In a bold memorandum released on March 16th, Department of Energy Secretary Chu called upon the Administrators of the four Power Marketing Administrations (“PMAs”) to take leading steps in the innovation and modernization of the nation’s electric system.  The four PMAs, including the Bonneville Power Administration, the Western Area Power Administration, the Southwestern Power Administration, and the Southeastern Power Administration market the output from U.S. Army Corps of Engineers (“Corps”) and/or Bureau of Reclamation (“Bureau”) projects with over 38,000 MW of nameplate capacity.

Congress has given explicit instructions on the sale of the power by the PMAs pursuant to statutory authorities that have been followed for several decades.  For example, the Flood Control Act of 1944 explicitly directs the Administrators of the Southwestern and Southeastern Power Administrations to sell electricity generated at the Corps projects at the “lowest possible cost consistent with sound business principles…” (16 U.S.C. §825s)   Moreover, the Administrator has been instructed by Congress to “transmit and dispose of such power and energy in such manner as to encourage the most widespread use thereof…” (16 U.S.C. §825s).  Indeed, the bedrock principle of selling the power at cost has been engrained in the Flood Control Act for more than half a century in the directive to the administrator to develop rate schedules based upon “the cost of producing and transmitting such electric energy, including the amortization of the capital investment allocated to power over a reasonable period of years.”

However, the Secretary of Energy may have a different view point.  The memorandum issued by the Secretary on March 16 raises the potential for the Administrators of the PMAs to develop rate schedules that run afoul of the statutory directives of Congress.  Secretary Chu’s senior advisor Lauren Azar has suggested that the Secretary’s initiative will lead to new rate structures that will manage “the electricity load at times when demand for electricity is highest.”  In other words, rates will be designed to rise to promote conservation.

The Administration needs to tread carefully in light of the statutory mandate to the PMA administrators to encourage widespread use of power generated at Corps and Bureau projects and to be sold at the lowest possible cost consistent with sound business principles.  While there may be several tools available to modernize the PMA’s, raising the rates for electricity is not one that current statutory authorities will allow.