Government urged to privatize federal electric utilities; sale of TVA, PMAs would benefit consumers, taxpayers, says study Business & News Editors/Energy & Government Writers

LOS ANGELES–(BUSINESS WIRE)–March 14, 1996–The federal government is the nation’s largest producer of electric power, via the Tennessee Valley Authority (TVA) and five power marketing administrations (PMAs), yet they are poorly managed and grossly inefficient, and receive substantial federal subsidies to insulate them from pricing competition, according to the study “Federal Power: The Case for Privatizing Electricity,” released Thursday by the Los Angeles-based Reason Foundation.

The Clinton administration, in its 1996 budget, has proposed privatizing the four smaller PMAs and restructuring the Bonneville Power Administration into a federal corporation similar to the TVA.

According to Dr. Douglas Houston, author of the Reason Foundationstudy and professor of business economics at the University of Kansas:

“The primary reason to shift the assets of the five PMAs and the TVA into the private sector is to build them into energy organizations that cannot evade commercial accountability.”

“By delaying privatization and hiding behind fences, the TVA will not face a true-market test to increase the value of its assets.”

As the study indicates, federal electricity providers will be much better equipped to cope with fast-approaching electricity deregulation as they are transformed into entrepreneurial companies.

The United States, however, lags behind many other countries in electric-power privatization. Worldwide asset privatization in the electric-utility industry totaled $12.9 billion in 1995, leading all other industries.

Many nations, from Chile to Great Britain, have entered ambitious electric-power privatization programs for two primary reasons: (1) to raise capital to reduce their national debts, and (2) to improve the efficiency and performance of their electric-power industries.

According to the study, the sale of all U.S. federal power enterprises would raise between $15 billion and $30 billion, which could be applied to reducing the national debt. William Malec, former chief financial officer of the TVA, estimated that the TVA alone could sell for as much as $10.5 billion.

In addition to a divestiture of federal power assets, the report recommends the removal of tax advantages to government-owned utilities and cooperatives, which would increase future federal income-tax revenue flow by an estimated $3 billion per year; states would gain another $2 billion per year.

“Rate shock to formerly subsidized federal electricity customers can be minimized by transitional price caps and stock- purchase options,” said Houston.

“Privatization of federal power is generally viewed as a win-win proposition,” explained Robert Poole, president of the Reason Foundation and an authority on federal privatization.

“Consumers nationwide will benefit from the lower prices provided by enhanced access to federal transmission lines for long-distance power sales. The environment will benefit, as the removal of subsidies leads to energy conservation.”

According to Houston, “The near-term prospects for electric- power privatization are promising, but as the industry undergoes deregulation, we still have many federal power assets that are interfering with an emerging competitive process; this damages the foundation of a nation’s productivity and its capacity for economic growth.”

Related studies that address the issue of electric-utility privatization include “Toward Accountability and Efficiency: Reform of the Bonneville Power Administration,” “Public vs. Private: Alternative Ownership Scenarios for Electric Utilities” and “Privatization of the Tennessee Valley Authority.”

Copies are available for $15 (plus $1.50 s/h) each and may obtained by calling the Reason Foundation at 310/391-2245.

The Reason Foundation is a national public-policy research organization with a practical, market-based approach and an outside Washington perspective. Founded in 1978 and based in Los Angeles, the Reason Foundation has earned a reputation for sound economic research and a how-to approach that benefits policy-makers and elected officials who require practical solutions.

CONTACT: The Reason Foundation, Los Angeles
Brandon Shamim, 310/391-2245