operated by the Bureau of Reclamation, gives preference to municipalities,  other public corporations or agencies, and cooperatives and other  nonprofit organizations. The Bureau is an agency within the Department of  the Interior whose projects generate much of the electricity sold by  Bonneville and Western. The 1939 act limited preference for cooperatives  to those financed at least in part by loans made under the Rural  Electrification Act of 1936, as amended. The Flood Control Act of 1944,  which gives guidance for projects operated by the U.S. Army Corps of  Engineers, gives preference to public bodies and cooperatives. The Corps’  projects generate electricity sold by all four PMAs. The act requires that  electricity be sold to encourage the most widespread use of power at the  lowest rates to consumers consistent with sound business practices. The  federal government was authorized to construct or acquire transmission  lines and related facilities to supply electricity to federal facilities, public  bodies, cooperatives, and privately owned companies. The legislative  history indicates that priority was given to public bodies and cooperatives  to expand rural electrification and to avoid monopolistic domination by  private utilities.
Subsequent statutes, while building on preference provisions provided by  other federal power marketing laws, granted regional, geographic  preference. The Pacific Northwest Power Preference Act, enacted in 1964,  authorizes Bonneville to sell outside its marketing area, the Pacific  Northwest region, surplus federal hydropower if there is no current market  in the region for the power at the rate established for its disposition in the  Pacific Northwest. The 1980 Northwest Power Act requires Bonneville to  provide power to meet all the contracted-for needs of its customers in the  Northwest, extending the regional preference provisions of the 1964 act to  include not only hydropower but also power from Bonneville’s and  customers’ other resources—including coal-fired and nuclear plants. As a  result of this regional preference, Bonneville’s customers in the Pacific  Northwest—including private utility and direct service customers as well  as public utilities—have priority over preference customers in the Pacific  Southwest. The act also requires Bonneville to generally charge lower rates  to preference customers than to nonpreference customers. Such rates are  based upon the cost of the federal system resources used to supply  electricity to those customers.
In September 2000, the 1980 Northwest Power Act was amended to allow  Bonneville to sell preference power to existing “joint operating entities”  (public bodies or cooperatives formed by two or more public bodies or  cooperatives that were Bonneville preference customers by Jan. 1, 1999).  As indicated in the legislative history of the amendment, the new entities  could pool their members’ or participating customers’ power purchases  from Bonneville, which could result in operating efficiencies and  reductions in overhead costs for them, without reducing Bonneville’s  receipts from the sale of power.
The Congress also granted regional preference in the sale of electricity  from federal projects to other parts of the country, such as the Northeast,  that are not served by the PMAs or TVA. The 1957 Niagara Redevelopment  Act establishes (1) a division of all power from the project into preference  and nonpreference power, (2) a preference for public bodies and  cooperatives, with an emphasis on serving domestic and rural consumers,  and (3) a geographic preference for preference customers in New York and  in neighboring states.
Other statutes give geographic preference to entire states or portions of  states for purchases of electricity generated in those areas. For example,  the 1928 Boulder Canyon Project Act gives preference to customers in  Arizona, California, and Nevada for purchases of excess power from the  Boulder Canyon Project. This preference language distinguishes among  preference customers, giving the states (e.g., California) a priority over  municipalities (e. g., Los Angeles).
subsections: section_title: Application of Preference Provisions Reviewed by the Courts
paragraphs: Although we found no instances in which the statutory preference  provisions themselves were challenged, specific applications of these  provisions by the PMAs have been challenged in the courts and in  administrative proceedings. The cases have included disputes among  preference customers and between preference and nonpreference  customers of the various PMAs. In some instances, the courts have directed  a PMA to provide power to preference customers, and in other instances,  they have supported a PMA’s denial of power to such customers. General  principles that may be drawn from the various court interpretations and  rulings are that (1) PMAs must act in favor of customers specifically  provided preference and priority in purchasing surplus power when  nonpreference customers are competing for this power, (2) PMAs have  discretion in deciding how and to which preference customers they will  distribute electricity when the customers are in competition with each  other for limited power, and (3) preference customers do not have to be  treated equally, nor do individual preference customers have an entitlement  to all or any of the power. The Federal Energy Regulatory Commission has  affirmed the application of preference clauses in its rulings, as has the  Attorney General in an opinion interpreting the preference provision of the  1944 Flood Control Act. A list of the court cases and administrative rulings  we reviewed, with a brief description of each, is included in appendix I.
