Smith Repudiates Criticism of Power Marketing Administrations, Organizes Caucus Meeting to Discuss Future Options

Mar 19, 1998

WASHINGTON, D.C. - After organizing a meeting of the Northwest Energy Caucus to discuss the future of Bonneville Power Administration (BPA) today, Congressman Bob Smith (R-OR), Chairman of the House Committee on Agriculture, criticized arguments against federal support of power marketing administrations for their lack of substance and accuracy in testimony submitted to the House Appropriations Subcommittee on Energy and Water Development.

Chairman Smith organized the meeting specifically to discuss a draft of possible provisions to a national energy industry restructuring bill, including emergency cost recovery authority and regulation of BPA's transmission system. In addition, Members of the Caucus agreed that past cooperative efforts have been valuable and that they should continue working to ensure the long term financial security of BPA.

"It's always good to see the Members of the Northwest delegation working together. We still disagree on some particular issues, but I think it's safe to say that we're united in our dedication to save BPA," Smith said.

In testimony submitted at a hearing to discuss the future role of the federal government in Power Marketing Administrations (PMAs), including Bonneville Power Administration (Bonneville) on the Columbia River, Chairman Smith argued that federal involvement does not give the Northwest an unfair advantage in attracting industry. The complete text of Smith's testimony follows this release.

"A subsidy exists when the federal government diverts funds directly to an organization that cannot recoup its total costs. By law, Bonneville must set its rates high enough to recover costs, so no subsidy can possibly exist. Nevertheless, some will argue that Bonneville receives a "subsidy" because it was once the beneficiary of low-interest loans. Do these opponents maintain that a homeowner who took out a long-term mortgage when interest rates were low is being subsidized when rates increase?" Smith said.

"Some of my colleagues would end this "subsidy" by requiring that PMAs charge the same rate as surrounding utilities. Equating the costs associated with generating hydropower with those of other types of generation is like comparing apples to oranges because hydropower is so much cheaper to produce. Moreover, they completely ignore the fact that Bonneville's additional costs, such as environmental programs, have forced it to charge above market rates in recent years. Since Bonneville is already recovering its costs, I can only assume that opponents want them to generate even more revenue," Smith said.

"PMAs such as Bonneville are valuable regional resources, but they are not subsidized ventures that steal industries from other regions of the country. Opponents of PMAs should understand that this is a much more elusive and complex issue than at first meets the eye," Smith said.

Smith represents Oregon's Second Congressional District - which includes most of eastern, southern, and central Oregon - in the U.S. House of Representatives.

The Honorable Robert F. (Bob) Smith of Oregon
House Appropriations Subcommittee on Energy and Water Development
Hearing on Power Marketing Administrations - March 19, 1998

Mr. Chairman, I would like thank you for this opportunity talk about a valuable resource that is under assault from others outside of the Northwest: Power Marketing Administrations and, in particular, the Bonneville Power Administration.

Opponents of Bonneville continue to perpetuate the fiction that federal power is a resource that is "subsidized" by the federal government. This subsidy, they argue, enables the Northwest to gain a competitive advantage in the recruitment of industries that are major consumers of electricity. This claim is absolutely false. A subsidy exists when the federal government diverts funds directly to an organization that cannot recoup its total costs. By law, Bonneville must set its rates high enough to recover costs, so no subsidy can possibly exist. Nevertheless, some will argue that Bonneville receives a "subsidy" because it was once the beneficiary of low-interest loans. Do these opponents maintain that a homeowner who took out a long-term mortgage when interest rates were low is being subsidized when rates increase? Of course not. In order to resolve this question and provide long-term financial independence to Bonneville, regional lawmakers agreed to require a payment of $100 million when Bonneville's debt was refinanced in 1996. All unappropriated debt is now financed at 7.1% - above current interest rates. This issue is resolved.

The second fiction that continues to dominate the arguments of Bonneville opponents is their assertion that it sells power below market rates. Some of my colleagues would end this "subsidy" by requiring that PMAs charge the same rate as surrounding utilities. Equating the costs associated with generating hydropower with those of other types of generation is like comparing apples to oranges because hydropower is so much cheaper to produce. Moreover, they completely ignore the fact that Bonneville's additional costs, such as environmental programs, have forced it to charge above market rates in recent years. Since Bonneville is already recovering its costs, I can only assume that opponents want them to generate even more revenue. In fact, a closer look at the proposals being offered by critics shows that the difference between Bonneville's cost-based rates and "market-based rates" would be used for environmental purposes. Do these critics really believe that the $435 million allocated every year from Bonneville for fish enhancement is inadequate?

Mr. Chairman, PMAs such as Bonneville are valuable regional resources, but they are not subsidized ventures that steal industries from other regions of the country. Opponents of PMAs should understand that this is a much more elusive and complex issue than at first meets the eye.

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