Federal Electricity:

Retail Competition Could Create Savings for the Department of Defense

RCED-98-73R: Published: Feb 25, 1998. Publicly Released: Mar 25, 1998.

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Pursuant to a congressional request, GAO evaluated whether the Department of Defense (DOD) could realize savings if, as expected, lower prices resulted from retail competition in the electricity market.

GAO noted that: (1) DOD could cumulatively save from about $190 million to $3.60 billion during the 23-year period from fiscal years 1998 through 2020 if it purchased the baseline quantities of electricity--that is, the same quantities of electricity it would have purchased without retail competition; (2) while retail competition in the electricity industry would create savings for DOD, the actual amount of the savings is highly uncertain, as can be seen from GAO's wide range of estimates; (3) this uncertainty occurs primarily because projections for electricity prices varied widely; (4) GAO notes that over time lower electricity prices would likely encourage DOD to switch from using more expensive sources of energy--from fuel oil for heating to electricity for heat pumps; (5) over time, such switching could lead to greater savings for DOD than GAO estimates but to a smaller decrease in spending on electricity; and (6) to take into account the increase in purchases of electricity because of lower prices from retail competition, GAO estimates that DOD's spending on electricity could cumulatively decrease by about $130 million to $2.59 billion during this same period.

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