Reform—and the possible partial or total sale—of Tennessee Valley Authority (TVA), the federally owned and operated but self-financed 80-year-old corporation, as proposed by the White House in its fiscal year 2014 budget, was reportedly unexpected and has been criticized by varied entities.
The TVA was established on May 18, 1933, as a critical aspect of President Roosevelt’s New Deal during the Great Depression, to produce low-cost rural electricity and manage natural resources for a large portion of the southeastern U.S. The 12,762-employee public corporation today serves nine million people as the nation’s largest public power provider, generating $11.2 billion in sales revenue with a generating fleet of more than 33.8 GW, and pays more than $579 million in tax equivalent payments.
But under the chapter entitled "Creating a 21st Century Government ", the proposed 2014 budget says that the public corporation’s anticipated capital needs—including those to fulfill environmental obligations and to modernize its aging generation system—could likely "quickly exceed" the agency’s $30 billion statutory cap on indebtedness. Selling the agency, meanwhile, could reduce the federal deficit by as much as $25 billion, it proposed.
"Reducing or eliminating the Federal Government’s role in programs such as TVA, which have achieved their original objectives and no longer require Federal participation, can help put the Nation on a sustainable fiscal path," the budget proposes. "Given TVA’s debt constraints and the impact to the Federal deficit of its increasing capital expenditures, the Administration intends to undertake a strategic review of options for addressing TVA’s financial situation, including the possible divestiture of TVA, in part or as a whole."
The TVA last week indicated the proposal was a surprise, pointing to "unexpected language" about the administration’s intention to conduct a strategic review. TVA President and CEO Bill Johnson said in a statement that the entity would work with the Office of Management and Budget to provide information it requests, but said its employees would "stay focused on doing their jobs."
Even though the TVA is owned by the federal government, it does not receive taxpayer dollars, and its debt is not taxpayer funded, said John Thomas, the TVA’s chief financial officer. “TVA is the lowest cost business model and the best value for the region. We remain financially healthy,” he said.
Sen. Lamar Alexander (R-Tenn.) last week called the potential sale of the TVA a "bad" idea. "There is today no federal taxpayer subsidy for TVA, period. There is by law no federal taxpayer liability for TVA debt. And after deducting its debt, selling TVA would probably cost taxpayers money.” TVA management had told the lawmaker that it prefers a flexible debt cap, but assured him that it would "live within the current debt limit if necessary," he said.
The possible divestiture of TVA was also opposed by environmental groups. The sale of the TVA would not lead to taxpayer savings nor significant budget reductions, argued Southern Alliance for Clean Energy (SACE) Executive Director Stephen A. Smith. Since TVA stopped receiving federal appropriations for “non-power functions” in 1998, TVA ratepayers have borne the costs of what is arguably federal responsibility for dam safety, flood control, river navigation and public land management, he said.
"The sale of TVA would shift those burdens back to the federal taxpayer to the tune of tens of millions of dollars each year. In addition, it is unclear that the sale of TVA’s assets would bring significant additional revenues to the federal coffers once its debt and ‘debt-like obligations’ are repaid," he said.
Smith also said that the sale of TVA could raise several ethical issues. "First, most of the land owned by TVA was consolidated by eminent domain from private citizens to be held and managed for the public good. Secondly, Tennessee Valley citizens, through their power distributors, have paid hundreds of millions of dollars in rates over the years and should have some equity share in the power assets that TVA currently owns."
While there is "room for improvement" in how TVA is run and managed, there would be "significant ‘devils in the details’ considerations by trying to radically change the ownership and oversight of the Tennessee Valley assets in this way," he said.
Sources: POWERnews, OMB, TVA, Sen. Lamar Alexander, SACE
—Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)