Study Urges Privatization of Federal Power
Source: Reason Foundation
Date: 3/1/96    Record No.: 10299
Contact: Brandon Shamim, 310-391-2245

Study Urges Privatization of Federal Power
The federal government is the nation's largest producer of electric power, via the Tennessee Valley Authority (TVA) and five power marketing administrations (PMAs), yet they are poorly managed and grossly inefficient, and receive substantial federal subsidies to insulate them from pricing competition, according to the study Federal Power: The Case for Privatizing Electricity, released Thursday by the Los Angeles-based Reason Foundation. The Clinton administration, in its 1996 budget, has proposed privatizing the four smaller PMAs and restructuring the Bonneville Power Administration into a federal corporation similar to the TVA.

According to Dr. Douglas Houston, author of the study and professor of business economics at the University of Kansas: "The primary reason to shift the assets of the five PMAs and the TVA into the private sector is to build them into energy organizations that cannot evade commercial accountability. The study indicates that federal electricity providers will be much better equipped to cope with fast-approaching electricity deregulation as they are transformed into entrepreneurial companies. The United States, however, lags behind many other countries in electric-power privatization. Worldwide asset privatization in the electric-utility industry totaled $12.9 billion in 1995, leading all other industries.

Many nations, from Chile to Great Britain, have entered ambitious electric-power privatization programs for two primary reasons: (1) to raise capital to reduce their national debts, and (2) to improve the efficiency and performance of their electric-power industries. According to the study, the sale of all U.S. federal power enterprises would raise between $15 billion and $30 billion, which could be applied to reducing the national debt.

Related studies that address the issue of electric-utility privatization include "Toward Accountability and Efficiency: Reform of the Bonneville Power Administration,'' "Public vs. Private: Alternative Ownership Scenarios for Electric Utilities,'' and "Privatization of the Tennessee Valley Authority.'' Copies are available for $15 (plus $1.50 s/h) each and may obtained by calling the Reason Foundation at 310/391-2245. The Reason Foundation is a national public-policy research organization with a practical, market-based approach and an outside-Washington perspective. Founded in 1978 and based in Los Angeles, the Reason Foundation has earned a reputation for sound economic research and a how-to approach that benefits policy-makers and elected officials who require practical solutions.

Keywords: restructuring