FOR IMMEDIATE RELEASE CONTACT: June 7, 1995 James Riccio 404-451-7372
TVA’S FINANCES IN NUCLEAR MELTDOWN
The Tennessee Valley Authority is on shakey financial ground because of its nuclear program and the American taxpayer may be left holding the bag according to a report by the U.S. General Accounting Office. The TVA is $26 billion in debt, $14 billion is invested in non-producing nuclear reactors.
TVA’s troubled financial condition is largely caused by construction delays, cost overruns and operational shutdowns in its nuclear program. (GAO, p. 4.) Yet, TVA Chairman Craven Crowell still wants to finish Watts Bar Unit 1 and bring Browns Ferry Unit 3 back into operation. Both nuclear plants have experienced continual construction delays and concommitant increases in their cost estimates.(GAO, p. 50.) However, further delays and cost overruns could effect the TVA’s ability to make needed improvements to coal and hydroelectric plants which produce most of TVA’s electricity. (GAO, p. 7, 50.)
“TVA is the only utility in the nation attempting to meet future electricity demand by building nuclear reactors,” said James Riccio, staff attorney with Public Citizen’s Critical Mass Energy Project. “Any utility executive making similar decisions would be shown the door,” he added. “Its time for Congress to stop the financial meltdown by pulling the plug on TVA’s nuclear construction program,” Riccio concluded.
According to GAO, TVA’s “construction activities at two nuclear units, Watts Bar 1 and Browns Ferry 3, have involved years of schedule slips and billions of dollars in cost overruns.” Because of these delays, the cost of completeing Watts Bar 1 has increased $1.6 billion dollars over the last five years. (GAO, p. 51.) Watts Bar has been under construction for over 22 years and is currently estimated to cost $ 6.8 billion if it is ever completed. Browns Ferry 3 has been shutdown since 1985 and will cost $ 1.7 billion if it is to be restarted.
“Because of TVA’s high fixed costs and impending competition, we believe that the federal government may be at risk for some portion of TVA’s $26 billion debt,” reports the GAO study. (GAO, p. 86.) While $4.2 billion of TVA’s debt is owed directly to the federal government, $22 billion of TVA’s debt is in the form of publicly held bonds. The GAO noted that, “if TVA could not make bond interest payments, then the bondholders would have to absorb the losses.” (GAO, p. 88.) However, GAO argued that “such a default may call into question the government’s financial backing of other federally related organizations.” (GAO, p. 88.) The report noted that the total outstanding debt of government-sponsored enterprises was approximately $1.5 trillion at the end of the 1994 fiscal year.
The GAO questioned the equity of allowing such a default on investments by mutual funds, pension funds and insurance companies because “(t)hese investors may have been attracted by TVA’s “AAA” bond rating which is based on TVA’s perceived relationship with the goverment and not on its financial condition.” (GAO, p. 88.) The report states that under the Tennessee Valley Authority Act, TVA bond are not guaranteed by the federal government. Regardless, TVA’s bonds have been viewed by the financial community as having the implicit backing of the federal goverment. (GAO, p. 4.)
According to the GAO, it is this perceived realtionship with the federal government that has allowed the TVA to incurr its seemingly insurmountable debt. The report states that, “TVA’s links to the federal goverment and its high debt limit have enabled it to borrow the billions of dollars needed for its nuclear construction program.” (GAO, p. 4.) The only reason TVA does not face an immenent cash flow problem, reports the GAO, is because it has nearly $4 billion remaining on its $30 billion debt ceiling. However, the GAO acknowledges that “TVA could face cash shortfalls in the future if its capital expenditures continue to exceed its net cash from operations by nearly $1 billion per year.” (GAO, pp. 86-87.)
TVA’s financial condition threatens its long term viability. The GAO states that, “the enourmous size of TVA’s debt and resultant financing costs in the long term jeopardizes TVA’s ability to meet competitive challenges from neighboring utilities, thus placing the federal government at risk for some portion of TVA’s debt.” (GAO, p. 82.) The GAO went on to state that the “$26 billion in outstanding debt and $1.9 billion of annual financing costs severely limit TVA’s financial flexibility.” (GAO, p. 82.)
The GAO points out that “TVA’s actions, plans and other options are unlikely to make it fully competitive or to protect federal financial interests.” (GAO, p. 83.) Without advocating any particular course of action the GAO putforth options for congressional consideration including:
(1) The “No Action” Option;
(2) Limiting or Restructuring TVA’s Debt;
(3) Removing statutory Barriers to Competition;
(4) Privatizing TVA; and
(5) Increasing Oversight of TVA Activities.
Copies of the draft GAO report entitled Tennessee Valley Authority: Financial Problems Raise Questions About Long Term Viability may be obtained by calling Jim Riccio @ 404-451- 7372.