CQ WEEKLY – IN FOCUS
May 26, 2012 – 10:19 a.m.
No Easy Task to Shift the Balance of Power
By Pam Radtke Russell, CQ Staff
The nation’s four power-marketing administrations, or PMAs, are New Deal legacies, established to supply inexpensive power to underserved areas in the West and South by selling the hydroelectricity generated at federal dams. Because they are required to sell power to municipal or cooperative utilities at the lowest possible cost, ratepayers enjoy far lower electric bills than most Americans do.
And lawmakers representing the vast areas served by PMAs resist anything that could threaten that cheap power. Even some of the most conservative champions of free enterprise find themselves defending the big government agencies that one liberal House Democrat recently labeled “socialist.”
“Family farmers in my rural district, in my view, should not be forced to pay higher electricity bills so that people in downtown Seattle can plug in expensive electric vehicles, just because the Energy secretary says so,” says
Republicans depict Chu’s March 16 memo as yet another example of the Obama administration’s “one size fits all” approach to governing, and a House appropriations bill would block Chu’s plans. But it’s almost de rigueur for every administration and Congress — regardless of party — to set its sights sooner or later on the power-marketing administrations. Both the Ronald Reagan and Bill Clinton administrations, as well as the Newt Gingrich-led House in the mid-1990s, proposed selling off the PMAs, and President George W. Bush’s 2006 budget suggested raising rates closer to the national average.
In the end, virtually every attempt to modernize, streamline, privatize or experiment with the PMAs has failed, underscoring the clout of their congressional allies. The quasi-independent agencies within the Energy Department typically operate from the “bottom up,” with rate increases for power transmission lines and efficiency measures only after lengthy, on-the-record proceedings with public comment. This makes it tough for Washington to impose top-down policies.
“It’s not infrequent that some kind of initial ham-handed directive comes out of Washington directed at PMAs,” says Steve Hickock, who served as a top administrator with Bonneville for 28 years. He says he was continuously fending off changes from Washington, where he had been a Senate aide. “It doesn’t matter if it’s a Republican or Democratic administration.”
New Deal Legacy
Massive, government-built dams were an integral part of President Franklin D. Roosevelt’s plan to bring electricity to rural areas. Roosevelt promised in a 1932 campaign speech that the next big government hydro project would be in the Pacific Northwest.
That vision led to creation of the Bonneville Power Administration in 1937 to sell power generated by the Bonneville and Grand Coulee dams. Today the agency markets wholesale power produced at 31 Army Corps of Engineers and Bureau of Reclamation projects in the Columbia River Basin. The federal government established the Southwestern Power Administration in 1943, the Southeastern Power Administration in 1950 and the Western Area Power Administration in 1977. Overall, the agencies serve 60 million Americans in 34 states.
By law, the PMAs must sell their power to publicly owned customers such as municipal or cooperative utilities, at a price just high enough to cover operating and maintenance costs and outstanding debt. The not-for-profit municipal and cooperative utilities, in turn, sell to their retail customers, and neither the PMAs nor the utilities they serve pay federal taxes. Their power is as much as one-half cheaper than the nationwide price of electricity.
Among utilities, the PMAs are relatively small, sharing output and transmission lines roughly equivalent to those of American Electric Power, one of the largest investor-owned utilities. But they are dominant in the West, where their cheap power helps drive local economies. Inexpensive hydropower fueled the aluminum industry necessary to build planes for the war effort in the 1940s, for example. Today that power helps Boeing Co.’s aircraft manufacturing stay competitive and has enticed dozens of technology companies to locate gigantic data centers in the region.
No Easy Task to Shift the Balance of Power
But assets that include 134 power plants have made the PMAs targets for deficit-cutting policy makers. “With every administration there comes a moment where they discover they have these PMAs and they try to figure out how they can commandeer them into the service of their objectives,” Hickock says.
Republicans often have proposed selling the power agencies to private industry or operating them like commercial utilities, Hickock says, while Democrats tend to want to use the agencies as “their energy laboratory or economic laboratory or social laboratory.”
