LegiStorm

Summary:

In its budget proposal for FY2014, the Obama Administration proposed a "strategic review" of the Tennessee Valley Authority (TVA), a federal government corporation established by the Tennessee Valley Authority Act (TVA Act) (16 U.S.C. 831) in 1933. The preamble to the TVA Act lists flood control, reforestation, and agricultural and industrial development as primary considerations in the original establishment of the TVA. TVA is now required by the TVA Act to be self-supported using funds from the sale of electric power. The TVA Act authorizes TVA to issue bonds, notes, or other forms of indebtedness up to $30 billion at any one time. These instruments are used to provide financing for construction of power plants and other related capital needs. TVA currently has approximately $24.1 billion in indebtedness in outstanding bonds and notes which counts toward the statutory cap of $30 billion (which has been in place since 1979). TVA's debts are paid solely from TVA's net proceeds for the sale of electricity. TVA's debts are not guaranteed by, nor are they obligations of, the federal government. However, while TVA pays for this debt principally using bonds, the federal government still records TVA's debt as part of the federal deficit since it is a federal government corporation. The electric power industry in the United States is in a period of transition, and TVA is facing the same forces driving change as is the rest of the electric power industry. Primary concerns include fuel cost issues of coal-fired power generation vs. natural gas, and the cost of complying with existing and anticipated environmental requirements, which could make continued operation of many of TVA's aging coal-fired generation units not cost-effective, and perhaps result in their retirement. The Obama Administration's FY2014 budget projects that the capital costs to fulfill TVA's environmental responsibilities and modernize its aging generation system will likely cause TVA to exceed its $30 billion statutory cap on indebtedness. In proposing the strategic review, the Administration says that TVA has achieved its original objectives, and thus no longer requires federal participation. The strategic review may thus consider options for addressing TVA's financial situation and its effect on the federal deficit, with divestiture of TVA (in whole or part) to be considered among the potential alternatives, most of which would require amending the TVA Act. Congress may want to consider various options for TVA, which range from allowing TVA to continue as it does, funding its capital needs from operating revenues and power program financings, to modifying TVA's missions. Congress may also opt to redefine TVA's status and designation as a government corporation. Since TVA debt securities are not obligations of the U.S. government and do not carry a government guarantee, TVA's current indebtedness has arguably little or no real impact on the federal budget. Congress may also wish to examine the issue of TVA's indebtedness and investigate potential options. These may include raising the statutory limit thus allowing TVA to fund the projected investment, examining TVA's capital investment plans and process, investigating ways to reduce TVA's statutory cap with an eye to reducing the impact on the federal deficit, or looking at ways to restructure TVA's indebtedness, with a goal of either reducing or paying off TVA's indebtedness. TVA's principal mission is arguably the minimization of flood damage and stewardship of water resources and navigation, with the dams on TVA's system being key to this mission and power generation arguably being a secondary concern. The operation of multiple use dams must be designed to accommodate several objectives, and releases of water for hydroelectric generation can also contribute to other water uses. Congress may want to consider how the navigation, flood control, and related missions may be safely and legally accomplished under a privatized scenario, since maximization of flows for optimum power generation may not be consistent with other demands of the river and reservoir system.