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The Tva: Cheap, Cheaper, Cheapest

July 2024
1min read

James Branscome’s “The TVA: It Ain’t What It Used to Be,” which appeared in our February, 1977, issue, brought us the following communication from John Kane of Rancho Palos Verdes, California:

“Twice comments were made to the effect that TVA sells power at a much lower cost than commercial utilities. The impression made was that this was because of superior management or lesser greed. Neither explanation is true. TVA can sell power for less because it does not have any of the financial expenses that any competing utility would have. Here is a partial list:

“Taxes. Taxes amount to as much as twenty per cent of the revenues of some utilities.

“Dividends. Public companies must pay a return to the people who put up the money. Unless, of course, they are a government agency.

“Interest costs. TVA bonds, as obligations backed by the American taxpayer, are rated AAA. This means that on a typical $100,000,000, 30-year bond, TVA will pay about $60,000,000 less interest than a public utility.

“The money value of other federal subsidies, direct and indirect, would be difficult or impossible to measure. The wonder is not that the T VA’s cost of power is so low; the wonder is that it is so high.”

On this long-familiar question concerning public vs. private power, Mr. Branscome replies:

“Mr. Kane’s letter makes several points about TVA’s finances and power that have long been favorites of agency critics. The facts are, however, that TVA in many instances is at a disadvantage relative to private utilities when it comes to tax breaks. For example, TVA gets no tax credits for installing pollution control equipment, as private utilities do.

“Tax breaks for private utilities have become so lucrative that the last study of the TVA system in 1974 by the CPA firm of Coopers and Lybrand concluded that had the agency been a private utility it would have paid no federal income taxes in the previous ten years. As the study notes, private utility income taxes have been declining over the last decade. TVA does, however, pay back to the government each year what amounts to a ‘tax’ based on the government’s previous investment. It also pays in lieu of taxes (five per cent of revenue) to counties impacted by its facilities.

“So far as bond ratings are concerned, New York City’s financial disaster should teach us that government entities have no sacred bond rating just because they are government related.

“TVA sells power more cheaply, as the article made clear, because it is close to the coalfields, buys coal more cheaply, and has more dams than most utilities with which to generate power. Additionally, no TVA official gets those $100,000-plus salaries so common in the utility industry.

“Seventy-five per cent of TVA’s costs are for fuel. If the agency deserves criticism, it is for buying that too cheaply, and not for some imagined tax breaks.”

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