Time for TVA to face some competition
In the throes of the Great Depression, the federal government experimented with massive programs to jump-start the economy, and many of them still exist. But with the passage of time, it has become apparent that not all are effective in today’s age. In fact, some have grown into inefficient, bureaucratized behemoths of a bygone era.
The Tennessee Valley Authority (TVA) is a perfect example of this kind of institution. This New Deal-era program created a federally-run monopoly on wholesale electricity production. President Franklin Roosevelt intended it to be “a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” Today, however, it is a hulking government organization that provides power to all of Tennessee, about a third of Mississippi and portions of five other states.
The TVA owns a host of electricity-generating plants and sells its electricity directly to certain industrial customers and local distributing companies such as Memphis Light, Gas and Water. These companies, in turn, resell the electricity to retail consumers. Because of the TVA’s regional monopoly status, no other company is permitted to create and sell wholesale electricity where the TVA operates. Thus, regardless of how much the TVA charges or how well it functions, customers in the region are captive to the government-run TVA.
While it was created with the best intentions — producing cheaper electricity, creating jobs, protecting the environment and controlling floods — it was an ill-conceived project that’s badly in need of reform. The TVA’s flaws haven’t gone unnoticed either. Early this year, President Donald Trump asked Congress to allow many of the TVA’s assets to be sold to state, local or private institutions. While Congress is unlikely to pass any such measure, the case is strong for ending the TVA’s stranglehold.
As it stands, the TVA not only stifles necessary competition, it squanders money. Its CEO has enjoyed ballooning raises over the years and is now the highest-paid federal government employee. Including his entire compensation package, he’s expected to rake in a cool $6.45 million this year. That’s around $5.6 million more than the President of the United States earns.
The TVA’s profligate spending doesn’t end there, however. In the past two and a half years, the organization purchased two private jets and a luxury helicopter once used by Dallas Cowboys owner Jerry Jones. The TVA shelled out over $28 million for the trio. Many wouldn’t bat an eye if a private company took these actions, but the TVA is a government institution tasked with being revenue-neutral. This is irresponsible behavior for any government entity; it’s even more egregious considering that former U.S. Health and Human Services Secretary Tom Price was forced to resign for merely renting private jets.
The TVA is also tasked with providing low-cost electricity to its captive customers. But unfortunately, the truth is that residential bills aren’t that low, and the rate schemes associated with the TVA system simply aren’t benefiting most Tennesseans. In fact, as of 2016, average monthly residential electricity bills were higher in Tennessee than in six of the eight states that border the Volunteer State. The high prices can be easily observed in Knoxville where, thanks to the TVA and its partnering electricity distributor, electricity prices have soared by as much as 80 percent in 20 years.
The TVA model needs to be reconsidered. Fortunately, there are viable alternatives. Most states, for instance, are not captive to a government-controlled monopoly. Over 30 states fall under a privately-owned, but government-regulated, electricity monopoly. Fourteen others permit private competition between electricity generators — largely to their benefit. In states that allow competition between private electricity-producers, electricity rates have dropped by 8 percent since 2008. Meanwhile, monopoly states’ rates have increased by 15 percent.
Competitive states are also more apt to shutter inefficient plants, which helps keep prices low. Monopolies like the TVA, on the other hand, don’t face the incentives that drive companies to run customer-oriented businesses. This is because their patrons are forced to become customers if they want electricity. They are thus far less likely to remove inefficiencies in the system — like aging, unprofitable plants — than are states with competitive electricity markets.
The TVA has faced an identity crisis since its inception. It doesn’t have to deal with the same tough decisions that private institutions do. Further, it’s less accountable than most government agencies. These issues, coupled with its monopoly status, have allowed the TVA to become a perfect example of government management at its worst.
It’s time that state and federal lawmakers address these problems by creating a competitive electricity market and divesting much of the TVA’s assets. Tennesseans will benefit in the end.
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