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Hydroelectric pricing proposal draws flak from reps

WASHINGTON - President George Bush's budget proposal to price hydroelectric
power at whatever value the market will bear met with a chorus of
disapproval Feb. 10.

A lineup of witnesses before the Water and Power subcommittee of the
Resources Committee in the House of Representatives made many points, but
on one they were unanimous. A proposal to increase the cost of
federally-provided electric power to suppliers by up to 20 percent - part
of the federal budget request released Feb. 7 by the White House - is "the
last thing we should be doing," in the words of James C. Feider, director
of the Redding Electric Utility in California.

Testifying also on behalf of the Transmission Agency of Northern California
and Northern California Power Agency, Feider expressed concerns echoed by a
half-dozen other witnesses from every region west of the Missouri River:
"This radical change from the legal requirement that federal power be sold
at cost-based rates would have a devastating impact ... A 20 percent
increase would cost CVP [Central Valley Project, California] power
customers approximately $10 million in the first year alone, harming
fixed-income customers, battering small businesses and threatening the
economic viability of numerous large businesses. And these increases would
be followed by more and more."

The stakes stand to be high for Indian country. Rep. Barbara Cubin, R-Wyo.,
pinpointed them in rising to the defense of rural communities in sparsely
populated Western states. Move-to-market value pricing, as the White House
proposal is called, would cost Wyoming utility customers $200 per household
the first year, Cubin said. She added that move-to-market rates should not
happen on the back of rural America or at the expense of the West.

Historically, tribal households have paid some of the nation's highest
utility rates, partly because the remote location of many reservations has
meant higher infrastructure costs for the utilities that serve them, and
partly because remote locations tend not to attract competition to serve
them. Though situations vary by region, tribes and rural communities
stranded in these so-called unformed markets will tend to pay higher rates,
under a value-pricing (as opposed to an at-cost) regime, than customers in
more fully-formed (often urban) markets, where competition keeps rates low.

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Hydroelectric power is produced primarily from rivers that are part of the
national water resource, through a system of dams that are federally

Ted Coombes, executive director of Southwestern Power Resources
Association, traced at-cost pricing to President Teddy Roosevelt. "TR
believed firmly that the nation's water supply belonged to all the nation's
people - not to any one company or individual - and that [it] should be
developed and conserved by the federal government to serve as many people
as possible. The benefits from these projects should go directly to the
people wherever possible, and not be siphoned off as profits by some
middleman, such as a private power company.

"This was the basis for both the preference principle and cost-based rates
for federal power. The preference principle relies wherever possible on
consumer-owned not-for-profit utilities to retail consumers.

"This, combined with the requirement that the federal government dispose of
its hydropower at the cost required to produce it (including the
construction, operation and maintenance costs of the generation and
transmission costs) ensures that no one - not the federal agency generating
or marketing the power or the utilities distributing this energy to retail
consumers - is profiteering off the public's resources."

The concept did not hold up so well during the nation's most recent attempt
to "deregulate" power - the now-infamous Enron Corp. is only one of
numerous private companies that secretly capitalized on the 2000 and 2001
California electricity crises.

Feider and C. Clark Leone, manager of Public Power Council, a regional
trade association for the customers of consumer-owned utilities that
purchase electricity from Bonneville Power Administration, raised the
California crisis as an object lesson against the move-to-market pricing of
the Bush budget proposal.