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The nation originally invested in electrical power programs as a way of fostering regional development and promoting competition in power markets. Many of the projects serve multiple purposes, such as flood control and irrigation. But as concerns have risen about the efficiency of the government's power operations and the federal budget, some people question the wisdom of continuing government ownership of power assets. This study, prepared by the Congressional Budget Office (CBO) in response to a request from the House Committee on the Budget, reviews the arguments for changing the management of federal power programs and describes three options for change: management reform, transfer to local governments, and privatization. The study presents estimates of the potential market value of federal power assets and the budgetary impact of selling them.

Richard D. Farmer of CBO's Natural Resources and Commerce Division (NRCD) prepared the study under the supervision of Jan Paul Acton and Roger Hitchner. Coleman Bazelon and David Moore of NRCD provided helpful comments. Kim Cawley, Kathleen Gramp, and Jim Horney of CBO's Budget Analysis Division and Mark Booth of CBO's Tax Analysis Division contributed to the sections on budgetary background and legislative options. Robin Seiler of CBO's Special Studies Division provided an incisive internal review of the overall document. The author thanks Rodney Dunn, Daniel Feehan, Greg Kutz, and Larry Parker for their reviews of the study and many useful comments. The author also thanks the staff of the Energy Information Administration's Electric Data Systems Branch for their assistance in compiling much of the data for the study.

Sherwood Kohn edited the manuscript, and Melissa Burman provided editorial assistance. Angela McCollough typed the final draft. Kathryn Quattrone and Jill Sands prepared the study for publication. Laurie Brown prepared the electronic version for CBO's World Wide Web site.
 

June E. O'Neill
Director
November 1997
 
 

SUMMARY

ONE - THE FEDERAL ROLE IN SUPPLYING ELECTRICITY

• The Federal Contribution to the Nation's Power Supply
• Basic Power Statistics for Federal Power Agencies
• The Federal Investment in Power Production and Marketing
• The Business of Federal Power: Financing Construction and Paying for Operations

TWO - RETHINKING THE FEDERAL ROLE

• Public Works
• Economic Development
• Monopoly and Abuses of Market Power
• External Costs and Benefits of Power Generation

THREE - THE HIGH SOCIAL COSTS OF GOVERNMENT PRODUCTION

• Does Federal Management Impede Efficient Operations?
• Inadequate Maintenance and Its Effect on Capacity Utilization
• New Competition Is a Mixed Blessing for Federal Power Agencies

FOUR - OPTIONS FOR CHANGING THE FEDERAL ROLE

• Can Legislative Remedies Enhance Efficiency?
• Can Local Governments Manage Better?
• Can Private Businesses Manage Better?
• Who Benefits and Who Loses as a Result of Reform?

FIVE - THE VALUE OF FEDERAL POWER ASSETS TO THE PRIVATE SECTOR

• Which Assets Are at Stake?
• What Is the Market Value of Federal Power Assets?
• How Would Constraints on an Asset Sale Affect Market Value?
• How to Conduct a Sale to Achieve Maximum Value

SIX - BUDGETARY CONSEQUENCES OF SELLING POWER ASSETS

• The Budgetary Impact of Power Operations: Power Receipts and Program Outlays
• The Budgetary Impact of Changing Tax Receipts
• The Prospects for Long-Term Budgetary Savings
• Other Considerations Enhance Prospects for Budgetary Savings
• Policy Concerns Other Than the Budget

APPENDIXES

A - Federal Power Sales by State
B - Cash Flows for Federal Utilities and Sensitivity Analyses of Market Values and Budgetary Effects
 

TABLES
1.	Federal Power Sales to Utilities and Direct Customers, Fiscal Year 1995
2.	Sales by Federal Utilities, Fiscal Year 1995
3.	Generating and Transmission Capacity of Federal Utilities, Fiscal Year 1995
4.	Average Revenues from Power Sales by Federal Utilities and Investor-Owned Utilities, Fiscal Year 1995
5.	Cumulative Federal Investment in Power and Related Nonpower Assets Through Fiscal Year 1995
6.	Ratio of Production to Operable Generating Capacity for Federal and Nonfederal Hydropower Producers, Fiscal Years 1991-1995
7.	Comparison of How Fast Current Federal Rates Adjust to Market Rates for Different Reform Options and Types of Ownership After Reform
8.	Number of Rate-Setting Systems and Power Projects Managed by Federal Utilities, Calendar Year 1995
9.	Comparison of Average Revenues from Power Operations for Federal and Investor-Owned Utilities, Fiscal Year 1995
10.	Potential Market Valuations of Federal Power Assets
11.	Alternative Bases for Sales Price and Related Losses in Public Receipts Compared with Sales at High and Low Market Values
12.	Potential Restrictions on Plant Operations and Related Losses in Public Receipts
13.	Comparison of Net Budgetary Receipts, Additional Tax Receipts from the Sale of Federal Power Assets, and Market Valuations
14.	Comparison of Potential Budgetary Savings or Costs from the Sale of Federal Power Assets Under Varying Assumptions About Market Value
A-1.	Federal Power Sales to Utilities and Direct Customers, Fiscal Year 1995
B-1.	Income and Expenditures for Power Programs of the Tennessee Valley Authority, Fiscal Year 1996
B-2.	Income and Expenditures for Power Marketing Administrations, Fiscal Year 1995
B-3.	Sensitivity of Market Valuations to Changes in Key Assumptions
B-4.	Sensitivity of Budgetary Effects to Changes in Key Economic Variables Affecting Repayment
FIGURES
1.	National Power Production by Type of Producer, Calendar Year 1995
2.	Federal Power Sales by Type of Customer, Fiscal Year 1995
3.	Service Areas of Federal Power Agencies
4.	Ratio of Maintenance Expenditures to Power Revenues for Federal, Publicly Owned, and Investor-Owned Utilities, Calendar Years 1986-1995
5.	Federal Utilities' Spending and Receipts, Fiscal Year 1995
BOXES
1.	The Licensing of Nonfederal Hydropower Projects
2.	Selling the Alaska Power Administration
3.	Current Budgetary Treatment of Asset Sales
4.	Financial Challenges to the TVA and the BPA

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