>>TVA would love to sell you some kwh, could do so at prices well under the $400 or so being paid on the exchange in California and TVA has a surplus currently. But TVA is prevented by law from shipping power west of the Mississippi because it would be "unfair" competition with the free market out there.
There is a reason why they are prevented. If you knew anything you would know that the TVA is hugely government subsidized. Why should taxpayers fund the TVA to hurt efficient energy production?
FIVE GOOD REASONS TO PRIVATIZE THE TVA
Privatization will benefit taxpayers, existing TVA customers, and the entire electricity industry for the following reasons:
REASON #1: Privatizing the TVA would save taxpayers billions of dollars. Privatizing the TVA could generate billions of dollars in revenue that could be used to reduce the federal debt. At the end of 1996, the TVA listed the value of its assets at roughly $34 billion, yet it is unclear just how much could be generated by selling off these assets because the TVA's $27 billion debt would have to be dealt with in the process. Although no government study has authoritatively calculated the value of selling the TVA's assets, some private studies have suggested that privatizing the TVA would bring roughly $10 billion into the federal treasury.1
More important than the amount of money raised, however, is the effect that privatization would have on U.S. taxpayers. With privatization, hundreds of millions of Americans who receive no benefits from the TVA no longer would be forced to subsidize this inefficient organization. After all, why should 242 million Americans be forced to subsidize the almost 8 million who are fortunate enough to be located in the TVA's service area?
REASON #2: Privatizing the TVA would spur competition by removing inefficient subsidies and leveling the electric playing field. The TVA receives generous indirect subsidies, including federal loan guarantees and below-rate interest charges on federal loans, as well as exemption from federal and state income taxes. According to a study by the Washington, D.C.-based economic consulting firm of Putnam, Hayes & Bartlett, Inc., these subsidies total $1.2 billion annually—just over 20 percent of the TVA's annual revenues.2 The study also estimates that, because of these tax exemptions, the federal government loses $759.1 million in revenue.
The TVA also receives a much smaller direct appropriation of $106 million from Congress. Recently, the TVA has proposed eliminating this direct appropriation because it realizes that this represents only 2 percent of its total revenues, but doing so would allow it to declare the business of reform complete if implemented. Not surprisingly, the TVA has not proposed elimination of its much larger indirect subsidies and, in fact, denies that many of these subsidies exist.3
These subsidies, and other forms of preferential treatment accorded to the TVA, must be eliminated if the deregulated electricity market is to become truly competitive. If legislators attempt to open electric markets to competition without privatizing the TVA, the result will be a most uneven playing field that diminishes the beneficial effects of deregulation for consumers.
REASON #3: Privatization will benefit consumers currently served by the TVA. Although opponents of privatization are likely to claim that the proverbial sky will fall for consumers currently served by the TVA, the reality is that these customers will be served better than ever before. For the first time, they will have the option to be served by companies disciplined by the rigors of free-market competition. In fact, many electric companies that surround the TVA's territory already have comparably low rates that certainly will be reduced further as competition is introduced into this industry.
For example, the city of Bristol, Virginia, which received power from the TVA for decades, recently decided to shop around for cheaper power suppliers. The city managed to find 19 private electric companies that could match or beat the TVA's rates and has decided to switch to a private provider in 1998. John J. Fialka of The Wall Street Journal recently reported that, as a result of switching to a private supplier, Bristol will cut its wholesale electric costs by $70 million over seven years. "The total savings [are] double the city's annual budget," Fialka notes.4
Furthermore, the Journal reports that five of the TVA's largest municipally owned utility customers have joined together as "The Big Five" to study Bristol's example and to consider private power options that could save money for their own cities. The Big Five (Nashville, Chattanooga, Huntsville, Memphis, and Knoxville) "constitutes 30 percent of TVA's market and carries considerable political clout in Congress," according to Fialka.5 They realize now what the TVA's other 7.3 million customers soon will: that a competitive electricity marketplace offers them the chance to shop around for better prices and service than the TVA can offer.
