Privatization Issues

Privatizing Tennessee Valley Authority

The federal government is the nation's larger electric power producer, as owner and manager of the Tennessee Valley Authority (TVA) and five regional power marketing administrations. But its electric businesses are poorly managed, grossly inefficient and depend on substantial taxpayer subsidies, according to a new study.

Since electrical power deregulation is fast-approaching, privatizing the federal power companies now makes sense.

  • The Clinton administration proposed privatizing the four smaller power administrations and restructuring the Bonneville system in the Pacific Northwest into a federal corporation similar to the TVA.

  • The United States lags behind other countries in freeing itself from the power generation business -- worldwide asset privatization of electric utilities totaled $12.9 billion in 1995.

  • Nations from Chile to Great Britain have begun ambitious electricity privatization programs to raise capital to reduce their national debts and improve the efficiency and performance of their industries.

The sale of all federal power enterprises would raise between $15 billion and $30 billion, and the former head of the TVA estimates that agency alone could sell for as much as $10.5 billion.

Additionally, removing the special tax advantages given government-owned utilities and cooperatives would increase federal tax revenues by $3 billion per year, and states would gain another $2 billion annually.

The study recommends transitional price-caps on electric rates and stock-purchase options for customers to minimize rate increases.

Source: Douglas A. Houston, "Federal Power: The Case for Privatizing Electricity," Policy Study No. 201, March 1996, Reason Foundation, 3415 S. Sepulveda Boulevard, Suite 400, Los Angeles, CA 90034, (310) 391-2245.

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