Several multipurpose projects on the Colorado River system include power plants which generate electricity distributed throughout the West. The power is marketed by the Western Area Power Administration (Western) of the U.S. Department of Energy and is sold to "preference" customers - public entities such as municipalities or rural electric cooperatives. These hydro plants have a total generating capacity of 4,177,766 kilowatts (kW), and in 1996 produced 12,197,000,000 kilowatt hours (kWh) of energy. Revenues from power sales were $176,985,000 for 1996.

The costs of these projects are divided into reimbursable costs to be repaid to the federal government and nonreimbursable costs. Reimbursable costs are those associated with power and water uses. The power users, irrigators, and municipal and industrial water users are repaying those costs. The nonreimbursable costs are those associated with recreation, flood control, and environmental mitigation and enhancement, and are an obligation of the federal government.

Power users are not subsidized by the federal government. Power is sold at rates which generate revenues sufficient to: recover 100 percent of the federal investment in power facilities plus interest; pay 100 percent of the annual operation and maintenance of power facilities; pay interest on the federal investment; plus repay the federal investment in irrigation facilities "beyond the ability" of irrigators to repay - more than 95 percent at this point.

For example, in return for a $974 million investment in the Upper Basin's Colorado River Storage Project (CRSP) power features, the federal government will receive more than $5 billion in power revenues. This 500 percent return on investment paid by CRSP power users is much higher than the return on investment paid by the customers of any investor-owned utility.

In the Lower Basin, projects on the mainstem of the Colorado - Hoover, Davis and Parker - were built under Congressional acts other than CRSP. Typical of lower basin power activity, 50-year contracts for Hoover Dam power expired in 1987; about 65 percent of the power had been going to six California utilities which had underwritten the project's construction. Arizona and Nevada state power agencies had been splitting equally the remaining 35 percent of Hoover's power output. In the early 1930s, each of the latter two states had had the option to take one-third of the dam's power, but had not been able to afford to do so. As contract renewals were considered, more than 1,300 megawatts of electricity were at stake. With the rewriting of the contracts, the Hoover power plant was enlarged and a long dispute over the allocation of the dam's power supply was resolved: California's share was reduced from 65 to 45 percent, the 20 percent difference going equally to Arizona and Nevada, and eight Southern California cities which had not received a portion of California's share during the first 50 years, were included for a share of the upgraded increased generation capacity.

Public power is not "sold too cheaply". Federal power marketed to public bodies is a yardstick for competition in the power industry. In general, utilities blend many power sources (e.g., hydro, coal-fired) to meet customers' total power demands. The true comparison is the blended rate utilities charge customers. Most public power users are paying rates comparable to those charged by investor-owned utilities. For example, CRSP customer Plains Electric in New Mexico charges 5.7 cents/kWh, while investor-owned Public Service Company of New Mexico charges 6.0 cents/kWh.

Increasingly, power operations are being restricted for environmental and recreational purposes. For example, the CRSP Glen Canyon Dam's eight-unit power plant can generate 1,288,000 kW, but flow restrictions have reduced generation by 25 percent to 30 percent. While producing less electricity, Western's revenues must remain adequate to meet reimbursability requirements. Consequently, CRSP customers receive less power for the same amount of money.

Because of these impacts, other sources of power production are being studied, such as coal- and gas-fired plants and combustion turbines. Unlike existing hydroelectric projects, some sources will emit air pollutants and cost significantly more.

Conservation is emphasized by public bodies purchasing federal power. Their extensive demand and supply side conservation programs and research on renewable energy have existed since before 1980. Since 1980, Western has had a program requiring documentation of customer areas' conservation projects, and the Bureau of Reclamation alternative power source studies include conservation through demand side management.