The Willamette River Case: Gains 243 



GAINS FROM SALES BY PRIVATE UTILITIES 



The locus of gains associated with that portion of the federally 

 developed power distributed through private electric utilities 

 follows a somewhat different pattern. Since power is made avail- 

 able to these utilities only after the power requirements of the local 

 public distributors are met, the available federal power may be in 

 surplus. The bargaining position of the federal agency is not so 

 great vis-a-vis the private distributors, when it has power in surplus, 

 as vis-k-vis the public distributors. Moreover, the federal agency 

 lacks comparable justification for monitoring the operations of the 

 private utility. As a result, there is greater likelihood that rela- 

 tively more of the savings associated with purchases from the federal 

 power sources will be retained by the utility than that they will be 

 passed on to residential and rural customers. Several reasons may 

 be advanced for this. The rates approved by regulatory commis- 

 sions are calculated to provide an established rate of return to the 

 private utility's investment on its relatively higher cost generation, 

 transmission, and distribution facilities. The resale of lower cost 

 federal power at prevailing rate schedules involves only small and 

 incidental investment in distribution facilities. This permits a 

 margin of profit not only substantially in excess of that allowed 

 under the resale clauses negotiated by the federal agency with its 

 preference customers, but also larger than the margin the utility 

 earns on the distribution of the power it generates. 



The larger margins make it possible, however, for some part of 

 the energy purchased from the federal power agency — or power 

 which it displaces in the system — to be sold under rate schedules 

 favorable to commercial and industrial customers. We have seen, 

 for example, that private utilities have a significantly different dis- 

 tribution of total energy deliveries to domestic and commercial 

 uses than do local public distributors of electric energy. If this 

 results primarily from pricing practices which favor the commercial- 

 industrial customers, there is likely to be a substantially different 

 regional incidence in the gains to power consumers attributable to 

 lower purchase costs. Stated differently, if the private utility resells 

 the federally developed power to domestic consumers at the same 

 rate as for power from its own sources, the second-round effects do 

 not result in any gains to households in the region. The regional 

 distribution of gains will then be significantly influenced by the 



