TVA Spin-off Talk Hurts Locals

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BRADENTON, Fla. - The mere suggestion that the federal government may sever ties with the Tennessee Valley Authority has had a negative consequence for local municipal power enterprises, according to one of TVA's largest distributors.

The Obama administration's proposed 2015 budget, released March 4, endorsed severing or reducing federal ties with the TVA, possibly by transferring ownership to state or local shareholders.

Moody's Investors Service has already warned that weakening or eliminating the TVA's connection to the federal government would be credit negative for local operators that act as public distribution utilities for the authority.

"The single biggest negative impact that we will feel is just the possible reduced bond rating or outlook based on simply the comments contained in the Obama Administration's proposed budget," Jerry Collins Jr., chief executive officer of Memphis Light, Gas and Water, told The Bond Buyer in a March 21 email.

"Just talking about severing federal ties with TVA has a negative consequence," he said.

According to Collins, the 155 municipal utility enterprises and cooperatives that resell TVA power to consumers have discussed the possibility of the federal government spinning off the authority.

"We do not think it will happen," he said. "Severing those ties would serve no useful purpose to TVA's customers throughout the Tennessee Valley."

MLGW is keeping in touch with other utilities on the issue. The TVA currently supplies all of Memphis's electric power requirements pursuant to a power contract.

Collins also said that federal tax reform proposals to tinker with the tax exemption on municipal bond interest are also a concern.

"Reducing or eliminating the tax exemption on municipal bonds would obviously have a negative impact on our customers," he said. "Memphis Light, Gas and Water does not have a lot of debt, but we take pride in keeping our utility rates as low as possible for the benefit of our customers."

The utility had $662.7 million of electric revenue bonds outstanding as of Dec. 31, 2012, according to MLGA's audit. The bonds are rated AA-plus by Fitch Ratings and Standard & Poor's, and Aa2 by Moody's Investors Service.

The Tennessee Valley Public Power Association, a nonprofit umbrella organization mainly serving the 155 local utilities, has opposed spinning off TVA since it was first proposed by the administration in fiscal 2014.

The association is urging Congress to conclude work that began last year by the Office of Management and Budget on an interagency strategic review that includes the TVA. A spokesman said it is hoped that the review will lead to the removal of uncertainty cast on the authority's future.

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