Once again, the Office of Management and Budget (OMB) has proposed changing the interest rate charged by the federal power marketing administrations on all new investments in federal projects where interest rates are not set by law.  The President’s Fiscal Year 2008 budget calls for these three Power Marketing Administrations (PMAs) to arbitrarily set their interest rates at the level that “government corporations” pay to borrow funds from the federal government.   

This change would impose a higher interest rate to be charged on all new investments in federal hydroelectric facilities, at a level that is charged government corporations.  That rate, which reflects the interest cost for the federal government to provide loans to government corporations, is known as the Agency Rate.  Yet, the federal power marketing administrations are neither government corporations, nor do they borrow funds from the U.S. Treasury. Of primary concern is that this proposal usurps authority that has traditionally been under the purview of Congress.  Moreover, this approach is certain to lead to volatility in the cost of federal power – and this volatility can lead to significant and arbitrary cost increases for electricity ratepayers. 

NCPA is collaborating very closely with the American Public Power Association and other stakeholders to reject this unsound proposal, and ensure that such policy decisions remain under the proper jurisdiction of Congress.  The U.S. Senate has approved language in its FY08 Energy and Water Appropriations Bill to bar the administration from implementing this proposal.