For the Tennessee Valley Authority to build more nuclear plants and install pollution controls on its existing coal plants, Congress may have to raise the agency’s debt ceiling.
But even after three decades without any increase in its debt cap, TVA could have a hard time getting more borrowing authority from Congress in the wake of the recent bailout of other government-sponsored agencies such as mortgage giants Fannie Mae and Freddie Mac.
“The debt of TVA is a serious problem, and raising the cap above the current $30 billion limit would be difficult, if not impossible, in the current environment,” said former TVA Chairman Craven Crowell, who helped limit TVA’s growing debt in the 1990s. The process “would be a highly politicized debate and would bring out people that don’t like TVA and utilities who don’t like TVA competing against them for economic development.”
Another former TVA chairman, S. David Freeman, who helped convince Congress in 1979 to double TVA’s previous debt cap, said the agency “made a solemn promise to the Congress that was all the debt that we were going to incur.”
“The debt cap is the one major remaining control Congress has on TVA spending, and I don’t think they will give that up lightly,” Mr. Freeman said.
But TVA officials insist times have changed over the past 30 years, and that to meet growing power demands in an increasingly costly power market TVA may need to borrow more money in the next decade or two.
TVA, like all power generators, also is facing the prospect of having to install costly controls on power plants to limit carbon dioxide emissions linked with global warming and to make additional controls on smog-causing pollutants.
TVA’s current chairman, Bill Sansom, said the federal utility is just beginning to study whether it will need to ask Congress to raise its debt ceiling, especially if TVA builds new reactors at the Bellefonte site in Alabama and undertakes new pollution controls.
“It’s not immediate at all, but I think it’s going to have to be looked at,” Mr. Sansom said. “Right now, what we’re trying to pay down as we build back and our debt is staying pretty even. But we’re still working on nailing down our projections for the future.”
paying down, building up
TVA President Tom Kilgore said the agency is paying down debt on existing facilities even as it takes on new debt to build more power-generating equipment, and he doesn’t anticipate exceeding the current debt cap anytime soon.
In the current fiscal year, TVA expects to reduce its overall debt by $154 million, bringing its total debt more than $2.5 billion below where it was at its peak in 1997, when it hit $27.7 billion.
“As we grow, eventually that debt cap will be a problem,” Mr. Kilgore said. “But for Bellefonte, we’re paying down enough (to stay beneath the cap).”
TVA could encounter problems with its debt ceiling, however, if the cost of building new nuclear plants continues to rise and the utility is required to install costly new controls on carbon, mercury and other emissions that now are not regulated at the plants.
“If you look at the costs of new nuclear plants that just keep going higher and higher, there is simply no way TVA will be able to build new reactors at Bellefonte unless Congress raises its debt ceiling, and that could be very hard for TVA to get,” said Stephen Smith, executive director of the Southern Alliance for Clean Energy, an anti-nuclear group based in Knoxville.
TVA’s total debt obligations now total about $25.2 billion, or $4.8 billion below the $30 billion debt ceiling set for TVA by Congress in 1979. TVA projects its debt obligations will rise slightly in the next couple of years as it spends $2.5 billion to finish a second reactor at the Watts Bar Nuclear Plant near Spring City, Tenn.
Building new reactors at the Bellefonte Nuclear Plant in Hollywood, Ala., is projected to be nearly twice as expensive, however. In its strategic plan, TVA outlined a plan to retire the debt on its existing assets and to try to limit TVA’s overall debt to no more than 70 percent of the value of its assets.
“If you are running a company that is continuing to grow, that changes the way you look at that $30 billion cap,” Mr. Sansom said.
cheaper power source
Mr. Sansom said that, while nuclear plants are expensive to build, they can operate at far lower costs — and thereby lower consumer rates — compared with more expensive coal and natural gas needed to run fossil-fuel plants.
Even if power demand slows and the need for new power generation lessens, nuclear plants will help TVA replace its older, dirtier coal power plants, Mr. Sansom said.
“If we miss our projections, build Bellefonte and we don’t grow like we think we will, we can close down some old coal plants,” he said. “It's almost like we can’t make a wrong decision.”
But TVA previously has missed its budget and debt projections, both in the 1980s when nuclear plant construction costs swelled to several times the initial forecast, and in the past decade when the agency failed to meet its goal of cutting its debt by more than $10 billion.
U.S. Sen. Lamar Alexander, R-Tenn., chairman of the TVA Congressional Caucus, said the TVA board has not requested any increase in its debt cap and “my hope would be that we would not have to change TVA’s debt limit.”
“For it to be a reasonable request, it would have to be part of a long-term plan,” Sen. Alexander said. “This new (TVA) board is doing a good job of developing a strategic plan, and it is being faced with what every utility is being faced with, and that’s the increased cost of coal, higher costs for building new nuclear power plants and higher costs for air pollution controls as well.”
U.S. Rep. Jim Cooper, D-Tenn., a former chairman of the TVA Congressional Caucus, said he hopes TVA doesn’t try to raise its debt ceiling “because that could be a very tough fight” in Congress. The debt of the federal utility as a share of revenues is less than half what it was a decade ago, he said, but TVA still has twice as much debt for its size as other Southern utilities.
U.S. Rep. Zach Wamp, R-Tenn., said that, unlike in the past, TVA is working with other utilities and its major customers and is being run by a more business-like board of directors.
To develop plans for new reactors at the Bellefonte Nuclear Plant in Hollywood, Ala., for instance, a consortium of utilities and engineering firms known as NuStart Energy Development LLC is preparing the initial application for a combined license. TVA also could share ownership of new generating assets with its distributors or other partners, Rep. Wamp said.
“The nuclear construction program is basically new partnerships with other utilities to build more nuclear capacity in the southeast United States, and TVA is basically the home base for some of these plants,” Rep. Wamp said. “This debt is going to be shared and is going to be paid for in the most efficient and effective return of any of the power generating assets in the country. That’s a good business model.”