section_title: Restructuring of Electricity Industry Provides Another Opportunity for the Congress to Reassess Preference in PMA Marketing
paragraphs: The characteristics of the electricity industry on a national and regional  basis have changed over time and continue to change. For example, the  issues and problems of the 1930s, when rural America was largely without  electricity and private utilities were not extensively regulated, were not  those that confronted the Congress in later decades or that confront the  Congress now. The issue of preference in power sales by the PMAs was of  continuing interest during the 106th Congress. Not only was the Northwest  Power Act amended in September 2000, but also a bill was introduced in  the Senate in April 2000 to amend the Niagara Redevelopment Act. This bill  would have eliminated the geographic preference allocating up to 20  percent of the power from the Niagara Power Project to states neighboring  New York. The preference status of sales to selected cooperatives and  public bodies in those states, however, would not have been affected. In  September 2000, a bill was introduced in the House of Representatives to  eliminate all future sales of preference power; its provisions would have  taken effect only as each existing power sale contract expired.  In October  2000, another bill was introduced in the House of Representatives to  authorize investor-owned electric utilities in California to purchase power  directly from Bonneville at specified rates. The 106th Congress adjourned,  however, without taking further action on these bills. As of January 30,  2001, no bills directly relating to preference power had been introduced in  the 107th Congress, according to DOE officials.
Over the last 20 years, competition has been replacing regulation in major  sectors of the U.S. economy. New legislation at the federal and state levels  and technological changes have created a climate for change in traditional  electricity markets. The extent to which the federal government should  participate in fostering retail competition has yet to be decided.
Over the last several years, the Congress has deliberated on the  restructuring of the electricity industry. As the Congress continues these  deliberations, it is considering redefining existing federal roles, as well as  how to more efficiently and equitably produce and distribute electricity to  all customers. The way that the federal government generates, transmits,  and markets federal preference power has not changed in the same manner  as the industry surrounding it. In a March 1998 report, we noted that the  Congress has options that, if adopted, would affect preference customers.  Considering changes to the preference provisions would be consistent with  the spirit of several of our testimonies before various Senate and House  committees. Examining the legacy of existing federal programs in light of  changing conditions can yield important benefits. At these hearings, we  discussed the need to reexamine many federal programs in light of  changing conditions and to redefine the beneficiaries of these programs, if  necessary. In our testimony, we noted that as the restructuring of the  electricity industry proceeds, the Congress has an opportunity to consider  how the existing federal system of generating, transmitting, and marketing  electricity is managed, including the role of preference in federal power  sales.
section_title: Agency Comments
paragraphs: We provided DOE with copies of a draft of this report. We met with officials  of DOE’s Bonneville Power Administration and DOE’s Power Marketing  Liaison Office, which is responsible for the other three PMAs. The PMAs  generally agreed with the information in our draft report. They also  observed that the previous administration did not support the repeal of the  “preference clause” as part of the restructuring of the electricity industry.  That administration did not incorporate such provisions in its bill to  restructure the industry because it believed that federal restructuring  legislation should be designed to ensure that consumers in all states benefit  and that those in certain parts of the nation not be adversely affected. They  also stated that, consistent with applicable statutes and current contracts,  they have continually evaluated their roles and policies in light of changes  occurring in the electric utility industry. They agreed with us that the  Congress has the latitude to reconsider all laws containing both customer  and geographic preference in federal electricity sales.
To examine the evolution of preference in the PMAs’ marketing, we  reviewed statutes, federal court cases, rulings by the Federal Energy  Regulatory Commission, and an Attorney General’s opinion on federally  mandated preference in electricity licensing or sales by federal facilities. As  requested, we performed detailed reviews of legislative histories for nine of  these statutes. We also reviewed past GAO reports, testimonies, and other  products that relate to preference in the PMAs’ electricity sales. We  interviewed the staffs of the PMA liaison offices in Washington, D.C., as  well as the General Counsels of each of the four PMAs. We reviewed  various other preference-related documents, including relevant law review  articles, issue briefs from trade associations, and the PMAs’ marketing  plans.
We performed our review from October 1999 through January 2001 in  accordance with generally accepted government auditing standards.
As agreed with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 5 days after the  date of this letter. At that time, we will send copies to appropriate House  and Senate Committees and Subcommittees; interested Members of the  Congress; Steve Wright, Acting Administrator and Chief Executive Officer,  Bonneville Power Administration; Charles A. Borchardt, Administrator,  Southeastern Power Administration; Michael A. Deihl, Administrator,  Southwestern Power Administration; and Michael S. Hacskaylo,  Administrator, Western Area Power Administration. We will also make  copies available to others on request.
