Study says TVA sale would spark split

Study says TVA sale would spark split

June 26th, 2013 by Dave Flessner in Business Around the Region

Document: Should the Federal Government Sell TVA?

Should the Federal Government Sell TVA?

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If Congress decides to sell the Tennessee Valley Authority, the federal utility likely will have to be split to maintain wholesale power competition, according to a new University of Tennessee study on the proposed sale of TVA.

But the study suggests that TVA's $25 billion debt, which is spurring calls for privatizating America's biggest government utility, may not be such a big problem after all.

In a policy briefing released by the Howard Baker Center for Public Policy, Dr. Mary English said TVA likely couldn't be sold as a single identity if Congress were to adopt a recommendation by the Obama administration for divesting TVA from Uncle Sam.

English, a fellow for energy and environmental policy at the Baker Center, said the Federal Energy Regulatory Commission "probably would object to its stifling effects on wholesale electricity competition" if TVA were sold as a single identity.

English said TVA could be divided up among neighboring private utilities or split between its transmission functions and its power generation.

FERC and other regulators have questioned last year's merger of Duke Energy and Progress Energy, which created the biggest U.S. utility but is leading to a third change in less than a year in the CEO post.

Bill Johnson, the former Progress Energy CEO who served as CEO of the combined Duke Energy for only a day before being dismissed, is now CEO of TVA and is touting the virtues of public power. TVA serves "a unique and distinctive role," Johnson said recently, and Johnson has questioned the need for any major change at TVA.

In April, the Office of Management and Budget proposed "a strategic review of options for addressing TVA's financial situation," including divesting the utility from the federal government. TVA has nearly $25 billion of debt which is added on the federal debt even though TVA is an independent agency.

"Reducing or eliminating the federal government's role in programs such as TVA, which have achieved their original objectives and no longer require federal participation, can help put the nation on a sustainable fiscal path," Obama's budget proposal said.

English said TVA's debt is primarily a problem because of the $30 billion cap Congress set in 1979. Adjusted for inflation, the value of that 1979 cap would be worth more than $100 billion today and TVA's debt isn't as large as some other utilities, English said.

"A few decades ago, TVA's debt was cause for consternation, but today it is not a major problem," she said. "The major problem is that TVA's debt counts on paper as part of the federal deficit and the U.S. Congress controls TVA's debt ceiling."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.