Policy Documents

Research & Commentary: Privatizing the Tennessee Valley Authority

May 16, 2013

In his 2014 budget, President Barack Obama called for a strategic review of the Tennessee Valley Authority (TVA). The budget stated selling or privatizing the TVA could result in a significant cut in the federal deficit and “put the nation on a sustainable fiscal path.”

Born during the Great Depression as part of President Franklin Roosevelt’s New Deal, the TVA is a federally owned corporation that was designed to provide electricity generation, navigation improvements, flood control, and economic development in the Tennessee Valley, an area that was particularly hard hit during the Depression. The TVA’s service area covers nearly all of Tennessee and portions of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.

The TVA is the primary provider of electricity in the markets it serves and is a government-backed monopoly in many of these areas. Despite its market dominance, the TVA has developed serious debt problems. In the 2012 fiscal year the TVA recognized only $60 million in net income off operating revenues of more than $11 billion while its debt grew to $24 billion, just short of its statutory cap of $30 billion.

Tennessee’s U.S. senators both oppose privatization of TVA, saying the organization’s debt is greater than its worth, so selling it off won’t help the deficit and may actually cost the taxpayers additional money. Travis Miller, a Chicago-based analyst for Morningstar, disagreed, telling the Associated Press a sale could yield $30 to $35 billion in cash and reduced debt obligations. 

Although the TVA no longer receives direct taxpayer-funded subsidies, it’s exempt from the federal, state, and local taxes that private businesses, including its potential competitors, are required to pay. In addition to removing those tax preferences, selling the TVA would encourage competition and give the struggling utility more flexibility in solving its many problems. 

Despite its many legal advantages, the TVA has largely failed to spur economic development in its region. In his 1984 book, The Myth of the TVA: Conservation and Development in the Tennessee Valley, energy economist William Chandler found the economy grew at slower rate in the Tennessee Valley than in other, similar markets across the South in the decades after the TVA was established.

Obama’s proposal to privatize the TVA and move the utility’s liabilities off the taxpayers’ shoulders is a good one. A private company would be able to charge rates commensurate with the cost of providing power and would have to improve the quality of service or risk losing market share to its competitors.

The following documents provide additional information about privatization and the Tennessee Valley Authority.

 

Parties Switch Roles Over Possible U.S. Sale of New Deal TVA
http://www.bloomberg.com/news/2013-04-12/parties-switch-roles-over-possible-u-s-sale-of-new-deal-era-tva.html
Jim Snyder of Bloomberg writes about President Barack Obama’s announcement in his budget that he wants to explore the sale of the Tennessee Valley Authority and how skepticism of the possible privatization effort is emerging from lawmakers of both parties.

Time for the Tennessee Valley Authority to Go Private
http://reason.org/news/show/time-for-the-tennessee-valley-autho
Writing for the Reason Foundation, Steve Esposito argues for privatization of the TVA and warns that waiting for the “ideal time” to do so may derail any privatization efforts.

Downsizing the Federal Government: Privatization
http://www.downsizinggovernment.org/privatization
In this chapter of the Cato Institute’s Downsizing Government book, the authors examine several areas of government that could benefit from privatization; electric utilities, including the TVA, are included as candidates for movement into the private sector. 

Obama Budget Calls for Privatizing the Tennessee Valley Authority
http://reason.com/blog/2013/04/13/obama-budget-calls-for-privatizing-the-t
John Ross of the Reason Foundation examines Obama’s proposed 2014 budget and the inclusion of an item he believes free marketers can rally behind: “reducing or eliminating” the federal government’s role in the Tennessee Valley Authority (TVA), the nation’s largest publicly owned utility.

Five Good Reasons to Force the TVA into Mandatory Retirement
http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/1975.pdf
Adam D. Thierer of The Heritage Foundation examines several reasons why the TVA should be phased out as a public utility. “This hearing will offer Congress an opportunity to take the first necessary steps to send the TVA, an anachronistic New Deal creation, into mandatory retirement when it turns 65 years old next year,” he writes.

Privatization of the Tennessee Valley Authority
http://reason.org/news/show/privatization-of-the-tennessee
Writing for the Reason Foundation, Douglas Houston states privatization is the best reform option for the Tennessee Valley Authority: “Privatization of TVA, accompanied by deregulation, will result in more efficient use of TVA’s resources, eliminate taxpayer subsidies, stimulate competition in the electric utility industry, and bring in some $12 billion to the federal Treasury.”

TVA Privatization Would Benefit All: GOP Should Follow Obama’s Lead
http://www.timesfreepress.com/news/2013/apr/14/tva-privatization-would-benefit-all/
This editorial from the Chattanooga Times Free Press advocates privatization of the TVA and lists several advantages of selling off the federal government’s energy company.

How Big Government Infrastructure Projects Go Wrong
http://reason.com/archives/2009/03/02/how-big-government-infrastruct
Writing for Reason magazine, Jim Powell notes big government programs often have results very different from what was intended. Powell uses the TVA as an example of a government infrastructure program gone wrong.

Tennessee Gets a Lesson in Unaccountable Government
http://online.wsj.com/article/SB123396593942758989.html
Writing in The Wall Street Journal, Scott Barker documents the TVA’s lack of accountability for the mistakes it has made, using its poor environmental record as an example.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment and Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith or Senior Policy Analyst Matthew Glans at 312/377-4000.