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.

2 replies
  1. TJC
    TJC says:

    It is irritiating and cynical to hear the local Republican politicians squealing like stuck pigs on this issue….the very same politicians (Lamar Alexander et al) who are most vocal against “subsidies for renewables”. As your article points out, they are all for subsidies for their constituents.

  2. G. Bryers
    G. Bryers says:

    I would point out that, while TVA may receive a benefit in lower interest rates, it does not receive a single cent of tax-payers money, and hasn’t in decades – its operational budget comes from the sale of electricity (primarily), and is paid for in whole by the recipients of that electricity.
    While, in concept, I agree that government should stay out of the market, in this one case, it would be a mistake at this point to sell off TVA to the private sector, and would, in fact, accomplish the opposite of the goal of reducing federal deficit. Prior to the sale, the Fed would have to accelerate the payback on the bonds carried by TVA ($25 Billion), instead of allowing TVA to pay off that debt in the allotted time. Additionally, there are other impacts to consider: How much of TVA could be truly sold? Certainly the gas plants, and the coal plants, could be sold, but given the climate of increased cost for operating coal-fired plants, they have a decreasing value as time goes by. Buying a single source of electricity has already been proven to be a poor business move – relying on a single source of electricity puts the rates at the mercy of the source of the power for the plant, be it coal, gas, or what-have-you. In order to balance the cost of the fuel, you must have the ability to shift generation to the cheapest method, in a rapid fashion.
    Putting aside the electrical aspect of the business, we need to look at the other responsibilities of TVA. Who would or could be relied on to take on the task of managing the rivers? There is the balance of maintaining the water in the lakes and rivers at a safe level, despite weather conditions, while guarding the ecological aspect – keeping wildlife healthy. Additionally, some of the larger rivers are still utilized for water-born commerce, and this must be protected.
    If you sell off the dams to commercial enterprise, do you also sell off the countless acres of park land, recreational areas, and green space to commercial developers, or do you turn that over to the government to maintain? Selling it off would mean development – the rich would get the benefit there, the public would certainly be, at best, restricted to limited access (for evidence of that, look to Lake Murray in South Carolina, or Smith Mountain Lake in Virginia). If the government decides to keep the dams, and the responsibility, it would most certainly be turned over to the Army Corp of Engineers, who maintains the other Government dams. The result of that would be an increase to the Corp’s budget, which would not be offset adequately by the returns from electricity sales from the dams.
    Then there are the nuclear reactors. Not as easy to sell – there is a whole division of government set aside to manage that. And the government’s sole source of MOX comes from there, as well – what risk to the military to turn that over to commercial enterprises?
    And to get back to one of your points – TVA has consistently provided low-cost electricity, made possible (using your assertion) by low-interest loans, which would certainly evaporate with the commercialization of the power industry in the area. Rates would increase (how could they not), and the commercial viability of the area would be reduced.
    We won’t go into the almost certain reduction or cessation of all the other things TVA brings to the area – direct support of education (K-12), the charities that benefit, the work done by TVA on behalf of small business in the area, and countless other things that would go away in the name of getting rid of maybe the one thing the government finally got right.

    So, I would say to you, if you want budget reduction, don’t do it at the cost of the millions of people that benefit from a working enterprise that really doesn’t cost anyone else anything – go after things with immediate and lasting benefit. Look elsewhere for a victim of your poisoned pen, or at least come back with a more concrete rational (including actual facts and figures, rather than vague references that can’t be fact-checked adequately) as to what benefit would be achieve by breaking up the best thing to happen to this region of the country.
    Thank you

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