Sunday, May 19, 2013

To Sell or Not to Sell – That is the TVA Question (again)


Welcome back.  Time for a new deal in that game that has been around since the New Deal: Why Don’t We Sell-off the Country’s Largest Publicly-owned Utility?

As you will recall, at least once every few years we come back to this table, whenever another dealer is ready to play with the TVA cards again, in hopes of making bank for the federal government.  Or kill creeping socialism.  It all depends on whether the cards are dealt from the left or the right.  

Ever since Dwight Eisenhower first coined the “creeping socialism” phrase to characterize the Tennessee Valley Authority, the dealers have mostly come from the right.  But the left was dealing the last time this game made headlines, and now the Barack Obama budget proposes a hard look at "reducing or eliminating the federal government's role in programs such as TVA” in order to “help put the nation on a sustainable fiscal path."

While TVA’s 9–person Board of Directors is federally appointed, the utility receives no direct federal money.  All of its coal plants, nuclear reactors, and hydroelectric facilities are maintained through the sale of electricity, and borrowing through special bonds with attractive repayment rates.  With TVA’s $23B in outstanding bonds (mostly incurred from its nuclear program) counted as federal debt, and thereby implicitly backed by the government, this “company” is in “too big to fail” territory.

But perhaps not too big for taxpayers to unload – at least in parts.

In a recent interview with Reuters, TVA Chief Financial Officer John Thomas said there were two main stakeholders concerned with TVA’s future: the 155 utilities and cooperatives who buy power from TVA, and the people who own the company, i.e. US taxpayers.  That was a telling comment in terms of ignoring two other categories of stakeholders with at least as much riding on TVA’s future:  the end users of the power TVA produces -- who also live with the environmental byproducts of producing that power, and the people working in the region’s economy -- particularly the burgeoning clean energy economy, from attic insulation installers to solar panel salespersons to corporate sustainability officers.  

So now the deck has been cut and the cards shuffled yet again.  From the standpoint of an inclusive set of the main stakeholders, the deal comes down to a basic question:  Should the federal government sell publicly-owned TVA to a private, investor-owned company or companies?

As we look over the shoulders of the main players (taxpayers, distributors, end users, businesses, environmentalists), their hands are not always so straightforward to play.  Below is an attempted list of reasons to sell, or not, taking the interests of the main stakeholders into account.  The list is admittedly short and drafty.  As such, no claims of completeness or even accuracy are yet made. That will require further input from the stakeholders mentioned above (which happens to be just about everyone who reads this).

                                    SELL                                                     DON’T SELL

- Would move from internal regulation to some external oversight/accountability by a utilities/public service commission.
- Selling a non-profit utility to a for-profit company is likely to raise rates
- Financing moves from primarily bond debt to investor equity (stock).
- Bond financing becomes more expensive when special Federal bond rate is lost.
 - Avoid taxpayer liability for looming cleanup and equipment replacement for old coal plants.
- Management of flood control, navigation and recreation on waterways likely reverts to a federal government expense it does not currently incur.
- For all of its clean air advantages, the nuclear program is a massive environmental (nuke waste), safety, and financial liability.
- A non-profit utility can do economic development in a much bigger way when it is not required to make as much money as possible from selling electricity.

What do you think?  Ante up in the comments!


  1. Great post.

    The only things I'd add are reason to sell: competition will allow for distributors to buy electricity from multiple sources, or own their own electric generation.

    Reason not to sell: In order for a private company to support green energy, an RPS or similar legislation would need to be passed; an unlikely scenario with TN's current legislative body.

  2. If TVA was sold, the liability of disaster or debt may not be on the back on taxpayers, but it will still be carried down to ratepayers. And, as you mentioned, there are the parks and waterways which TVA maintains. Since we already paid for them, it will cost taxpayers double to move those facilities to new hands. I think selling will ultimately be a bad deal for people in the Valley. - Katie