B-200760.OM, DEC 31, 1980

B-200760.OM: Dec 31, 1980

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AFTER THE PROJECTS WERE INITIATED. IT APPEARS THAT IF THE PLANTS ARE COMPLETED. TVA WILL HAVE TO DISPOSE OF THE EXCESS POWER. TVA IS CURRENTLY CONSIDERING WHETHER TO COMPLETE THE PROJECTS. WE CONCLUDE THAT WHILE THE TVA IS NOT LEGALLY PROHIBITED FROM COMPLETING THE PLANTS. DISCUSSION TVA IS A FEDERAL CORPORATION CREATED IN 1933 TO DEVELOP THE TENNESSEE RIVER DRAINAGE BASIN AND ITS ADJOINING TERRITORY. THE TVA ACT WAS AMENDED TO GRANT THE TVA BORROWING POWER. THE 1959 AMENDMENT LIMITED THE AREAS TO WHICH TVA OR ITS DISTRIBUTORS SUPPLIED POWER: "UNLESS OTHERWISE SPECIFICALLY AUTHORIZED BY ACT OF CONGRESS THE CORPORATION SHALL MAKE NO CONTRACTS FOR THE SALE OR DELIVERY OF POWER WHICH WOULD HAVE THE EFFECT OF MAKING THE CORPORATION OR ITS DISTRIBUTORS.

B-200760.OM, DEC 31, 1980

SUBJECT: TVA CONSTRUCTION OF POWER PLANTS (FILE B-200760)

SUPERVISORY AUDITOR, EMD - JOHN A. BROWN:

THIS SUMMARIZES MY RESEARCH AND CONCLUSIONS CONCERNING THE AUTHORITY OF THE TENNESSEE VALLEY AUTHORITY (TVA) TO COMPLETE CONSTRUCTION OF NUCLEAR PLANTS WITH THE INTENT TO SELL EXCESS POWER TO OTHER UTILITIES. WHEN TVA BEGAN CONSTRUCTION OF THESE PLANTS, IT HAD BEEN PROJECTED THAT THE POWER WOULD BE NEEDED IN THE 1980'S. HOWEVER, AFTER THE PROJECTS WERE INITIATED, THE DEMAND FORECAST WENT DOWN, AND IT APPEARS THAT IF THE PLANTS ARE COMPLETED, TVA WILL HAVE TO DISPOSE OF THE EXCESS POWER. TVA IS CURRENTLY CONSIDERING WHETHER TO COMPLETE THE PROJECTS.

YOU ASKED WHETHER IT WOULD BE LEGAL FOR TVA TO CONTINUE BUILDING THE NUCLEAR PLANTS WITH THE INTENTION OF SELLING THE EXCESS POWER. FOR THE REASONS EXPLAINED BELOW, WE CONCLUDE THAT WHILE THE TVA IS NOT LEGALLY PROHIBITED FROM COMPLETING THE PLANTS, IT WOULD BE PRECLUDED FROM DOING SO AS A PRACTICAL MATTER BECAUSE THE TENNESSEE VALLEY AUTHORITY ACT (TVA ACT) PROHIBITS IT FROM MARKETING THE EXCESS POWER OUTSIDE A STATUTORILY PRESCRIBED AREA. TVA ACT, SEC. 15D, 16 U.S.C. SEC. 831N 4.

DISCUSSION

TVA IS A FEDERAL CORPORATION CREATED IN 1933 TO DEVELOP THE TENNESSEE RIVER DRAINAGE BASIN AND ITS ADJOINING TERRITORY. TENNESSEE VALLEY AUTHORITY ACT OF 1933, 48 STAT. 58; 16 U.S.C. SECS. 831 ET SEQ. IN 1959, THE TVA ACT WAS AMENDED TO GRANT THE TVA BORROWING POWER, ELIMINATING TVA'S NEED TO SEEK ANNUAL APPROPRIATIONS. PUB. L. 86-137, 73 STAT. 280. THE 1959 AMENDMENT LIMITED THE AREAS TO WHICH TVA OR ITS DISTRIBUTORS SUPPLIED POWER:

"UNLESS OTHERWISE SPECIFICALLY AUTHORIZED BY ACT OF CONGRESS THE CORPORATION SHALL MAKE NO CONTRACTS FOR THE SALE OR DELIVERY OF POWER WHICH WOULD HAVE THE EFFECT OF MAKING THE CORPORATION OR ITS DISTRIBUTORS, DIRECTLY OR INDIRECTLY, A SOURCE OF POWER SUPPLY OUTSIDE THE AREA FOR WHICH THE CORPORATION OR ITS DISTRIBUTORS WERE THE PRIMARY SOURCE OF POWER SUPPLY ON JULY 1, 1957 PLUS ADDITIONAL PERIPHERAL AREA.

"NOTHING IN THIS SUBSECTION SHALL PREVENT THE CORPORATION OR ITS DISTRIBUTORS FROM SUPPLYING ELECTRIC POWER TO ANY CUSTOMER WITHIN ANY AREA IN WHICH THE CORPORATION OR ITS DISTRIBUTORS HAD GENERALLY ESTABLISHED ELECTRIC SERVICE ON JULY 1, 1957, AND TO WHICH ELECTRIC SERVICE WAS NOT BEING SUPPLIED FROM ANY OTHER SOURCE ON THE EFFECTIVE DATE OF THIS ACT.

