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Copyright 1999 Journal of Commerce, Inc.  
Journal of Commerce

May 5, 1999, Wednesday


LENGTH: 577 words

HEADLINE: Uneven utilities playing field


The Clinton administration has opened the way for public power companies - municipal utilities and co-ops - to use their tax exemptions and other special benefits and subsidies to compete with investor-owned utilities in the developing competitive electricity market. The administration says that the tax exemption is needed to protect municipal utilities, but the facts tell a different story.

The tax break will put private, investor-owned utilities at a great disadvantage, and the administration's policy stands to undermine electricity deregulation and the development of competitive electricity markets. Opening up the electricity industry to competition promises much good, and it will provide tangible benefits to both small consumers and large electricity users.

If the electricity market is really to be competitive, however, all of the market participants must play by the same set of rules. As long as public power companies have special advantages, the market will not be competitive.

Public power companies should be allowed to continue to provide electricity within their own service territories but not to expand outside their service territories in competition with investor-owned electric companies. Any public power companies that want to participate in the competitive market should be privatized.

Public power companies have significant artificial financial advantages. They receive more than $6 billion in taxpayer-financed benefits each year, as they pay no taxes, borrow money at tax-free government rates, and receive preferential access to low cost federal power. The result of these subsidies is that public power companies would have to increase their average prices 20 percent just to be comparable to investor-owned utilities that do not receive these subsidies.

Public power companies are now allowed to take these subsidies, including their tax exemptions and their ability to issue tax free bonds at government interest rates, to compete against investor-owned utilities around the country. Taxpayers, both federal and state, are subsidizing the public power companies' forays into the competitive electricity market. There is no justification for this increased taxpayer subsidy.

Moreover, a number of public power companies are unloading excess power on the wholesale electric power market. This is in addition to any direct sales to electricity customers.

The current $6 billion subsidy will grow ever larger as sales by public power companies not subject to federal, state, and local taxes replace sales by private investor-owned utilities that do pay taxes. Not only does increased subsidization of public power waste taxpayer dollars, it also distorts the policy goal of achieving competitive electricity markets.

Congress should immediately act to insure that only private, investor-owned electricity companies are able to participate in competitive electricity markets. Subsidized public power companies should be restricted to serving customers in their own territories.

This is the only way to insure that competitive markets work. In competitive markets, companies that are successful should be so because of their merits and not just because they have artificial advantages as a result of subsidies.

Keeping public power companies out of competitive markets is also the only way to insure that taxpayers do not subsidize any expansion of public power companies into competitive markets.

LOAD-DATE: May 5, 1999