Speak Your Piece: TVA, Let’s Make a Deal

]President Obama suggests it’s time to sell the beleaguered Tennessee Valley Authority, an “experiment” that began with promise but delivered a series of failures. In a strange twist of fate, a Democratic president is in a stronger position to accomplish what his Republican predecessors could only dream of – getting rid of one of the first creations of FDR's New Deal.

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In one of those really strange events one normally associates with the Book of Revelation or an Onion article that gets taken for real by someone who watches too much Fox News, President Obama proposed on page 51 of his new budget document last week that the federal government review its options for selling all or part of the Tennessee Valley Authority. 

Those who know the history of the New Deal and this mid-South agency have to know that both FDR and Eleanor Roosevelt turned over in their graves, along with such last century famous liberals like Senator George Norris, David Lilienthal, Adlai Stevenson… Oh, just make it about every New Dealer, liberal Democrat, socialist leaning pundit, and public works advocate you ever or never heard of. We’re talking world turned upside down here, folks.

TVA is one of two enduring federal agencies that were created in the famous “first 100 days” of President Franklin Roosevelt’s first term. The other is the agency that guarantees bank deposits, the FDIC. The other 13 bills and the agencies they created are long gone, most long forgotten. 

When FDR leaned back in his chair on May 18, 1933, and handed Senator George W. Norris of Nebraska the pen with which he had just signed the TVA Act, he proclaimed that he had just 

FDR signs the TVA Act in May 1933, during the first 100 days of his administration. Senator George Norris, a key proponent of the agency, stands far right.
created a federal corporation “clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” When a reporter asked FDR to explain that statement, the president said, “It will be neither fish nor fowl, but it will taste good to the people of the Tennessee Valley.”  So why would a liberal Democrat president propose to sell such a tasty morsel of federal largesse and public power to a bunch of nasty private utilities?

What makes Obama’s proposal even more startling is that selling TVA is one of the most enduring Republican ideas. Eisenhower, Goldwater and Reagan, to invoke just a few famous Republican names, have favored selling off TVA or severely restricting its operations. For another glimpse of this new upside down world, the first U.S. senator out the gate with a condemnation of Obama’s proposal was Lamar Alexander, Republican of Tennessee. Congressional Republicans in the seven-state TVA service territory immediately joined the senior Tennessee senator in assuring their constituents that Obama’s proposal would go nowhere. Part of the reason is that TVA, while not nearly as flavorful to its power consumers as it once was, is still popular in the valley because its lakes are prime recreation areas. The other part is that a politician who needs to reward a fine upstanding supporter can get that person a cushy seat on the TVA board. Never mind that they have never run an enterprise bigger than a book store, could not tell the difference between a nuclear plant’s control rods and a stiff black snake, and know less about regional economic development than Dolly Parton, the entrepreneurial proprietor of Pigeon Forge Tennessee’s popular theme park, “Dollywood.”

FDR gave the TVA a very broad mission, saying it was created “for the especial purpose of bringing about in said Tennessee drainage basin and adjoining territory … the maximum amount of flood control; the maximum development … for navigation purposes; the maximum generation of electric power consistent with flood control and navigation; the proper use of marginal lands; the proper method of reforestation … and the economic and social well-being of the people living in said river basin; and to provide for the national defense.” He was also hopeful that TVA would represent a “return to the spirit and vision of the pioneer.”

“If we are successful here,” he said, “we can march on, step by step, in the like development of other great national territorial units within our borders.” That march on the rest of the nation never happened, in part because of the TVA’s own record.

Norris Dam, completed in 1935, was TVA’s first, built to generate electricity and control flooding. The project also displaced families who had lived in the river valley. In all, 125,480 residents lost their homes to “permanent flooding” by TVA reservoirs.

The three-member board was at odds on what the primary mission of the agency should be from the very start. Roosevelt appointed Arthur Morgan, the president of Antioch College, as chairman. Morgan wanted to use his engineering visions to fashion a whole new Southern culture, and the agency’s first dam and new town, Norris, in Appalachian Tennessee was meant to be a reflection of that new thinking. Harcourt Morgan (no relation), a land-grant university entomologist who had done research on the boll weevil, got the second seat. The third seat, on the recommendation of Supreme Court Justice Louis Brandeis, went to a young activist on the Wisconsin Public Service Commission, David Lilienthal. Lilienthal thought the agency should be mainly about the power program, and he eventually won out as Washington’s favorite, eventually leaving the TVA chairmanship to become the head of the Atomic Energy Commission.

In its early days the TVA managed to carry out much of Roosevelt’s objectives. It tamed the Tennessee River, the nation’s fifth largest, eliminated malaria, undertook extensive reforesting of eroded land, taught famers better methods of farming and fertilization and insisted on hiring its own work forces to build and operate all its dams and power plants. It created municipal power cooperatives to buy and sell its electrical output. 

