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TVA’s Financial Reins to be Tightened Under Bush Proposal
While praising its safety record and consistently high government ratings, President Bush wants tighter financial controls for the Tennessee Valley Authority (TVA) in place by Sept. 30 to reduce its burgeoning debt and improve its stature in the competitive electric marketplace.
TVA had a 1997 plan that would have reduced its debt to $13 billion by 2007, according to the Office of Management and Budget (OMB), but dropped that plan while its debt grew “significantly” above original target levels. Although TVA’s debt is statutorily capped at $30 billion, it had outstanding bonds and notes totaling $25.3 billion at the end of 2002.
However, OMB noted that the amount of debt “gives an incomplete picture of TVA’s debt position, because it excludes $865 million in lease/leaseback arrangements.” Because its current leasing arrangements are “unclear,” the budget proposes legislation to ensure that the financial arrangements are equivalent to traditional debt financing and are included under TVA’s debt cap.
Basing its numbers on TVA’s 1997 debt plan, the Bush administration wants to bring TVA’s debt level to a range of $13-$15 billion, which would position it for a more competitive marketplace. Bush’s proposal would reduce TVA’s planned debt reduction over five years to about $24 billion in 2008, including lease-lease-backs counted as debt. “However at this rate, it will take 25 years to get to the higher end of the ‘healthy’ debt level range,” according to OMB.
“Moreover, if TVA carries out planned capital construction actions, such as completing the Brown’s Ferry nuclear plant using its own debt directly or creating more long-term liabilities, it may actually increase rather than decrease its debt, further compromising its competitive position in a restructured electricity market,” OMB officials noted. “Debt reduction and a sound strategic plan are key elements needed to ensure that TVA continues to aid economic development in its service territory in the future. “
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