If you or your staff have any questions or need additional information,  please contact me or Peg Reese at (202) 512-3841. Key contributors to this  report were Charles Hessler, Martha Vawter, Doreen Feldman, and Susan  Irwin.
section_title: Compendium of Selected Statutes, Court Cases, and Administrative Rulings Relating to Preference
paragraphs: Grants preference to certain classes of public users to surplus reclamation water  from public lands.
Act of April 16, 1906 (Reclamation Act of 1906 or  Town Sites and Power Development Act of 1906)
Establishes the first precedent for a municipality's preference to surplus hydropower  generated at federal irrigation projects. Provides for the disposition of hydroelectric  power from irrigation projects and requires the Secretary of the Interior to give a  preference to power sales for municipal purposes.
Provides the city and county of San Francisco with a right-of-way over public lands  for the construction of aqueducts, tunnels, and canals for a waterway, power plants,  and power lines for the use of San Francisco and other municipalities and water  districts. Prohibits grantees of the right to develop and sell water and electric power  from selling or leasing those rights to any corporation or individual other than  another municipality, municipal water district, or irrigation district.
Federal Water Power Act (1920) (Federal Power  Act)
Requires FERC (formerly the Federal Power Commission) to give preference to  states and municipalities in issuing licenses for hydropower projects operated by  nonfederal entities, if the competing applications are equally well adapted for water  development. (Preference criteria in this act may be used in disposing of power to  preference customers under the Boulder Canyon Act of 1928.)
Gives preference to municipal purposes for surplus power from the Salt River Project  in Arizona.
Act of December 21, 1928 (Boulder Canyon  Project Act)
Requires the Secretary of the Interior to give preference within the policy of the  Federal Water Power Act, i.e., to states and municipalities, when selling power from  the project. Gives the states of Arizona, California, and Nevada initial priority over  other preference customers.
Requires TVA to give preference in power sales to states, counties, municipalities,  and cooperative organizations of citizens or farmers that are organized or doing  business not for profit but primarily for the purpose of supplying electricity to their  own citizens or members. Authorizes TVA to construct its own transmission lines to  serve farms and small villages not otherwise supplied with reasonably priced  electricity and to acquire existing electric facilities used to provide power directly to  these customers.
Authorizes loans for rural electrification and grants preferences to states;  municipalities; utility districts; and cooperative, nonprofit, or limited-dividend  associations.
Requires BPA to give preference and priority to public bodies (nonfederal  government agencies) and cooperatives. Allows the people within economic  transmission distance of the Bonneville project (Washington, Oregon, Idaho, and  Montana) a reasonable amount of time to create public or cooperative agencies so  as to qualify for the public power preference and secure financing.
Act of May 18, 1938 (Fort Peck Project Act)
Requires the Bureau of Reclamation to give preference and priority to public bodies  and cooperatives.
Reclamation Project Act of 1939 [53 Stat. 1187, 1194, 43 U.S.C. 485, 485h (c)
Requires the government, when selling surplus power from its reclamation projects,  to give preference to municipalities and other government agencies, and to  cooperatives and other nonprofit organizations financed in whole or in part by loans  from the Rural Electrification Administration.
Authorizes water projects in the Great Plains and arid and semiarid areas of the  nation. Gives preference in sales or leases of surplus power to municipalities and  other public corporations or agencies; and to cooperatives and other nonprofit  organizations financed in whole or in part by loans under the Rural Electrification Act  of 1936.
Act of June 5, 1944 (Hungry Horse Dam Act)
Authorizes the construction of the Hungry Horse Dam in western Montana for uses  primarily in the state of Montana. This “Montana Reservation” has been interpreted  as a geographic preference requiring a calculated quantity of power (221 average  megawatts) from Hungry Horse Dam to be offered first for sale in Montana to  preference and nonpreference customers before the calculated amount of power is  offered to other BPA customers, including preference customers in other states.
Act of December 22, 1944 (Flood Control Act of  1944)
Gives preference to public bodies and cooperatives for power generated at Corps of  Engineers projects and authorizes transmission to federal facilities and those owned  by public entities, cooperatives, and private companies.
Act of March 2, 1945 (Rivers and Harbors Act of  1945)
Provides for the distribution of power from the Snake River Dams and the Umatilla  Dam in accordance with the preference provisions of the Bonneville Project Act.
