ABSTRACT
Unlike most of the other industries that have made the transition from regulation to competition, the electricity sector has a substantial nonprofit component. Roughly 25% of all retail electricity sales in the United States come from publicly or cooperatively owned utilities. The combination of privately and publicly owned utilities (at local, state, and federal levels of government) operating under different objectives and rules greatly complicates the task of restructuring the electric power industry. Together these utilities are commonly referred to as the public power providers.
If public power providers are going to be allowed to compete with privately owned generators, policymakers should address the distinguishing characteristics of public power. For competition to function well, all competitors should have the same opportunity to compete. Special privileges granted to public power providers—such as the ability to issue tax-exempt debt and preferential access to low-cost hydroelectric power from federally owned facilities—gives them an advantage over their competitors. In addition, both the unique regulatory status of public power providers and rules that limit their ability to participate in regional transmission organizations could inhibit the development of geographically large wholesale electricity markets. Many federally owned hydroelectric generation facilities have multiple purposes, such as flood or navigational control, that need to be recognized in debates over the role of these facilities in competitive markets.
How public power will evolve in this era of competition remains an open question to be decided at different levels of government. The federal government will be responsible for redefining the roles of federal power marketing authorities and the Tennessee Valley Authority. Decisions about whether municipal utilities or rural cooperatives should continue to hold an exclusive franchise for retail electricity sales are best made at the local level.
