    Federal Power: Regional Effects of Changes in PMAs' Rates (Letter Report,
    11/16/98, GAO/RCED-99-15).

    Pursuant to a congressional request, GAO provided a state-by-state
    analysis of the preference customers who buy power from the Southeastern
    Power Administration, the Southwestern Power Administration, and the
    Western Area Power Administration, focusing on the: (1) extent to which
    preference customers' rates may change if market rates are charged; (2)
    areas the three power marketing administrations' (PMA) preference
    customers report serving; and (3) incomes in these areas and the extent
    to which they are rural or urban.

    GAO noted that: (1) overall, slightly more than two-thirds of the
    preference customers that purchase power directly from the Southeastern,
    Southwestern, and Western Area power administrations may see relatively
    small or no rate increases if these PMAs begin to charge market rates
    for the power they produce; (2) in particular, given GAO's assumptions,
    almost all of Southeastern's preference customers would see average rate
    increases of up to one-half cent per kilowatt hour (kWh) on rates that
    in 1995 typically ranged from 3.5 to 6.0 cents per kWh; (3) most of
    these preference customers would see increases of less than one-tenth
    cent per kWh; (4) if the preference customers served by Southeastern
    pass the higher rates on proportionally to their residential end users,
    most end users would see their monthly electricity bill increase by less
    than $1, while the maximum increase would range in most states between
    $1 and $8, depending on the state; (5) preference customers who receive
    power from Western may see a variety of rate increases if market rates
    are charged; (6) as a group, Southwestern's preference customers may see
    rate increases that lie between those for Southeastern's and Western's
    customers; (7) most of Southwestern's preference customers may see
    relatively low rate increases of up to one-half cent per kWh on rates
    that typically ranged between 1.5 and 3.5 cents per kWh; (8) however,
    almost all preference customers in Oklahoma may see larger rate
    increases that exceed 1.5 cents per kWh; (9) in general, a preference
    customer's rate increase depends primarily on what portion of its total
    power comes from the PMA and how close the PMA's rate is to the market
    rate; (10) preference customers included in GAO's analysis that
    purchased power directly from the PMAs serve varying portions of 29
    states; (11) the populations in the areas preference customers serve
    generally have median incomes that are similar to the median income in
    the entire state; (12) in about two-thirds of the states GAO examined,
    the preference customers serve counties and towns whose median household
    incomes are within 15 percent of the statewide median income; (13)
    however, in some states, preference customers primarily serve poorer
    areas and households; (14) nationwide, about half of the towns that
    preference customers serve are urban and about half are rural; and (15)
    most of the counties are mixed, about 40 percent are rural, and the
    remainder are urban.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  RCED-99-15
         TITLE:  Federal Power: Regional Effects of Changes in PMAs' Rates
          DATE:  11/16/98
       SUBJECT:  Electric utilities
                 Rural economic development
                 Energy marketing
                 Utility rates
                 Electric power generation
                 Urban economic development
                 Energy consumption

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    Cover
    ================================================================ COVER

    Report to Congressional Requesters

    November 1998

    FEDERAL POWER - REGIONAL EFFECTS
    OF CHANGES IN PMAS' RATES

    GAO/RCED-99-15

    Federal Power

    (141155)

    Abbreviations
    =============================================================== ABBREV

      DOE - Department of Energy
      EIA - Energy Information Administration
      GAO - General Accounting Office
      kWh - kilowatthour
      MEA - municipal energy agency
      PMA - power marketing administration
      TVA - Tennessee Valley Authority

    Letter
    =============================================================== LETTER

    B-281133

    November 16, 1998

    The Honorable Don Young
    Chairman, Committee on Resources
    House of Representatives

    The Honorable John T.  Doolittle
    Chairman, Subcommittee on Water and Power
    Committee on Resources
    House of Representatives

    Since the New Deal, the federal government has established about 130
    water projects that--in addition to promoting agriculture, flood
    control, navigation, and other activities--produce electric power.
    To provide this power to large portions of rural America, the
    government also created five power marketing administrations (PMA),
    along with the Tennessee Valley Authority (TVA).\1 These facilities
    have been part of the electrification of America, especially rural
    America.  In 1940, about 25 percent of all households lacked
    electricity and 70 percent of farms, whereas today, virtually all
    households have electricity.

    Now that nearly all of America has electricity, some believe the PMAs
    have completed their mission and should be divested, particularly
    since greater competition exists in the electricity industry.  Others
    suggest that the PMAs be required to operate in ways more like
    private utilities' practices, such as charging market rates for
    power.\2 However, the PMAs currently sell wholesale power to entities
    such as cooperatives and publicly owned utilities, also known as
    "preference customers," at average rates that, from 1990 to 1995,
    were from 40 to 50 percent below the rates nonfederal utilities
    charged.  Although preference customers generally buy most of their
    power from sources other than the PMAs and, as a result, currently
    pay market rates for that power, concerns have been raised that a
    change in PMAs' ownership or the means by which they establish rates
    could increase rates and could adversely affect the rural or poorer
    areas they serve.  Those expressing such concerns believe that the
    PMAs should continue to operate as they do now.  To date, it has been
    difficult to examine the possible impact of potential rate increases
    because few analyses have identified the places that ultimately
    consume PMA power or the characteristics of the households the
    preference customers serve.

    To aid in congressional deliberations on the future role of the PMAs,
    as requested we are providing a state-by-state analysis of the
    preference customers who buy power from the Southeastern Power
    Administration (Southeastern), the Southwestern Power Administration
    (Southwestern), and the Western Area Power Administration
    (Western).\3

    More specifically, we identify (1) the extent to which preference
    customers' rates may change if market rates are charged, (2) the
    areas the three PMAs' preference customers report serving, and (3)
    the incomes in these areas and the extent to which they are rural or
    urban.

    --------------------
    \1 TVA is a multipurpose independent federal corporation.  Among its
    purposes is generating power, which, like the PMAs, it markets.  TVA
    sells power in nearly all of Tennessee, as well as parts of Alabama,
    Georgia, Kentucky, Mississippi, North Carolina, and Virginia.  App.
    I presents a map of TVA's service territory.

    \2 Our report Federal Power:  Options for Selected Power Marketing
    Administrations' Role in a Changing Electricity Industry
    (GAO/RCED-98-43, Mar.  6, 1998) identifies options that the Congress
    and other policymakers could pursue to address concerns about the
    PMAs' role in restructured markets or to manage them in a more
    businesslike fashion.  Among other options, the report discusses
    divestiture and its potential impact on preference customers by
    individual PMA.

    \3 In addition, the Bonneville Power Administration (Bonneville), the
    oldest PMA and the largest in terms of total revenues, operates in
    the Pacific Northwest.  Because you asked us to examine Southeastern,
    Southwestern, and Western, Bonneville is not covered by this report.
    Finally, the projects constituting the Alaska Power Administration,
    the smallest PMA, were fully divested in October 1997 and August
    1998.

       BACKGROUND
    ------------------------------------------------------------ Letter :1

    The Department of Energy's (DOE) PMAs sell power primarily to
    preference customers--cooperatives and public bodies, such as
    municipal utilities, irrigation districts, and military
    installations--that are located in the PMAs' service territories.\4
    Many of these preference customers then resell the power to
    industrial, commercial, and/or residential end-users.

    To estimate any potential rate changes if market rates are charged
    (after a divestiture of the PMAs or otherwise), we calculated how
    much, in cents per kilowatthour (kWh),\5 each preference customer
    paid, on average, for power purchased from (1) all sources, including
    the PMAs, and (2) sources other than the PMAs, including the
    wholesale market, in 1995.\6 Then, we took the difference between
    these two, considering the latter to be the market rate.  To map the
    areas that preference customers serve, we identified the counties and
    towns that the customers reported serving in Electrical World:
    Directory of Electric Power Producers.\7 It is important to note that
    our analysis included only those customers that purchased power
    directly from the PMAs and that our analysis shows higher rate
    increases than would be likely if market rates decline.  To develop
    information on the characteristics of the areas that preference
    customers reported serving, for each county and town we obtained data
    on 1989 household incomes and the extent to which the population is
    urban or rural, as reported in the 1990 census, the latest data
    available.  Appendix III provides additional details on our scope and
    methodology.

    --------------------
    \4 Our analysis covers about 680 preference customers included in the
    Energy Information Administration's Form 861 database of electric
    utilities, which is a compendium of utilities in the United States.
    As a result, we did not include other preference customers such as
    those owned by state governments or the federal government--for
    example, hospitals and military facilities.  App.  II presents a map
    of the PMAs' service territories.  As explained in app.  III, we did
    not include TVA as a customer of Southeastern.

    \5 A watt is the basic unit used to measure electric power.  A
    watthour is equal to a watt of power applied for 1 hour.  A
    kilowatthour is 1,000 watthours.  A megawatthour is a 1,000 kWh.

    \6 We based our work on an existing database developed for an earlier
    GAO report, which compiled information on 1995 purchases.  Comparable
    data for 1996 or later were not available.

    \7 Electrical World:  Directory of Electric Power Producers is a
    standard reference for data on the electricity industry.  It compiles
    specific data on subjects such as individual utilities' power
    production capacities, power sales, sources of purchased power,
    distribution facilities, as well as the service areas, which are
    provided by the utilities themselves.  However, it is important to
    note that under the directory's reporting format, preference
    customers specify the counties and/or towns they serve, which may not
    precisely portray the boundaries of their service areas.  For
    example, although a preference customer may report serving a
    particular county, it may actually serve a portion of the county.
    Consequently, although our approach may somewhat overstate the areas
    preference customers serve, it is based on the best data available.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :2

    Overall, slightly more than two-thirds of the preference customers
    that purchase power directly from the Southeastern, Southwestern, and
    Western Area power administrations may see relatively small or no
    rate increases if these PMAs begin to charge market rates for the
    power they produce.  In particular, given our assumptions, almost all
    of Southeastern's preference customers would see average rate
    increases of up to one-half cent per kWh on rates that in 1995
    typically ranged from 3.5 to 6.0 cents per kWh.  Most of these
    preference customers would see increases of less than one-tenth cent
    per kWh.  If the preference customers served by Southeastern pass the
    higher rates on proportionally to their residential end-users, most
    end-users would see their monthly electricity bill increase by less
    than $1, while the maximum increase would range in most states
    between $1 and $8, depending on the state.  Preference customers who
    receive power from Western may see a variety of rate increases if
    market rates are charged.  In California, Colorado, and Nebraska, for
    example, more than three-quarters of the preference customers may see
    relatively small increases of less than one-half cent per kWh.
    However, in several other states, such as South Dakota and Utah, a
    number of preference customers may see average rate increases that
    exceed 1.5 cents per kWh.  These customers of Western typically paid
    relatively low rates ranging from 1.5 to 3.0 cents per kWh and bought
    most of or all their power from the PMA in 1995.  In turn,
    residential end-users who receive power from these utilities may see
    larger increases in their electricity bills.  For example, in states
    with larger rate increases, if a preference customer's rate increases
    by 1.5 cents per kWh, residential end-users would pay about $10 to
    $15 more per month for electricity, depending on the state.  As a
    group, Southwestern's preference customers may see rate increases
    that lie between those for Southeastern's and Western's customers.
    Most of Southwestern's preference customers may see relatively low
    rate increases of up to one-half cent per kWh on rates that typically
    ranged between 1.5 and 3.5 cents per kWh.  However, almost all
    preference customers in Oklahoma may see larger rate increases that
    exceed 1.5 cents per kWh.  For most of these customers, their
    residential end-users would see monthly increases of about $22.  In
    general, then, a preference customer's rate increase depends
    primarily on what portion of its total power comes from the PMA and
    how close the PMA's rate is to the market rate.