But all the celebrated progress had downsides. In its entire history TVA has through its power of eminent domain forced the removal of 125,480 people from their homes in a territory about the size of New England. To solve occasional flooding, charged Nashville writer Donald Davidson, TVA had created a 2 million acre “permanent flood.” Lilienthal insisted that TVA represented “democracy on the march,” but the TVA board did not hold open board meetings until late in the last century.

FDR, a critic of private utilities when he was governor of New York, said he wanted TVA to be a “yardstick” by which to measure private utilities. At TVA headquarters in Knoxville, that presidential suggestion was taken as an iron law to keep electricity prices low. The directors saw that, and TVA’s role in supplying power for uranium enrichment at Oak Ridge and Paducah, Kentucky, for nuclear weapons, as the chief political means of keeping the private utilities and the Republicans at bay. TVA by end of World War II had built 20 dams and backed up enough water to cover the entire state of Illinois to a depth of eight inches and poured enough concrete and piled up enough dirt to exceed that of the Great Pyramids by 12 times.

Towers from the Cumberland Fossil Plant near Cumberland City, Tennessee, emit steam. TVA has a history of vigorously opposing efforts to make the utility clean up its coal-plant emissions.
By 1953 TVA had built seven coal-fired plants, its aggressiveness demonstrated in building the largest ones in the world or employing new ideas like bulldozing the tops off mountains to get coal out of the ground at a cheaper price. With power rates as much as 45% below the national average, TVA was soon attracting power-hungry factories like aluminum plants to the region. President Eisenhower was not impressed. The general accused the agency of using federally subsidized power to steal factories from other areas. He pronounced the agency an example of “creeping socialism,” and told his cabinet, “By God, if ever we could do it, before we leave here, I’d like to see us sell the whole thing, but I suppose we can’t go that far.” The general lost that war to Democrats who saw TVA as a bold new experiment in government.

By the 1970’s TVA was well on its way to getting on the wrong side of history. Its coal-mining policies, especially its large purchases of strip-mined coal, much of it mined by non-union operators, was becoming a matter of public controversy. So was the destruction of soybean crops in western Kentucky from the particulates and sulfur dioxide that were being emitted from the agency’s plants that had no scrubbers or emission controls. Acid rain in the Great Smoky Mountain National Park was being traced to agency coal plants. With the Nixon administration’s newly created Environmental Protection Agency demanding that it clean up its coal plants, TVA went on the warpath. It insisted, under the leadership of Chairman Aubrey “Red” Wagner, that instead of scrubbers on its plants, the best solution was tall stacks to spread the pollutants over a wider area. Even though EPA identified TVA as the largest emitter of sulfur dioxide in the U.S. South, Wagner argued that the “solution to pollution is dilution” through taller smokestacks. TVA attorneys even argued that a clause in the Clean Air Act that exempted military base plants from cleanup should apply to the agency. TVA made sure its ratepayers knew the EPA was the cause of higher power rates for cleanup.

Wagner saw nuclear power as the solution that would keep the agency a low-cost producer of power, but he never lost his affinity for coal. At one point the three directors made a secret bid for Kennecott Copper’s Peabody Coal Company, a shocking move that led to first congressional oversight hearings in the agency’s history. The agency backed down. But it used the same hubris and arrogance in building its nuclear plants, using its own work force that had no experience in nuclear construction. The first plant online, the Browns Ferry plant in Alabama, was the largest boiling-water reactor in the world when completed, and it was the first plant in the United States to scare the living hell out of supporters of nuclear power. A TVA worker was using a candle to check for air leaks under the reactor’s control room in 1975 and set the sealant on critical cables on fire, endangering the ability of operators to control the reactors. TVA tried to put the fire out with chemical extinguishers but failed. The local volunteer fire department showed up and suggested using water. That worked, but TVA was on the regulator’s watch list for the worst accident “precursor” prior to the nuclear disaster at Three-Mile Island in Pennsylvania in 1979.

TVA’s Browns Ferry Nuclear Power Plant Unit No. 1 in Alabama. The plant was shut down after a fire in 1975 and again in 1985 for operational and management issues.

The costs of the five nuclear plants that were sited or under construction by 1976—a total of seven, the nation’s largest commitment, were planned—began to spiral out of control. The agency, which was required in 1959 to begin using bonds to finance its plants, was soon in major debt and being forced to raise its rates further. As rates rose and an aroused public began to understand that three directors in Knoxville could raise their rates at will, no public service commission or state government input required, the governors of the TVA states began to demand changes in the board. Eventually the board was forced to open its meetings to the public.

