Wyoming State Implementation Plan for BART

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July 2017

Protecting the Federal Power Program Every few years, a misguided proposal surfaces to reduce the federal budget deficit by changing nearly 100 years of federal policy and require the federal Power Marketing Administrations (PMA) to sell power at marketbased rates or to privatize the PMAs. President Trump’s FY 2018 budget includes a proposal to privatize the transmission assets of the Western, Bonneville, and Southwestern Power Administrations. Background Western Area Power Administration (WAPA) has long-term contracts through 2050 with 58 of the 60 Missouri River Energy Services (MRES) municipal electric community members. In turn, MRES members and WAPA’s other customers pay rates that cover all the costs (including infrastructure upgrades) of the federal power system – with interest. There is no taxpayer subsidy; everything is paid for by the customers. The full repayment of the power component of WAPA’s Missouri River hydropower projects makes them economically feasible. Also, while the rates are cost-based, the firm hydropower rates include the costs of underwriting the system’s multi-purpose benefits, including flood control, navigation, water supply, irrigation, and recreation. This system of cost-based rates has been in place for more than 50 years under the Eastern Pick-Sloan enabling legislation and related agreements. In addition, to ease the pressures of appropriated dollars for needed repairs, replacements and upgrades, MRES and other WAPA customers directly fund numerous investments by WAPA and the U.S. Army Corps of Engineers. On average, low-cost federal hydropower provides nearly 50 percent of the power purchased and distributed by members of MRES, and MRES has built its own resources to supplement its members’ power requirements in excess of their individual firm hydropower allocations. The Administration’s budget states that: The vast majority of the Nation's electricity infrastructure is owned and operated by for-profit investor owned utilities. Ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives. The Budget proposal to eliminate or reduce the PMA's role in electricity transmission and increase the private sector's role would encourage a more efficient allocation of economic resources and mitigate risk to taxpayers. The budget assumes that WAPA’s assets will be sold in FY 2019 and generate $580 million for the U.S. Treasury (the total revenue projection for sale of all of the PMA transmission assets is $5.512 billion). Many of the details of the proposal are unknown, including:     

whether all WAPA transmission assets would be sold as a single unit, by marketing area, or individual transmission projects; if a purchaser would need to renegotiate rights-of-way; whether priority transmission rights for delivery of PMA power would remain; the impact on WAPA’s participation in the Southwest Power Pool (SPP); and if the assets would be auctioned to the highest bidder.

Impact of Privatization Proposal While these details are important, it is certain that the proposal is a bad deal for WAPA’s Pick-Sloan power customers. The proposal: 

Raises WAPA transmission costs. Any purchaser of WAPA’s transmission assets will seek to maximize returns – translating into higher rates for transmission service. Even if the purchase itself does not increase the cost of the assets, the purchaser will expect a return on investment. This expectation will cause a rate increase, because transmission rates are set to recover the initial investment plus interest to the Treasury. In addition, the loss of WAPA’s “federal exclusion” in SPP will result in future rate increases by SPP that would be otherwise be avoided if WAPA were to remain federally owned.

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Impedes new transmission investments. As a federal agency, WAPA has federal eminent domain rights that facilitates transmission construction, including access to federal and tribal lands. If WAPA were privatized, that authority would disappear making future transmission projects more difficult.

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Threatens historic relationships and equity. WAPA’s public power customers have paid for the construction and upkeep of the Pick-Sloan transmission system. If sold to a private party, these payments – and the presumed equity – would be lost.

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Balkanizes the system and creates potential loss of service in rural areas. If WAPA’s transmission assets were broken up to maximize revenue, then assets that serve a reliability function (but minimal commercial value), or less profitable lines serving rural areas, could be discarded.

Costly Proposal Should Be Rejected Privatization of WAPA’s transmission system will raise costs to consumers, adversely impact landowners, and threaten grid reliability. MRES urges the delegation to reject the proposal to privatize WAPA’s transmission system.