Ken Silverstein | May 08, 2013

It may be buried in the news. But it is atop the minds of those in the energy world, especially those at the Tennessee Valley Authority and its utility neighbors that would like to own a piece of it. President Obama has said that the federal government will undergo a “strategic review” of the nationally-owned utility.

The TVA, as it is known, is a big target. It has 56 power plants that produce 35,000 megawatts across six states in the Southeast, all of which is sold to its 155 distributors that deliver the electricity to 9 million customers. To feed the appetite of its growing region, the federal wholesaler has been making huge investments in its operations. Altogether, it plans over 10 years $25 billion in capital expenditures that are headed to nuclear and renewable power plants, as well as energy efficiency tools and pollution controls for coal facilities.

All that is on top of TVA’s current $25 billion debt. And it won’t take it long to hit the federal cap of $30 billion. “Given TVA’s debt constraints and the effect on the federal deficit of its increasing capital expenditures, the budget proposal explained that reducing or eliminating the federal government’s role in programs such as TVA could improve the country’s fiscal condition,” says the U.S. Energy Information Administration.

TVA was established in 1933 to improve navigation and to promote economic development. It started by building dams and hydropower facilities but has since diversified and constructed coal, nuclear and natural gas plants. Coal is the largest component of its portfolio at 41 percent, followed by natural gas at 24 percent and nuclear energy at 19 percent. Hydro makes up 10 percent.

TVA has the authority to issue bonds to pay for capital needs in excess of those funds generated through the daily operations. Its $11 billion in annual revenues fall short of covering its current $25 billion debt. While its new nuclear plans could cost at least $10 billion, TVA says that it expects to notably cut its debt by increasing its revenues, controlling the growth of operating expenses and limiting capital expenditures.

Under current law, TVA is forbidden to sell its power outside its territory while its competitors can't sell their electricity inside the TVA "fence." The distributors, meantime, are able to buy power from other providers. But, if they do, they would have to build their own transmission lines -- a move that effectively traps many into an uneasy relationship with TVA.

“Our job is to ensure that rates are as low as feasible,” says Bob Dalrymple, vice president of transmission reliability for TVA, in a previous talk at his Chattanooga office. “We need to incent industry to come here and to keep our river system as clean as possible.” Along those lines, he says TVA is in the upper echelon of all utilities with an impeccable record for reliability.

TVA’s Position

Critics take aim at TVA on a number of fronts. The investor-owned utilities say that because TVA has federal guarantees, it is able to take risks in which its privately-held neighbors are unable to afford.

Environmentalists are also saying that TVA’s coal plants are too old and that it would cost billions to update them. That is a far more aggressive undertaking than what TVA is now doing. 

Others are taking issue with TVA’s nuclear program. TVA, for example, is putting $4 billion into a new nuclear reactor at its 1,260 megawatt “Bellefonte” site, which will force the retirement of some coal units. Meantime, it has already spent $1.8 billion to restart its 1,155 “Browns Ferry” nuclear unit while it will pay at least $4 billion to compete in 2015 its “Watts Bar 2,” an 1,100 megawatt unit. 

TVA is saying that diversity is its most prudent course, which reduces long-term risks and helps keep prices stable. Its mid-term goal, it adds, is to “reduce carbon intensity.” To that end, it says investments in nuclear energy and modern pollution controls for coal are vital.

It is also emphasizing that it does not have a profit-making incentive and that it is not driven to increase market share. Most of the calls to the level the playing field, it says, would impose additional regulatory requirements or financial burdens that would just serve to raise prices.

Interestingly, Obama’s blueprint does not discuss removing the implicit and explicit federal guarantees that improve borrowing rates. It seems to be raising the issue of selling off assets as a way to reduce the federal utility’s obligations. While the surrounding utilities would salivate at that option, it is unlikely to happen because TVA has long-served affordable and reliable power to its customers.


EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein

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