TVA Privatization: An Idea Whose Time Has Not Come, And Is Not Approaching

For those who are irate about the U.S. government intervening in the energy markets, you’ll have to go back a long time to find when that was not the case.

To illustrate, rewind 80 years:  in the 1930’s, the Administration of Franklin D. Roosevelt looked at the physical and economic backwaters of southern Appalachia and determined that what this part of the country needed to arrive into the 20th Century was the availability of electric power.  With Federal intervention, rivers were dammed, hydro powerplants were installed, and lines were strung.  Voila!  The Tennessee Valley Authority (TVA) was born.

For eight decades, the residents and businesses of this area of the country — not just Tennessee, but large parts of Kentucky and Alabama, and slivers of Virginia, North Carolina, Georgia and Mississippi — have benefited from electricity well before the market would have brought it, and at prices well below what the market would have brought it.

No doubt, it would gall many folks from the area served by TVA — immortalized by the movie “Deliverance” — to realize how much their lives and economic successes owe to the largesse of the Federal government.

As I discovered from reading this article in the Economist, the Federal budget released on April 10 by the Obama Administration mentioned “the possible divestiture of TVA, in part or as a whole.”  Such a privatization is consistent with what I’ve long argued:  that assets in industry segments subject to sufficient competition, such as power generation assets in wholesale power markets, are more properly owned by private parties than by the public sector.

Bluntly, the folks in TVA-land have been getting a huge handout from U.S. taxpayers for decades, with below-market debt financing an enormous infrastructure build-out that would have cost much more with private capital.

I’ve never seen a good reckoning of the aggregate amount of the subsidies that TVA has received since its inception nearly 80 years ago, but it’s certainly in the billions of dollars.  Perhaps even tens of billions of dollars.  According to this 2008 analysis by the Energy Information Administration, the TVA benefited from low-interest capital underwritten by the U.S. government by between $65 and $189 million in 2006 alone.  During periods of high interest rates, such as the late 1970s, the benefit may have been much higher.  (Oh, and by the way, TVA was undertaking a massive nuclear powerplant construction program at that time, so the effect of interest rate subsidies would have been especially pronounced then.)

Is it time for the subsidy to end?  The proceeds from a sale would help address the ever-growing fiscal crisis the U.S. faces, while injecting much-needed competitive discipline to wholesale energy markets in the South.  However, I strongly suspect that the political forces to maintain the status quo will be too strong.

As the Economist noted in their concluding remarks, “elected officials in the TVA area are either frosty or outright hostile to Mr. Obama’s proposal [for privatization].  Most are Republicans, who might be expected to applaud a plan to shrink government.  But power does strange things to politicians.”

Indeed.  In other words, don’t bet on the TVA being privatized anytime soon.  The lack of discernible public debate on this eminently worthy topic should tell you everything you need to know about the likelihood of TVA privatization in the foreseeable future.

Obama State of the Union: Clean Energy: 15; God: 2

Today, reading back through President Obama’s 2010 State of the Union address I went looking for his discussion of energy and cleantech. I counted Energy with 15 mentions, crushing Healthcare at 7, and losing out to Jobs at 26. Of course, God only got 2 mentions in the final line (1 more than George W. Bush’s last state of the union address).

So what exactly did he say?

“To build a future of energy security, we must trust in the creative genius of American researchers and entrepreneurs and empower them to pioneer a new generation of clean energy technology. Our security, our prosperity, and our environment all require reducing our dependence on oil.

Last year, I asked you to pass legislation to reduce oil consumption over the next decade, and you responded. Together we should take the next steps. Let us fund new technologies that can generate coal power while capturing carbon emissions. Let us increase the use of renewable power and emissions-free nuclear power. Let us continue investing in advanced battery technology and renewable fuels to power the cars and trucks of the future. Let us create a new international clean technology fund, which will help developing nations like India and China make a greater use of clean energy sources. And let us complete an international agreement that has the potential to slow, stop, and eventually reverse the growth of greenhouse gases.

This agreement will be effective only if it includes commitments by every major economy and gives none a free ride. The United States is committed to strengthening our energy security and confronting global climate change. And the best way to meet these goals is for America to continue leading the way toward the development of cleaner and more energy efficient technology.”

Oh, wait, that was from George W’s last state of the union address. Hmmmh. Here’s President Obama’s:

“Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. (Applause.) Two hundred thousand work in construction and clean energy;
. . .

Next, we can put Americans to work today building the infrastructure of tomorrow. (Applause.) From the first railroads to the Interstate Highway System, our nation has always been built to compete. There’s no reason Europe or China should have the fastest trains, or the new factories that manufacture clean energy products.
. . .

We should put more Americans to work building clean energy facilities — (applause) — and give rebates to Americans who make their homes more energy-efficient, which supports clean energy jobs.
. . .

You see, Washington has been telling us to wait for decades, even as the problems have grown worse. Meanwhile, China is not waiting to revamp its economy. Germany is not waiting. India is not waiting. These nations — they’re not standing still. These nations aren’t playing for second place. They’re putting more emphasis on math and science. They’re rebuilding their infrastructure. They’re making serious investments in clean energy because they want those jobs. Well, I do not accept second place for the United States of America.
. . .

Next, we need to encourage American innovation. Last year, we made the largest investment in basic research funding in history -– (applause) — an investment that could lead to the world’s cheapest solar cells or treatment that kills cancer cells but leaves healthy ones untouched. And no area is more ripe for such innovation than energy. You can see the results of last year’s investments in clean energy -– in the North Carolina company that will create 1,200 jobs nationwide helping to make advanced batteries; or in the California business that will put a thousand people to work making solar panels.

But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country. (Applause.) It means making tough decisions about opening new offshore areas for oil and gas development. (Applause.) It means continued investment in advanced biofuels and clean coal technologies. (Applause.) And, yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America. (Applause.)

I am grateful to the House for passing such a bill last year. (Applause.) And this year I’m eager to help advance the bipartisan effort in the Senate. (Applause.)

I know there have been questions about whether we can afford such changes in a tough economy. I know that there are those who disagree with the overwhelming scientific evidence on climate change. But here’s the thing — even if you doubt the evidence, providing incentives for energy-efficiency and clean energy are the right thing to do for our future -– because the nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation. (Applause.)”

Reducing dependence on foreign oil? New technologies? Renewables? Energy efficiency? Combating climate change? New nuclear? Offshore oil drilling?

I like it all. And it seems like I’ve heard this before. And unlike Obama President Bush even mentioned clean technology by name. Stop talking and deliver.

Neal Dikeman is a partner at cleantech merchant bank Jane Capital Partners LLC and the Chairman of Carbonflow and