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May 20, 2013
Should the fed divest the TVA?

The Energy Information Administration (EIA) has called attention to a “strategic review of options for addressing [the Tennessee Valley Authority’s] financial situation” noted in President Obama’s FY 2014 budget proposal.  Specifically, the president is considering the possibility of partial or complete divestiture of the TVA to “help put the Nation on a sustainable fiscal path.”  The idea has not gone over well with Republican lawmakers in TVA’s service region.

No government funding

The TVA is a federally owned corporation that was established in 1933 to address flood control, power supply, and the economic challenges of the Great Depression.  The Authority now owns and operates 56 power plants that service more than 9 million people covering 80,000 square miles in Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Tennessee.  The largest plants are the 3.3 GW Browns Ferry nuclear plant in Alabama, the 2.5 GW Cumberland coal plant in Tennessee, the 2.3 GW natural gas and coal Johnsonville plant in Tennessee, the 2.3 GW Sequoyah nuclear plant in Tennessee, and the 2.2 GW Paradise coal plant in Kentucky.

The TVA supports itself through operating revenue from electricity sales ($11.7 billion in 2011).  While the TVA receives no public tax dollars, the government’s ownership of the TVA has created an advantageous position for customers.  Even though the federal government does not explicitly guarantee TVA’s debt, the perception among lenders is that the federal government would not allow the company to fail.  One result is that the TVA is able to obtain loans with generous interest rates, a savings it passes on it ratepayers.

$30 billion debt cap

But the 2014 budget proposal notes that TVA’s current capital investment plan includes more than $25 billion in expenditures over the next 10 years.  A great deal of this expense involves pollution control upgrades on coal-fired generation, which comprises 41.7 percent of TVA’s total capacity.  This $25 billion is only $5 billion under the Authority’s $30 billion statutory cap on indebtedness, and the administration believes the cap will be “quickly exceeded.”

“Given TVA’s debt constraints and the effect on the federal deficit of its increasing capital expenditures, the budget proposal explained that reducing or eliminating the federal government’s role in programs such as TVA could improve the country’s fiscal conditions,” notes the EIA.

‘Bad idea’

Such an action would likely result in increased rates for TVA’s customers.  This has led to Republican lawmakers in TVA states opposing the divestiture even though it would appear to represent a move toward smaller government, which the GOP tends to favor.

“There is no assurance that selling TVA to a profit-making entity would reduce electric bills in the TN valley–which should be the overriding objectiveand it could lead to higher electricity rates,” commented Senator Lamar Alexander when the budget proposal was released.  “This is one more bad idea in a budget full of bad ideas,” said Alexander.

Click here for EIA’s comments on reforming the TVA.