The Congress has mandated preference in the sale of electricity  by federal agencies in a number of power-marketing and land reclamation  statutes. Other statutes give geographic preference to entire states or portions of  states for purchases of electricity generated in those areas. In some instances, the courts have directed  a PMA to provide power to preference customers, and in other instances,  they have supported a PMA’s denial of power to such customers. Restructuring of Electricity Industry Provides Another Opportunity for the Congress to Reassess Preference in PMA Marketing

The characteristics of the electricity industry on a national and regional  basis have changed over time and continue to change. Over the last 20 years, competition has been replacing regulation in major  sectors of the U.S. economy. In our testimony, we noted that as the restructuring of the  electricity industry proceeds, the Congress has an opportunity to consider  how the existing federal system of generating, transmitting, and marketing  electricity is managed, including the role of preference in federal power  sales. The preference provisions determine the priority of different customers when there  are competing applications for power that can be allocated administratively. The investor-owned utility's arrangement with preference customers does not violate  the preference provision of the Flood Control Act.
What GAO Found

Congress has enacted many statutes that designate types of customers or geographic areas for preference and priority in purchasing electricity from federal agencies. In general, the preference has been intended to (1) direct the benefits of public resources--relatively inexpensive hydropower--to portions of the public through nonprofit entities, (2) spread the benefits of federally generated hydropower widely and encourage the development of rural areas, (3) prevent private interests from exerting control over the full development of electric power on public lands, and (4) provide a yardstick against which the rates of investor-owned utilities can be measured. The applications of various preference provisions have been challenged several times in the courts, which have directed a power marketing administration (PMA) to provide power to preference customers. In other instances, they have supported the denial of power to such customers. The characteristics of the electricity industry have changed. During the last 20 years, competition has been replacing regulation in major sectors of the U.S. economy. Several proposals have come before Congress to restructure the electrical industry, including some that would encourage the states to allow retail customers a choice in selecting their electricity supplier. As it debates these proposals, Congress has continued to consider the role of preference in the PMA's sale of electricity.