95093: Power Marketing Administrations: Reassessing the Federal Role

Larry B. Parker
Environment and Natural Resources Policy Division

Updated October 15, 1997

CONTENTS

SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS

History

Issues Surrounding Divestiture

Role of Government

Deficit Reduction

Sale Price

Reclamation Costs

Multipurpose Activities and Operational Control

Current Contractual Obligations

Public Power Preference

Legislative Activity

Divestiture Proposals

Refinancing Proposals

Studies

LEGISLATION

SUMMARY

The five federal power marketing administrations (PMAs) -- Alaska Power Administration (APA), Bonneville Power Administration (BPA), Southeastern Power Administration (SEPA), Southwestern Power Administration (SWPA), and Western Area Power Administration (WAPA) -- are separate and distinct organizational entities within the Department of Energy. The PMAs' mission is to market power generated at federal multipurpose water projects (about 6% of the nation's total electricity generation) at the lowest possible rates to consumers, consistent with sound business principles. Each PMA has its own specific geographic boundaries, system of projects, statutory responsibilities, operation and maintenance responsibilities, and statutory history.

Over the years, controversy with respect to the PMAs has revolved around three general areas: whether PMAs are needed at all, whether power should be sold preferentially to public utilities and cooperatives, and how best to structure repayment of federal dollars invested in PMAs.

The Administration's FY1996 proposal to sell four PMAs suggested that in its view the federal role of fostering regional growth through low-cost power was no longer necessary; the assets should be transferred to the local entities that use the power, allowing them to make decision about future directions. Others who agree with the Administration on eliminating the federal role suggest that decisions about the future should be driven by market forces, with the taxpayers receiving thebenefits of their investment through deficit reduction or tax relief, rather than transferring those benefits to the existing customers. Those opposed to the sale point to the critical importance of electricity to economies served by PMA power and believe that any sale would cause economically disruptive electric rate increases. Indeed, any proposal to divest the government of the PMAs involves a tradeoff between maximizing the return to federal taxpayers for their investment in federal power assets and protecting existing federal power users from potentially economically disruptive effects of escalating electric rates.

Beyond the issue of the appropriate role of government, proposed PMA sales raise issues with respect to the conditions under which any sale would take place. These include the amount of deficit reduction or tax relief possible, the sale price, the disposition of reclamation costs currently assigned to power users, operational control of the facilities being transferred and their integration with the other purposes of the dam, the status of existing power contracts, and preference.

For FY1998, Congress has passed, and the President signed H.R. 2203, providing funding for the PMAs. As signed, the bill provides $3.5 million for APA, including $10 million for repair of a leaking submerged power cable; $12.2 million for SEPA; $25.2 million for SWPA; and, $189.0 million for WAPA.

MOST RECENT DEVELOPMENTS

In September, the conference report on H.R. 2203, providing PMA's FY1998 funding, was reported and subsequently passed by the House and Senate. The conference report provides $3.5 million for the Alaska Power Administration (APA), along with $10 million for capital assets acquisition; $12.2 million for the Southeastern Power Administration (SEPA); $25.2 million for the Southwestern Power Administration (SWPA); and, $189.0 million for the Western Area Power Administration (WAPA). The President signed H.R. 2203 on October 13. 1997.

In May, another bill was introduced to privatize the PMAs. As part of its DOE dismantlement proposal, H.R. 1577 calls for the sale of SEPA, SWPA, WAPA, and related generating assets of the Corps of Engineers and Bureau of Reclamation for the highest possible price. H.R. 1577 also calls for a DOI study of options for the most cost- effective future for BPA.

In February, the Administration submitted its budget request for FY1998. For the PMAs, the Administration requested the following in new budget authority: $1.0 million for APA, $16.2 million for SEPA, $26.5 million for SWPA, and $208.3 million for WAPA. This represents a $13 million increase over the FY1997 level. In addition, BPA stated its intention to borrow $252 million to fund capital obligations during FY1998.