    Preference customers included in our analysis that purchased power
    directly from the PMAs\8 serve varying portions of 29 states.\9 In
    most states, the areas that preference customers report serving cover
    less than half the state.  In several states--such as Illinois,
    Kentucky, and Montana, which are served by fewer than five preference
    customers--the areas covered are even smaller.  In contrast, in
    several states, particularly Arizona, Georgia, North Carolina, and
    South Dakota, preference customers report serving most or almost all
    counties in the state.  Except in Colorado, North Dakota, and South
    Dakota, the preference customers provide less than 10 percent of the
    residential end-users' electricity consumption.

    The populations in the areas preference customers serve generally
    have median incomes that are similar to the median income in the
    entire state.  In about two-thirds of the states we examined, the
    preference customers serve counties and towns whose median household
    incomes are within 15 percent of the statewide median income.
    However, in some states, such as Montana and Texas, preference
    customers primarily serve poorer areas and households.  Yet in other
    states, such as California, preference customers sell PMA power to
    areas such as Orange County, where nearly half of the households have
    incomes exceeding $50,000 a year--or at least 38 percent greater than
    the statewide median.  Nationwide, about half of the towns that
    preference customers serve are urban and about half are rural.  Most
    of the counties are "mixed" (neither urban nor rural), about 40
    percent are rural, and the remainder are urban.

    --------------------
    \8 We did not include in our analysis customers that receive PMA
    power indirectly, that is, through direct preference customers of the
    PMAs--generation and transmission cooperatives and municipal joint
    action agencies--because, with very few exceptions, the PMAs' 1995
    annual reports do not list them.

    \9 These states are Alabama, Arizona, Arkansas, California, Colorado,
    Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana,
    Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico,
    Nevada, North Carolina, North Dakota, Oklahoma, South Carolina, South
    Dakota, Texas, Utah, Virginia, Wisconsin, and Wyoming.

       MOST RATE INCREASES MAY BE
       RELATIVELY SMALL, ALTHOUGH SOME
       MAY BE LARGER
    ------------------------------------------------------------ Letter :3

    Overall, about 68 percent of Southeastern's, Southwestern's, and
    Western's preference customers may experience relatively small rate
    increases.  In our analysis, the increases that we considered
    relatively small (0.5 cent per kWh or less), moderate (from greater
    than 0.5 cent up to 1.5 cents), and relatively large (greater than
    1.5 cents) represent amounts above the average rates that preference
    customers paid for power from all sources (both PMAs and others) in
    1995.  These base rates typically ranged in 1995 from 3.5 to 6.0
    cents for Southeastern's preference customers, from 1.5 to 3.5 cents
    for Southwestern's preference customers, and from 1 to 4 cents for
    Western's preference customers.  The increases represent the
    difference between these average rates and what preference customers
    would have to pay if they purchased all of their power at market
    rates.  For example, if a preference customer of Southeastern paid a
    combined 3.5 cents per kWh for power from the PMA and other sources
    in 1995 and paid 3.9 cents for power from non-PMA sources, we assumed
    the customer's rates would rise from 3.5 to 3.9 cents--a relatively
    small increase of 0.4 cent--if it had to pay market rates for all its
    power.  Our calculation of the increase in a residential end-user's
    monthly electricity bill represents the amount of the preference
    customer's increase times the average monthly consumption of
    electricity by residential end-users in the preference customer's
    state.

    As shown in figure 1, 98 percent of Southeastern's preference
    customers may see relatively small rate increases of 0.5 cent per kWh
    or less if they pay market rates for PMA power.  For Western and
    Southwestern, about half of their preference customers would see
    relatively small rate increases and about 25 to 30 percent of the
    customers for each PMA would see relatively large increases.  Figure
    2 breaks out these potential increases by state and, of the total
    amount of power consumed in each state, indicates the percentage
    provided by the PMA.

       Figure 1:  Potential Changes in
       Preference Customers' Rates if
       the PMAs Charge Market Rates

       (See figure in printed
       edition.)

    Note:  Power from the preference customers represents about 2 percent
    of the total electricity consumption for the 29 states in our
    analysis.

    Sources:  GAO's analysis of data provided by DOE's Energy Information
    Administration and Southeastern's, Southwestern's, and Western's 1995
    annual reports.

       Figure 2:  Potential Changes in
       Preference Customers' Rates in
       Each State and the PMAs' Shares
       of Total State Power
       Consumption

       (See figure in printed
       edition.)

    Note:  We did not include Southeastern's sales to TVA, as described
    in app.  III.  The figure also excludes any power purchased from the
    Bonneville Power Administration.

    Source:  GAO's analysis of data provided by DOE's Energy Information
    Administration and Southeastern's, Southwestern's, and Western's 1995
    annual reports

    As shown in figure 2, in virtually every state Southeastern serves,
    at least 85 percent of the preference customers may see relatively
    small rate increases.\10 Slightly more than half of the PMA's
    preference customers may see increases of less than 0.1 cent per kWh.
    If these preference customers pass their rate increases through
    proportionally to the residential end-users they serve, the
    residential end-users would see their average monthly electricity
    bill increase by $1 or less.  In most of Southeastern's states, the
    maximum increase that a preference customer would pass on to its
    residential end-users ranges between $1 and $8 per month, depending
    on the state.  The only relatively large rate increase for a
    preference customer served by Southeastern may be in Illinois, which
    has one preference customer.

    In states served by Western, preference customers may see a variety
    of rate increases.\11

    For example, as shown in figure 2, over 75 percent of the preference
    customers in California, Colorado, and Nebraska may experience
    relatively small rate increases.  In these three states, residential
    end-users served by most preference customers would see less than
    $2.50 increases in their average monthly electricity bills.  However,
    a significant number of Western's preference customers may see
    moderate increases.  As shown in figure 2, at least 25 percent of the
    preference customers in many Western states, such as Iowa, Minnesota,
    and South Dakota, may experience average rate increases from greater
    than 0.5 cent up to 1.5 cents per kWh.  If these preference customers
    proportionally pass these costs along to their residential end-users,
    the end-users would pay from $3 to $14 more in their average monthly
    electric bills, depending on the state.

    Finally, in several states served by Western, a number of preference
    customers may see average rate increases that exceed 1.5 cents per
    kWh.  For example, 60 percent of the preference customers in South
    Dakota and 33 percent of the customers in Utah may see rate increases
    exceeding 1.5 cents per kWh.  In turn, residential end-users who
    receive power from these utilities would see larger increases in
    their electricity bills.  For example, in states with larger rate
    increases,\12 if a preference customer's rate increases by 1.5 cents
    per kWh, residential end-users would pay about $10 to $15 more per
    month for electricity, depending on the state.  Preference customers
    who may see these larger increases typically paid relatively low
    rates, ranging from 1.5 to 3.0 cents per kWh and bought most or all
    of their power from Western.

    Taken together, Southwestern's preference customers may experience
    higher rate increases than Southeastern's customers but lower
    increases than Western's.\13 As shown in figure 2, in most of
    Southwestern's states, a majority of the preference customers may see
    relatively small increases of 0.5 cent per kWh or less on base rates
    that typically ranged from 1.5 to 3.5 cents.  In turn, residential
    end-users that receive power from most of Southwestern's preference
    customers' would see their electricity bills increase by less than $3
    a month.  However, in Oklahoma, 79 percent of the preference
    customers may see larger increases that exceed 1.5 cents per kWh.
    Most of these customers paid less than 1.5 cents per kWh--less than
    half the 1995 national average market rate--and purchased all of
    their power from Southwestern.  Residential end-users of these
    preference customers typically would pay about $22 more in their
    average monthly electricity bills.

    As we discussed in our March 1998 report, it is important to remember
    that in many cases where rate increases may be relatively large
    (greater than 1.5 cents per kWh), the preference customers paid about
    1 to 1.5 cents per kWh in 1995 for PMA power.  These rates on average
    were about 2.5 to 3 cents per kWh lower than what utilities paid in
    the private market nationwide.  Conversely, in many cases where rate
    increases may be relatively small, that is, 0.5 cent per kWh or less,
    preference customers generally paid rates close to the market rates.
    If market rates are charged (after a PMA divestiture or
    otherwise),\14 preference customers would pay the same rates as
    utilities that lack access to PMA power.  As we discussed in our
    March 1998 report, if the Congress chose to change the status quo
    regarding rates, it could mitigate the size of potential rate
    increases by using several approaches, such as establishing rate
    caps.

    A preference customer's rate increase also depends on what portion of
    its total power comes from the PMA.  Generally, the less a preference
    customer relies on a PMA's power, the less the rate increase may be.
    Preference customers in states served by Southeastern may experience
    small increases because they purchase a small portion of their power
    from the PMA.  In 1995, 99 percent of Southeastern's preference
    customers purchased less than 25 percent of their power from the PMA.
    Overall, most preference customers purchase a majority of their power
    from sources other than the PMAs and, as a result, currently pay
    market rates for that power.  In contrast, preference customers that
    purchase a large portion of their power from a PMA are more likely to
    experience larger increases.  For example, among the 60 percent of
    the preference customers in South Dakota that may experience rate
    increases of at least 1.5 cents per kWh if market rates are charged,
    most bought over 70 percent of their power from the PMA in 1995.
    Overall, PMA power represented about 23 percent of South Dakota's
    total electricity consumption in 1995.  Usually, preference customers
    that rely on a PMA for most or all of their power are smaller
    utilities that deliver 100,000 megawatthours or less to their
    end-users annually.\15

    It is important to also note that because our estimates of potential
    rate increases are based on market rates in 1995, our methodology is
    conservative.  If prices for wholesale power decline in the future,
    as many industry analysts and DOE officials believe they will,
    customers' rate increases generally will be smaller than our
    estimates.

    Finally, the likely rate increases we discuss--from relatively small
    to relatively large, if the preference customers pay market rates for
    PMA power--would usually affect a relatively small portion of the
    power consumed in each state, as shown by the shading or patterns in
    the states in figure 2.  We found that the portion of the total power
    consumed in a state that was provided by the three PMAs was generally
    relatively small.  For example, the PMAs provided 5 percent or less
    of the total power consumption in 22 of the 29 states in our
    analysis.  The average for the 29 states was 2 percent.

    --------------------
    \10 Southeastern's preference customers are located in Alabama,
    Florida, Georgia, Illinois, Kentucky, Mississippi, North Carolina,
    South Carolina, and Virginia.  As mentioned, a map showing each PMA's
    service territory is included in app.  II.

    \11 Western's preference customers are located in Arizona,
    California, Colorado, Iowa, Minnesota, Montana, Nebraska, New Mexico,
    Nevada, North Dakota, South Dakota, Utah, Wisconsin, and Wyoming.  In
    Kansas, Missouri, and Texas, most preference customers purchase power
    from Southwestern, although a few purchase power from Western.

    \12 These are states where 33 percent or more preference customers
    may see rate increases of 1.5 cents per kWh or greater.

    \13 Southwestern's preference customers are located in Arkansas,
    Kansas, Louisiana, Missouri, Oklahoma, and Texas.

    \14 In commenting on our draft report, DOE stated that market rates
    would not necessarily be charged if a PMA is divested to a public
    utility.

    \15 For more information, see GAO/RCED-98-43, pp.  79-85.

       PREFERENCE CUSTOMERS SERVE
       VARYING PORTIONS OF MANY STATES
    ------------------------------------------------------------ Letter :4

    As shown in figure 3, preference customers that are directly served
    by Southeastern, Southwestern, and Western reported serving varying
    portions of 29 states across the nation.  We did not include
    customers that receive PMA power indirectly, that is, through direct
    preference customers of the PMAs--generation and transmission
    cooperatives and municipal joint action agencies--because, with very
    few exceptions, the PMAs' 1995 annual reports do not list them.

       Figure 3:  Potential Areas
       Directly Served by Preference
       Customers of Southeastern,
       Southwestern, and Western

       (See figure in printed
       edition.)

