Electricity Markets

Associations voice opposition to PMA/TVA grid asset sale plan

The American Public Power Association and the National Rural Electric Cooperative Association are voicing opposition to renewed federal efforts to sell the transmission assets of three federal Power Marketing Administrations (PMAs) and the Tennessee Valley Authority’s (TVA) transmission assets and change the current cost-based rates structure for all four of the PMAs.

The March 20 letter was sent to Mick Mulvaney, Director of the Office of Management and Budget, by Sue Kelly, President and CEO of the American Public Power Association, and Jim Matheson, CEO of the National Rural Electric Cooperative Association.

In their letter, Kelly and Matheson point out that this is the third year in a row that President Trump’s fiscal year 2020 budget request has proposed to sell the transmission assets of three PMAs and the second year in which the budget proposes to sell TVA’s transmission assets and change the current cost-based rates structure for all four of the PMAs.

As part of his $4.5 trillion budget proposal for fiscal year (FY) 2020, President Donald Trump has again proposed selling federal Power Marketing Administration and Tennessee Valley Authority transmission assets.

The PMAs provide millions of Americans served by public power and rural electric cooperative utilities with cost-based hydroelectric power produced at federal dams, Kelly and Matheson noted. PMA rates are set to cover all generation and transmission costs, as well as repayment, with interest, of the federal investment in these hydropower projects. None of the costs are borne by taxpayers, the association heads added.

“Similarly, TVA provides affordable electric power to more than nine million people in seven states at no cost to taxpayers. For many decades, these partnerships have benefitted the federal government and public power and rural electric cooperative utilities, their retail customers, and their communities.”

Given the long and productive history between the PMAs and TVA and their customers, “we were disappointed to again see the Administration’s proposal to divest the transmission assets of the Bonneville Power Administration, Southwestern Power Administration, Western Area Power Administration, and TVA,” wrote Kelly and Matheson.

“We strongly disagree with the rationale provided in the budget proposal that ‘ownership of transmission is best carried out by the private sector where there are appropriate market and regulatory incentives’ and that increasing ‘the private sector’s role would encourage a more efficient allocation of economic resources and mitigate risk to taxpayers.’”

They said that “there is no taxpayer risk; none of the costs are borne by taxpayers. Furthermore, there is no evidence that selling the PMA transmission assets would result in a more efficient allocation of resources.”

Rather, it is much more likely that any sale of these assets to private entities “would result in attempts by the new owners to charge substantially increased transmission rates to PMA customers for the same service they have always received. These arguments are merely a pretext for actions that would raise electricity costs for millions of people and businesses nationwide, many of whom can least afford it.”

Cost-based rate structures  

Meanwhile, Kelly and Matheson said that the Administration’s companion proposal to change the cost-based rate structure for all four PMAs to a “market-based” rate structure is similarly insupportable. “There again is no evidence to support the Administration’s claim that ‘[e]liminating the requirement that PMA rates be limited to a cost-based structure and requiring instead that these rates be based on consideration of appropriate market incentives, including whether they are just and reasonable, would encourage a more efficient allocation of economic resources and could result in faster recoupment of taxpayer investments,’” the letter said.

PMA customers already pay the full costs associated with generating and transmitting power produced at federal dams, positioning the federal government to profit off of retail customers already covering all of the costs for their power supplies, Kelly and Matheson said. “Such a move would undermine regional economic development and almost certainly invite legal challenges from wholesale customers holding long-term power purchase contracts with the PMAs.”

They said that history has shown repeatedly that initiatives to privatize all or part of the PMAs and TVA “are vigorously opposed in Congress because they are both economically unjustified and politically unpopular. We hope you will reconsider such proposals in the future.”

Protecting the federal power program is an Association priority

In late February, Desmarie Waterhouse, Vice President, Government Relations and Counsel at the Association, said that the Association has identified six national priorities for 2019 including protecting the federal power program.

She made her comments at the Association’s Legislative Rally in Washington, D.C.