Power Marketing Administrations: Proposals for Market-Based Rates

Publication Date: March 2005

Publisher: Library of Congress. Congressional Research Service

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Research Area: Energy

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Abstract:

The federal government operates four agencies created to market power generated at federally constructed multi-purpose dams. The four power marketing administrations -- Bonneville Power Administration (BPA), Southeastern Power Administration (SEPA), Southwestern Power Administration (SWPA), and Western Area Power Administration (WAPA) -- sell power to publicly or cooperatively owned utilities at rates based on their costs. These costs are specified in legislation and include the government's cost of operating hydropower facilities, a portion of the construction costs, and interest payments on unpaid debt. With costs so defined, interest rates generally below the government's current cost of borrowing, and low hydropower production costs, PMAs sell power below prevailing wholesale market rates, an activity designed to encourage regional economic development. Proposals to restrict or end this federal activity have been made over the last 20 years, and the President's FY2006 budget proposal raises these issues for the 109th Congress. This budget states that the "Administration will propose legislation to bring PMA electricity rates closer to the average market rates throughout the country."

Increasing PMA prices to market rates would generate both costs and benefits. Supporters argue that it would correct price signals, encourage conservation, and increase returns to the Treasury. However, this proposal would increase costs for consumers of PMA power and could have further ramifications for jobs and tax revenues. The Pacific Northwest, which receives 40% of its power from BPA, would likely see the largest economic effects.

This report provides background information on PMAs' budgets and rates, and briefly discusses the President's proposal. It will be updated as events warrant.