    Notes:  Preference customers may actually provide power to only
    portions of the counties and/or towns they report serving.  Under the
    reporting format of Electrical World, preference customers are asked
    to cite the counties and/or towns they serve, as opposed to the
    specific geographic boundaries of their service areas.  In many
    cases, several utilities report serving the same county and the
    actual service area may be smaller than the areas they report
    serving.  App.  IV contains, for each state, a map depicting the
    counties and towns reported by the customers that reported receiving
    power directly from the PMA, followed by a complete list of those
    locations.

    Our map includes only the counties and towns that preference
    customers serve directly and does not include preference customers
    such as generation and transmission cooperatives or municipal joint
    action agencies, who buy PMA power and then resell it to other
    publicly owned utilities.  The annual reports for Southeastern and
    Western do not include these utilities as customers, while
    Southwestern's does in two cases.

    Sources:  GAO's analysis of data provided by Southeastern's,
    Southwestern's, and Western's 1995 annual reports and Electrical
    World:  Directory of Electric Power Producers (1997 ed.).

    As the figure shows, in most states, the areas the preference
    customers reported serving directly cover less than half the state.
    For example, very small portions of Arkansas, Louisiana, and Missouri
    are served by preference customers.  In some cases, small areas are
    served in part because only a few preference customers directly serve
    the state.  For example, Illinois and Wisconsin have only one
    preference customer to serve residential end-users, while Kentucky
    and Montana have three.  Other states have more preference customers,
    but in some cases they serve counties and towns that are concentrated
    in portions of the state.  For example, South Carolina's 26
    preference customers reported serving areas almost exclusively in the
    northwestern corner of the state.  The seven preference customers in
    Wyoming reported serving four counties, which are clustered in the
    southwestern and south central portions of the state and two towns
    but no other areas in the rest of the state.  Similarly, the eight
    preference customers in Texas reported serving 17 counties in the
    south central part of the state and five towns in eastern Texas but
    did not serve the rest of the state.

    Additionally, as depicted in figure 3, large portions of several of
    Southeastern's and Western's states receive service directly from
    preference customers.  For example, preference customers reported
    serving almost every county in Georgia and most of the counties in
    North Carolina and Virginia.  In these states, many counties received
    service from two or more preference customers.  In Nebraska,
    preference customers reported serving over 130 towns located around
    the state.

    Finally, regardless of their geographic coverage, we found, as shown
    in figure 2, that the preference customers generally provided a
    relatively small portion of the total power consumed in each state.

       IN INCOME, END-USERS ARE
       SIMILAR TO THE POPULATION OF
       THE ENTIRE STATE; MOST SERVICE
       AREAS ARE EITHER URBAN OR
       "MIXED"
    ------------------------------------------------------------ Letter :5

    Although preference customers serve areas with incomes lower than the
    national average, most of the households they serve have incomes that
    are similar to those in the entire state.  As shown in figure 4, in
    21 of 28
    states,\16 households in the counties and towns preference customers
    report serving had median incomes within 15 percent of the statewide
    median income, as reported in the 1990 census.

       Figure 4:  Proximity of Median
       Incomes in Preference
       Customers' Reported Service
       Areas and the Entire State

       (See figure in printed
       edition.)

    Sources:  GAO's analysis of data provided by Southeastern's,
    Southwestern's, and Western's 1995 annual reports; Electrical World:
    Directory of Electric Power Producers (1997 ed.); and 1989 data
    provided by the Census Bureau.

    In some states, the median incomes of the end-users and statewide are
    close because almost every county in the state receives power from
    preference customers.  For example, in Georgia, preference customers
    reported serving 151 of the state's 159 counties.  Furthermore, the
    distribution of income for households receiving PMA power generally
    mirrors the distribution of household income in the entire state.
    For example, in Alabama, about 35 percent of the households in
    preference customers' service areas had annual incomes of less than
    $15,000 in 1989, while 24 percent had incomes exceeding $40,000.
    Similarly, in the entire state, 33 percent of the households had
    annual incomes under $15,000, and 26 percent had annual incomes
    exceeding $40,000.  This compares with the 1995 national average
    household income of $35,004.

    However, in a few cases, preference customers serve areas that are
    significantly poorer than the remainder of the state.  For example,
    in 1989 in Texas, the median income of the households preference
    customers served was almost 40 percent lower than median household
    income of $27,016 in the entire state.  In preference customers'
    service areas, over 45 percent of the households had annual incomes
    smaller than $15,000, compared with 28 percent of the households in
    the entire state.  Similarly, in Montana, preference customers served
    households with median incomes 20 percent, or about $4,500, below the
    state median of $22,988.  In commenting on our draft report, DOE
    officials noted that the PMAs also provide a valuable service to
    Indian reservations, which are among the poorest areas of the nation.
    Our analysis shows, for example, that about 53 percent of the
    households in Shiprock, New Mexico, which is located on the Navajo
    Indian Reservation, had median incomes of less than $15,000, compared
    with about 31 percent statewide.

    In contrast, preference customers in some states send PMA power to a
    number of counties and towns where a large portion of the households
    have relatively high incomes.  For example, in California, preference
    customers reported serving areas in the southern part of the state
    such as Orange County, where about 45 percent of the households had
    incomes in 1989 exceeding $50,000--at least 40 percent higher than
    the state median income of $35,798.  In the northern part of the
    state, preference customers reported serving Palo Alto, where 55
    percent of the households had incomes exceeding $50,000.  Throughout
    California, about 45 percent of the households in areas preference
    customers reported serving had annual incomes exceeding $40,000.
    Similarly, in Colorado, about 33 percent of the households in Aspen
    had 1989 incomes that exceeded $50,000 or at least 65 percent greater
    than the state median income of $30,140.

    We estimate that, overall, about 53 percent of the towns that
    preference customers reported serving are urban.\17 States where most
    of the towns are urban include California, Georgia, and North
    Carolina.  In addition, about 47 percent of the towns preference
    customers reported serving are rural.  States where large numbers of
    these towns are rural include Florida, Iowa, and Nebraska.  Less than
    1 percent of the towns are "mixed"--that is, they have populations
    that are neither urban nor rural.  Most counties that preference
    customers reported serving, or about 52 percent, are mixed.  Alabama
    and South Carolina, for example, have high percentages of mixed
    counties.  About 39 percent of the counties are rural, about 9
    percent of the counties are urban.  North Dakota and South Dakota
    have large proportions of rural counties.

    Finally, although preference customers sell PMA power in many less
    densely populated areas, most of the households they serve are
    located in a small number of more urbanized places.  This suggests
    that most PMA power is consumed by customers in more highly urbanized
    places.  For example, although preference customers reported serving
    150 counties in Georgia, 11 of those counties contain over half of
    the households in the areas preference customers reported serving.

    --------------------
    \16 We did not include median income data for Wisconsin because the
    one preference customer in this state does not provide retail service
    to residential end-users.

    \17 We classified a county or town as urban or rural if at least 80
    percent of its population is defined as urban or rural by the Census
    Bureau.  The Census Bureau generally considers an area to be urban if
    its population is 2,500 or more.  If a county or town is less than 80
    percent urban or rural, we classified it as "mixed."

       AGENCY COMMENTS
    ------------------------------------------------------------ Letter :6

    We provided copies of a draft of this report to DOE for its review
    and comment.  We received comments from DOE's Power Marketing Liaison
    Office, which is responsible for Southeastern, Southwestern, and
    Western, and have included its comments and our responses as appendix
    V.

    DOE commented that our data sources were flawed because we relied on
    incomplete and/or inaccurate data and that it was impossible to have
    confidence in conclusions drawn from analysis of the data.  To
    address each of our objectives, our analyses used data reported by
    the PMAs and their preference customers--data that we believe to be
    the best available.  DOE recognizes that obtaining complete data on
    the electric utility industry is not easy.  We believe that we used
    the data appropriately to satisfy the objectives of our review and
    that our methodology is sound.  However, we agree that the data we
    used have limitations, and we have pointed out the limitations in our
    report.  Many of the concerns that DOE expressed do not deal with the
    data we used but with the definition of a preference customer of a
    PMA.  DOE stated that our analyses omitted generation and
    transmission cooperatives, their members, and municipal joint action
    agencies.  For our analysis, we included only the preference
    customers who purchased power directly from the PMAs--as listed in
    the PMAs' 1995 annual reports.  We did not include generation and
    transmission cooperatives, their members, or municipal joint action
    agencies because the annual reports of two of the three
    PMAs--Southeastern and Western--do not include them in their lists of
    customers.  Because Southeastern and Western together represent over
    90 percent of the total preference customers of the three PMAs, we
    used their approach.  If our rate analysis had included the utilities
    that indirectly buy PMA power through preference customers, the rate
    increases for these utilities would have been, at most, the same as
    the increases for the preference customers.  For our analysis of
    urban/rural populations, we used the counties and towns that the
    preference customers that were included in our rate analysis reported
    to Electrical World:  Directory of Electric Power Producers.  We
    acknowledge that the data in Electrical World may not match the
    actual service territories.  However, we used these data because they
    were reported by the preference customers and were the best
    available.

    DOE also stated that using 1995 data does not reflect today's market
    situation.  As the electricity market continues to evolve, many
    industry experts believe that market rates for wholesale power have
    declined since 1995 and will fall farther.  If market rates fall more
    than the PMAs' rates, our estimates of rate increases will prove to
    be overstated.  We have seen no evidence that the PMAs' overall rates
    have fallen more than rates in the wholesale market.  DOE also
    commented that more balance was needed in our report because the
    report goes beyond reporting data and does not present all opposing
    points of view.  We believe that our report is balanced and that,
    throughout the report, we present a neutral description of our
    objectives and findings.  Nevertheless, we have added additional
    detail to our report, such as including all options for the PMAs'
    future role in the changing electricity market and noting that a PMA
    provides power to Native American households with low incomes.

    We met with officials from the American Public Power Association\18
    and National Rural Electric Cooperative Association,\19 which are
    national representatives of the PMAs' preference customers, and
    discussed the methodology we used to perform our analysis and the
    results we obtained.  On our rate analysis, the officials commented
    that certain preference customers may see larger rate increases than
    what we estimated because, to replace the power they buy from the
    PMAs, they would pay more than what they paid for non-PMA power in
    1995.  The officials also commented that, although we classified many
    of the rate increases as relatively small, these increases could
    nonetheless have significant economic impacts on preference customers
    or their end-users.  However, these officials said that they could
    not provide more detailed comments until they and the members of
    their organizations had an opportunity to review the final report and
    its appendixes.

    We also met with representatives of the Edison Electric Institute\20
    and discussed the methodology we used to perform our analysis and the
    results we obtained.  They commented that our analysis was credible,
    although they suspected that it could have overstated the rate
    increases that may occur because competition is increasing and market
    rates for electricity have been declining.  They believe that the
    impact of the preference customers' paying market prices for power
    would be quite modest.  They also commented that, if the wholesale
    rate impacts were translated to the prices that the ultimate consumer
    would see, the impacts would be even less.

    --------------------
    \18 The American Public Power Association is the national trade
    association representing over 2,000 municipal and other state and
    local government-owned electric utilities.

    \19 The National Rural Electric Cooperative Association is the
    national service organization that represents the national interests
    of cooperative electric utilities and the consumers they serve.

    \20 The Edison Electric Institute is the association of
    investor-owned electric utilities in the United States and industry
    affiliates and associates worldwide.

    ---------------------------------------------------------- Letter :6.1

    We conducted our review from May through November 1998 in accordance
    with generally accepted government auditing standards.

    As agreed with your offices, unless you publicly announce its
    contents earlier, we plan no further distribution of this report
    until 30 days from the date of this letter.  At that time, we will
    send copies to appropriate House and Senate committees and
    subcommittees; interested Members of the Congress; the Administrators
    of Southeastern, Southwestern, and Western; and other interested
    parties.  We will also make copies available to others upon request.