Act of July 31, 1950 (Eklutna Act)
Gave preference to public bodies and cooperatives and to federal agencies in sales  of power from the Eklutna project near Anchorage, Alaska.
Provides for the sale or lease of power from the Palisades Dam in southeastern  Idaho to bodies entitled to preference under federal reclamation laws.
Requires the Secretary of the Interior to give preference in the sale of power  generated at the Falcon Dam on the Texas/Mexico border to public bodies and  cooperatives.
Authorizes BPA to purchase power generated at the Priest Rapids Dam in  Washington. Requires BPA to sell the power according to the preference provisions  applicable to other sales of BPA power.
Provides for preference to public bodies and cooperatives in the sale of power from  the Department of Energy's nuclear production facilities; also provides preference to  private utilities serving high-cost areas not serviced by public bodies and  cooperatives.
Act of August 12, 1955 (Trinity River Division Act)
Reserves 25 percent of the power from the Trinity power plants for preference  customers in Trinity County, California.
Act of April 11, 1956 (Colorado River Storage  Project Act)
Provides for the sale of power from the Colorado River Storage Project and  participating projects to bodies entitled to preference under reclamation laws.
Niagara Redevelopment Act (1957)
Sets out preference and allocation provisions required to be included in FERC's  license to the state of New York for the sale of power generated from the Niagara  River. Contains several allocation mechanisms: (1) a division of all project power into  preference and nonpreference power, (2) a preference clause for public bodies and  cooperatives, particularly for the benefit of domestic and rural customers, (3) a  provision that preference power sold initially to private utilities is subject to  withdrawal to meet the needs of preference customers, (4) a geographic preference  (80 percent of the preference power is reserved for New York preference customers  and up to 20 percent for neighboring states), and (5) an allocation of a specific  amount of power to an individual nonpreference customer for resale to specific  industries.
Provides that a reasonable amount of power, up to 50 percent, from dams  subsequently constructed by the Corps of Engineers on the Missouri River, shall be  reserved for preference customers within the state in which each dam is located.
Atomic Energy Commission Authorization Act  (1962)
Authorizes the sale of by-product energy from the Hanford New Production Reactor  to purchasers agreeing to offer 50 percent of the electricity generated to private  organizations and 50 percent to public organizations. (DOE has terminated the  operation of this reactor.)
Requires “first preference” for customers in Tuolomne and Calaveras Counties in  California for 25 percent of the additional power generated by the New Melones  project. Required preference for federal agencies, public bodies, and cooperatives in  power sales from the Snettisham project near Juneau, Alaska.
Requires the Secretary of the Interior to give preference in the sale of power  generated at Amistad Dam on the Texas/Mexico border to federal facilities, public  bodies, cooperatives, and privately owned companies.
Authorizes the sale outside the Pacific Northwest of federal hydroelectric power for  which there is no current market in the region or that cannot be conserved for use in  the region. Provides that sales outside the Pacific Northwest are subject to  termination of power deliveries if a BPA customer in the Pacific Northwest needs the  power. Grants reciprocal protection with respect to energy generated at, and the  peaking capacity of, federal hydroelectric plants in the Pacific Southwest, or any  other marketing area, for use in the Pacific Northwest. Explicitly provides that the  Hungry Horse Dam Act's geographical preference for power users in Montana is not  modified by this act.
Authorizes the purchase of nonfederal thermal power for the Central Arizona  irrigation project. Authorizes, subject to the preference provisions of the Reclamation  Project Act, the disposal of power purchased, but not yet needed, for the project.
Explicitly retains the preference provisions of the Bonneville Project Act of 1937 and  other federal power marketing laws. Requires BPA to provide power to meet all the  contracted-for needs of its customers in the Northwest. As a result of this regional  preference, BPA's public as well as private utility and direct service industry  customers in the Pacific Northwest have priority over preference customers in the  Pacific Southwest. Requires BPA to charge lower rates to preference customers than  to nonpreference customers. Also requires BPA to offer initial 20-year power sale  contracts to specific nonpreference as well as preference customers throughout the  Pacific Northwest: (1) publicly owned utilities, (2) federal agencies, (3) privately  owned utilities, and (4) directly served industrial customers.
Gives preference power to municipalities, an investor-owned utility, and others for  power generated at the Hoover Power Plant.
Amends the Federal Power Act to provide that preference does not apply to  relicensing. (Retains preference for original licenses.)