BACKGROUND AND ANALYSIS

The federal government owns and operates numerous multipurpose dams, many of which generate electric power that is marketed through five federal entities called Power Marketing Administrations (PMAs). Believing the need for a federal role in this area has passed and desiring to use the sale receipts to help fund tax relief, the Clinton Administration proposed in its FY1996 budget request to sell four of the PMAs. This proposal raises once again the question of the appropriate role of the federal government in power marketing and whether it is time to alter that role. Also, any proposal to alter a basic infrastructure such as an electric supply and pricing system raises several concerns with respect to the conditions under which any sale or transfer would take place: What kind of protection would consumers receive during the transition, if any? What is a reasonable price for the government's investment and how would consumer protection provisions affect that price? What would become of non-power activities incorporated in some PMA costs, such as irrigation costs? What would be the net proceeds to the federal Treasury of a sale?

For FY1998, the Administration requested the following amounts for the PMAs: APA -- $1 million, SEPA -- $16.2 million, SWPA -- $26.5 million, WAPA -- $208.3 million, and BPA -- $253 million (borrowing authority). In the case of APA, the appropriation request represented the amount to continue operations as the sale takes place. Sale of the APA has already been authorized. DOE believes that the Eklutna project sale will be completed by early 1998. Negotiations on financial arrangements for the Snettisham project sale continue with no set date for completion.

In the appropriations process, the Senate Appropriations Committee reported out S. 1004, the FY1998 Energy and Water Development Appropriation Bill, on July 10. Increases in funding from the Administration's request the Committee included were an additional $20 million for the APA to repair a leaking submerged power cable and a $2.5 million increase in APA operations and maintenance funding. The Committee also made reductions in the purchase power and wheeling accounts of SEPA (-$2 million) and WAPA (-$10 million) and in the WAPA program direction account (-$4 million). The Senate passed S. 1004 on July 16.

On the House side, the House Appropriations Committee reported out the FY1998 Energy and Water Development Appropriation Bill, H.R. 2203, on July 17. Unlike the Senate, the House Committee agreed with the Administration's request for APA, providing no additional funds. The House Committee also made reductions in the Administration's proposed budget for SWPA (-$1.3 million), along with reductions in new budget authority for SEPA (-$2 million), and WAPA (-$4.7 million) because of new estimates of available prior year balances. The House passed H.R. 2203 on July 25.

The conference committee reported out H.R. 2203 on September 25, 1997 (H. Rept. 105-271). The conference report provided $3.5 million for APA, including $10 million for repair of the leaking submerged power cable; $12.2 million for SEPA; $25.2 million for SWPA; and, $189.0 million for WAPA. The House passed the conference report on September 26, and the Senate passed it on September 30. The President signed H.R. 2203 on October 13. 1997.

History

The formation of the PMAs was an incremental process evolving out the federal government's need to dispose of electricity generated in excess of irrigation needs at federal multipurpose dams. In 1937, Congress passed the Bonneville Project Act to create BPA to market federal power in the Pacific Northwest. This was followed in 1943 with a decision by the Secretary of Interior to establish SWPA under the President's war powers. The authority to create permanent marketing authorities was provided in 1944 with passage of the Flood Control Act. In 1950, the Secretary of Interior established SEPA and in 1967 created APA. The final PMA, WAPA, was authorized under the DOE Organization Act of 1977 (P.L. 95-91) when the four existing PMAs were transferred from the Department of Interior to the Department of Energy.

Controversy over the PMAs has revolved around three general areas. First, objections have been raised about the need for PMAs at all. Critics argued that the construction of transmission facilities and the marketing of federal power should be left to the utility industry. For example, during deliberations on the 1944 Flood Control Act, an amendment requiring federal power to be sold "at the point of production" (i.e., at the dam) with no preferences triggered a 3-day debate in the Senate before being rejected in favor of provisions requiring the Secretary of Interior to transmit and dispose of federal power to encourage the most widespread use at lowest possible rates. Thus, before PMAs became embroiled in the budget debates of the 1980s and 1990s, their appropriateness as a federal governmental function had been debated.

