Selling an American icon: Should we? Could we?

Selling an American icon
Should we? Could we?

If TVA were placed on the market, would there be any takers? And at what price? TVA managers aren't thinking sell — though they do see a slimmer agency weaned off Uncle Sam's money

By Wesley Loy
News-Sentinel staff writer

Republican godfather Barry Goldwater won five states in the South in his 1964 run for president. But his sectional success came in spite of one feature in his southern strategy — his position on the Tennessee Valley Authority.

His idea for TVA: Sell it. Calling the agency a "federal white elephant" that produced enormous quantities of electricity but paid no taxes, the Arizona senator suggested TVA's mammoth power plants be sold to either the states or private industry.

Other historical functions of TVA, such as the management of dams for flood control and navigation, should be ceded to other agencies already doing such work elsewhere in the country, such as the Army Corps of Engineers, Goldwater argued. This, he said, would "end the duplication by TVA of national programs."

TVA managers as well as Tennessee Valley politicians both Democrat and Republican panned the Goldwater idea. One young Republican soon to become a U.S. senator himself, Howard Baker, declared it a "dismemberment plan" for TVA and a bad deal for Tennessee Valley residents who regarded the agency and its cheap power as a well-deserved slice of the federal pie.

Of course, Goldwater's plan never came to pass. TVA still owns and controls the steam plants, the dams, the thousands of miles of power lines.

But the idea persists: Why not sell TVA?

And as for the notion of spinning off TVA's flood control, navigation and other "nonpower" functions, Goldwater today actually would

TVA and the new electricity era

The News-Sentinel today continues a special series examining the Tennessee Valley Authority, a unique American institution attempting to retool itself for a new era in the electricity industry.

Profound change is coming to the $200 billion power business, which is following phone companies and airlines down the path to deregulation. It means choice — a chance to shop around for our electricity.

How TVA fares in this competitive battle is critical to the life of the agency — and our power bills.

Today's installment focuses on the issue of selling TVA, an old theme enjoying new life.

Could it happen?

Sell TVA. The idea seems intriguing at first, but then a little fantastic.

An undertaking of epic scale, TVA evokes images of the Great Depression, of Franklin D. Roosevelt trying to get a country back on its feet, of great dams rising up from the labor of thousands to subdue the 652-mile Tennessee River. In World War II and the cold war that followed, TVA was a power patriot, energizing huge aluminum factories and bomb and uranium enrichment plants at Oak Ridge and Paducah, Ky.

The TVA is an American icon. And talk of selling an icon begs all sorts of questions: What is an icon worth? Who could, or would, buy it? And how?

Not every body views TVA with such reverence. Private power companies skirting TVA's congressional drawn fence see it as a competitor — one that could move on their turf if the fence comes down and Congress pushes through a new era of open competition in the electric business.

Likewise, some budget-cutting congressmen typically citizens of faraway states whose families never heard a grandparent tell about the day TVA turned on the lights — are pushing bills to sell it.

In fact, it was a former TVA chief financial officer, William Malee, who once remarked in 1953 that he'd happily sell the thing before he left the White House.

According to Wheeler, most of TVA's mistakes were the same sins committed by others, including private power companies.

They, too, were seduced by the false promise of nuclear power and now are paying for it.

TVA's highest dam, Fontana Dam, located on the Little Tennessee River in western North Carolina, was built in three years as part of the World War II emergency power program when not required

At what cost?

If, by force of political will or fiscal necessity, TVA was placed on the sale block, would there be any takers?

Malee is fond of quoting Peter Lynch, the famous former manager of the giant Fidelity Magellan mutual fund, who once wrote: "There has never been a serious effort to privatize the TVA but if there is I would be the first in line to get a copy of the prospectus."

It is a strong endorsement for a company juggling a staggering $27 billion debt, run mostly due to TVA's overzealous investment in the 1970s in costly nuclear plants.