    If you have any questions or need additional information, please
    contact me on (202) 512-3841.  Major contributors to this report are
    listed in appendix VI.

    Susan D.  Kladiva
    Associate Director, Energy,
     Resources, and Science Issues

    TENNESSEE VALLEY AUTHORITY'S
    SERVICE AREA
    =========================================================== Appendix I

    The Tennessee Valley Authority (TVA) sells power to 159 municipal and
    cooperative distributors and to a number of directly served large
    industrial customers and federal agencies.  As shown in figure I.1,
    TVA sells power to customers located in Tennessee and parts of six
    other states in the Southeast.  According to the Southeastern Power
    Administration (Southeastern), TVA purchased nearly 1.9 billion
    kilowatthours (kWh) of electricity from the PMA in fiscal year 1995
    and over 2.9 billion kWh of electricity in fiscal year 1996 for
    resale to TVA's municipal and cooperative distributors.  However, as
    described in appendix III, we did not include Southeastern's sales to
    TVA in our analysis.

       Figure I.1:  Map of TVA's
       Service Area

       (See figure in printed
       edition.)

    Source:  TVA's 1996 annual report.

    POWER MARKETING ADMINISTRATIONS'
    SERVICE AREAS
    ========================================================== Appendix II

    As figure II.1 shows, according to the Department of Energy (DOE),
    its power marketing administrations (PMA) serve preference customers
    located in all or parts of 34 states.

       Figure II.1:  The Service Areas
       of the PMAs

       (See figure in printed
       edition.)

    Note:  We included Wisconsin in our analysis because it has one
    preference customer, although this customer does not sell power at
    the retail level.

    Source:  Developed by GAO from data provided by DOE and the PMAs.

    OBJECTIVES, SCOPE, AND METHODOLOGY
    ========================================================= Appendix III

    Since the New Deal, the federal government has established about 130
    water projects that--in addition to promoting agriculture, flood
    control, navigation, and other activities--produce electric power.
    To sell this power to large portions of rural America, the federal
    government created five PMAs and TVA.

    Now that nearly all of America has electricity, some believe the PMAs
    have completed their mission and should be divested.  Others suggest
    that the PMAs be required to charge market rates for power.  However,
    since PMAs have historically served rural areas, concerns have been
    raised that a change in PMAs' ownership or the means by which they
    establish rates could adversely affect the rural or poorer areas they
    serve.  Yet few analyses to date have identified the places that
    ultimately consume PMA power or the characteristics of the households
    the preference customers serve.

    To aid in congressional deliberations on the future role of the PMAs,
    you requested that we provide a state-by-state analysis of the
    preference customers who buy power from Southeastern, Southwestern,
    and Western.  More specifically, you asked that we identify (1) the
    extent to which preference customers' rates may change by state if
    market rates are charged, (2) the areas the three PMAs' preference
    customers report serving, and (3) the incomes in these areas and the
    extent to which they are urban or rural.

       ESTIMATING PREFERENCE
       CUSTOMERS' POTENTIAL RATE
       CHANGES
    ------------------------------------------------------- Appendix III:1

    To estimate how much preference customers' rates may change if the
    customers paid market rates for the power they currently purchase
    from the PMA, we calculated the average rates that each PMA
    preference customer\1 paid for wholesale power from (1) all sources,
    including the PMAs, and (2) sources other than the PMA, including the
    wholesale market, in 1995.\2 Then, we took the difference between
    these two rates, considering the latter to be the market rate.

    Estimating the potential changes required several steps and
    assumptions.  First, to calculate how much preference customers paid
    for the PMAs' power, we obtained data from Southeastern's,\3
    Southwestern's, and Western's fiscal year 1995 annual reports.  Then,
    to learn how much each preference customer paid for the power it
    purchased from other sources, we used the "sales for resale"
    databases compiled by the Energy Information Administration (EIA).\4
    We found that for about one-third of the three PMAs' preference
    customers, EIA's data lacked the volumes of wholesale power the
    customers purchased from non-PMA sources, the amounts the customers
    paid for power, or both.\5

    In these cases, we assumed the customer paid a rate equal to the
    average market rate paid by customers of the same type (for example,
    municipal utilities and cooperatives) for wholesale power in the
    customer's state.  We then combined each preference customer's
    purchases of PMA power and non-PMA power to estimate how much the
    customer paid for wholesale power from all sources in 1995.

    Second, to estimate how each preference customer's rates would change
    if it paid market rates for PMA power, we assumed that the customer
    would pay a rate equal to the average rate it paid for wholesale
    power from sources other than the PMA(s) in 1995.  We used this
    assumption because it is likely that in the period immediately after
    a divestiture, the new owners of the PMAs' assets would charge the
    prevailing market rates for wholesale power in the area.\6 We also
    took this approach because we were unable to obtain forecasts of
    future wholesale rates.  Although EIA used its National Energy
    Modeling System to forecast future electricity rates,\7 according to
    agency officials, its projections are only for retail rates.\8
    Others' projections of future wholesale rates are proprietary.

    Finally, we compared the average rate each preference customer paid
    for all its power in 1995 with the rate the customer paid for the
    power it purchased from sources other than the PMA.  The difference
    in these two rates represents our estimates in cents per kWh of each
    customer's potential increase in average rates if it paid market
    rates for the power it currently purchases from the PMA.\9

    After estimating how much preference customers' rates may change, we
    analyzed the rate changes by state.  To do this, we had to determine
    the state in which each preference customer primarily sells power.
    We obtained state designations for each preference customer from
    EIA's Form 861 database of utilities for 1995.  However, in cases
    where the preference customer did not sell retail power, EIA did not
    provide a state designation.  In these instances, we consulted EIA's
    PURCH and SALES databases of wholesale electricity transactions in
    1995 and assigned the preference customer to the state where it sold
    most of its wholesale power.\10 In the few cases where the preference
    customer did not sell a large majority of its power to a single
    state, we assigned the preference customer to the state where it is
    listed in the Electrical World:  Directory of Electric Power
    Producers (1997 ed.).\11

    Because we assumed that, after a divestiture, each customer would pay
    a rate for power that equals what the preference customer paid for
    non-PMA power in 1995, our methodology is conservative.  If prices
    for wholesale power decline in the future, as many industry analysts
    and DOE officials believe they will, customers' rate increases would
    be smaller than our estimates.

    It is important to note that we estimated potential rate increases
    for the preference customers that the PMAs listed in their 1995
    annual reports.  These customers buy power directly from the PMA.  We
    did not include utilities that indirectly buy PMA power through
    direct preference customers such as generation and transmission
    cooperatives and municipal joint action agencies.  We did not include
    these indirect customers because, with very few exceptions, the PMAs
    did not count them as customers in their 1995 annual reports.

    --------------------
    \1 For our analysis, we considered preference customers who are
    included in the Energy Information Administration's Form 861 database
    of electric utilities.  As a result, we did not include retail
    customers that are owned by state or federal governments, such as
    hospitals or military installations.

    \2 As agreed with your offices, we used 1995 data to conform with
    analyses we performed in preparation of a previous report,
    GAO/RCED-98-43.

    \3 We did not include TVA in our rate analysis because we believe it
    is different from other preference customers in ways that made our
    method of estimating rate changes inapplicable, for two reasons.
    First, our methodology calculated the average rate each preference
    customer paid in 1995 for its purchases of power from all sources.
    However, unlike other preference customers, TVA generated over 97
    percent of the power that it sold.  Because TVA purchases so little
    of the power it sells, we did not believe that it was appropriate to
    apply this approach.  Second, in our analysis, we used the Energy
    Information Administration's data to determine the state in which
    each preference customer primarily sells retail power.  Each
    preference customer and its total sales were assigned to one state.
    The Energy Information Administration's state designation for TVA was
    Alabama.  However, since TVA sells large quantities of power to
    distributors in seven states, we did not believe that it was
    appropriate to assign the entire 1.9 billion kWh that Southeastern
    sold to TVA in 1995 to Alabama.  Also, TVA did not report the
    counties and towns in its service territory in Electrical World:
    Directory of Electric Power Producers.  We, therefore, did not
    include TVA's service territory in our state maps.  (A less detailed
    map of TVA's territory is included in app.  I.) We also could not
    analyze the income and urban/rural characteristics associated with
    the area served by TVA.

    \4 Specifically, we used EIA's PURCH.Y95 and SALES.Y95 databases,
    which contain utilities' purchases and sales of wholesale power to
    other utilities.

    \5 EIA officials stated that the data were missing for several
    reasons, including that the PMAs' customers were so small that they
    did not have to file the reports EIA uses to compile the "sales for
    resale" data (the Federal Energy Regulatory Commission's Form 1 and
    EIA's Form EIA-412).

    \6 In commenting on our draft report, DOE stated that market rates
    would not necessarily be charged if a PMA is divested to a public
    entity.

    \7 See Electricity Prices in a Competitive Environment (DOE/EIA-0614,
    Aug.  1997).

    \8 We attempted to derive forecasts of wholesale prices from EIA's
    retail price forecasts by subtracting distribution costs from EIA's
    projections.  We found, however, that our results were much higher
    than the national average rates for wholesale power that EIA reports
    in Financial Statistics of Major U.S.  Investor-Owned Utilities.
    After consulting with EIA officials, we chose not to use EIA's retail
    price forecasts because they are based on the agency's judgmental
    assignment of electricity generators' costs to services, such as
    generation, transmission, and distribution, rather than actual sales
    data.

    \9 We do not report our estimates as percentages:  Since many
    preference customers paid relatively low base rates for power in 1995
    (e.g., between 1 and 2 cents per kWh), smaller increases measured in
    cents would result in seemingly large percentage increases.  For
    example, if a preference customer in 1995 paid an average of 1.5
    cents per kWh for power, a relatively small increase of 0.5 cent per
    kWh would produce a seemingly large increase of 33 percent.  In
    addition, if we expressed the rate increases as percentages, the same
    increase measured in cents per kWh would be reported as different
    increases for two customers with different base rates.  For these
    reasons, we believe that reporting rate changes in cents per kWh
    better portrays the true impact of the change.

    \10 According to EIA, as of November 1998, these data had not been
    released for 1996.

    \11 Electrical World:  Directory of Electric Power Producers is a
    standard reference for data on the electricity industry.  It compiles
    specific data on subjects such as individual utilities' power
    production capacities, power sales, sources of purchased power,
    distribution facilities, as well as the service areas, which are
    provided by the utilities themselves.

       ESTIMATING CHANGES IN
       RESIDENTIAL CUSTOMERS'
       ELECTRICITY BILLS
    ------------------------------------------------------- Appendix III:2

    To estimate how each preference customer's rate change would affect
    the rates paid by its residential end-users, we assumed that (1) the
    preference customer would pass the rate change on proportionally to
    its end-users and (2) that each state's residential end-users would
    consume a quantity of electricity equal to the average residential
    consumption for that state in 1995, according to EIA.  The monthly
    increase in a residential end-user's electricity bill equals the
    preference customer's rate increase after the PMA begins charging
    market rates (in cents per kWh) times the residential end-user's
    average annual electricity consumption for the appropriate state (in
    kWh), divided by 12.

       DEFINING PREFERENCE CUSTOMERS'
       SERVICE AREAS
    ------------------------------------------------------- Appendix III:3

    To define the preference customers' service areas, we identified the
    counties and/or towns in Electrical World:  Directory of Electric
    Power Producers (1997 ed.) that each of the customers in our analysis
    reported serving.  As was true with our rate analysis, we included
    only the preference customers that purchased power directly from the
    PMAs--that is, those customers the PMAs listed in their 1995 annual
    reports.  If we had included utilities that indirectly purchase PMA
    power (through direct preference customers), such as generation and
    transmission cooperatives and municipal joint action agencies, more
    counties and towns would be shown on our state service territory
    maps.  According to DOE officials, many additional counties would be
    shaded in, among other states, Montana, South Carolina, and Wyoming.

