STATES ARE ENTITLED to take over power companies when, in their judgment, that's necessary to protect the consumer. But they aren't entitled to federal subsidies when they do it. Rep. Dan Rostenkowski, chairman of the Ways and Means Committee, has put a provision in the House's budget reconciliation bill to prohibit the use of tax-exempt bonds to pay for most public takeovers of privately owned electric utilities. That provision is now the center of a fierce quarrel in the reconciliation conference.
Public takeovers are currently under discussion on Long Island, N.Y., in Chicago and in several other cities, generally because of rising power rates. On Long Island the central issue is the Shoreham nuclear reactor, now completed but not yet in operation because of the vehement opposition of the state and local governments. Rep. Thomas J. Downey of New York got Long Island amended out of Mr. Rostenkowski's ban, but that amendment is also open to challenge in the conference.
The advocates of public power and tax-exempt takeovers argue that providing electricity is a traditional municipal function like providing water or trash collection. It's an infringement of states' rights, they object, for Congress to try to limit the tax exemptions for these purposes. The option of public ownership, its defenders emphasize, is an essential weapon for consumers confronted with inept utility management and excessive bills.
Those aren't trivial objections. But they are outweighed by the condition of the federal budget and the urgent need to cut down the volume of federal subsidies -- of which tax exemption for bonds is an important example.
Hostile takeovers of power companies have been rare in the recent past, but that may well change before long. Last year's tax reform cost the utilities several major tax advantages. Electric utilities have generally been paying very modest federal income taxes, but that will now change, and the higher taxes will turn up in higher power rates for the customer. This means new incentives for public ownership, especially if the bonds to finance the takeovers remain tax-free.
If consumers on Long Island, or in Chicago, want to take public ownership of their power companies, that choice ought to be up to them. But they can't reasonably ask federal taxpayers all over the country to help them pay for it.