Some of those projects were either abandoned and left to rust or completed only to be mothballed. This nuclear nightmare continues to haunt TVA; interest on debt consumes about a third of the agency's $7.7 billion annual revenue. The five nuclear reactors that TVA does have in service produce its highest-cost power.

Thus, if TVA were put up for sale, the nuclear assets would be the least attractive. In fact, if a buyer had to acquire the TVA as a whole, including the nuclear dogs, it could prove a deal killer.

Consider the case of Cajun Electric Power Cooperative of Baton Rouge, La. Cajun is, in many ways, a TVA in miniature. Like TVA, it is basically a big electric wholesaler, delivering its power to 12 local power cooperatives that in turn sell it to homes and businesses. Like TVA, Cajun courted power rivals for buyers. The Southern Company of Atlanta is the biggest and most vocal competitor, where it sits now looking for buyers. The two partners have offered nearly $1.1 billion for Cajun, but Cajun's 30 percent stake in a nuclear plant that suffered gross cost overruns that ultimately landed Cajun in bankruptcy court, where it sits now looking for buyers. The Southern Company is not the only one for the non-nuclear assets.

And who is stuck with the $3 billion in debt Cajun ran up on its share of the nuclear plant? The federal government, which financed the investment through its Rural Utilities Service (formerly the Rural Electrification Administration). Of course, TVA is not bankrupt. And

TVA's good will

When Malec published his articles advocating a sale of TVA, Smith couldn't keep quiet.

"Mr. Malee knows there are many good reasons for keeping TVA intact," Smith wrote in his own letter to The Electricity Journal. "And, he should know any potential gain to the government from a sale of TVA is highly questionable."

Smith cited a litany of reasons against a sale: Since 1959, TVA has supported its power program from electricity and bond sales, not taxpayer dollars. The agency is rated as one of the 12 lowest-cost power producers in the United States. TVA does not pay income taxes, but it does make comparable payments in lieu of taxes to local and state governments within its seven-state region. And, most importantly, although TVA doesn't sell directly

to the federal government.

The nuclear plants aside, TVA's other stuff — those 29 hydroelectric dams that still wow engineers from developing nations, those coal-fired plants like the one at Kingston, once the world's largest — are worth selling, the experts say. The agency's MVP might not be its power plants, however, but its 17,000 miles of transmission wires, which "could ultimately turn out to be a major thoroughfare for power transfer in the region," according to a 1995 study TVA commissioned on its competitive future.

What is TVA worth? The agency's 1996 annual report lists total assets at $35 billion, although this figure includes $8.9 billion in "deferred nuclear generating units." But what the agency would actually fetch at sale is a complex question, says David N. Smith, Malec's successor as chief financial officer at TVA. Power plants are worth more or less depending on the going price of electricity. And that will be hard to predict in the coming era of open competition in the electricity business.

Smith, in discussing TVA's value, likes to speak of an intangible that doesn't show up on the balance sheet.

"You also have an asset called good will," he says.

And although TVA has made blunders — questionable contracts to well-connected vendors, talk of buying a corporate jet, posh parties for Knoxville's business and political elite — TVA clearly is concerned these days about good will.

With competition coming, TVA is desperately trying to keep its customers electric co-ops who are getting tantalizing offers of cheaper electricity from other power companies.

And although TVA doesn't sell directly

What is TVA's real mission? I don't think it's to be out there trying to beat the private power companies — the Enrons and Dukes and Southern Companies.

Stephen Smith
Executive director of the Tennessee Valley Energy Reform Coalition and staunch critic of TVA

Paying for power
The cost of electricity for residential customers in Tennessee, which comprises the heart and bulk of TVA's seven-state service area, is among the lowest in the nation. The U.S. average is 8.40 cents per kilowatt-hour.