The second area of controversy has been the so-called "preference" clause. Both the 1937 Bonneville Project Act and the 1944 Flood Control Act require that preference in the sale of federal power shall be given to public bodies and cooperatives. Preference to irrigation and municipal purposes can be traced to the Reclamation Act of 1906 and has been variously credited with preserving a pluralistic electrical system, providing a reference for rates, protecting municipal utilities against investor-owned utilities, and helping rural electrification. Opposition to the preference clause comes primarily from investor-owned utilities whose consumers are effectively denied access to low-cost federal power.

The third area of controversy has been the repayment by PMAs of congressional appropriations for the construction of hydroelectric and related facilities. These costs are to be repaid to the Treasury by the end of a project's useful life through rate charges sufficient to recover the government's cost of operating and maintaining the facilities, along with construction costs and interest. Currently, the cumulative balance remaining on the principal is about $14 billion. Over the years, DOE has exercised great flexibility in determining when to collect revenues to repay the outstanding debt because revenues from PMAs fluctuate depending on the water available in a given year for electric generation. Critics of this have suggested two options to improve the flow of repayment. The first is to require DOE to raise rates for PMA power to speed debt repayment. CBO estimates that fixed annual principal and interest payments would increase Treasury receipts by about $1 billion over 5 years. The second option is to divest the government of the PMAs.

Issues Surrounding Divestiture

Role of Government

Initially, the debate about PMAs focused on how active a role the federal government should have in economic development. Since the 1930s, those who have believed that the federal government should spur economic development by making federal power available at cost have prevailed and power has been provided preferentially to public and customer-owned entities. Arguably, the PMAs have been successful in this role, having provided the customers they serve with some of the lowest-cost power in the country and having spurred development and growth. The availability of low-cost power has resulted in the development of an economic infrastructure significantly dependent on cheap power. For some, this situation weighs heavily against any proposal to alter the federal role.

The Administration's FY1996 proposal to sell four PMAs suggests that in its view the time has come for the federal government to retire from marketing power (except, for now, for BPA). In this view, the federal role of fostering regional growth through low-cost power is no longer necessary; the assets should be transferred to the local entities that use the power, allowing them to make decisions about future directions with respect to facility maintenance, improvements, and electric rates. Others who concur with the Administration's view with respect to ending the federal role in power marketing suggest that decisions about the future should be driven by market forces with the taxpayers receiving the benefits of their investment through deficit reduction or tax relief, rather than transferring those benefits to the existing customers. Maximizing the return to federal taxpayers through asset auctions could bring the federal Treasury significant revenues. Any proposal to divest the government of the PMAs involves a tradeoff between maximizing the return to federal taxpayers for their investment in federal power assets and protecting existing federal power users from the potentially economically disruptive effects of escalating electric rates.

Deficit Reduction

The proposed sale of the PMAs would potentially affect the federal government in at least four ways. First, it would potentially remove the government from any future financial responsibility for the construction and operations and maintenance of a substantial electricity marketing system. A decision to reduce or eliminate the federal role in power marketing would save the government from appropriating funds annually to support such activities.

Second, if the provision in the Budget Act of 1985 governing asset sales were modified, any net proceeds from a sale could be used to provide tax relief or to reduce the deficit. In the case of the Administration's FY1996 proposal, a preliminary estimate of receipts from the sale is $4.469 billion (before accounting for appropriation savings and loss of revenue receipts).

Third, the government would lose a stream of revenue flowing into the federal Treasury from the four PMAs whose revenues go to the Treasury. For FY1995, this represented net positive receipts to the federal Treasury of $243.7 million, after subtracting the PMAs' FY1995 appropriations and use of prior year balances.

Finally, depending on how the sale were structured, the new entities created by the move could be subject to federal income taxes. How much tax revenue might be collected would depend on the structure and conditions of the sale and the financial structure of the buyer. If current trends with investor-owned utilities are any indication, the amount of income tax generated by the four PMAs highlighted in the Administration's FY1996 proposal might be in the range of a total of $25 million annually. However, it is important to note that a PMA asset buyer would factor in any potential tax liability over the asset's estimated lifetime to determine an appropriate price. Thus, the net effect of federal tax liability on Treasury receipts may be zero, on the possibility that the revenue stream over the asset's lifetime from taxes could be offset by a lower purchase price.

