Back to the Future for a
Progressive Energy Policy

Remember all those sparsely populated states colored Republican red on network television's big, illuminated maps last election night? You know, the ones in the middle of the country, the "heartland," the home of conservatism, the base of George W. Bush? Those upstanding, fiscally responsible states, which abhor big government and liberal spending programs, are all, so to speak, on the public dole. Without Washington's help, they could hardly pay their electric bills.

The states to which I refer (and many others besides) benefit from the farsighted energy policy of the Roosevelt administration and the publicly owned electrical network it put in place over two generations ago. It's a system combining federal power generation with community power distribution, one that operates in conjunction with the country's private utility market in some places and altogether outside of it in others. This distinctive American form of public enterprise treats electricity as an essential service rather than a commercial commodity, and those it serves wouldn't trade it for the world.

The main trouble with America's public power network is that it is incomplete and has been allowed to atrophy over time. Until recently, this was not an especially noticeable problem. Electrical deregulation changed all that, not only exposing the nation fully to the vagaries of the energy marketplace, but revealing public power's Achilles' heel as well.

While the nonprofit public power structure that directly serves one-quarter of all Americans is superior to the predominant profit-based structure from the consumer's standpoint -- publicly owned utilities in the US have historically charged residential rates 20-30% lower than those charged by investor-owned utilities -- it is partially dependent on private sector energy wholesalers. Two-thirds of America's public systems are solely distributors of purchased power and cannot generate their own electricity; customers of these mostly municipal utilities (munis) save at the retail end, but where low-cost federal hydropower is unavailable (mainly the Northeast and Upper Midwest), they are subject to the same wholesale price and supply shocks customers of private companies face in the new deregulatory environment.

Much-ballyhooed extended contracts with energy suppliers are no real answer to this dilemma. Electrical deregulators like to point to Pennsylvania, which decontrolled retail prices in the late 1990s, but "locked in" long-term wholesale contracts to insulate its mostly private (94%) system from the worst excesses of the spot market. The flaw in this approach is that contracts eventually run out, and when they do, prices invariably go up.

Moreover, Pennsylvania's average residential rate at the end of 1999, after a year of deregulation, was still the 12th highest in the country at 9.19 cents per kilowatt-hour (kwh). Contrast that with Tennessee, whose system is 98% nonprofit and benefits from public hydropower generated by the federally operated Tennessee Valley Authority (TVA). Customers of the Volunteer State's retail network of munis and co-ops paid an average 1999 residential rate of 6.34 cents per kwh, seventh lowest nationwide.

Public distribution of electricity should ideally proceed, therefore, hand-in-hand with public ownership of generating and transmitting capacity. That, in essence, was the economic philosophy behind the New Deal approach to public power. During the 1930s and 1940s, the Roosevelt administration undertook a massive dam-building program to harness America's rivers for hydroelectricity. A four-cornered regional generation system was planned, revolving around (but not limited to) Hoover/Boulder Dam on the Colorado River in the southwest, Grand Coulee and Bonneville dams on the Columbia River in the northwest, the multiple TVA dams on the Tennessee River in the southeast, and the never-completed St. Lawrence River and Passamaquoddy Bay projects in the northeast.

Part and parcel of the system were the over 1,000 new municipal power facilities and rural electrical co-ops formed between 1935 and 1945, which as retailing nonprofits were given preferential access (or first refusal) under law to the hydropower produced by federal dams. Capitalizing on that advantage, munis and co-ops continued to proliferate through the 1950s, after which time the integrated public power structure began to break down under a combination of fiscal neglect at the federal level and a concerted campaign of political opposition mounted by private power interests. Over the ensuing decades, corporate utilities reasserted a dominance they had not enjoyed since the halcyon days of the Morgan and Insull empires in the 1920s.

Even so, the truncated network of federal hydro plants continues today to generate at least 10% of America's electrical needs -- half what it once did, but still a critical contribution. Since the last geographic leg of the projected four-pronged national system failed to materialize, however, the populous states of the northeast quadrant remain almost totally dependent on private utilities and suffer under the highest electrical rates nationwide. Elsewhere, inexpensive federal hydropower is made available in varying amounts to two-thirds of the country -- 32 states in the South and West, whose median average residential electrical rate, based on 1999 US Energy Department figures (the latest available), is 7.12 cents per kwh, compared to 10.13 cents (12.17 cents in New England) for the 18 states denied federal power.

Not coincidentally, the regional jurisdictions connected to the federal grid are the same ones where community-based public power thrives. The 20 leading public-power states (those getting one-third or more of their electricity from munis and co-ops) are all located south of the Mason-Dixon Line or west of the Mississippi. Without exception, they all have access to federal hydropower, and all but three are in the bottom half of the 50 states in average electrical rates. The lowest average residential rate of all (5.10 cents per kwh) is in Washington State, which is 55% nonprofit and serviced by the DOE's Bonneville Power Administration.

You would think a partial and limited system able to accomplish this would be a valued model for our political leaders; instead, the reverse has been true in recent years, regardless of the party holding power. Each of the last three appointments to the chairmanship of the Federal Energy Regulatory Commission, for example, has been a free-market enthusiast dedicated to deregulating electrical markets and reducing the federal energy role. Then, there was the Clinton administration's attempted 1995 privatization of four of the five so-called PMAs, the power marketing agencies that sell government hydropower at cost to munis and co-ops. In the end, the White House was able to dispose of only one PMA, the small Alaska Power Administration, giving electricity consumers a rare, if incomplete, victory.

Despite such intermittent forays against it over the years, America's public power network continues to endure. Neither shortsighted officeholders nor hostile private-utility lobbyists have been able to destroy it because, quite simply, it works. The remaining task for this generation of Americans, which is facing the looming energy disaster called electrical deregulation, is to work toward completion of FDR's unfinished public power system. It's a vision worth pursuing.

Wayne O'Leary is a writer in Orono, Maine.

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