       CHARACTERIZING INCOMES AND
       URBAN AND RURAL POPULATIONS IN
       PREFERENCE CUSTOMERS' SERVICE
       AREAS
    ------------------------------------------------------- Appendix III:4

    To examine the incomes in areas that ultimately consume PMA power, we
    obtained 1990 census data (based on calendar year 1989) from the
    Census Bureau on household incomes in each county and town the
    preference customers reported serving in Electrical World.

    To determine the degree to which preference customers' service areas
    were urban or rural, we obtained 1990 census data from the Census
    Bureau on the urban and rural populations in each county and town the
    preference customer reported serving.  We classified a county or town
    as urban or rural if at least 80 percent of its population is urban
    or rural as defined by the Census Bureau.\12 If the county's or
    town's population is less than 80 percent urban or rural, we
    classified it as "mixed."

    Because the PMAs historically are believed to have served areas that
    had lower median incomes and were less urbanized, our use of census
    data from 1990 yields conservative results, as income and urban
    populations generally increase over time.

    We conducted our review from May through November 1998 in accordance
    with generally accepted government auditing standards.

    We provided a draft of this report to DOE's Power Marketing Liaison
    Office, which represents the views of Southeastern, Southwestern, and
    Western.  Its comments and our responses are included in appendix V.
    We also met with representatives of the American Public Power
    Association, the Edison Electric Institute, and the National Rural
    Electric Cooperative Association--national organizations representing
    groups concerned with the pricing of power provided by the PMAs,
    among other things--to discuss our methodology and the results of our
    review.

    --------------------
    \12 The Census Bureau generally considers a place to be urban if its
    population is 2,500 or more.

    STATE-SPECIFIC DATA ON POTENTIAL
    RATE IMPACTS AND SERVICE AREA
    DEMOGRAPHICS
    ========================================================== Appendix IV

    This appendix provides, for each state that receives PMA power from
    Southeastern, Southwestern, and/or Western, (1) the counties and
    towns that the preference customers included in our analysis report
    serving and a map showing these areas and (2) the estimated rate
    changes if market rates are charged, by number and percentage of
    preference customers; household incomes in areas potentially
    receiving power; the extent to which these areas are urban or rural;
    and the extent to which the individual state's total power
    consumption is provided by the PMA(s) through the preference
    customers included in our analysis.

    To define the preference customers' service areas, we identified the
    counties and/or towns in Electrical World:  Directory of Electric
    Power Producers (1997 ed.) that each of the customers considered in
    our analysis reported serving.  As was true with our rate analysis,
    we included only the preference customers that purchased power
    directly from the PMAs--that is, those customers that the PMAs listed
    in their 1995 annual reports.  If we had included utilities that
    indirectly buy PMA power (through direct preference customers), such
    as generation and transmission cooperatives and municipal joint
    action agencies, more counties and towns would be shown on our state
    service territory maps.  According to DOE officials, many additional
    counties would be shaded in, among other states, Montana, South
    Carolina, and Wyoming.

       Figure IV.1:  Potential Service
       Areas - Alabama

       (See figure in printed
       edition.)

                                   Table IV.1

                     Potential Rate Impacts and Demographic
                                 Data -Alabama

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                             25               92.6%
    >0-0.5                                           1                3.7%
    >0.5-1.0                                         1                3.7%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           27                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  217,255               34.4%
    >$15,000-$20,000                            63,400               10.0%
    >$20,000-$25,000                            58,969                9.3%
    >$25,000-$30,000                            52,706                8.4%
    >$30,000-$35,000                            46,989                7.4%
    >$35,000-$40,000                            39,021                6.2%
    >$40,000                                   152,904               24.2%
    Median income                              $22,686  631,244 households
    Statewide median income                    $23,597           1,506,009
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        40        2.5%       20.0%       77.5%
    Towns                           20       35.0%       65.0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                      PMA-provided         State total    Percent of state
                          (in kWh)            (in kWh)      total from PMA
    ----------  ------------------  ------------------  ------------------
    Consumptio         604,309,000      70,007,000,000                0.9%
     n
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.2:  Potential Service
       Areas - Arizona

       (See figure in printed
       edition.)

                                   Table IV.2

                     Potential Rate Impacts and Demographic
                                 Data -Arizona

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              2               12.5%
    >0-0.5                                           5               31.3%
    >0.5-1.0                                         6               37.5%
    >1.0-1.5                                         1                6.3%
    >1.5-2.0                                         0                  0%
    >2.0                                             2               12.5%
    ======================================================================
    Total                                           16              100.1%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  323,654               24.7%
    >$15,000-$20,000                           131,773                 10%
    >$20,000-$25,000                           126,112                9.6%
    >$25,000-$30,000                           114,836                8.7%
    >$30,000-$35,000                           105,223                8.0%
    >$35,000-$40,000                            90,724                6.9%
    >$40,000                                   419,774               32.0%
    Median income                              $28,031           1,312,096
                                                                households
    Statewide median income                    $27,540           1,371,885
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        11          0%       36.4%       63.6%
    Towns                            6       16.7%       83.3%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                          PMA-                  Percent of
                                      provided   State total   state total
                                       in kWh)      (in kWh)      from PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,114,981,00  48,589,000,0          2.3%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.3:  Potential Service
       Areas - Arkansas

       (See figure in printed
       edition.)

                                   Table IV.3

                     Potential Rate Impacts and Demographic
                                 Data -Arkansas

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           4               57.1%
    >0.5-1.0                                         2               28.6%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         1               14.3%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            7                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   12,506               35.4%
    >$15,000-$20,000                             4,170               11.8%
    >$20,000-$25,000                             3,576               10.1%
    >$25,000-$30,000                             3,202                9.1%
    >$30,000-$35,000                             2,570                7.3%
    >$35,000-$40,000                             2,065                5.9%
    >$40,000                                     7,202               20.4%
    Median income                              $21,262   35,291 households
    Statewide median income                    $21,147  891,665 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         0          0%          0%          0%
    Towns                            6        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,387,014,00  34,671,000,0          4.0%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.4:  Potential Service
       Areas - California

       (See figure in printed
       edition.)

                                   Table IV.4

                     Potential Rate Impacts and Demographic
                                Data -California

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              3                9.1%
    >0-0.5                                          23               69.7%
    >0.5-1.0                                         4               12.1%
    >1.0-1.5                                         1                3.0%
    >1.5-2.0                                         1                3.0%
    >2.0                                             1                3.0%
    ======================================================================
    Total                                           33               99.9%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                1,126,506               18.5%
    >$15,000-$20,000                           445,498                7.3%
    >$20,000-$25,000                           464,619                7.6%
    >$25,000-$30,000                           443,741                7.3%
    >$30,000-$35,000                           449,468                7.4%
    >$35,000-$40,000                           398,025                6.5%
    >$40,000                                 2,756,712               45.3%
    Median income                              $36,233           6,084,569
                                                                households
    Statewide median $ income                 35,798 1           0,399,700
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        10         70%         10%         20%
    Towns                           27       92.6%        7.4%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   6,126,098,00  212,605,000,          2.9%
                                             0           000
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.5:  Potential Service
       Areas - Colorado

       (See figure in printed
       edition.)

                                   Table IV.5

                     Potential Rate Impacts and Demographic
                                 Data -Colorado

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              5               20.8%
    >0-0.5                                          16               66.7%
    >0.5-1.0                                         2                8.3%
    >1.0-1.5                                         1                4.2%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           24                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  132,548               18.3%
    >$15,000-$20,000                            61,389                8.5%
    >$20,000-$25,000                            64,832                9.0%
    >$25,000-$30,000                            61,348                8.5%
    >$30,000-$35,000                            61,493                8.5%
    >$35,000-$40,000                            53,809                7.4%
    >$40,000                                   288,071               39.8%
    Median income                              $33,116  723,490 households
    Statewide median $ income                 30,140 1            ,285,119
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        20       25.0%       35.0%         40%
    Towns                           29       48.3%       51.7%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   3,966,983,00  35,317,000,0         11.2%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.6:  Potential Service
       Areas - Florida

       (See figure in printed
       edition.)

                                   Table IV.6

                     Potential Rate Impacts and Demographic
                                 Data -Florida

              Estimated rate changes if PMAs charge market rates
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           7               87.5%
    \ >0.5-1.0                                       1               12.5%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            8                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  125,369               31.6%
    >$15,000-$20,000                            44,180               11.2%
    >$20,000-$25,000                            39,821               10.1%
    >$25,000-$30,000                            33,380                8.4%
    >$30,000-$35,000                            29,762                7.5%
    >$35,000-$40,000                            24,335                6.1%
    >$40,000                                    99,402               25.1%
    Median income                              $23,421  396,249 households
    Statewide median income                    $27,483           5,138,360
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        23        8.7%       39.1%       52.2%
    Towns                            8       25.0%       75.0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    466,648,000  167,492,000,          0.3%
                                                         000
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.7:  Potential Service
       Areas - Georgia

       (See figure in printed
       edition.)

                                   Table IV.7

                     Potential Rate Impacts and Demographic
                                 Data -Georgia

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              1                1.1%
    >0-0.5                                          87               97.8%
    >0.5-1.0                                         1                1.1%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           89                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  577,644               25.3%
    >$15,000-$20,000                           201,191                8.8%
    >$20,000-$25,000                           200,454                8.8%
    >$25,000-$30,000                           189,455                8.3%
    >$30,000-$35,000                           179,938                7.9%
    >$35,000-$40,000                           154,562                6.8%
    >$40,000                                   782,527               34.2%
    Median income                              $29,237           2,285,771
                                                                households
    Statewide median $ income                 29,021 2            ,366,575
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                       151        8.0%       37.1%       55.0%
    Towns                           52       86.5%       13.5%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,664,101,00  96,192,000,0          1.7%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.8:  Potential Service
       Areas - Illinois

       (See figure in printed
       edition.)

                                   Table IV.8

                     Potential Rate Impacts and Demographic
                                 Data -Illinois

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           0                  0%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             1              100.0%
    ======================================================================
    Total                                            1                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          Households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   10,721               41.8%
    >$15,000-$20,000                             2,649               10.3%
    >$20,000-$25,000                             2,446                9.5%
    >$25,000-$30,000                             2,114                8.2%
    >$30,000-$35,000                             1,845                7.2%
    >$35,000-$40,000                             1,391                5.4%
    >$40,000                                     4,515               17.6%
    Median income                              $18,845   25,681 households
    Statewide median $ income                 32,252 4            ,197,720
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         6         50%         50%          0%
    Towns                            1          0%        100%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                     41,675,000  126,231,000,            0%
                                                         000
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.9:  Potential Service
       Areas - Iowa

       (See figure in printed
       edition.)

                                   Table IV.9

                     Potential Rate Impacts and Demographic
                                   Data -Iowa

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              3                6.1%
    >0-0.5                                          19               38.8%
    >0.5-1.0                                         2                4.1%
    >1.0-1.5                                         8               16.3%
    >1.5-2.0                                         6               12.2%
    >2.0                                            11               22.5%
    ======================================================================
    Total                                           49                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          Households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    9,087               31.1%
    >$15,000-$20,000                             3,276               11.2%
    >$20,000-$25,000                             3,180               10.9%
    >$25,000-$30,000                             2,756                9.4%
    >$30,000-$35,000                             2,555                8.7%
    >$35,000-$40,000                             2,048                7.0%
    >$40,000                                     6,333               21.7%
    Median income                              $23,476   29,235 households
    Statewide median income                    $26,229           1,065,243
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         0          0%          0%          0%
    Towns                           45       22.2%       77.8%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,179,844,00  34,301,000,0          3.4%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.10:  Potential
       Service Areas - Kansas

       (See figure in printed
       edition.)

