April 12 (Bloomberg) -- It seems like an idea all Republicans would love: the U.S. sells the largest federally owned power company, paying down debt and ending a project begun at the height of the New Deal’s government expansion.
Instead, President Barack Obama’s announcement in his budget that he wants to explore the sale of the Tennessee Valley Authority is attracting skepticism from lawmakers of both parties -- especially those who represent areas served by the utility, created by President Franklin Roosevelt in 1933 to electrify the rural Southeast.
With that mission long accomplished, Republicans in Congress who favor smaller government should be pushing to sell the TVA, as President Ronald Reagan proposed during his administration two decades ago, said Mike McKenna, a Republican strategist and lobbyist who runs MWR Strategies Inc. based in Midlothian, Virginia.
“The odd thing is that a bunch of Rs are defending the most liberal, collectivist, state-managed thing ever undertaken in the United States,” McKenna, whose clients include the Atlanta-based utility Southern Co. that could benefit from a sale of the TVA, said in an e-mail. “TVA was the brainchild of the near-communists in the Roosevelt administration.”
Senator Lamar Alexander, a Tennessee Republican who opposes government subsidies for energy production, called the proposal “one more bad idea in a budget full of bad ideas,” in a statement. He said the sale might lead to higher energy costs for his constituents without providing much money to the U.S. to pay down the debt.
Senator Richard Shelby, a Republican whose home state of Alabama is also served by the TVA, said he would “carefully study any proposals to restructure TVA” to ensure it wouldn’t affect power prices in the region. Consumers in Alabama and Tennessee, the TVA’s largest service areas, pay less for electricity than the national average, according to U.S. Energy Information Administration.
Obama’s $3.8 trillion budget proposal released April 10 included language that said the sale of the TVA and similar programs that “have achieved their original objectives and no longer require federal participation, can help put the nation on a sustainable fiscal path.”
The administration will work with the TVA over the next few months to develop a plan for the review, which will consider the company’s financing issues, according to an administration official who asked not to be identified, citing lack of authorization to speak publicly.
The TVA has 13,600 employees now, according the budget proposal. The workforce is expected to fall 2.2 percent to 13,300 next year.
The idea of selling the TVA has few supporters in Congress, said Representative Steve Cohen, a Tennessee Democrat, in an interview.
He and his Republican colleagues most often disagree on the “virtues of government.” That’s not so in this case, he said. A commendation of North Korean leader Kim Jong Un is more likely to pass Congress, Cohen said.
The TVA, based in Knoxville, Tennessee, was created to reduce the risks of flooding with dams and also bring electricity to rural communities in poor areas of Appalachia. It was part of Roosevelt’s New Deal program, which was designed to use government spending to help the nation recover from the Great Depression.
The authority is overseen by a nine-member board whose members are nominated by the president and approved by the Senate. Seven members must live in the TVA’s service area. The authority provides power to 9 million people in parts of 7 southeastern states. It owns 29 hydropower, 11 coal and 3 nuclear plants.
Its operations are funded through power sales and bond financing. The TVA has $25.5 billion in debt and may soon exceed its borrowing limit of $30 billion, necessitating the need for a sale, according to Obama’s budget statement.
U.S. utilities face rising costs to replace aging power lines and generators and install pollution controls to meet stringent air-quality standards -- some of which have been put in place by Obama and will impact the TVA’s coal plants.
The sale could generate a “considerable amount of interest,” Paul Patterson, a New York-based utility analyst at Glenrock Associates LLC, said in a phone interview.
Senator Bob Corker, another Tennessee Republican, disagreed, saying the sale would do little to solve the U.S.’s budget problems.
“While unfortunate but true, TVA as a going concern today is probably worth less than its debt and its rates have become increasingly less competitive, so if the goal is deficit reduction, I doubt this idea gains much traction,” Corker said in a statement.
Republicans typically have led efforts to turn government-run entities such as prisons and toll roads over to private companies, believing they can run them more efficiently, said Bruce Oppenheimer, a political science professor at Vanderbilt University in Nashville, Tennessee.
“This is something one would think might appeal to Republicans, and Democrats might not be so fond of,” Oppenheimer said.
Instead, some Republicans are leading the opposition to the proposal and a Democrat, Obama, is suggesting disposing of an iconic symbol of the New Deal.
“When we’re looking for new revenue, we’re going to look under every rock possible,” Oppenheimer said in an interview. “One of those rocks is the government has is assets it could sell.”
But those assets have backers in Congress, and the pushback on the TVA shows that raising revenue through privatization could be a tough political fight.
Besides the Tennessee authority, the U.S. government also operates four western power authorities that provide electricity to constituents there.
Senator Ron Wyden, an Oregon Democrat and chairman of the Senate Energy and Natural Resources Committee, “shares concerns” about the potential sale of the TVA, his spokesman Keith Chu said in a statement.
Wyden’s Oregon constituents get power from the government-run Bonneville Power Administration, which operates 31 hydropower projects in the Columbia River Basin.
Federally owned energy producers “have been a bedrock of local economies,” Chu said. “It would be shortsighted to sell off this kind of public asset in search of short-term revenues.”
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