Source: Energy Information Administration, 1995

TVA's flawed commitment to nuclear energy contributed much to its $27 billion debt. At one time TVA planned 17 nuclear reactors in three states. Today only five reactors work, including one activated last year at the Watts Bar Nuclear Plant, right, located 60 miles southwest of Knoxville. Other nuclear projects were scrapped in midstream, including the Phipps Bend plant below, at Surgoinsville, where wildlife frolics amid the skeletal beginnings of a cooling tower.

to the public, it has since Craven Crowell's appointment as chairman in 1995 embarked on an unprecedented campaign of public relations advertising designed, apparently, to foster good will among the masses about TVA.

How else to explain one recent newspaper ad featuring a big picture of a shopping cart and these words: "Some day soon, you'll be able to shop around for your power company. So choose the company that's supplied Knoxville with everyday low prices since 1933. TVA. America's leading power producer."

Crowell's gamble

But Crowell's swagger is not thinking sell. He sees a TVA stripped down to its "core energy business," unfenced and free to peddle its power anywhere in the country.

Following the work of his predecessor, Marvin Runyon, now head of the U.S. Postal Service, Crowell has moved to get TVA into fighting shape, cutting the staff by nearly half to 16,000 employees and clawing for the relatively small amount of money TVA still gets from Congress.

"This money — it amounts to $106 million this year — goes to maintain dams," Crowell declared in a recent Forbes magazine article.

But Crowell is certainly not thinking sell. He sees a TVA stripped down to its "core energy business," unfenced and free to peddle its power anywhere in the country.

He sees a TVA stripped down to its "core energy business," unfenced and free to peddle its power anywhere in the country.

Indeed, the Crowell proposal is revolutionary, and raises many questions. A litany of opponents have denounced the idea, and Crowell himself conceded at a March board meeting in Tupelo, Miss., that "a compromise position may be necessary."

To many, Crowell has it backward — that it is TVA's river management and other nonpower functions, not its electric system, that is worth keeping and clawing for the relatively small amount of money TVA still gets from Congress.

This money — it amounts to $106 million this year — goes to maintain dams.

The collective sentiment seems to be: "Well, TVA hasn't always done things well, but who could do it better?"

That's how Daniel and Barbara Paransky feel. They run a boat dock on Fort Loudoun Lake near Friendsville, and like TVA's job of enforcing shoreline traffic, attract new industry to the Valley, run the Environmental Research Center at TVA's birthplace, Muscle Shoals, Ala.; and manage public lands including the Land Between the Lakes, a 170,000-acre national recreation area that straddles the Tennessee-Kentucky line.

Though the nonpower appropriation is a relatively pitance, it is symbolically huge, an annual excuse for Congress to grill TVA's management.

In January Crowell dropped a bombshell without advising the TVA congressional caucus. He proposed casting these functions off to other agencies — just as Barry Goldwater suggested — to concentrate on power production. Crowell said he wanted to end the congressional handout entirely by 1999 and has used his friend Vice President Al Gore's mantra of "reinventing government" as justification.

The move not only irritated some members of Congress, but seemed to re-ignite the debate of what, exactly, to do with the odd duck that is TVA.

Some, like U.S. Rep. Bob Clement, a Nashville Democrat and former TVA board member, think Crowell's move only encourages talk of radical moves like selling off the agency.

Clement has set a June 5 hearing before the House Transportation and Infrastructure Water Resources Subcommittee to consider the Crowell plan.

"American Rivers, an environmental group in Washington, D.C., placed the Tennessee's two Republican senators, Fred Thompson and Bill Frist, have asked the U.S. General Accounting Office to study the wisdom of a nonpower spin-off. A longtime TVA critic, the GAO, in an August 1995 report said TVA's huge debt not only clouds its chances for competing successfully in a free electricity market but raises the specter of a taxpayer bailout of the federal agency.

Tennessee Gov. Don Sundquist earlier this month stood at Norris Dam, where President Roosevelt dedicated TVA's first big project, and declared that TVA acquired the land to create its dams and lakes and now ought to keep its "obligation" to manage them.

The Cumberland Chapter of the National Wild Turkey Federation is circulating a petition urging TVA to keep its lands "in public ownership."

Cherokee Indians have expressed concerns about the fate of cultural sites that TVA cede its land management duties to someone else.