"NOTHING IN THIS SUBSECTION SHALL PREVENT THE CORPORATION, WHEN ECONOMICALLY FEASIBLE, FROM MAKING EXCHANGE POWER ARRANGEMENTS WITH OTHER POWER GENERATING ORGANIZATIONS WITH WHICH THE CORPORATION HAD SUCH ARRANGEMENTS ON JULY 1, 1957, NOR PREVENT THE CORPORATION FROM CONTINUING TO SUPPLY POWER TO LIST OF SPECIFIC AREAS TO WHICH POWER MAY BE SUPPLIED ***."

TVA ACT, SEC. 15D; 16 U.S.C. SEC. 831N-4.

ONE OF THE PRIMARY PURPOSES OF SECTION 15D WAS TO PROTECT PRIVATE UTILITIES, IN THE ABSENCE OF CONGRESS' BUDGETARY CONTROL, FROM TVA COMPETITION. SEE, 105 CONG. REC. 13053 (JULY 9, 1959). CONSEQUENTLY, A PRIVATE UTILITY HAS STANDING TO MAINTAIN A SUIT CHALLENGING TVA'S TERRITORIAL EXPANSION. HARDIN V. KENTUCKY UTILITIES CO., 390 U.S. 1 (1967) (TVA'S DETERMINATION THAT IT COULD EXPAND SALES IN SUBJECT COUNTY UPHELD ON FACTS OF CASE).

ON THE BASIS OF THE PROHIBITION IN THE 1959 ACT, TVA HAS REJECTED REQUESTS TO SUPPLY POWER OUTSIDE ITS DESIGNATED AREA. (NUMEROUS EXAMPLES ARE IN YOUR FILE OF CORRESPONDENCE BETWEEN TVA AND VARIOUS POWER COMPANIES OR THEIR COUNSEL).

SECTION 15D PROHIBITS TERRITORIAL EXPANSION "UNLESS OTHERWISE SPECIFICALLY AUTHORIZED." WE WERE UNABLE TO LOCATE EVIDENCE THAT CONGRESS HAS EVER GIVEN ANY SPECIFIC AUTHORIZATIONS. THAT CONGRESS HAS NOT MADE ANY STATUTORY EXCEPTIONS IS SUPPORTED, FOR EXAMPLE, BY A MARCH 9, 1978, LETTER FROM THE TVA DIRECTOR TO CONGRESSMAN GUDGER STATING:

"SINCE 1959 THERE HAVE BEEN NUMEROUS INQUIRIES CONCERNING THE POSSIBILITY OF TVA SUPPLYING POWER FOR USE OUTSIDE THE DESIGNATED AREA. SO FAR CONGRESS HAS NOT SEEN FIT TO MAKE ANY CHANGES IN THE DESIGNATED AREA. TVA HAS NOT CONSIDERED IT TO BE APPROPRIATE FOR IT TO SEEK OR TO ACTIVELY SUPPORT LEGISLATION AUTHORIZING THE SUPPLY OF POWER BY TVA TO ONE PARTICULAR AREA ***."

TVA'S TERRITORIAL LIMITATIONS DO NOT COMPLETELY BAR IT FROM DISPOSING OF EXCESS POWER OUTSIDE THE PRESCRIBED AREA, AS THE TVA ACT AUTHORIZES THE TVA TO ENTER INTO CONTRACTS FOR THE EXCHANGE OF POWER, WHEN ECONOMICALLY FEASIBLE, WITH SYSTEMS "WITH WHICH THE CORPORATION HAD SUCH ARRANGEMENTS ON JULY 1, 1957." IN ADDITION, TVA MIGHT BE ABLE TO DISPOSE OF POWER OUTSIDE THE AREA THROUGH A "BACK DOOR" METHOD. COMPANIES WITH WHICH TVA HAS EXCHANGE POWER ARRANGEMENTS MIGHT ALSO BE PARTIES TO EXCHANGE POWER AGREEMENTS WITH OTHER GENERATING ORGANIZATIONS. THUS, TVA MIGHT TRANSFER POWER TO A PERMITTED COMPANY, WHICH IN TURN, TRANSFERS THE POWER TO AN OUTSIDE COMPANY. TVA HAS NO CONTROL OVER THESE LATTER AGREEMENTS AND THEY DO NOT CONSTITUTE AN EXCHANGE POWER AGREEMENT WITH TVA AS PROHIBITED BY THE TVA ACT. ALSO, CONTROL BY TVA OF THESE THIRD-PARTY ARRANGEMENTS WOULD BE IMPRACTICABLE. (SEE, E.G., TVA GENERAL COUNSEL'S LETTER TO ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF JUSTICE, ANTITRUST DIVISION, UNDATED).

IN CONCLUSION, THE TVA ACT DOES NOT PROHIBIT TVA FROM COMPLETING THE NUCLEAR PLANTS. HOWEVER, THE ACT DOES PRECLUDE TVA FROM SELLING ITS EXCESS POWER OUTSIDE A STATUTORILY PRESCRIBED AREA. THEREFORE, TVA'S COMPLETION OF THE PLANTS APPEARS TO BE IMPRACTICABLE, EVEN IF TECHNICALLY LEGAL.