The federal role of marketing power has been long debated. A Congressional Research Service report said that, as early as 1944, an amendment to sell power from the dams without preference to public or customer-owned utilities triggered a three-day debate before the idea was rejected.
When the Reagan administration tried to sell the PMAs, Congress prohibited even studying the idea. Congress did pass legislation in 1995 to sell the Alaska Power Administration, but Senate opposition prompted House Speaker Gingrich to abandon efforts to spin off the Southeastern Power Administration. Clinton’s 1996 budget proposed converting the Bonneville Power Administration to a federal corporation and privatizing the others. A CRS report found that selling the PMAs was complicated and would do little to reduce deficits, and that effort died.
In 1997, the interest rates that the Bonneville Power Administration pays to borrow were raised, but only after debts were cut by an equivalent amount. Appropriators rejected a proposal in Bush’s fiscal 2006 budget to raise PMA electricity rates closer to market rates.
The deference toward the power administrations rankles many Northeastern and Midwestern lawmakers, whose constituents pay higher electricity rates.
During a hearing last month on Chu’s initiatives, the ranking Democrat on the House Natural Resources Committee,
“Here’s the reality: The Chu memo is about competition,” Markey said. “It’s about free and fair open markets. It’s about economic efficiency. It’s about all the things Republicans pretend to be for. But today, Republicans didn’t invite their free-market friends from the Heritage Foundation and the Cato Institute to testify. That would make it much stickier to defend inefficiency [and] socialist power.”
Trying Out Policies
Philip R. Sharp, a Democrat who represented Indiana in the House for two decades and was deeply involved in shaping energy policy, says it makes sense for any White House to look to the PMAs to try new policies. “You would think that it’s a natural place to start,” says Sharp, president of the non-profit Resources for the Future.
That may have been Chu’s rationale with his March 16 memo outlining goals that mirror the Obama administration’s broader energy efforts. They include boosting efficiency, integrating more renewable power into the grid, introducing new technologies and preparing the grid to handle electric vehicles.
As political appointees within the Energy Department, the PMA administrators couldn’t respond to the memo. But customers represented by the National Rural Electric Cooperative Association and the American Public Power Association, called it misguided. Scott Corwin, executive director of the Public Power Council in the Pacific Northwest, called the memo “a solution in search of a problem.”
Defenders of the PMAs told the House Natural Resources panel last month that they are already making progress on energy efficiency, integrating renewable resources and working with regional counterparts. Bonneville has more wind integrated into its system than any other region and adopted efficiency years ago as its least costly form of energy.
No Easy Task to Shift the Balance of Power
Public power customers were especially worried by suggestions in Chu’s memo that the PMAs could benefit from more coordinated transmission operations. The Pacific Northwest has already examined — and rejected — the possibility of a regional transmission operator, while the Western Area Power Administration is already moving toward a more centralized system to match power supply to meet demand out of necessity.
“The cumulative effect of statements directing PMAs to centralize functions, implement new rate designs and pursue broader projects hints at an unnecessary and costly expansion of regulatory reach,” Corwin said. Absent an Energy Department pot of money to implement Chu’s initiatives, the critics said, ratepayers will foot the bill.
“It all comes into our rates,” said Joel Bladow, senior vice president of transmission for the Tri-State Generation and Transmission cooperative in Colorado. “Even the process of examining these efficiencies on a national level — that will go into our rates.”
In the short term, the fate of Chu’s initiatives may be in the hands of appropriators. The House Energy and Water spending bill would bar use of funds to implement Chu’s memo, but the Senate version only directs the Energy Department to consult with Congress before acting. So far, Chu has not responded to requests by lawmakers to clarify his intentions. Energy Department spokeswoman Keri Fulton says a response is being prepared.
Ron Greenhalgh, a Washington-based engineer with the Western Area Power Administration for more than two decades and a consultant for the National Rural Electric Cooperative Association, worries what may happen to the PMAs if the Energy Department gets too closely involved. “I’ve gotten to observe up close and personal how personal ideology can triumph over science or facts,” he says.
FOR FURTHER READING:
Energy-Water bills (