                                  Table IV.10

                     Potential Rate Impacts and Demographic
                                  Data -Kansas

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           8               88.9%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         1               11.1%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            9                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   50,588               28.3%
    >$15,000-$20,000                            18,132               10.1%
    >$20,000-$25,000                            17,305                9.7%
    >$25,000-$30,000                            16,008                9.0%
    >$30,000-$35,000                            15,761                8.8%
    >$35,000-$40,000                            12,371                6.9%
    >$40,000                                    48,567               27.2%
    Median income                              $25,967  178,732 households
    Statewide median income                    $27,291  946,253 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         6       33.3%       33.3%       33.3%
    Towns                            4        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    767,850,000  30,357,000,0          2.5%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.11:  Potential
       Service Areas - Kentucky

       (See figure in printed
       edition.)

                                  Table IV.11

                     Potential Rate Impacts and Demographic
                                 Data -Kentucky

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              2               66.7%
    >0-0.5                                           1               33.3%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            3                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    3,771               35.9%
    >$15,000-$20,000                             1,067               10.2%
    >$20,000-$25,000                               840                8.0%
    >$25,000-$30,000                               919                8.8%
    >$30,000-$35,000                               788                7.5%
    >$35,000-$40,000                               576                5.5%
    >$40,000                                     2,539               24.2%
    Median income                              $22,085   10,500 households
    Statewide median income                    $22,534           1,379,610
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         0          0%          0%          0%
    Towns                            1        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    568,750,000  74,548,000,0          0.8%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.12:  Potential
       Service Areas - Louisiana

       (See figure in printed
       edition.)

                                  Table IV.12

                     Potential Rate Impacts and Demographic
                                Data -Louisiana

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           4                 80%
    >0.5-1.0                                         1                 20%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            5                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   17,816               38.1%
    >$15,000-$20,000                             4,421                9.4%
    >$20,000-$25,000                             3,977                8.5%
    >$25,000-$30,000                             3,248                6.9%
    >$30,000-$35,000                             3,008                6.4%
    >$35,000-$40,000                             2,640                5.6%
    >$40,000                                    11,709               25.0%
    Median income                              $21,322   46,819 households
    Statewide median income                    $21,949           1,498,371
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         0          0%          0%          0%
    Towns                            3        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    514,521,000  72,827,000,0          0.7%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.13:  Potential
       Service Areas - Minnesota

       (See figure in printed
       edition.)

                                  Table IV.13

                     Potential Rate Impacts and Demographic
                                Data -Minnesota

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              2                3.7%
    >0-0.5                                          10               18.5%
    >0.5-1.0                                        10               18.5%
    >1.0-1.5                                         7               13.0%
    >1.5-2.0                                        14               25.9%
    >2.0                                            11               20.4%
    ======================================================================
    Total                                           54                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  194,109               21.9%
    >$15,000-$20,000                            75,428                8.5%
    >$20,000-$25,000                            74,782                8.5%
    >$25,000-$30,000                            71,901                8.1%
    >$30,000-$35,000                            70,148                7.9%
    >$35,000-$40,000                            64,012                7.2%
    >$40,000                                   334,807               37.8%
    Median income                              $31,678  885,187 households
    Statewide median income                    $30,909           1,648,825
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        21        9.5%       28.6%       61.9%
    Towns                           65       52.3%       47.7%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   2,258,841,00    53,959,000          4.2%
                                             0
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.14:  Potential
       Service Areas - Mississippi

       (See figure in printed
       edition.)

                                  Table IV.14

                     Potential Rate Impacts and Demographic
                               Data -Mississippi

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              3                 60%
    >0-0.5                                           2                 40%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            5                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   83,478               37.2%
    >$15,000-$20,000                            24,709               11.0%
    >$20,000-$25,000                            21,708                9.7%
    >$25,000-$30,000                            19,389                8.6%
    >$30,000-$35,000                            15,925                7.1%
    >$35,000-$40,000                            12,951                5.8%
    >$40,000                                    46,120               20.6%
    Median income                              $20,824  224,280 households
    Statewide median income                    $20,136  910,574 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        17       11.8%       47.1%       41.2%
    Towns                            1          0%        100%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    323,164,000  37,868,000,0          0.9%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.15:  Potential
       Service Areas - Missouri

       (See figure in printed
       edition.)

                                  Table IV.15

                     Potential Rate Impacts and Demographic
                                 Data -Missouri

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              1                6.3%
    >0-0.5                                          11               68.8%
    >0.5-1.0                                         2               12.5%
    >1.0-1.5                                         2               12.5%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           16              100.1%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   56,101               33.6%
    >$15,000-$20,000                            18,480               11.1%
    >$20,000-$25,000                            18,018               10.8%
    >$25,000-$30,000                            15,471                9.3%
    >$30,000-$35,000                            12,932                7.7%
    >$35,000-$40,000                             9,975                6.0%
    >$40,000                                    36,000               21.6%
    Median income                              $22,256  166,977 households
    Statewide median income                    $26,362           1,961,364
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                            Percen
                                                 t     Percent     Percent
                                     Total   urban       rural       mixed
    --------------------------  ----------  ------  ----------  ----------
    Counties                             1      0%          0%        100%
    Towns                               14   92.9%        7.1%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   2,559,565,00  62,259,000,0          4.1%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.16:  Potential
       Service Areas - Montana

       (See figure in printed
       edition.)

                                  Table IV.16

                     Potential Rate Impacts and Demographic
                                 Data -Montana

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           2               66.7%
    >0.5-1.0                                         1               33.3%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            3                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    1,594               44.8%
    >$15,000-$20,000                               306                8.6%
    >$20,000-$25,000                               387               10.9%
    >$25,000-$30,000                               247                7.0%
    >$30,000-$35,000                               251                7.1%
    >$35,000-$40,000                               183                5.2%
    >$40,000                                       587               16.5%
    Median income                              $18,461    3,555 households
    Statewide median income                    $22,988  306,919 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         1          0%          0%        100%
    Towns                            1          0%        100%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    401,022,000  13,419,000,0          3.0%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.17:  Potential
       Service Areas - Nebraska

       (See figure in printed
       edition.)

                                  Table IV.17

                     Potential Rate Impacts and Demographic
                                 Data -Nebraska

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              5                8.9%
    >0-0.5                                          39               69.6%
    >0.5-1.0                                         8               14.3%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             4                7.1%
    ======================================================================
    Total                                           56               99.9%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   78,732               26.8%
    >$15,000-$20,000                            30,595               10.4%
    >$20,000-$25,000                            29,891               10.2%
    >$25,000-$30,000                            26,495                9.0%
    >$30,000-$35,000                            25,004                8.5%
    >$35,000-$40,000                            20,649                7.0%
    >$40,000                                    82,095               28.0%
    Median income                              $26,294  293,461 households
    Statewide median income                    $26,016  602,858 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         2          0%          0%        100%
    Towns                          135       31.1%       68.9%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   2,003,579,00  20,892,000,0          9.6%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.18:  Potential
       Service Areas - Nevada

       (See figure in printed
       edition.)

                                  Table IV.18

                     Potential Rate Impacts and Demographic
                                  Data -Nevada

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           3                100%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            3                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    5,753               20.7%
    >$15,000-$20,000                             2,396                8.6%
    >$20,000-$25,000                             2,408                8.7%
    >$25,000-$30,000                             2,185                7.9%
    >$30,000-$35,000                             2,442                8.8%
    >$35,000-$40,000                             1,975                7.1%
    >$40,000                                    10,654               38.3%
    Median income                              $32,039   27,813 households
    Statewide median income                    $31,011  467,513 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         4          0%       25.0%       75.0%
    Towns                            1        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,460,461,00  20,659,000,0          7.1%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.19:  Potential
       Service Areas - New Mexico

       (See figure in printed
       edition.)

                                  Table IV.19

                     Potential Rate Impacts and Demographic
                                Data -New Mexico

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           7               63.6%
    >0.5-1.0                                         1                9.1%
    >1.0-1.5                                         2               18.2%
    >1.5-2.0                                         1                9.1%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           11                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   40,998               31.7%
    >$15,000-$20,000                            14,466               11.2%
    >$20,000-$25,000                            13,364               10.3%
    >$25,000-$30,000                            10,802                8.4%
    >$30,000-$35,000                             9,811                7.6%
    >$35,000-$40,000                             8,254                6.4%
    >$40,000                                    31,724               24.5%
    Median income                              $23,254  129,419 households
    Statewide median income                    $24,087  543,825 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         8       25.0%       12.5%       62.5%
    Towns                           12       58.3%       41.7%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    981,002,000  16,416,000,0          6.0%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.20:  Potential
       Service Areas - North Carolina

       (See figure in printed
       edition.)

                                  Table IV.20

                     Potential Rate Impacts and Demographic
                              Data -North Carolina

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                             21               26.3%
    >0-0.5                                          59               73.8%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           80              100.1%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  556,427               27.3%
    >$15,000-$20,000                           205,785               10.1%
    >$20,000-$25,000                           198,689                9.8%
    >$25,000-$30,000                           179,980                8.8%
    >$30,000-$35,000                           170,539                8.4%
    >$35,000-$40,000                           140,325                6.9%
    >$40,000                                   583,240               28.7%
    Median income                              $26,407           2,034,985
                                                                households
    Statewide median income                    $26,647           2,517,098
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        83        3.6%       43.4%       53.0%
    Towns                           65       72.3%       27.7%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    377,403,000  104,673,000,          0.4%
                                                         000
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.21:  Potential
       Service Areas - North Dakota

       (See figure in printed
       edition.)

                                  Table IV.21

                     Potential Rate Impacts and Demographic
                               Data -North Dakota

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           3               16.7%
    >0.5-1.0                                         5               27.8%
    >1.0-1.5                                         2               11.1%
    >1.5-2.0                                         4               22.2%
    >2.0                                             4               22.2%
    ======================================================================
    Total                                           18                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   19,180               30.4%
    >$15,000-$20,000                             7,031               11.1%
    >$20,000-$25,000                             6,826               10.8%
    >$25,000-$30,000                             5,498                8.7%
    >$30,000-$35,000                             4,898                7.8%
    >$35,000-$40,000                             4,388                7.0%
    >$40,000                                    15,317               24.3%
    Median income                              $23,761   63,138 households
    Statewide median income                    $23,213  241,802 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        14        7.1%       71.4%       21.4%
    Towns                            9       22.2%       77.8%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,316,823,00  7,883,000,00         16.7%
                                             0             0
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.22:  Potential
       Service Areas - Oklahoma

       (See figure in printed
       edition.)

                                  Table IV.22

                     Potential Rate Impacts and Demographic
                                 Data -Oklahoma

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           3               15.8%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         1                5.3%
    >1.5-2.0                                         0                  0%
    >2.0                                            15               79.0%
    ======================================================================
    Total                                           19              100.1%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    8,012               41.6%
    >$15,000-$20,000                             1,882                9.8%
    >$20,000-$25,000                             1,659                8.6%
    >$25,000-$30,000                             1,635                8.5%
    >$30,000-$35,000                             1,235                6.4%
    >$35,000-$40,000                             1,038                5.4%
    >$40,000                                     3,778               19.6%
    Median income                              $19,161   19,239 households
    Statewide median income                    $23,577           1,207,235
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         0          0%          0%          0%
    Towns                           17       23.5%       76.5%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,367,314,00  41,392,000,0          3.3%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.23:  Potential
       Service Areas - South Carolina

       (See figure in printed
       edition.)

