Since the early 1980s when U.S. President Ronald Reagan first included a proposal to sell the U.S. federal power marketing administrations (PMAs), the issue has come up over and over again in Washington. The five PMAs owned by the U.S. government sell and transmit electricity from multipurpose federal hydropower facilities. The PMAs are required by law to give preference in the sale of power to publicly owned power systems, which include customer-owned cooperatives, public utilities and municipally owned utilities. This past legislative session, the issue was again brought up, first by the Clinton administration in its budget proposal for fiscal year 1996 and then by the U.S. House Resources Committee. The idea was debated hotly for most of the session, with investor-owned utilities pushing for an auction of the PMAs and the current users of the power asking to purchase the PMAs. For now, the sale proposal has been relegated to a House committee for study. However, Congress has approved the sale of the Alaska Power Administration (APA) after 10 years of negotiation and legislation. The sale occurred with no protest. What lessons can the government and the would-be purchasers of the other PMAs learn from the sale of the APA?

No muss and no fuss. That's the way you could describe the sale of the Alaska Power Administration (APA). Oh sure, there were issues about property rights and environmental concerns. And it took 10 years to finally get approval for the sale, but the agreement to sell APA didn't even raise a peep out of the National Rural Electric Association (NRECA) or the American Public Power Association (APPA). And from all accounts, Alaskans didn't make a peep either. That's quite a difference from the ruckus raised when President Clinton proposed a sale of the PMAs and a bill proposing their auction was discussed in the House Resources Committee of the U.S. House of Representatives.

So what was the difference between the Alaskan agreement and the proposal to sell the other PMAs? Well listen up, those of you who want to privatize the U.S. power marketing administrations. You might be able to learn a lesson from the people in Alaska, and then you too may be able to purchase a PMA of your very own.

Lesson Number One First of all, forget about auctioning the PMAs. When a bill proposing the auction of the Southeastern Power Administration (SEPA) was introduced, the NRECA and APPA informed their member co-ops and municipals of the plan. Many of those utilities organized a letter-writing campaign to Congress opposing the auction. The campaign caught the attention of the "election-year-is-right-around-the-corner" politicians. The politicians received so many letters that they stopped counting them and began measuring the piles in feet, Eleanor Miller, NRECA's manager of media and public relations, was told by Congressional staffers.

According to Miller, the NRECA feared an auction would leave current users of the power financially unable to purchase the PMAs because they would be competing against the deeper pockets of the investor-owned utilities (IOUs). If IOUs purchased the PMAs, the IOUs would have a lock on the power in the country, Miller said. NRECA also feared that the for-profit IOUs would then raise the rates for the current purchasers of the power.

The IOUs state that it is only fair that the federal government allows them to bid on the PMAs. "It's old line for the federal government to be in the marketplace today," David Owens, senior vice president at the Edison Electric Institute (EEI), said at an ExNet conference on Privatizing Federal Power. EEI is an association for IOUs. He said that in order to have a truly competitive marketplace, the federal government needs to give up ownership of the PMAs.

The APA bypassed the ownership debate by selling, not auctioning, its two projects to its current customers. The APA owns the Snettisham Project, which is being purchased by the state of Alaska for US$80 million, and the Eklutna Project, which is being purchased by three Alaskan utilities for US$7 million. The three Alaskan utilities _ Matanuska Electric Association (MEA), Chugach Electric Association and Anchorage Municipal Light & Power _ were the only purchasers of the power produced by the Eklutna Project.

"We were able to convince Congress that the APA is different from other PMAs," an official at Chugach said. "It was in the interest of the very people purchasing the power to have it sold." Sandra Medearis, communications administrator at MEA, said, "One reason we're going to buy is that we want to maintain the right to buy power at cheaper costs." She continued by saying, "We see it as a good deal. It keeps the power facility in member-owned hands rather than an IOU."

Lesson Number Two It is easier to sell a PMA if the PMA doesn't own more than its generation facilities and if it doesn't perform additional functions. APA's sole purpose is to generate power. It stays away from flood control, irrigation and recreation. But the U.S. government built the other PMAs with these multiple purposes in mind, which makes them more difficult to sell _ but not necessarily impossible.

In the first House proposal to auction SEPA, only the generation facilities were included in the sale. The General Accounting Office put together a fact sheet on the five PMAs. From the fact sheet, legislators concluded a sale of only the generation facilities would not recover enough money to make the sale worthwhile. Therefore, a new proposal was introduced suggesting the sale of everything _ the dams, reservoirs, transmission lines and right-of-ways. However, these facilities are owned by the Bureau of Reclamation and the Corps of Engineers. This issue wasn't a problem in APA's case because about 20 years ago, the Corps of Engineers and the Bureau of Reclamation turned over the facilities to the APA to run and maintain, according to Lloyd Linke, administrator at APA.

Lesson Number Three Give it time, lots of time. It took the purchasers of the two APA projects more than 10 years to get Congress to agree to the sale. Talk of selling APA and the other PMAs began with a 1986 budget request by President Reagan. It has been included in many budget requests since then. In 1989, the state of Alaska and the three Alaskan utilities that purchase APA power asked to purchase the two projects owned by APA. In 1990, the request went to Congress. On Nov. 28, 1995, the request was okayed. Details of the agreement are still being worked out, and changing of the guard is not expected until the end of 1996, according to Linke. The legislation calls for the close of the APA within a year of the transfer. Those 10 years of negotiations gave people a chance to get used to the idea of privatizing APA. The first discussion of the sale in the 1980s received a few negative reactions, according to Linke, but time and negotiations helped allay the concerns about the effects on the environment, property rights and feared rate increases.

