New Study on Electricity Infrastructure

January 24, 2018

Private-sector utilities provide the bulk of electricity generation, transmission, and distribution in the United States. But the federal government also owns a share of the nation’s electricity infrastructure.

The government owns the Tennessee Valley Authority (TVA) and four Power Marketing Administrations (PMAs). The PMAs mainly transmit power generated by hydroelectric dams owned by the Army Corps of Engineers and the Bureau of Reclamation. Federal entities account for 7 percent of U.S. power generation, and they own 14 percent of the nation’s transmission lines.

In its 2018 federal budget, the Trump administration proposed privatizing the PMAs. Today, Cato is releasing a study discussing the PMAs and the advantages of privatization. A previous study looked at privatizing the TVA.

The federal government entered the electricity business in the mid-20th century when faith in government ownership was high. But over time it has become clear that government-run businesses lag private businesses in efficiency, innovation, and environmental performance. As such, there has been a global trend toward privatization, and many nations have sold their electricity assets. 

The Trump budget said, “ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives.” And it said the 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.”

Trump is on the right track with the PMAs. Rather than increasing infrastructure subsidies, the administration should work to improve the efficiency of existing infrastructure, and that includes clearing out the federal attic and holding a garage sale.

About three-quarters of Americans receive electric power from for-profit private utilities. There are no sound policy reasons for the other one-quarter to be supplied by government facilities and subsidized nonprofit firms. Privatizing federal generation and transmission facilities would raise government revenues from the sell-off and from the payment of income and property taxes by the privatized entities over time.

President Ronald Reagan proposed privatizing the PMAs because it would “result in a more efficient power system for electricity customers.” President Bill Clinton also proposed privatizing the PMAs. It makes sense for President Trump to dust off the Reagan and Clinton plans, and move ahead with reforms.

Privatize the PMAs here.

Privatize the TVA here.

Clearing the rest of the federal attic here

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