Crowell's January surprise initially played well in Washington. Citizens Against Government Waste anointed him the "waste warrior of the month" for "doing the unthinkable" — lobbying Congress to take away $106 million a year in taxpayer support.

"We'd like to clone Mr. Crowell and put him at the helm of every federal agency," Citizens said.

"Although praise for Crowell is in order, cloning procedures shouldn't begin until we know more: specifically, whether this is just a political ploy intended to throw the budget bloodbaths off TVA's trail by tossing a few scraps their way or the first real step toward TVA's complete privatization and self-sufficiency," Citizens said.

You can't ignore us, you can't leave us behind, you can't break us up, and you can't sell us.
Craven Crowell
TVA chairman

Long live TVA?

In 1984 a book came out called "The Myth of TVA." Its author, William Chandler, made the curious argument that the TVA experiment was at best irrelevant and might have even impeded economic growth in the once decrepit Tennessee Valley.

He cites a paradoxical headline from a 1947 edition of The Tennesseean of Nashville: "5-Pound Bass Frolle on Sites of Old Cities."

Indeed, the Tennessee Valley Authority has made an indelible mark on the landscape. But its positive impact on our lives is anything but a myth, says Tennessee history professor Bruce Wheeler.

"I'm not saying TVA is a great hero that went out and took a bunch of uneducated, uneducated mountain people and brought them into the 20th century. That's not fair to us," he says. "But, he adds, "The region would not have developed were it not for TVA."

Of course, TVA has made mistakes, says Wheeler, whose book, "TVA and the 'Fellow Dam,' chronicles maybe the agency's most notorious environmentalists with its decision to build pollution-bolching coal-fired steam plants and has always put off many people with its sheer of paternalistic arrogance.

But still TVA? Or spin off its nonpower functions?

No, says Wheeler. "TVA still has a lot of work to do in the Tennessee Valley — besides providing cheap power."

Stephen Smith, a veterinarian, environmentalist and executive director of the Tennessee Valley Energy Reform Coalition, agrees that TVA is worth preserving. He argues that if anything, it is the prodigious power program that should be cast off, and not the flood control, navigation, environmental research and other functions — those things that, in his view, "justify its existence."

"What is TVA's real mission?" Smith asks. "I don't think it's to be out there trying to beat the private power companies — the Enron and Dukes and Southern Companies. Down, TVA directors were heroes, and when rates were up, they were bums.

In this regard, the nearly eight million people who draw TVA power historically are among the country's most blessed. Though now being matched and even bested by power companies in TVA's periphery, rates here remain among the lowest in the nation.

Is this fair to the rest of the country? Others will surely judge.

TVA evokes images of the Great Depression, of Franklin D. Roosevelt trying to get a foot, of great dams rising up from the labor of thousands to tame the 652-mile Tennessee River.

William Malec, a former TVA chief financial officer who is now considered a turncoat in the halls of TVA's Knoxville headquarters, argued that selling the "New Deal dinosaur" could reduce the federal deficit and add $600 million a year in taxes to the federal till.

Most, if not all, of the investment in TVA's nuclear plants came from the sale of bonds to private investors — bonds explicitly not guaranteed or backed by the federal government.

The agency's top asset might not be its power plants but its 17,000 miles of transmission wires, which "could ultimately turn out to be a major drawbridge for power transfer in the region," according to a 1995 study TVA commissioned on its competitive future.

What is TVA worth? The agency's 1996 annual report lists total assets at $85 billion, although this figure includes $6.3 billion in "deferred nuclear generating units."

Allan Pulsipher, director of the Center for Energy Studies at Louisiana State University and chief economist at TVA from 1980 to 1988, agrees that rates likely would go up if TVA were sold, simply because a buyer would need to make enough money to pay off the investment.

The 1990s have ushered in a global shift in the power business, with countries like Great Britain, Argentina, Bolivia and the Philippines either auctioning off government power plants and lines or encouraging private industry to build new ones.