Where Do We Go From Here? Even though the legislation to sell the PMAs wasn't resolved this session, don't count this topic out for future debate. The question of whether to sell the PMAs will be revisited, probably after the election year. The House has scheduled hearings on the subject for this spring. However, the president's administration has said the sale proposal will not be included in the fiscal year 1997 budget proposal. The challenges of the global move to privatize electric utilities are being echoed in the U.S. government's struggle to deal with its ownership of the PMAs. How a government that preaches privatization in other countries deals with its ownership of power facilities could provide the ultimate lesson in how to sell power. TDW

Alaska's Moves to Sell APA While details of the sale of the Alaska Power Administration (APA) have yet to be worked out, the sale has been approved by Congress. It should take effect by the end of this year.

The purchase prices of the two APA projects (US$80 million for Snettisham and US$7 million for Eklutna) are based on the present value formula at the time of the transfers. The disparity in the prices results from the fact that Snettisham is newer and has more interest left to pay than Eklutna. While the organization of the administration at Eklutna has not been decided, a Chugach Electric Association official said that tentative plans call for Chugach to operate Eklutna, for Anchorage Municipal Light & Power to maintain the generation facilities and for Matanuska Electric Association (MEA) to maintain the lines.

Of the US$7 million paid for Eklutna, Anchorage Municipal will purchase 16/30, Chugach will purchase 9/30 and MEA will purchase 5/30 of the project. According to the Chugach official, the purchase price has to be paid within five years of the transfer date and all three utilities will be paying cash. The purchasers of Eklutna expect to keep the rates for their customers at the current level. Only 5% of the three utilities' power is supplied by Eklutna.

Although the three purchasing utilities are the only purchasers of the power from APA, two of the three sell power to wholesale power companies. Chugach is a generation and distribution co-op with 64,000 metered customers and its own generation, transmission and distribution facilities. The sale could affect all these customers.

Lloyd Linke, administrator at APA, expects that Snettisham customers will see a slight increase in rates. "Our goal was to make sure it was under 5%," he said. "The current projection is that it will be one percent."

The state of Alaska will sell the power produced by Snettisham to Alaska Electric Light & Power Co. Alaska Electric is the current purchaser of Snettisham's power. According to Linke, Alaska Electric asked the state of Alaska to purchase Snettisham because the utility didn't have the funds to make the purchase on its own.

Once the transfer of the two projects occurs, the APA will cease to exist, possibly putting some of APA's 28 employees out of work. The purchase agreement gives preference to hiring APA employees, according to Linke. Four APA employees have been promised a job at Snettisham. The three purchasers of Eklutna are looking at their staffing needs and will determine later whether any current APA employees are needed.

What the Numbers Say In October 1995, the U.S. General Accounting Office (GAO) released a fact sheet detailing operating and financial information on the five PMAs. The information covered fiscal years 1985-1994. Following is some of the information included in the fact sheet.

n 1993, the PMAs sold about 3% of all the power generated in the U.S. The PMAs generated about US$3.2 billion in power-related revenues in fiscal year 1994. These revenues are deposited in the U.S. Treasury. Approximately two-thirds of the PMAs' cumulative debt, or US$23 billion, was outstanding as of Sept. 30, 1994. The weighted average interest rates on the portion of the PMAs' outstanding debt owed to the U.S. Treasury, which is approximately US$15 billion, are below the average rate on the outstanding long-term debt paid by the nation's largest investor-owned utilities. The weighted average interest rates on the PMA outstanding debt for fiscal year 1994 ranged from 2.7- 4.6%. The average interest rate on outstanding long-term debt charged the 179 largest investor-owned utilities in 1993 was 8.1%. The PMAs received about US$328 million in appropriations in fiscal year 1994. The law requires that the PMAs repay their appropriations and the appropriations expended for power-related purposes by the operating agencies. The PMAs are required to charge the lowest possible rates for power allowable within sound business principals. Although the PMAs' purpose is not to earn a profit, they must bring in enough money to repay production, marketing and transmission costs and to repay federal investment and other debt with interest. The gross repayable investment was nearly US$34 billion as of Sept. 30, 1994. As of that date, the PMAs had repaid about US$11 billion of that debt. The PMAs are required by the Department of Energy (DOE) to pay their highest interest-bearing debt first, when possible. The GAO notes that by doing this, the PMAs save money, but the Treasury is imposed with an additional cost. The Bonneville Power Administration (BPA) has the largest debt of any PMA because of its nuclear facilities, but it also accounted for the most revenues of the PMAs. Sixty-nine percent of the PMA revenues in 1994 came from the BPA. The GAO said that "the PMAs' financing methods and terms of repayment have led to a high amount of outstanding debt in comparison to total investment." The GAO cautioned that in the more competitive future, the high levels of debt could pose problems for the PMAs if competition brings down wholesale rates as expected and the PMAs do not remain the lowest cost providers.