Table 2 provides some indication of the impact of the Administration's FY1996 proposed sale of the four PMAs on the federal deficit. As indicated, during the years in which sales were actually occurring (FY1996-FY1998), the Treasury would receive a windfall in receipts as monies received and saved exceed the revenues lost as a result of the sale. However, as the foregone revenues exceed the saved 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. Over the standard 5-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.

Table 2. Illustrative Scoring of Administration's FY1996 Proposed PMA Sale (in millions of dollars)

Sale Price

A critical factor in determining the advisability of an asset sale is the valuation method employed. The federal government could actually "lose" money over the long- run if the sale price were inadequate to cover the present value of the federally-held debt. An APA study of the impact on the federal Treasury of the proposed divestiture of APA indicated that the net present value of net revenue to Treasury would be higher without divestiture ($84.2 million) than under the proposed sale ($71.7 million), all else being equal. Thus, the federal government could receive from the sale of APA about 85% of the present value of its remaining principal and interest payments.

In calculating a preliminary estimate for the Administration's FY1996 proposal to sell four PMAs, the Office of Management and Budget (OMB) calculated the present value of the future repayment schedule. Presumably, this approach was chosen to minimize the impact of any sale on existing consumers. However, the return to the federal Treasury could be substantially increased by requiring the PMAs to refinance their existing debt in the private credit market, rather than permitting them to be sold at the present value of the future stream of repayment. Refinancing the four PMAs' existing federal investment and construction debt (CWIP) in the private credit market would repay $6.2 billion (the PMAs' current federal repayment obligation) to the federal Treasury, compared with the Administration FY1996 proposal's $4.5 billion from selling the four.

A more aggressive option that could potentially increase receipts to the federal Treasury would be to auction the PMAs off, either by project, or by PMA. However, there are no reliable figures on how much the PMAs would fetch under such a scenario. The PMAs currently sell power to preference customers for substantially less than the prevailing wholesale rate, indicating the possibility that their market value is greater than their current statutorily determined valuation would indicate. Thus, it is possible that an auction of the PMAs could result in greater revenues to the federal Treasury than the Administration's FY1996 proposal. For example, the Edison Electric Institute argues that the PMAs could be worth about $8.9 billion on the market.

However, as indicated by the proposed sale of APA, auction proceeds could also be less than the federal investment; as a result, the government could actually lose money compared with the existing situation. The value of the PMAs in an auction is particularly uncertain in the case of BPA, which has a $4.3 billion principal on non- performing assets (Washington Nuclear Projects numbers 1 and 3 [WNP-1 and WNP-3]) and an estimated $108 million liability from the decommissioning of the Trojan nuclear power plant. This is one reason cited by the Administration for not including BPA in its sale proposal.

As noted earlier, attempts to set a sale price involve a tradeoff between maximizing the return to the federal Treasury from selling PMA assets and protecting existing electric consumers from potentially economically disruptive effects of escalating electric rates. All else being equal, a sale of PMA assets to a profit-making, tax-paying entity that involves private, market-rate refinancing would raise rates by at least the amount to cover these additional expenditures. For example, in a 1986 study of proposals to sell BPA, CRS estimated that simple private refinancing of BPA's debt would raise rates about 13-15% above basecase levels for the first 5-years, decreasing to about 6% by 2005. In contrast, the sale of BPA to a public authority based on the present value of the debt repayment stream and tax-free bonds would raise rates by only 1-4% above basecase levels. The Administration apparently agrees that selling the PMAs could raise electric rates substantially as its FY1996 proposal calls for the transfer of assets at their present value (not market value), and includes a "consumer protection" clause to prevent "significant" rate increases.

