TVA future cloudy; chance of thunderstorms
October 12, 2009
Looking back down a winding trail of 20/20 hindsight, it clearly would have been impossible to have predicted where the Tennessee Valley Authority now resides. From point ‘A’ in 1933 to today’s point ‘B’ is revealed a breathtaking exploration into not just federal government experimentation but a ghastly mismanaged federal agency that has taken a misguided law and magnified its authority even beyond anything its instigators believed possible.
Driven by pure politics, the TVA became the birthed evidence of a Republican senator from Nebraska, George W. Norris. His passion to turn the electricity producing Tennessee River into a federally owned and operated power producing giant was exceeded only by his obstinate objections for it to be controlled by industrialists Henry Ford and Thomas Edison, magnates of the 1920s.
Woodrow Wilson in the heat of World War I, decided there was a need to manufacture munitions for the war in a place inland and less prone to enemy attack. The Shoals area of north Alabama seemed ideal. There was plenty of falling water to turn electricity producing turbines for their production.
Munitions, however, were never produced because the war ended in 1918 before much work had been completed. Wilson Dam was partially finished but it was producing some electricity.
The next administrations wanted to sell or lease the surplus government lands at the Shoals to private enterprise and when Ford and Edison visited the site on December 3, 1921, a great flurry of real estate speculation began. That boom lasted until it was clear that Ford and Edison were out of the picture. Land speculation was rampant; there was great hope for the industrialization of the Tennessee Valley; it meant enormous growth and many thousands of jobs. Alabama’s senators and congressmen all supported those possibilities but were overruled by Congress.
The government prevailed, much from the effort of Sen. Norris and the support of FDR who despised what Ford and Edison represented. FDR “rewarded” Norris with the TVA Act of 1933. Then Norris pushed for “little TVA’s” which the Congress wisely rejected because of their clear direction toward more socialism.
I had the opportunity to inspect the layout of the small city now part of the city of Muscle Shoals that was planned for residential and industrial construction on the Alabama side of Wilson Dam. There was a school building, a fire station, water tower and curbed streets but then they were plagued by tumbleweeds when I saw it in the 1960s. Many speculators from everywhere lost money. And as the land became titleable again, (40 years in Alabama,) many of the smaller lots were combined and some very nice homes now occupy the land.
From the 1930s records, it is clear that efforts by the TVA did not help get the U.S. out of the Great Depression nor did the many New Deal programs of the era. A case can be made that the New Deal had the opposite effect and helped extend the depression for another five years. A current and very readable book, “The Forgotten Man”, by Amity Shlaes puts a lot of the blame on FDR and the triumvirate of his appointed TVA directors.
For a body with such power, it is incredible that an unelected and presidentially appointed 3-member board could hold sway over millions of Americans for so long. Congress, mostly absent from oversight of the TVA for decades, later approved a nine-member part time board with a full time CEO appointed by the board. And if possible, matters concerning the TVA went even further down hill.
Two significant issues contribute to TVA’s present morass. There are no congressional appropriations, ergo the Congress pays no attention to the TVA organization they are responsible for overseeing. The second and perhaps the most insidious reason why TVA rarely is complained about by elected officials in seven states is their “bribes” in lieu of taxes program.
TVA recently paid out over $450,000,000 to state and local governments whose citizens use TVA electricity. This money is entirely controlled by politicians at the state and local government levels. Some of the TVA money for Alabama, for example, goes to “dry” counties that have nothing to do with TVA. In one instance, money sent to a dry county on the Alabama/Florida line was doled out to a community that had not held a city election for forty years. They in essence flipped a coin for who would be “mayor”.
As a profit making enterprise, TVA is a disaster although it likes to compare itself with other investor-owned utilities. TVA plain and simple is a federal government agency that gets away with what other utilities cannot. The “bribes” in lieu of taxes is a farce. If TVA paid its fair share of taxes to state and local governments the whole South would benefit in amounts much greater. As it is now, the payoff is funneled through “slush funds”.
If TVA were required to get approvals from seven state public utility commissions for rate changes, TVA’s whole operation would be turned on its head and undoubtedly consumer rates would be less; the rates would have to be justified.
There is one similarity between TVA and other utilities however. Most all of them operate on the “sustained growth” model, that is, the increased need for electricity will grow at about 2% per year and peak-load construction must follow. But recently there has been a push for “conservation” to reduce the need to build more capacity. And here’s the paradox; electricity production does not conveniently fit the conservation model.
Schemes are being developed to take the control of individual thermostats out of consumer’s hands and to manipulate them to “shave off” peak load requirements. The government shuts down private appliances when they deem it necessary without prior notice. That’s the kind of muzzle most Americans deplore.
They call them “smart grids” and utilities around the country are experimenting with them. Some would say, and I am one of them, that this idea steals away part of our freedom to choose whether we can be stupid and pay too much for electricity or not. However, with the proper incentives, I might want to change my habits and to choose to use less electricity.
Remember the $450 million slush fund money TVA doles out annually for using more electricity? Well, that money could be used to incentivize consumers by offering “bonuses” to those who use less power. And this could be reflected in the next month’s power bill. All of TVA’s distributors already know who uses how much power. It would not be too complicated using existing accounting processes to advise customers how they could save real money, not just from all of the existing “helps” now offered by utilities such as insulating, low-watt light bulbs, etc.
The utilities have information; all they have to do is to devise real and practical dollar-incentives to cut down electricity usage.
Presently, there are few constraints on TVA management. They seem unaware that there is a $30 billion cap on TVA borrowing and they have willy-nilly obligated far more than that. TVA seems also to forget that it is “self-funded” and that proceeds come only from ratepayers; there are no subsidies, stimulus monies or other sources of income to TVA, a federal agency.
Theoretically, TVA should operate on a balanced budget, i.e., outgo not to exceed income. But TVA operates far from that reality and is deeply in debt and sinking deeper. Recently, TVA sold $1.5 billion in 30-year bonds just to pay off some interest.
When does the balloon go “pop”?
The Obama administration has named two persons to fill two of four vacancies on the TVA board for approval by the Senate. Left-leaning Democrats, they would seem to meet Obama administration criteria. One wonders why all four vacancies could not be filled at the same time for a fresh start for TVA.
While a newly appointed TVA board majority might like to start from scratch to set new policies, to reorganize a badly organized management structure, to change the TVA culture, and to quell an overly litigious legal staff, the new board will not be able to luxuriate in another few months of “we’re going to do it” and to continue the present board’s unaccountability posture.
Unfortunately for the new board there is too much presently that must be dealt with; primarily in TVA’s financing. It is operating in an insolvent manner and its finances must be corrected immediately. Declining income from electricity sales only exacerbates their predicament. Best to get the bad news out to ratepayers that TVA has overextended its credit and the bills are coming due. And the bills are marked “Ratepayer”.
For a bit more of a futuristic look at the TVA, consider this: That the Obama administration will use the TVA as a vehicle to further the nationalization of the electricity industry. But hopefully not by emulating the Mexican takeover of a 40,000 person power utility that now is to be run by the equivalent of the U.S. Department of Energy.
The takeover was dramatic in that Mexican soldiers were used; job replacements were made on the spot. Some say it was to crush the powerful electrical workers union in Mexico.
Ernest Norsworthy
http://norsworthyopinion.com
emnorsworthy@earthlink.net