                                  Table IV.23

                     Potential Rate Impacts and Demographic
                              Data -South Carolina

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              8               30.8%
    >0-0.5                                          18               69.2%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           26                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  134,906               27.5%
    >$15,000-$20,000                            48,670                9.9%
    >$20,000-$25,000                            45,648                9.3%
    >$25,000-$30,000                            43,252                8.8%
    >$30,000-$35,000                            41,486                8.4%
    >$35,000-$40,000                            35,209                7.2%
    >$40,000                                   142,343               29.0%
    Median income                              $26,739  491,514 households
    Statewide median income                    $26,256           1,258,783
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        14          0%        7.1%       92.9%
    Towns                           23       73.9%       26.1%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    632,749,000  65,074,000,0          1.0%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.24:  Potential
       Service Areas - South Dakota

       (See figure in printed
       edition.)

                                  Table IV.24

                     Potential Rate Impacts and Demographic
                               Data -South Dakota

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           3                8.1%
    >0.5-1.0                                         2                5.4%
    >1.0-1.5                                        10               27.0%
    >1.5-2.0                                        12               32.4%
    >2.0                                            10               27.0%
    ======================================================================
    Total                                           37               99.9%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   38,768               33.6%
    >$15,000-$20,000                            14,172               12.3%
    >$20,000-$25,000                            12,651               11.0%
    >$25,000-$30,000                            10,586                9.2%
    >$30,000-$35,000                             9,495                8.2%
    >$35,000-$40,000                             6,947                6.0%
    >$40,000                                    22,631               19.6%
    Median income                              $21,678  115,250 households
    Statewide median income                    $22,503  260,059 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        29        3.5%       65.5%       31.0%
    Towns                           32       21.9%       78.1%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,726,801,00  7,414,000,00         23.3%
                                             0             0
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.25:  Potential
       Service Areas - Texas

       (See figure in printed
       edition.)

                                  Table IV.25

                     Potential Rate Impacts and Demographic
                                  Data -Texas

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              1               14.3%
    >0-0.5                                           2               28.6%
    >0.5-1.0                                         3               42.9%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         1               14.3%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            7              101.0%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   49,140               46.2%
    >$15,000-$20,000                            11,494               10.8%
    >$20,000-$25,000                             9,796                9.2%
    >$25,000-$30,000                             7,189                6.8%
    >$30,000-$35,000                             6,595                6.2%
    >$35,000-$40,000                             4,825                4.5%
    >$40,000                                    17,344               16.3%
    Median income                              $16,598  106,383 households
    Statewide median income                    $27,016           6,079,341
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        17       11.8%       23.5%       64.7%
    Towns                            5         60%         40%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,435,629,00  263,279,000,          0.6%
                                             0           000
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.26:  Potential
       Service Areas - Utah

       (See figure in printed
       edition.)

                                  Table IV.26

                     Potential Rate Impacts and Demographic
                                   Data -Utah

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                          13               32.5%
    >0.5-1.0                                         5               12.5%
    >1.0-1.5                                         9               22.5%
    >1.5-2.0                                         1                2.5%
    >2.0                                            12                 30%
    Total                                           40                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                   19,182               26.9%
    >$15,000-$20,000                             8,238               11.5%
    >$20,000-$25,000                             7,815               10.9%
    >$25,000-$30,000                             7,027                9.8%
    >$30,000-$35,000                             6,793                9.5%
    >$35,000-$40,000                             5,270                7.4%
    >$40,000                                    17,118               24.0%
    Median income                              $25,312   71,443 households
    Statewide median income                    $29,470  537,196 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        12          0%       33.3%       66.7%
    Towns                           40       47.5%       52.5%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                   1,567,177,00  18,460,000,0          8.5%
                                             0            00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.27:  Potential
       Service Areas - Virginia

       (See figure in printed
       edition.)

                                  Table IV.27

                     Potential Rate Impacts and Demographic
                                 Data -Virginia

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                             12               52.2%
    >0-0.5                                          11               47.8%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                           23                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                  165,313               15.9%
    >$15,000-$20,000                            67,824                6.5%
    >$20,000-$25,000                            72,452                7.0%
    >$25,000-$30,000                            73,548                7.1%
    >$30,000-$35,000                            75,054                7.2%
    >$35,000-$40,000                            70,738                6.8%
    >$40,000                                   513,395               49.4%
    Median income                              $39,552           1,038,324
                                                                households
    Statewide median income                    $33,328           2,294,722
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                        63        4.8%       68.3%       27.0%
    Towns                           14       78.6%       14.3%        7.2%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    209,466,000  85,162,000,0          0.3%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.28:  Potential
       Service Areas - Wisconsin

       (See figure in printed
       edition.)

                                  Table IV.28

                     Potential Rate Impacts and Demographic
                                Data -Wisconsin

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           1                100%
    >0.5-1.0                                         0                  0%
    >1.0-1.5                                         0                  0%
    >1.5-2.0                                         0                  0%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            1                100%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                      n/a                 n/a
    >$15,000-$20,000                               n/a                 n/a
    >$20,000-$25,000                               n/a                 n/a
    >$25,000-$30,000                               n/a                 n/a
    >$30,000-$35,000                               n/a                 n/a
    >$35,000-$40,000                               n/a                 n/a
    >$40,000                                       n/a                 n/a
    Median income                                  n/a                 n/a
    Statewide median income                    $29,442           1,824,252
                                                                households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                       n/a         n/a         n/a         n/a
    Towns                          n/a         n/a         n/a         n/a
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                      2,411,000  57,967,000,0            0%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

       Figure IV.29:  Potential
       Service Areas - Wyoming

       (See figure in printed
       edition.)

                                  Table IV.29

                     Potential Rate Impacts and Demographic
                                 Data -Wyoming

      Estimated rate changes to preference customers if market rates are
                                   charged
    ----------------------------------------------------------------------
                                             Number of          Percent of
                                            preference          preference
    Cents per kWh                            customers           customers
    ------------------------------  ------------------  ------------------
    <=0                                              0                  0%
    >0-0.5                                           3               42.9%
    >0.5-1.0                                         1               14.3%
    >1.0-1.5                                         1               14.3%
    >1.5-2.0                                         2               28.6%
    >2.0                                             0                  0%
    ======================================================================
    Total                                            7              100.1%
    ----------------------------------------------------------------------
    Incomes of households in preference customers' reported service areas
    ----------------------------------------------------------------------
                                             Number of          Percent of
    Household income                        households          households
    ------------------------------  ------------------  ------------------
    <=$15,000                                    7,297               20.3%
    >$15,000-$20,000                             2,708                7.6%
    >$20,000-$25,000                             3,076                8.6%
    >$25,000-$30,000                             2,922                8.1%
    >$30,000-$35,000                             3,175                8.9%
    >$35,000-$40,000                             2,779                7.6%
    >$40,000                                    13,920               38.8%
    Median income                              $32,809   35,877 households
    Statewide median income                    $27,096  169,309 households
    ----------------------------------------------------------------------
     Urban/rural classification of preference customers' reported service
                                    areas
    ----------------------------------------------------------------------
                                           Percent     Percent     Percent
                                 Total       urban       rural       mixed
    ----------------------  ----------  ----------  ----------  ----------
    Counties                         4       25.0%          0%       75.0%
    Towns                            2        100%          0%          0%
    ----------------------------------------------------------------------
                        State electricity consumption
    ----------------------------------------------------------------------
                                                                Percent of
                                          PMA-                       state
                                      provided   State total    total from
                                      (in kWh)      (in kWh)           PMA
    ----------------------------  ------------  ------------  ------------
    Consumption                    169,990,000  11,199,000,0          1.5%
                                                          00
    ----------------------------------------------------------------------
    Note:  The areas the preference customers actually served may be
    smaller than the areas they reported serving.  This may be
    particularly true for counties.  Consequently, preference customers
    actually may have served fewer households than we calculate.

    Sources:  Developed by GAO from data provided by the PMAs, Electrical
    World, and the Census Bureau.

    (See figure in printed edition.)Appendix V
    COMMENTS OF THE DEPARTMENT OF
    ENERGY'S POWER MARKETING LIAISON
    OFFICE
    ========================================================== Appendix IV

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are GAO's comments on the Power Marketing Liaison
    Office's letter dated October 30, 1998.

       GAO'S COMMENTS
    -------------------------------------------------------- Appendix IV:1

    1.  DOE comments that our data sources are flawed because we relied
    on incomplete and/or inaccurate data and that it is impossible to
    have confidence in conclusions drawn from the data's analysis.  To
    address each of our objectives, our analyses used data reported by
    the PMAs and their preference customers--data that we believe to be
    the best available.  DOE recognizes that obtaining complete data on
    the electric utility industry is not easy.  We believe that we used
    the data appropriately to satisfy the objectives of our review and
    that our methodology is sound.  However, we agree the data we used
    have some limitations and we have noted the limitations in our
    report.  Many of the concerns that DOE expresses do not deal with the
    data we used but with the definition of a preference customer of a
    PMA.  For our analysis, we included only the preference customers who
    purchased power directly from the PMAs--as listed in the PMAs' 1995
    annual reports.  We did not include utilities that indirectly
    purchase PMA power because the 1995 annual reports of two of the
    three PMAs do not include them in their customer lists.
    Southwestern's 1995 annual report states that two of its customers
    also serve a number of municipal utilities and includes these
    municipal utilities in the total number of customers.  The annual
    reports of Southeastern and Western, however, list only the customers
    that buy power directly from those PMAs and do not include the
    municipal utilities that purchase power from generation and
    transmission cooperatives or municipal joint action agencies.
    Because Southeastern and Western together represent over 90 percent
    of the total preference customers of the three PMAs included in our
    analysis, we used their approach.  However, to address DOE's
    concerns, we added statements to the report in several places
    explaining that our analysis did not include utilities that
    indirectly purchase PMA power.

    For our analysis of urban/rural populations, we used the counties and
    towns that the preference customers included in our rate analysis
    reported to Electrical World:  Directory of Electric Power Producers.
    In connection with identifying the areas that preference customers
    report serving, we acknowledge that the data in Electrical World may
    not match the actual service territories because utilities report to
    Electrical World the counties and/or towns they serve without
    specifying the exact service boundaries within these counties and
    towns.  However, we used these data because they (1) were reported by
    the preference customers and (2) were the best available.  We believe
    this approach adequately addresses our objective of identifying the
    areas that the three PMAs' preference customers report serving and
    does not affect our primary objective, to estimate potential rate
    impacts by state.

    2.  DOE states that we omitted from our analysis generation and
    transmission cooperatives and municipal joint action agencies that
    purchase power from the PMAs.  We did not exclude them.  We estimated
    a potential rate change for every generation and transmission
    cooperative and municipal joint action agency that purchased
    wholesale power from Southeastern, Southwestern, and Western in 1995.
    We also attempted to include them in our maps and urban/rural
    analysis.  However, in many cases, the generation and transmission
    cooperatives and municipal joint action agencies sell only wholesale
    power to other utilities and do not provide retail service and, thus,
    do not report serving any counties or towns.  As a result, we were
    unable to reflect such service territories on our maps.  Similarly,
    since our urban/rural analysis relied on the Census Bureau's data of
    populations in the counties and towns that the preference customers
    report serving, we did not include in our analysis the service
    territories of the utilities that purchase power from the generation
    and transmission cooperatives and municipal joint action agencies.

