Shedding Light on Tennessee Valley Authority Debt
Posted on May 18, 2017
On this date in 1933, President Franklin D. Roosevelt signed the law that brought the Tennessee Valley Authority into existence. It is now the country’s largest public power provider, delivering electricity to more than 9 million people.
The electric utility industry requires huge upfront investments to ensure that utilities can meet future energy needs. The 84-year-old TVA, however, is already billions of dollars in debt—and needs to fund its pensions on top of that. Today’s WatchBlog explores TVA’s debts and what it needs to do to prepare for the energy demands of the future.
Getting squeezed
When TVA’s customers pay their bills, the money goes toward running, administering, and maintaining TVA’s current operations. In contrast, TVA primarily finances large capital investments (such as constructing new power plants) by issuing bonds. By law, TVA has a $30-billion limit on bonds and other types of debt. As of September 2016, TVA’s debt totaled about $26 billion—about $24 billion of which TVA counts toward the limit.
These debts, coupled with the requirement to keep rates as low as feasible, makes large capital investments challenging. To ensure that it can make future investments, TVA plans to reduce its debt by $4 billion (by fiscal year 2023) by:
- increasing rates
- limiting the growth of operating expenses
- reducing capital expenditures
TVA’s pension liabilities add to these financial woes. Its pension plan was only about 54 percent funded as of September 30, 2016. Although TVA hasn’t increased its debt much over the past decade, the plan’s unfunded pension liabilities have steadily increased. Moreover, the agency continues to invest in nuclear projects while deferring full recognition and funding of pension liabilities, which means TVA may need to raise rates in the future to fund those liabilities.
(Excerpted from GAO-17-343)
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