Obama and Reagan Agree: Divest the Tennessee Valley Authority

Buried in the Obama administration’s fiscal year 2014 budget is a commitment to undertake a “strategic review of options for addressing the Tennessee Valley Authority’s (TVA) financial situation, including the possible divestiture of TVA, in part or as a whole,” says William Newman, senior adviser to HC Project Advisors in Washington, D.C.

The TVA’s primary function is power generation and transmission, hardly a necessary federal function given the ubiquity of private sector power provision in this country. In addition, TVA provides navigation maintenance on and flood damage reduction from the Tennessee River and its tributaries.

The administration’s rationale is eminently reasonable.

Divestiture, in whatever form, would bring two major benefits to taxpayers.

First, according to the Congressional Budget Office, a divestiture of TVA would avoid adding roughly $10 billion to the federal deficit over the next decade through additional capital outlays.

Second — and more importantly — a divestiture of TVA avoids another bailout of a “Too Big to Fail” government sponsored enterprise.

How then might the federal government divest TVA’s power generation and transmission functions? Three options seem worth evaluating: a public offering, an asset sale and a divestiture to the states.

TVA’s power service territory includes most of Tennessee and parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina and Virginia, covering 80,000 square miles and serving more than 9 million people.

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