LEXIS-NEXIS® Academic Universe-Document
Copyright 1999 The Chronicle Publishing Co.
The San Francisco Chronicle
View Related Topics
JULY 16, 1999, FRIDAY,
LENGTH: 612 words
HEADLINE: Pulling the Power Plug;
Deregulation needs some help from Congress
BYLINE: Geoff Rothwell
CALIFORNIA MAY HAVE welcomed
electric utility restructuring with open arms, but it has a blind eye for the practical
problem of how to stimulate the competition necessary for consumers to enjoy
the benefits of open markets.
California and other states that initiated reform without federal mandates
operated on the theory that
deregulation would encourage competition and yield lower prices. But
deregulation won't succeed unless Congress reins in federal subsidies that favor some power
companies over others.
As state deregulators are learning, because of the lack of active federal
deregulation has not addressed many of the economic problems associated with
government-owned and government-subsidized power, which accounts for
one-quarter of the nation's electricity supply.
Publicly owned power companies continue to expand, supported by billions of
dollars in direct and indirect federal subsidies.
Electric cooperatives and municipally owned utilities, such as the Los Angeles
Department of Power
& Water and the Sacramento Municipal Utility District, pay no state or federal
The Internal Revenue Service has recently issued new regulations that favor
the further expansion of government-owned utilities and pose a significant
roadblock to California and other states in developing competitive markets.
electric utilities have been able to issue
tax-free bonds to finance
electric systems used only by their
residents. The new rules permit government-owned utilities to use facilities
tax-exempt debt to sell electricity outside their service areas.
Tax-exempt public utilities can now use their subsidized power systems to lure
customers away from taxpaying utilities. Increased subsidization of public
power distorts the goal of creating competitive markets for power sales. For
example, Seattle City Light has a contract to supply power to several
department stores in California, and Arizona's Salt River Project now sells
electricity to refineries in California. These
tax-exempt sales reduce those by taxpaying power generators.
There are other inequities that run counter to fair competition. The
Bonneville Power Administration, for example, sells billions of
tax-exempt dollars of
"excess" federal power to wholesale customers in California. This is
particularly significant because publicly owned utilities and power marketing
agencies have 13,000 megawatts of
"excess" generating capacity, an amount that exceeds the total generating capacity of
more than half of the 50 states. Consumers who have access to this power will
benefit, but it is a loss of
tax revenue that must be made up by the average taxpayer.
deregulation accomplishes what it was meant to -- stimulate competition and provide a price
drop for ratepayers -- three things need to happen immediately. First, Congress
should reject the recent IRS regulations and review all
tax codes concerning all forms of
Second, Congress should pass legislation that would allow public utilities to
compete with private utilities if they are willing to forgo future use of
tax-exempt financing and preferential access to federal public power.
must address continued federal ownership of electricity generation facilities
and allow for the possibility of privatizing federal generation capacity.
If Congress gets involved in the restructuring of the American
electric utility industry, it can help create effective competition by pulling public
power's plug from the federal subsidy socket.
Geoff Rothwell teaches economics at Stanford University.
GRAPHIC: GRAPHIC, Bill Russell / The Chronicle
LOAD-DATE: July 16, 1999