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.