Federal Power:

The Evolution of Preference in Marketing Federal Power

RCED-00-127: Published: Apr 21, 2000. Publicly Released: Jun 1, 2004.

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Pursuant to a congressional request, GAO reviewed the role of the Department of Energy's power marketing administrations (PMA), focusing on: (1) how federal legislation and major relevant court cases have, over time, directed the PMAs to give preference to particular customers in purchasing electricity; and (2) the role of preference in the PMAs' electricity sales in light of the restructuring of the electricity industry.

GAO noted that: (1) for nearly a century, Congress has enacted numerous statutes that designate types of customers (such as public bodies and cooperatives) and geographic areas for preference and priority in purchasing electricity from federal agencies; (2) in general, the purpose of providing preference has been to: (a) direct the benefits of public resources--relatively inexpensive hydropower--to the public through nonprofit entities; (b) spread the benefits of federally generated hydropower widely and encourage the development of rural areas; (c) prevent private interests from gaining control of the development of electric power on public lands; and (d) provide a yardstick against which the rates of privately owned utilities can be measured; (3) the PMAs' specific applications of various preference provisions have been challenged on a number of occasions in the courts; (4) in some instances, the courts have directed a PMA to provide power to preference customers, and in other instances, they have supported the denial of power to such customers; (5) the characteristics of the electricity industry have changed and continue to change, both regionally and nationally; (6) over the last 20 years, competition has been replacing regulation in major sectors of the U.S. economy, and new legislation and technological changes have created a climate for change in traditional electricity markets; (7) in this context, Congress is now considering a number of proposals to restructure the electricity industry, including some that would encourage the states to allow retail customers a choice in selecting their electricity supplier; and (8) as these proposals are discussed, Congress is considering such issues as competition in pricing, the balance of equity among all stakeholders, and the role of preference in the PMAs' sale of electricity.

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