Reclamation Costs

Although not stated explicitly, most proposals to sell PMAs assume that irrigation capital costs currently assigned to be repaid out of power revenues would be recovered from the proceeds of any sale. This raises the question of how future costs would be handled after the sale since PMA revenues would no longer be available. New irrigation project capital expenses and any operating costs would have to be paid fully by users or partially subsidized by local, state, or federal governments. For example, irrigators currently benefit from the sometimes very low cost of power that PMAs charge the Bureau of Reclamation (BuRec) for power used to pump water through its irrigation distribution systems. Two-thirds of the power consumed by BuRec for the Columbia Basin Project is sold by BPA for 0.95 cent per Kwh, considerably less than the wholesale rate. The average cost of power to BuRec from WAPA is 0.58 cent per Kwh. In addition, irrigators benefit from irrigation capital costs assigned to be recovered through power revenues -- costs that exceed $2 billion.

Alternatives to provide irrigation assistance could involve either a federal user fee on the new owner's use of the water to generate power, increased rates for irrigation water, or absorption of costs by the federal, state, or local taxpayer. Each of these options has advantages and drawbacks. For example, a federal user fee could be built into a sale and could partially compensate the federal government for its remaining investment, help with operation and maintenance expenses, and repay aid to irrigation. However, the cost of this fee would be passed forward by the new owners to power users in a manner not dissimilar to the current situation; or, if a pass-through were prohibited, the price that prospective new owners would be willing to bid on a PMA would be lowered. An increase in rates water users pay would enlarge the proportion of irrigation costs borne by the beneficiaries of federal projects, but could increase economic hardship in some areas and require major legislative changes in current water-rate policies. Alternatively, the assumption of costs by the federal government would minimize the impact of any sale on irrigation interests and simplify its implementation; however, it would also increase federal obligations at a time when the government is seeking to reduce federal expenditures.

Multipurpose Activities and Operational Control

Most federal hydro projects were developed with multiple purposes envisioned. PMA power production is coordinated within parameters set by the Corps' and BuRec's requirements for flood control, fish and wildlife enhancement and protection, recreation, navigation, and water supply. International treaties with Canada and Mexico as well as with Indian nations influence river basin and reservoir operations in some cases. The exact relationship between the right of any new owner to market federal power and the right of the Corps and BuRec to carry out these other activities has not been spelled out under any proposed privatization. This operational control condition of the sale is very important in determining the feasibility of the sale, the type of appropriate purchasing entity, the possible efficiency improvements that might result, and the price. In some cases, the broader public interest dictated by the multipurpose nature of the federal activity may suggest a different solution than one suggested by the market. For example, in operating the dams along the Columbia and Snake Rivers, the Corps and BuRec have considered drawing down reservoirs to facilitate salmon migration to the ocean. Such an action may have a significant effect on hydro-electric generation and power rates, as well as navigation interests. If a private entity were relying on these power facilities to meet contractual power commitments, the federal government's decision-making process could be even more complicated.

Options to deal with this question under a privatization scenario range from continuing the status quo to the greatest degree possible, to granting the new owners major maintenance responsibilities with respect to power production and some control of operational conditions. The simplest option would be to have the federal dams remain in federal hands, with the purchasers replacing the PMAs as the reimbursers of federal appropriations for dam operation and maintenance. In this scenario, the actual ownership and operation of the dams would remain unchanged. This would protect the multipurpose nature of the projects, but maintain the current situation of having maintenance and improvements to the facilities subject to federal appropriations, and therefore, to the federal budgetary process. Essentially, the buyer of a PMA would be purchasing the right to market federal power as available from federally operated dams along with the PMA's transmission assets (except SEPA, which has no transmission assets).

A second option would be to allow the federal agencies to continue the operational aspects of the projects, but permit the new owners to maintain and make improvements on the generation facilities as they see fit. This would take the capital and maintenance aspects of each project out of the federal purview and permit market forces to influence capital expenses for generation equipment, while protecting the multipurpose nature of the projects by having the government retain operational control. However, it is unclear how willing new owners would be to maintain and improve power facilities over which they would have little or no operational control. Without some say over the operation of the generation equipment, it would be difficult for the new owners to determine the cost-effectiveness of any proposed capital improvement. Nor is it clear how the new owners would finance any improvements as their only collateral in terms of generation facilities would be the right to market federal power -- an intangible asset, not a physical asset like the dam itself. This is complicated in the case of the Administration's FY1996 proposal because many current users have little collateral to support needed improvements.