REASON #4: Privatization is the only way to end the mismanagement and perpetual debt problems associated with the TVA. Decades of cost overruns and chronic mismanagement have squandered taxpayers' money and created serious debt problems at the TVA. In a scathing report issued in August 1995, the U.S. General Accounting Office noted that "While no cash-flow crisis exists today, GAO believes that TVA's financial condition threatens its long-term viability and places the federal government at risk."6
The primary reason for the GAO's apprehension is the TVA's growing debt burden. As the TVA's statutorily capped debt ceiling was raised from $15 billion to $30 billion in 1979, the organization simultaneously was investing quite heavily in nuclear plants, many of which still are not operational. Only 3 of these 17 planned nuclear plants are operational today. Throughout the 1980s, the TVA's debt burden rose steadily, and it now stands at roughly $27 billion, thanks in large part to these non-producing nuclear assets.
Therefore, besides paying for the TVA's direct and indirect subsidies, the federal government is implicitly responsible for this rising debt burden because the TVA is a government-owned entity. Essentially, credit rating agencies and investors in the private lending market believe Congress will bail out the TVA if the organization ever defaults on its debt. Furthermore, the TVA is required to pay roughly $2 billion in interest on this debt annually—an amount that represents almost 35 percent of its annual revenues. By way of comparison, the GAO study reveals that, although the TVA pays 35 cents of every revenue dollar it collects in interest payments, neighboring private electric utilities pay an average of 16 cents of every revenue dollar in debt financing costs.7
Private ownership will provide the discipline needed to correct these problems. More important, the TVA should not be allowed to continue to use its rising debt burden as an excuse to avoid privatization. Indeed, the rising debt is exactly why privatization is required.
REASON #5: The TVA has become an increasingly arrogant, power-hungry organization that views itself as above the law. TVA Chairman Craven Crowell recently boasted to Forbes magazine that "You can't ignore us, you can't leave us behind, you can't break us up, and you can't sell us."8 Apparently Chairman Crowell and the TVA believe they can dictate to Congress what the TVA's future path will be. If Congress allows them to do so, it only will encourage this power-hungry organization to waste more taxpayer money and abuse its monopolistic position.
This arrogance is best exemplified by the TVA's recent actions to silence private critics who are rightly concerned that the TVA may be selling power outside its monopolistic service territory illegally. If the TVA is doing so, this poses a serious threat to private utilities that do not enjoy the benefits of federally subsidized power. At a minimum, private utilities should be able to debate how best to respond to such a move by the TVA.
But the TVA does not agree. In fact, in mid-April of this year, it sent a letter to Attorney General Janet Reno and the director of the Criminal Division of the Department of Justice claiming that several private utilities were engaged in a "conspiracy" to "undermine TVA's ability to compete" and "prevent TVA from carrying out its mission under the TVA Act." The TVA noted in the letter that the recommended punishment for such an act is a $5,000 fine and up to five years in jail.9
In reality, however, the private utilities in question (American Electric Power Co., Carolina Power and Light Co., Duke Power Co., Southern Company Services, Inc., and Entergy Services, Inc.) were doing nothing more than debating how to make sure the TVA does not "launder" power illegally outside its statutorily defined "fence," which Congress established in 1959 to ensure that the TVA's monopolistic power could not spread beyond its current boundaries. Even though it is obvious that the TVA is literally above the law in many respects, TVA officials may be under the false impression that the organization need not be concerned with the First Amendment rights of others.10
In the end, it should be clear that the TVA has become a monopolistic bully on the electricity playground. As Rebecca Masters, opinion-page editor for the Bristol Herald Courier, aptly summarizes, "TVA is now threatening to use its government-conferred power to turn the `New Deal' into a `raw deal' for any customer that doesn't go along with its institutional thinking."11 Obviously, the same can be said for the millions of Americans taxpayers who are forced to subsidize the TVA's arrogant actions.
heritage.org |
