WASHINGTON - The White House yesterday proposed a $9.1 billion budget-cutting bill that would authorize the sale of the Alaska Power Administration and permit the Bonneville Power Administration to refinance $4 billion of Treasury debt as private, taxable bonds.
The bill is designed to be the focal point of a larger debate over spending cuts in Congress this fall. It will get fast-track consideration in both the House and Senate because President Clinton during this summer's budget debate promised to submit such a bill in return for the votes of key conservative Democrats for his $500 billion budget package.
Many of the bill's power marketing reforms and other provisions, drawn from Vice President Al Gore's "Reinventing Government" report, have been sought for years by budget reform advocates in both Republican and Democratic administrations.
Office of Management and Budget Director Leon Panetta said he strongly advocated the reforms in past years as chairman of the House Budget Committee. "This bill will finally allow us to reduce the subsidies going to the power marketing administrations," Panetta said.
The proposal permitting federal power marketing agencies to refinance their U.S. Treasury debt with open market sales is especially significant for the Bonneville Power Administration, which may pursue selling up to $4 billion of taxable bonds if the legislation is enacted.
Bonneville officials have expressed interest in revamping the power agency, which serves the Pacific Northwest, to make it more competitive. One of their lingering concerns centers on about $6.7 billion of obligations owed to the Treasury.
Separately, the Alaska Power Administration proposal would entail selling the agency's two hydroelectric projects. The bulk of the sale, which may exceed $80 million, would involve selling a hydro project to the state of Alaska. The state has considered a bond sale to finance the purchase.
Another hydro project would be sold to three local public utilities, though it appears unlikely that debt sales would be needed to finance the smaller purchase.
A key feature of the Alaska Power sale centers on the need to minimize the rate impact for local citizens.
"That [was] the whole foundation of this when it started in the mid-1980s," said Michael Deihl, administrator of the power agency.
Local utility officials have arranged purchase agreements for the agency's hydro projects, but previous enabling legislation did not include provisions to allow the sale of assets.
Various repayment reform proposals for the Bonneville debt have circulated for years in the nation's capital. Some of the proposals called for accelerated repayment schedules, increased interest rates, or both. The calls for reform often alarmed Pacific Northwest interests because they feared power rates could jump as much as 15% under a revamping of the debt.
But the new proposal is less harsh than the previous plans. According to an internal document circulated at Bonneville yesterday, bond sales "would be structured so that the region's ratepayers would not feel a rate impact for at least 15 years," and any rate impact over the remaining portion of a 50-year repayment period would probably average 1% to 2%.
The portion of the current Treasury debt subject to the buyout proposal totals $6.7 billion and carries an average interest rate of about 3.4%. The debt covers the federal government's investment in the Columbia River power system and much of the transmission system investment prior to 1974.
The Office of Management and Budget proposes authorizing Bonneville to buy out the $6.7 billion obligation at a net present value of about $4 billion. Federal taxpayers would receive an additional $100 million in net present value beyond what they would otherwise receive, the Bonneville memorandum notes.
Previous OMB proposals would have cost Bonneville an additional $2 billion to $3 billion in payments to the Treasury, thereby leading to a much sharper rate impact, the memo says.
According to Bonneville, the buyout plan would benefit the federal government by giving it a lump sum payment that could go toward reducing the national deficit, relieving taxpayers of future risk related to Bonneville's ability to repay the debt, and removing low-interest appropriations from the government's books.
"The region's ratepayers would know what to expect and would not face annual proposals for rate reform," thereby enhancing "prospects for long-term rate stability and competitiveness," the memo says.
Bonneville officials also have discussed transforming their agency into a government corporation - possibly akin to a Tennessee Valley Authority - but the legislation at this point only addresses the debt buyout.
Bonneville's authority to sell bonds would be limited to the amount needed to finance the debt buyout; the legislation would not affect the agency's ability to sell bonds to the Treasury for future capital investments.
The buyout proposal does not affect about $2.7 billion of bonds sold at market rates by Bonneville to the Treasury. The proposal also does not affect Bonneville's non-federal debt, totaling about $6.8 billion, most of which pertains to bonds issued on behalf of Washington Public Power Supply System nuclear power projects 1, 2, and 3.
Based on preliminary conversations with rating agency analysts and others, the memo says, the Treasury debt could be replaced with openmarket bonds without affecting Bonneville's existing ratings.
Bonneville estimates the buyout could be executed early in fiscal 1996, which begins on Oct. 1, 1995. Besides the power marketing reforms, the Gore report recommends major changes in government personnel and procurement regulations and many piecemeal changes in government rules that would add up to about $108 billion in savings over five years.
But yesterday's bill contains only part of the Gore report's recommendations. Panetta said that many recommendations left out of the bill will be included in Chnton's fiscal 1995 budget early next year. Still others will be incorporated into a procurement reform bill designed to save the government between $5 billion and $20 billion, Panetta said.
Clinton is proposing to use the savings from the procurement reform bill to underwrite his crime prevention initiative, however, rather than reduce the deficit, Panetta said.
Later this week, the White House will supplement the spending reform bill with another measure containing between $1 billion and $2 billion of recisions, which will seal in cement the budget cuts obtained through the congressional appropriations process this year, Panetta said.
The recision bill may be combined with the reform bill in the House, but it most likely will be considered separately in the Senate, Panetta said. He predicted that passage would be more difficult in the Senate than in the House because of the Senate's many parliamentary rules governing debate on such legislation.