For a 10-year period, reserves power that becomes available because of military  base closures for sale to preference entities in California that are served by the  Central Valley Project and that agree to use such power for economic development  on bases closed or selected for closure under the act.
Authorizes BPA to sell excess power outside the Pacific Northwest on a firm basis for  a contract term not to exceed 7 years, if the power is first offered to public bodies,  cooperatives, investor-owned utilities, and direct service industrial customers  identified in the Northwest Power Act.
Amends the Northwest Power Act of 1980 to allow BPA to sell preference power to  joint operating entities' members who were customers of BPA on or before January 1, 1999.
Arizona Power Pooling Association v. Morton, 527  F.2d 721, (9th Cir. 1975), cert. denied, 425 U.S.  911 (1976)
The court applied the Reclamation Project Act of 1939's preference clause to  governmental sales of thermally generated electric power from the Central Arizona  Project. The court held that under the act's preference clause, the Secretary of the  Interior must give preference customers an opportunity to purchase excess power  before offering it to a private customer. The court also held that preference  customers do not have entitlement to federal power.
Arizona Power Authority v. Morton, 549 F.2d 1231  (9th Cir. 1977), cert. denied, 434 U.S. 835 (1977)
The court held that the implementation of geographic preferences in the allocation of  federal hydroelectric power under the Colorado River Storage Project Act in a  manner that discriminated among preference customers was within the discretion of  the Secretary of the Interior and not reviewable by the court.
City of Santa Clara v. Andrus, 572 F.2d 660 (9th  Cir.), cert. denied, 439 U.S. 859 (1978)
The court held that the Secretary of the Interior could not sell federally marketed  power to a private utility, even on a provisional basis, while denying power to a  preference customer. Only if the available supply of power exceeds the demands of  interested preference customers may power be sold to private entities. Preference  means that preference customers are given priority over nonpreference customers in  the purchase of power. However, preference customers do not have to be treated  equally, nor do all potential preference customers have to receive an allotment.
City of Anaheim v. Kleppe, 590 F.2d 285 (9th Cir.  1978); City of Anaheim v. Duncan, 658 F.2d 1326  (9th Cir. 1981)
The court held that the preference clause of the Reclamation Project Act of 1939  was not violated by the sale of federal power to private utilities on an interim basis  when preference customers lacked transmission capacity to accept such power  within a reasonable time and did not offer to buy power when it was originally sold.  As a result, there was no competing offer between a preference and a  nonpreference customer.
Aluminum Company of America v. Central Lincoln  Peoples' Utility District, 467 U.S. 380 (1984), rev'g  Central Lincoln Peoples' Utility District v. Johnson,  686 F. 2d 708 (9th Cir. 1982)
The Supreme Court held that terms of contracts, which the Pacific Northwest  Electric Power Planning and Conservation Act required BPA to offer to certain  nonpreference customers, did not conflict with the applicable preference provisions.  The preference provisions determine the priority of different customers when there  are competing applications for power that can be allocated administratively. Here,  however, the contracts in question were not part of an administrative allocation of  preference power, and the power covered by the initial contracts was allocated  directly by the statute. Since BPA was not authorized to administratively allocate this  power, there could be no competing applications for the power, and the preference  provisions did not apply to the transactions.
ElectriCities of North Carolina, Inc. v.  Southeastern Power Administration, 774 F.2d  1262 (4th Cir. 1985)
A challenge to SEPA's 1981 allocation policy for the Georgia-Alabama power  system, changing the location and list of preference customers, was denied. The  court held that the allocation of preference power is discretionary and that the  preference provision of the Flood Control Act is too vague to provide a standard for  the court to apply to SEPA's actions.
Greenwood Utilities Commission v. Hodel, 764 F.  2d 1459 (11th Cir. 1985), aff'g Greenwood Utilities  Commission v. Schlesinger, 515 F. Supp. 653  (M.D. Ga. 1981)
A challenge to sales of capacity without energy to investor-owned utilities was  denied. The court held that the Flood Control Act's preference provision did not  establish an entitlement to power or standards for eligibility for power. The statute is  too vague to permit judicial review of sales and allocations decisions.
Arvin-Edison Water Storage District v. Hodel, 610  F. Supp. 1206 (D. D.C. 1985)
Irrigation districts' claim to an allocation of power ahead of other preference  customers (super preference) for WAPA power was denied. The preference clause  of the Reclamation Project Act does not provide a superpreference for irrigators; it  only provides that public entities be given preference over private entities. The  clause does not require that all preference customers be treated equally or that they  even receive an allocation. The allocation decision is within an agency's discretion  and cannot be reviewed by the court.
