BRADENTON, Fla. - President Obama's 2015 budget again recommends reducing or cutting the federal government's ties to the Tennessee Valley Authority.
"A reduction, elimination or reconfiguration of federal ties is credit negative for TVA because it would include revoking the TVA Act of 1933 and eliminate the possibility of government support," said Moody's Investors Service analyst Scott Solomon, who added that those factors are key considerations for TVA's Aaa rating.
"While the language provided in the 2015 budget is somewhat similar to statements made last year, the administration was more specific in outlining potential mechanisms to eliminate federal ties, citing transfer of ownership in TVA to state or local shareholders as potential strategies," Solomon said.
The administration said that it is ready to work with Congress and TVA's stakeholders to explore options to end federal ties to the nation's largest public wholesale power system, which serves most of Tennessee, where it is headquartered, and parts of Alabama, Mississippi, Kentucky, Georgia, North Carolina, and Virginia.
The Office of Management and Budget is conducting an interagency strategic review that includes the TVA and its possible divestiture, though the results have not been released.
"The administration continues to believe that reducing or eliminating the federal government's role in programs such as TVA, which have achieved their original objectives, can help mitigate risk to taxpayers," said notes accompanying the president proposed budget.
The TVA has $26.3 billion of debt, leaseback, and prepaid power obligations, according to Standard & Poor's, which assigns AA-plus ratings to the debt and AA-minus ratings to lease-secured obligations.
S&P said the president's budget proposal is not likely to affect its ratings. However, according to S&P, if TVA ceases to be a wholly owned corporation of the federal government the ratings would lose the "uplift" associated with the application of its criteria for a governmental-related entity, and the credit would be assessed.
"We believe that the federal government's strategic review of its relationship with TVA appears to be a step toward reducing the government's debt given that OMB counts TVA's debt as part of the federal government's debt burden," said S&P analyst Theodore Chapman.
TVA has not received any direct federal appropriations for power generation or transmission operations for decades, and has remained self-supporting from operating revenues derived almost entirely from electricity sales to 155 municipalities and cooperatives, and other industrial customers, Chapman said.
In response to the budget, TVA chief executive officer Bill Johnson said the authority would continue to "collaborate" with the OMB, and focus on providing low-cost, reliable power to more than 9 million customers.
"TVA remains financially healthy and we continue to improve our overall financial metrics," said chief financial officer John Thomas. "TVA is on track to reduce its operations and maintenance costs by a sustainable $500 million by the end of fiscal 2015 in order to keep rates as low as possible while continuing its economic development and stewardship programs."
The American Public Power Association said it does not believe that the federal government should sever ties with the TVA, and noted that the agency was created by Congress "to address a wide range of issues, including the delivery of low-cost electricity and the management of natural resources.
"TVA continues to fulfill these roles today and the response should be to strengthen it for the future, not auction it off," the APPA said in a release. "It is also important to note that TVA is self-supporting, does not receive taxpayer dollars, and its debt is not taxpayer funded."
According to Moody's, there are complex barriers to eliminating TVA's ties, and those include "requiring the approval by both the House of Representatives and the Senate, where the issue would likely encounter significant political discussion."
