For decades, North Alabama's been getting a pretty sweet deal on electricity rates, courtesy of the Tennessee Valley Authority. But President Obama's budget proposal released yesterday may change that. The budget suggests that debt concerns make make it necessary to sell TVA to private businesses.
The privatizing of TVA “can help put the nation on a sustainable fiscal path,” according to Obama's budget. The passage addressing TVA closes by saying his administration intends to review options for TVA, “including the possible divestiture of TVA, in part or as a whole.”
You have to wonder if this is an actual proposal, or a shot across the bow of the Republican deficit hawks who hate all federal expending – that doesn't directly affect their districts.
Take AL-05 Congressman Mo Brooks (please!), for example. Fresh off his assertion that President Obama is a “Socialist” who is “in denial” about the nation's debt, Brooks quickly changed his tune yesterday and defended this New Deal legacy program:
Brooks said that assertion is “unsupportable and inexplicable,” pointing out that TVA is self-sustaining and receives no tax subsidies. Brooks also questioned if TVA's assets could be sold for a profit.
But he's willing to “consider it,” only if “…President can make that case to Tennessee Valley citizens that doing so will lower the costs of electricity to TVA consumers and is in America's interests.”
Um…. isn't it written somewhere in the Conservative Bible that private industry is always more efficient than the government? We hear that talking point all the time even though it's patently false: private businesses have the resources to stack the deck in their favor via lobbying for tax breaks and even getting guaranteed profits.
Alabama Power executives no doubt already have their accountants busily calculating the financial windfall should the company be allowed to snap up even a portion of TVA's assets and customer base. Unlike private utilities, TVA isn't looking to turn a profit: compare that to Alabama Power's guarantees profit margin courtesy of the so-called Alabama “Public Service” Commission.
Hold on to your wallets, campers! This could be costly.
In 1993, TVA customers in Muscle Shoals paid $4.50 for 200 KWH – slightly over 2 cents/KWH. That was substantially less than many other areas of the country: $8.10 in Denver and $7.44 in Chicago, for instance. Just 2 years later, prices had risen sharply, but were still cheaper than other areas: “Residential customers, for example, pay about 5.9 cents per kilowatt-hour; industrial customers pay 4.7 cents per kwh.”
By 2010, prices had shot up again, but TVA customers still paid less, on average:
TVA's average retail price ranked 31st lowest among the nation's 100 largest utilities in fiscal year 2010 (the 12-month period ending September 2010), an improvement from 43rd lowest in fiscal 2009. TVA's average retail price was 7.9 cents per kilowatt-hour, nearly 20 percent lower than the group average of 9.9 cents per kWh.
These lower utility rates benefit TVA's residential customers and they also help the region recruit industry:
Competitive prices are key to attracting businesses to the region and creating jobs, part of TVA's mission to economic development. Site Selection magazine recently chose TVA as one of the top 10 North American utilities for achievements in economic development for a fifth consecutive year.
How much less attractive would the TVA service area be if power generation were a for-profit activity? It's not a pretty situation down south:
Critics of the system point out that recent Alagasco bills have been twice what Mississippi gas customers pay. A series of bad hedging bets meant that the Alabama Gas Company was paying twice what gas was selling for on the cash market. However since 1983 the PSC guarantees Alagasco no less than a 13.15% profit so consumers in Alabama paid for Alagasco’s bad hedging bets with higher heating bills. The current rates of return were set by the PSC decades ago.
A report by Regulatory Research Associates found that Alabama Power, Alagasco, and Mobile Gas guaranteed rate of returns was well above average for the industry.
Or perhaps this entire proposal is actually a deft slap to Tennessee's senators who have repeatedly blocked Obama's nominations to the TVA board. Senators Corker & Alexander may be getting a lesson about what happens when you “tug on Superman's cape” once too often.
I think it's a dumb idea to try to sell TVA, but I'm certainly enjoying the spectacle of the “small government” types doing the pretzel twist on this issue.