A third option would follow on the second, but permit the new owners some voice in dam operations. This might improve the owners' access to the capital markets to make necessary improvements, but providing operational control raises numerous regulatory issues such as Federal Energy Regulatory Commission (FERC) licensing and possible environmental requirements. How all this could be balanced in a way satisfactory to all parties is unclear at the present time.

Current Contractual Obligations

Each of the PMAs has numerous longstanding contractual agreements, many with assignment restrictions that significantly affect the options available in selling them. These agreements include electric service contracts, which typically run for 20 years and govern the sale and purchase of power. Other agreements include interconnection contracts, transmission contracts, facility use contracts, operating agreements, and power interchange and pooling contracts. The extreme case is BPA, which, unlike the other PMAs, has the basic utility obligation to serve. It is party to a series of contracts with investor-owned and public utilities to acquire the capability of various thermal plants in the region. Among these contractual arrangements are net billing and residential exchange agreements. These agreements add significantly to BPA's costs and would have to be resolved for any privatization to occur.

Public Power Preference

An area of controversy over the years with PMA power has been the so-called "preference" clause. The possible sale of the PMAs raises a series of questions with respect to preference customers. What would be the obligations of the new owners to these customers? Presumably, existing service contracts would be carried over to the new owners at the existing rates. However, future obligations are unclear. If a publicly or consumer-owned utility wanted to expand, would it still have preference over investor-owned utilities to output from privatized hydro facilities? If not, how would the numerous congressional acts reaffirming public preference need to be amended? If the buyer is an investor-owned utility, what sort of wheeling obligations would the new owner have to public entities?

The Administration suggests that it intends to give the current users of PMA power the right of first refusal with respect to buying the PMAs. However, there is no indication that the current users have the financial resources to purchase the PMAs, or what sort of organizational arrangement would be optimal to ensure proper operation of the system.

For further background and discussion of issues surrounding the proposed divestiture of the PMAs, see CRS Report 95-356, Power Marketing Administrations: A Time for Change?

Legislative Activity

Divestiture Proposals

Both Congress and the Administration have proposed reducing the size and role of the federal government. In the 105th Congress, three bills have been introduced to privatize the PMAs. H.R. 296, introduced by Congressman Shadegg, would privatize three PMAs (SEPA, SWPA, and WAPA) through warrants issued to current users of PMA. Then, at the public offering to dispose of the individual PMAs and related assets (converted into corporations), these warrants would permit their holders to purchase shares of the new corporations at their net asset value rather than the market price established at the offering. H.R. 718, introduced by Congressman Foley, would privatize all four PMAs and the related generating assets of the Corps of Engineers and the Bureau of Reclamation beginning no later than September 30, 1999, for SEPA (the others would follow one per year). The bill calls for the government to receive the "highest possible price" for such assets, but would require purchasers to insure that power rates after the sale did not increase more than 10% annually.

H.R. 1577, introduced by Representative Tiahrt, includes the sale of three PMAs (SEPA, SWPA, and WAPA) as part of its DOE dismantlement proposal. The fourth PMA, BPA, would be transferred to DOI and a study done on the most cost-effective option with respect to BPA's future. The sale provisions of H.R. 1577 with respect to the three PMAs are the same as those contained in H.R. 718.

During the 104th Congress, most of the congressional efforts in relation to PMAs were tied in some manner to the budget process. H.R. 310 and H.R. 1801 would have authorized the Secretary of Energy to divest the federal government of all the PMAs. Proceeds from the sale would have been deposited in the U.S. Treasury. H.R. 3878, introduced by Representative Franks, would have authorized the Secretary of Energy not only to sell the PMAs, but also the generating facilities owned and operated by the Corps of Engineers, Bureau of Reclamation, and the Tennessee Valley Authority. It would have also provided for a transition to market-based rates for such power. In addition, a group of freshmen Republican Congressmen introduced H.R. 1993, which called for the dismantlement of the Department of Energy. Included in that proposal was a provision calling for the sale of all five PMAs.