Brazos Electric Power Cooperative, Inc. v.  Southwestern Power Administration, 828 F.2d  1083 (5th Cir. 1987)
The court upheld the dismissal of a challenge by an electric cooperative to an  exchange arrangement between a SWPA customer and an investor-owned utility.  The investor-owned utility's arrangement with preference customers does not violate  the preference provision of the Flood Control Act. Even though the investor-owned  utility receives some economic benefits, this is not a sham sale of preference power.
ElectriCities of North Carolina, Inc. v.  Southeastern Power Administration, 621 F. Supp.  358 (W.D.N.C. 1985)
SEPA's decision to create two divisions and sell some power to nonpreference  customers in its Western Division while excluding preference customers in its  Eastern Division is not subject to challenge by those excluded, who have no right or  entitlement to allocations of SEPA power.
Salt Lake City v. Western Area Power  Administration, 926 F.2d 974 (10th Cir. 1991)
The court held that WAPA reasonably interpreted the preference provisions of the  Reclamation Project Act of 1939 in determining that preference applied only to  municipalities that operated their own utility systems, and not to every city or town  that fit the act's definition of “municipality.”
Municipal Electric Utilities Association of the State  of New York v. Power Authority of the State of New  York (PASNY), 21 FERC ¶ 61,021 (Oct. 13, 1982);  PASNY v. FERC, 743 F.2d 93 (2d Cir. 1984)
FERC held that in the Niagara Redevelopment Act, the Congress defined the term  “public bodies” as those governmental bodies that resell and distribute power to the  people as consumers. The appellate court affirmed that preference rights under the  act accrue to public bodies and nonprofit cooperatives that are engaged in the actual  distribution of power. In determining the ultimate retail distribution of the power sold  to them, public entities could resell the power to industrial and commercial users, not  just to domestic and rural customers. The court also described “yardstick  competition,” a theory that underlies preference. The court stated that the Congress,  while concerned with meeting the needs of rural and domestic consumers, believed  that all interests could best be served by giving municipal entities the right to decide  on the ultimate retail distribution of the preference power sold to them. This belief  was founded on the so-called “yardstick competition” principle, which assumes that if  the municipal entities are supplied with cheap hydropower, their lower competitive  rates will force the private utilities in turn to reduce their rates, with resulting benefits  to all, including rural and domestic consumers.
Massachusetts Municipal Wholesale Electric  Company v. PASNY, 30 FERC ¶ 61, 323 ( Mar. 27,  1985)
FERC reaffirmed parts of an earlier decision interpreting the Niagara  Redevelopment Act as providing allocations of preference power for states  neighboring New York and clarified which states were included. FERC held that any  public body or nonprofit cooperative in a state neighboring New York within  economic transmission distance of the Niagara Power Project is entitled to an  allocation of preference power. FERC also held that only publicly owned entities that  are capable of selling and distributing power directly to retail consumers are public  bodies entitled to preference under the act.
Disposition of Surplus Power Generated At Clark  Hill Reservoir Project, 41 Op. Atty Gen. 236 (1955)
The Attorney General construed section 5 of the Flood Control Act of 1944,  providing preference to public bodies and cooperatives, to mean that if there are two  competing offers to purchase federal power, one by a preference customer and the  other by a nonpreference customer, and the former does not have at the time the  physical means to take and distribute the power, the Secretary of the Interior must  contract with the preference customer on condition that within a reasonable time  fixed by the Secretary, the customer will obtain the means for taking and distributing  the power. If within that period the preference customer does not do so, the  Secretary is authorized to contract with the nonpreference customer, subject to the  condition that should the preference customer subsequently obtain the means to  take and distribute the power, the Secretary will be enabled to deal with the  preference customer. The Secretary's duty to provide preference power is not  satisfied by the disposition of the power to a nonpreference customer under an  arrangement whereby the nonpreference customer obligates itself to sell an  equivalent amount of power to preference customers.
section_title: PMAs Affected by Selected Statutes Relating to Preference in the Sale of Electricity
paragraphs: Affected PMA(s)
Water Conservation and Utilization Act (1940)
Colorado River Storage Project Act (1956)
Pacific Northwest Power Preference Act (1964)
Pacific Northwest Electric Power Planning and Conservation Act (1980)
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