To transmit this power, Southwestern and Western have their own transmission facilities. Southeastern relies on the transmission services of other utilities. Rates Do Not Recover All Power-Related Costs

The Reclamation Project Act of 1939 and the Flood Control Act of 1944 generally require that the PMAs recover through power rates the costs of producing and marketing federal hydropower. In the aggregate, we estimate that the annual unrecovered costs for the three PMAs was about $83 million for fiscal year 1995 for the five main power-related activities identified above. A financing subsidy exists because the interest expense incurred by Treasury on its debt is higher than the interest income Treasury receives from the PMAs for their appropriated debt. As shown in table 2, we estimate that the PMA financing subsidy for fiscal year 1995 was about $228 million. Federal Subsidies and Inherent Advantages of PMAs Result in Low Cost Power

PMAs market low cost wholesale electricity. As shown in figure 2, in 1994 the PMAs’ average revenue per kWh for wholesale sales was more than 40 percent lower than investor-owned utilities (IOUs) and publicly owned generating utilities (POGs) in the primary North American Electric Reliability Council (NERC) regions in which the PMAs operate. Except for several rate-setting systems at Western, and one at Southeastern, the PMAs’ power production costs appear to be stable and well below the costs for nonfederal utilities in their respective areas of the country. Some of the difference in average revenue per kWh between the three PMAs and nonfederal utilities is attributable to the PMAs’ unrecovered power-related costs and federally subsidized debt financing discussed earlier. Second, PMAs, as federal agencies, generally do not pay taxes, whereas other utilities pay federal and state income taxes, property taxes, and other taxes, or payments in lieu of taxes. Another factor that could impact the PMAs is the increasing influence of low cost independent (nonutility) power producers (IPPs).
Why GAO Did This Study

GAO discussed the Southeastern, Southwestern, and Western Power Administrations, focusing on: (1) the three power marketing administrations' (PMA) recovery of their power-related costs; (2) federal subsidies for financing power-related capital projects; and (3) differences between PMA and nonfederal utilities on power production costs.

What GAO Found

GAO noted that: (1) the three PMA do not fully recover all power-related costs in the areas of employee health and retirement benefits, project construction or operation, capital costs for incomplete facilities, environmental mitigation costs, and deferred operations and maintenance and interest expense payments; (2) the annual unrecovered cost for these activities in fiscal year 1995 was about $83 million; (3) a federal financing subsidy of about $228 million exists because interest expense on the Treasury debt is higher than the interest income Treasury receives from PMA; (4) in 1994, the average PMA revenue for wholesale electricity sales was more than 40 percent lower than nonfederal utilities; (5) PMA production costs were generally well below the costs for nonfederal utilities, primarily because PMA rely on low-cost means of electricity generation and generally do not pay taxes; and (6) increased competition and access to transmission lines and the increasing influence of low-cost independent producers could affect PMA costs and revenues in the future.