The Administration's FY1996 budget request recommended the divestiture of four of the five PMAs, with consumer protection against significant rate increases. However, it provided few details outside of a schedule and a suggested consumer protection provision. The budget request announced the Administration's intention to seek legislation to privatize APA in FY1996, SEPA in FY1997, and SWPA and WAPA in 1998. The budget request stated the Administration's intention to seek legislation to allow the estimated $3.685 billion in proceeds to be counted as offsets to spending if the President and Congress so designate, contrary to the Balanced Budget and Emergency Deficit Control Act of 1985.

In May 1995, the Administration sent legislative language to Congress to authorize the sales envisioned in its budget request. The language would have required the Secretary of Energy to conduct studies as necessary to prepare plans for transferring SEPA in FY1997 and SWPA and WAPA in FY1998. The plans were to provide for a minimum price set at each PMA's net present value of future payments and for a preferential right to existing customers to purchase at not less than the minimum price. In addition, the plan could have provided for the transfer of individual projects and the sale of power-generating equipment or other conditions to allow transferees to perform maintenance and upgrading on such equipment. Such a plan would go into effect 60 days after submission to Congress. The proceeds from the sale would have gone to the U.S. Treasury and counted toward deficit reduction if the President so designated, notwithstanding the 1985 budget act.

For FY1997, the Administration abandoned its efforts to divest the PMAs, citing a lack of political acceptance.

Refinancing Proposals

One alternative to divestiture is to refinance the federal repayment obligation to increase the stream of repayment to the U.S. Treasury. Currently, only BPA is covered by this sort of approach. In the 104th Congress, S. 92/H.R. 599 and H.R. 799 would have reconstituted the outstanding repayment obligation of BPA for the federal Columbia River Power System (except for irrigation investment and debt from use of the revolving fund). New principal amounts would have been created by calculating the present values of the existing repayment obligations (using their existing interest rates) and then those values would have been increased by their proportionate share of $100 million. These new principal amounts would have borne interest at new rates that reflect appropriate prevailing U.S. Treasury borrowing rates. In addition, H.R. 799 would have required DOE to study the effect that electricity rate increases would have on the customer base and to estimate the costs of BPA's compliance with provisions of the Endangered Species Act.

Studies

Current law prohibits the use of federal funds to study either the divestiture of the PMAs (P.L. 99-349, Section 208), or the possibility of selling PMA power at market rates (P.L. 102-377, Section 505). Removal of these prohibitions is seen by some to be the logical first step in determining the desirability of any divestiture or change in current pricing policy. In the 105th Congress, H.R. 296 contains a provision that would repeal Section 505 of P.L. 102-377.

Another study with respect to PMA divestiture is included in S. 236, which proposes the abolishment of DOE. Introduced by Senator Grams, S. 236 would require GAO to study all reasonable options for restructuring the PMAs and to make recommendations to Congress with respect to their final disposition. The study is to be completed within one year of enactment.

A final study is included in H.R. 1577, which proposes the abolishment of DOE. Introduced by Congressman Tiahrt, H.R. 1577 would require DOI to study alternatives to determine the most cost-effective option for the future of BPA. The study is to be completed within one year of enactment.

LEGISLATION

H.R. 296 (Shadegg)
Provides for privatization of SEPA, SWPA and WAPA. See "Divestiture Proposals," above. Introduced January 7, 1997; referred to Committee on Resources and Committee on Commerce.

H.R. 718 (Foley)
Provides for privatization of all four PMAs and the related generating assets of the Corps of Engineers and the Bureau of Reclamation. See "Divestiture Proposals," above. Introduced February 12, 1997; referred to Committee on Resources and Committee on Commerce.

H.R. 1577 (Tiahrt)
Provides for the abolishment of DOE. Among its provisions, SEPA, SWPA, WAPA and the related generating assets of the Corps of Engineers and the Bureau of Reclamation would be sold, and a study would be conducted on the future of BPA. See "Divestiture Proposals," and "Studies" above. Introduced May 8, 1997; referred to Committee on Commerce.

S. 236 (Grams)
Provides for a GAO study of options with respect to restructuring the PMAs. See "Studies," above. Introduced January 30, 1997; referred to Committee on Energy and Natural Resources.