Dismayed by the TVA’s public policy positions against clean air regulations, mine safety regulations, strip mining controls and its resistance to the dictates of the Nuclear Regulatory Commission, its supporters in the region and its fans on the national political scene began to wonder aloud “if the TVA has lost its soul.” Author and environmental leader Harry Caudill charged that the agency “is the very epitome of everything evil in the destruction of nature for gain.” To critics of its coal policies like Caudill, TVA’s reclamation director, James Curry, said “strip mining is part of the American Way.” Caudill replied, “that is a mockery of the conservationist vision” of the founders of the agency.

Wagner and the top executives of the agency remained as much or more outspoken against EPA, NRC and other regulators than private utility executives. In 1977 President Carter appointed S. David Freeman, a recognized expert on energy conservation and public power, to head the agency. Freeman was quick to move the agency to clean up its plants, instituted power saving measures to industry and residential customers and began cancelling the most expensive nuclear plants. But Freeman’s leadership in transparency and conservation were resisted inside the agency and when his term expired, the bureaucracy went back to its preferred ways of operating, perhaps with a smoother public relations approach.

J. Miles Carey/Knoxville News-Sentinel
In 2008 a major coal-ash sludge spill at the Kingston, Tennessee, plant destroyed homes and fouled the Clinch and Emory rivers.
Today TVA has a larger board and an executive from a private utility in charge of trying to fix its problems. It also has $24 billion in outstanding debt, which caught the attention of Obama’s budget team because the agency will need to exceed soon its $30 billion federal debt ceiling to comply with new EPA standards on coal-fired plants.  A 2008 failure of an ash sludge pond at the agency’s Kingston plant made national news and stands as a reminder that this agency is far from being a leader in anything related to power generation. It is a “yardstick” of far less than 36 inches any way one wants to measure.

Technically, the debt of TVA is not formally a taxpayer obligation, but the lower interest rates at which it borrows implies that the bond market believes there is an implicit federal debt guarantee. As a matter of fact, TVA’s outstanding bonds declined in value last week when the Obama proposal was made public. Those who have followed the recent debt crisis will recall that the debt of both Fannie Mae and Freddie Mac were not strict legal obligations of taxpayers, but they were bailed out anyway. TVA’s debt is added into the federal national debt, however, something that would end if the agency were sold.

Dismantling TVA is no great challenge. It may not happen over the debt issue, but it should happen for an even greater and nobler reason: the failure of a dream, the corruption of key principles of democracy and the arrogance of power. This experiment has not raised the economic livelihood of its region to anything approaching the national average; in fact, its service territory is about at the same economic levels as the Appalachian region. Its power program is far less pioneering than many of the nation’s private utilities. Its leadership for the most part is uninspiring, and given the political spoils to be had, that is apt to get worse, not better. So, for the good of the people of the valley and the nation, let’s dismantle it. 

Here’s how:

  • Auction the generating stations and main transmission lines to the highest bidder. Potential candidates include the neighboring private utilities, but there is apt to be considerable interest from power generation companies around the world. In addition, several international pension funds and private venture funds would be interested in stable assets that have a toll-road kind of predictability for future cash flows.
  • Keep the municipal distributors and power cooperatives in place. Many in other areas of the country buy power from private entities but find creative ways to serve their customers with electricity and other products.
  • Turn management of the Tennessee River dams and locks over to the Army Corps of Engineers. There is no evidence that the TVA is any more competent than other federal agencies in managing river flows and river transportation.
  • Recreation on the lakes can be capably managed by any number of federal and state agencies. For example, the Land Between the Lakes National Recreation Area, which TVA created, is already managed by the U.S. Forest Service, and the Army Corps manages recreation for its own lakes.
  • The state of Tennessee will have to create a much larger public service commission, but all the other six states already have the capacity to regulate rates and do so in a more transparent and democratic manner than TVA.
  • TVA employees currently working in power generation and construction should be transferred to the buyer of the power stations. The transition from TVA employees to private employment should not be that difficult, since TVA was exempted in the original legislation from many federal employment statutes.
  • The 201 counties in the TVA region will immediately gain new tax revenue to replace the in-lieu and low payments made by the agency.

This is not a difficult task, the politics aside. Given that the Republicans have always wanted to sell it and the leading Democrat now has joined them, we have the possibility of a truly bipartisan exit from this experiment. 

TVA earned $60-million last year on revenues of $11.2-billion. That is a truly pitiful performance. It’s time to move on; the taxpayers of America deserve a new deal. Foot long yardsticks belong in the dustbin of history. Sorry, FDR, both the fish and the fowl have lost their taste for the TVA.

James Branscome of Montrose, Colo., is the retired managing director of equity research services for the Standard & Poor’s division of McGraw-Hill Cos. He covered TVA and strip mining for The Mountain Eagle of Whitesburg, Ky., in the 1970s and ’80s. His articles on TVA appeared in regional and national press, particularly the Washington Post, where he was special correspondent for 10 years, covering the South, coal and the United Mine Workers.

 

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