BRADENTON, Fla. - The credit of 155 local power companies would be negatively affected if the federal government severs ties with the Tennessee Valley Authority, according to Moody's Investors Service.
Of the 155 municipal utility companies and cooperatives that resell TVA power to consumers, Moody's rates 35 utilities with a combined total of $2 billion in outstanding debt.
The Obama administration's proposed budget, released March 4, endorsed severing or reducing federal ties with the TVA, possibly by transferring ownership to state or local shareholders.
"A weakening or elimination of the TVA's federal ties would be credit negative for dozens of local power companies, or public distribution utilities, that exclusively distribute TVA power to consumers," Moody's analyst Dan Seymour said in a report Thursday.
The local power companies could face new competition from investor-owned power suppliers and also lose efficiencies without TVA operational and planning support, and would contend with political pressures to raise rates, he said.
The Tennessee Valley Public Power Association, a nonprofit umbrella organization mainly serving the 155 local companies, has opposed spinning off TVA since it was first proposed by the administration in fiscal 2014, said association spokesman Phillip Burgess.
"We see TVA as a model of self-sufficiency," he said. "We see it as an engine for economic growth, and we also believe the nonprofit model that has been in place more than 80 years serves the valley and its residents very well."
The association is urging Congress and others to conclude work that began last year by the Office of Management and Budget on an interagency strategic review that includes the TVA, and make the results public so the authority "doesn't remain in limbo land," said Burgess.
"We're particularly concerned right now with the fact that there is the possibility that this continued uncertainty about the future of TVA is sending a negative signal to not only the financial markets but also to potential economic developers in the valley because it would appear there's a 'For Sale' sign on the TVA," he said.
The association is also opposing tax reform measures that would reduce or eliminate the tax exemption on municipal bonds.
The 155 local companies selling TVA power "benefit from access to highly stable and affordable sources of power," said Seymour. The authority generates power and sells it wholesale to the companies.
All of the companies - such as Memphis Light, Gas and Water - do not generate electricity and are required by federal law to purchase all power from TVA. Memphis is TVA's largest customer.
Memphis is also the largest TVA-connected municipal utility company rated by Moody's in terms of outstanding debt, $662.7 million, and revenues, $1.3 billion. The debt is rated Aa2 by Moody's, and AA-plus by Fitch Ratings and Standard & Poor's. Memphis did not respond to requests for comment by press time.
According to Moody's, TVA holds down costs in part because it generates power from diverse sources, including coal, nuclear, and hydroelectric, shielding it from supply constraints and cost spikes.
"TVA distributors pay 14% less for power than the national average," said Seymour. "That allows them to charge lower rates than the national average. Without that advantage, the TVA utilities could lose some of their 9 million customers to large, publicly traded power companies."
Moody's said divestiture of the TVA faces hurdles since it would require approval from Congress.
Burgess said TVA has not received any federal funding since 1959, and its customers have paid back all federal funds that were borrowed before 1959.
TVA had about $26.3 billion of outstanding debt, leaseback obligations, and prepaid power obligations as of Dec 31, 2013. A debt cap of $30 billion is imposed by statute.
"We understand the concern that is out there about TVA's debt limit and we concur with those who say that it's not feasible to raise the debt limit above the current cap," Burgess said. "In addressing any financial concerns we believe there's a better way to deal with this rather than divesting TVA."
The TVA Act was signed in May 1933 by President Franklin Roosevelt as part of the New Deal to address depressed economic conditions in the Tennessee valley. It is now the nation's largest public power provider serving most of Tennessee and parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.