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New Report: Impacts of Privatizing the TVA

On June 5, 2015, the Economic Policy Institute (EPI), a Washington, DC-based think-tank, released If Ain’t Broke, Don’t’ Fix It, Potential Impacts of Privatizing the Tennessee Valley Authority, a briefing paper by High Road Strategies (HRS) principal Dr. Joel S. Yudken. The report argues against privatizing the Tennessee Valley Authority (TVA), and shows the benefits of continuing the 80-year old agency’s integrated approach to electricity generation, river and land management, environmental stewardship, and economic growth and development. The report received good coverage from some of the Tennessee Valley region’s major news outlets, including the Chattanooga Times Free Press and Knoxville News Sentinel.

TVA was established by the Tennessee Valley Authority Act of 1933, during the Roosevelt administration, to bring electricity to the impoverished Tennessee Valley region, provide for flood control and improve the navigability of the Tennessee River, and promote the agricultural and industrial development of the valley, among other purposes. Today, TVA operates one of the nation’s largest electric utility systems—in 2013 it had 37 GW of electric power generation (summer net) and 16,000 miles of transmission lines. Although electric power today is TVA’s dominant function, it remains integral to maintaining its critical nonpower responsibilities.

Almost from its inception, Republican lawmakers and conservatives, including conservative journals and think tanks, have challenged TVA’s existence as an illegitimate intrusion into the marketplace. Since the 1990s, agencies such as the Congressional Budget Office and Government Accountability Office have echoed these proposals. And, over the past three years, the Obama administration’s budget proposals have called for reducing or eliminating the government’s role in programs such as the TVA, “which have achieved their original objectives or no longer require Federal participation.” In contrast, TVA stakeholders have opposed any potential divestiture as suggested by the Administration’s proposals. These include conservative congressional lawmakers from states and districts in the TVA service area, the municipally owned and cooperative local power companies that deliver the TVA’s electricity, and labor unions representing TVA employees.

The EPI-HRS report summarizes this debate, and provides an overview of TVA’s financial situation, and its electric power and nonpower functions. It then builds on and extends the findings of a government-commissioned study prepared by Lazard Frères & Co. in 2014, assessing the impacts that could result from privatizing the TVA on the its ability to provide reliable and affordable electricity to stakeholders in the region—and on its nonpower functions, such as river and land management, environmental stewardship, and economic growth and development. The report concludes that it is difficult to see how divestiture would provide stakeholders with any greater benefits than the TVA system already provides. Privatization would likely increase electricity rates, reduce system reliability, increase price volatility, and lower the credit ratings of local distributors of TVA’s electric power. Moreover, and perhaps most important, it would adversely affect the TVA’s nonpower functions, undercutting many of the most valuable benefits that TVA has provided the 9 million residents within the seven-state region it serves over many decades. For more information about the study click here.

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