    As we noted in comment 1, we did not include the generation and
    transmission cooperatives or municipal joint action agencies in our
    analysis because the PMAs' annual reports, with very few exceptions,
    do not include them either.\13 However, it is important to note that
    if our rate analysis had included the municipal utilities that buy
    from preference customer generation and transmission cooperatives and
    municipal joint action agencies, we believe that the rate increases
    for many of these utilities would have been very small:  If a
    municipal utility purchased all its power from a direct preference
    customer of the PMA, the municipal utility's rate increase would
    equal the increase we estimated for the direct preference customer.
    If the utility purchased a portion of its power from sources other
    than the preference customer, its rate increase would be lower.  For
    example, according to Southwestern's fiscal year 1995 annual report,
    Kansas Municipal Energy Agency (Kansas MEA) purchased power from
    Southwestern and transmitted it to 24 municipal utilities.  We
    estimate that if the Kansas MEA paid market rates for the power it
    purchased from the PMA, its average rate would rise by 0.22 cent per
    kWh, a relatively small increase.  If a municipal utility purchased
    all its power from the Kansas MEA, its rate would also rise by 0.22
    cents per kWh.  If a municipal utility purchased half of its power
    from the Kansas MEA, its rate increase would be 0.11 cents per kWh.
    Municipal utilities' increases would often be small because the
    direct preference customers who sell them power often purchase a
    small percentage of their total power from the PMA.

    3.  DOE states that our maps do not show the service areas of the
    customers of the generation and transmission cooperatives and
    municipal joint action agencies.  We agree.  However, to be
    consistent with our rate analysis, we included only the counties and
    towns that the preference customers (those that purchase power
    directly from the PMAs) report.  If we had included the service
    territories of the utilities that purchase power from preference
    customers as DOE suggests, our state maps would have had more
    shadings for counties and/or dots for towns.  However, it is
    important to note that, in many cases, the additional counties and
    towns in our maps would receive relatively small portions of their
    power from the PMA.  For example, Southwestern's 1995 annual report
    states that the PMA sells power to the Louisiana Energy and Power
    Authority, which, in turn, serves nine municipal utilities.  We
    estimate that Louisiana Electric and Power, purchased 8.15 percent of
    its power from the PMA in 1995.  This means that the nine municipal
    utilities received, at most, 8.15 percent of their power from
    Southwestern.  If the municipal utilities purchased portions of their
    power from other sources, the counties and towns they serve would
    consume a smaller portion of PMA power.  Our analysis shows that many
    of the preference customers that sell power to other utilities
    purchase less than 10 percent of their power from the PMA.  Moreover,
    regardless of how many utilities buy PMA power indirectly through
    preference customers, the portion of a state's electricity
    consumption that comes from the PMA remains the same--for example,
    0.7 percent in Louisiana.

    4.  In its comments, DOE states that our analysis shows that
    Southwestern is serving 14 towns and one county in the State of
    Missouri, with 93 percent of PMA power going to urban areas of the
    state.  We believe that DOE misinterpreted our analysis.  Our
    analysis does not show that 93 percent of Southwestern's power in
    Missouri goes to urban areas.  Our analysis does show that of the 14
    towns that preference customers who buy directly from the PMA report
    serving, 13, or 93 percent, have populations that are at least 80
    percent urban, as defined by the Census Bureau.  DOE states that
    Associated Electric Cooperative has a "PMA power allocation [that]
    serves rural areas throughout the State of Missouri." However, this
    power is distributed to these areas by the utilities that purchase
    power from Associated Electric, not Associated Electric itself.
    Associated Electric did not report serving any counties or towns to
    Electrical World, the source of our data.  Moreover, Southwestern, in
    its 1995 annual report, does not include the utilities that purchase
    power from the Associated Electric Cooperative in its total count of
    customers.  Therefore, neither did we.

    5.  DOE states that using 1995 data compromises our rate analysis
    because (1) PMAs' rates have recently declined and (2) prices for
    power purchased during periods of peak use have recently increased.
    These two factors would increase potential rate increases, but only
    if market rates remain the same.  However, according to officials of
    the Edison Electric Institute, market rates for wholesale power have
    also declined since 1995.  As the market continues to evolve, many
    industry experts believe these rates will fall farther.  If market
    rates fall more than the PMAs' rates, our estimates of rate increases
    will prove to be overstated.  We have seen no evidence that the PMAs'
    rates have fallen more than rates in the wholesale market.

    6.  DOE maintains that power from the Pick-Sloan project will be
    reallocated to 25 Native American tribes and 11 other new customers
    in the Upper Midwest in 2001 and that, as a result, our analysis will
    be "even further outdated." However, we were asked to examine the
    three PMAs' sales, based on the most recent data--1995, not their
    sales in the future.  In addition, although Western may be
    reallocating its power, this does not necessarily mean that the new
    allocation would appreciably change the profile of the service areas
    (in terms of the extent to which they are urban or rural and in terms
    of their household income).  This profile would change only if the
    areas losing Western's power are more urban or rural or different in
    income than the areas that would gain access to Western's power.
    Moreover, although Pick-Sloan sold more power than other of Western's
    projects, it nonetheless represented about only about one-third of
    Western's total sales in 1995.  Consequently, the reallocation would
    have to be very large to significantly change the overall profile of
    Western's preference customers' service territories.

    7.  DOE states that average rates are not a good proxy for specific
    power services from PMAs.  We acknowledge that average revenue per
    kWh (total revenues/total electricity sales) is an imperfect
    indicator of electricity rates because it combines the costs of
    several types of services, such as capacity, peak service, and
    off-peak service.  However, as we have stated in several past
    reports, we believe it is a strong, broad indicator of the relative
    power production costs of the PMAs compared to those of
    investor-owned utilities and publicly owned generators.  We agree
    that preference customers would likely pay higher than the average
    rate per kWh in replacing the portion of PMA power that is used
    during periods of peak demand.

    8.  DOE states that in many parts of the Upper Midwest and Southeast,
    it is typical for towns in a county to be served by an investor-owned
    utility while the remaining parts of the county are served by a rural
    electric cooperative.  Thus, DOE believes that our analysis is flawed
    if the data do not account for this difference.  We agree this may be
    an issue.  However, as stated previously, we relied on the set of
    counties and towns that the preference customers reported serving to
    Electrical World.  The preference customers did not specify which
    portions of a county they served when they reported serving a county.
    Also, in Midwestern states, such as Iowa, Missouri, and Nebraska,
    preference customers primarily reported their service areas as towns
    rather than counties.  Thus, the problem concerning counties that DOE
    identified would not arise there.  In addition, even if, within a
    particular county, an investor-owned utility serves a town, it may
    not follow that the area outside the town has lower household
    incomes.

    9.  DOE states that we omitted state/federal agencies.  We excluded
    state and federal agencies because, with a few exceptions, they are
    not utilities and thus are not in EIA's Form 861 or "sales for
    resale" databases.  As a result, we could not perform calculations on
    potential rate impacts with the approach we used for preference
    customers who are utilities.  We excluded state and federal agencies
    from other analyses because (1) they do not provide retail service to
    residential end-users and (2) we wanted to keep the group of
    customers consistent across the analyses.  In addition, DOE provides
    no economic analysis that the PMAs' sales to these agencies provide a
    "large benefit to the state they are located in." In most cases, even
    if the sales to these agencies were included in the analysis, the
    PMAs' portion of a state's total electricity consumption would be
    relatively small.  We agree that some indirect economic impact may be
    attributable to the lower price of the power--relative to other
    retail prices--consumed by the preference customers not included in
    our analysis, but its measurement is uncertain.

    10.  DOE states that TVA is omitted.  We agree that if we had been
    able to include the 160 distributors that received TVA power in 1995
    in our analysis, the percentages of PMA power provided to the seven
    states served by TVA would have increased.  However, because of data
    limitations, such as EIA's designating TVA as an Alabama utility in
    its Form 861 database and TVA's not reporting a service territory in
    Electrical World, we could not apply the methodology used in our
    analysis and were unable to develop and implement a methodology to
    appropriately incorporate TVA.  However, our draft explained that
    Southeastern sells power to TVA, provided information on the amount
    of power that Southeastern sold to TVA in 1995 and 1996, and provided
    a map of TVA's service territory.  In addition, we have added a more
    detailed explanation of our methodology concerning TVA in appendix
    III.

    11.  DOE believes that Wisconsin should not be included in our
    analysis because Wisconsin Public Power received only "nonfirm"
    (interruptible during peak periods) power from Western.  However,
    Western listed Wisconsin Public Power as one of its customers for
    1995, and we believe that it was appropriate to include this customer
    in our rate analysis because we did not differentiate between firm
    (always available) and nonfirm power sales.  Also, because Wisconsin
    Public Power sells only wholesale power and did not report serving
    any counties or towns in Electrical World, we could not include it in
    our other analyses.

    12.  DOE states that our report does not maintain a neutral
    description of the findings because the report goes beyond data
    reporting and does not present all opposing points of view.  It cites
    as an example our observation that in cases where potential rate
    increase may be relatively large, PMAs currently sell power at
    relatively low rates and rate caps could be used to mitigate these
    increases.  We believe that our report is balanced and that,
    throughout our report, we present a neutral description of our
    objectives and findings.  We mention that PMAs' rates are relatively
    low to provide context for the relatively large rate increases.  It
    is easier to understand the significance of a rate increase that
    exceeds 1.5 cents per kWh if the reader understands the base rate
    upon which the increase is calculated.  On the issue of rate caps, we
    did not intend for our discussion to be a recommendation.  We
    included it because, as in previous reports, this issue has been an
    important consideration in other deregulatory initiatives.

    13.  DOE states that our classifications of rates are subjective.  We
    agree.  However, we devised the parameters of these classifications
    on the basis of our examination of all the rate changes in our
    analysis.  Moreover, we explicitly describe the values attached to
    each of these classifications in our report.  We used these
    categories to simplify the discussion, not as a definitive statement.

    14.  With regard to selling power to high-income areas, DOE
    misinterprets our analysis.  In the examples cited, we refer to the
    percentage of households with higher incomes, not the median income.
    More generally, a county may have a median that is relatively close
    to the statewide median, yet still have a large portion of households
    with higher incomes.  We agree with DOE's comment regarding Native
    Americans' receiving PMA power and have added an example for balance.

    15.  With regard to our not reporting rate increases as percentages,
    we made a subjective judgment not to do so.  As we stated in appendix
    III, we believe that reporting rate changes in cents per kWh more
    accurately portrays the true value of the changes.  In addition, the
    base rates preference customers paid in 1995 differ greatly from
    customer to customer.  As a result, if we expressed the rate changes
    as percentages, the same increase measured in cents per kWh would be
    reported as different increases for two customers with different base
    rates.

    16.  In response to DOE's assertion that our methodology is not
    conservative, we disagree.  We believe our methodology is
    conservative because we assume no changes in wholesale market prices.
    If wholesale prices decline in the future, as many industry experts
    predict, our estimates of rate increases will prove to be overstated.
    Because we could not incorporate forecasts of wholesale prices, we
    believe our approach is conservative.

    17.  DOE states that our urban/rural terminology may be misleading.
    As suggested, we have included the Census Bureau's definition of
    urban in the body of our report and appendix III.

    --------------------
    \13 Southwestern's 1995 annual report includes 2 (of more than 60
    customers reported), and Southeastern's and Western's, none.

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================== Appendix VI

    RESOURCES, COMMUNITY, AND ECONOMIC
    DEVELOPMENT DIVISION

    Steve Brown
    Lynne Goldfarb
    Charles Hessler
    Mitchell Karpman
    Peg Reese
    John Skeen
    Daren Sweeney

    OFFICE OF THE GENERAL COUNSEL

    Doreen Feldman

    RELATED GAO PRODUCTS
    ============================================================ Chapter 0

    Federal Power:  Options for Selected Power Marketing Administrations'
    Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar.  6,
    1998).

    Federal Electricity Activities:  The Federal Government's Net Cost
    and Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept.  19,
    1997).

    Federal Power:  Issues Related to the Divestiture of Federal
    Hydropower Resources (GAO/RCED-97-48, Mar.  31, 1997).

    Power Marketing Administrations:  Cost Recovery, Financing, and
    Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept.  19,
    1996).

    Federal Electric Power:  Operating and Financial Status of DOE's
    Power Marketing Administrations (GAO/RCED/AIMD-96-9FS, Oct.  13,
    1995).

    *** End of document. ***