TVA privatization might benefit consumers, expert says

If the Tennessee Valley Authority goes private, utility customers could benefit if risks and incentives are better aligned than under the current approach, according to a Vanderbilt law professor. The prospect of selling off the public utility has been raised by the Obama administration in a call for a strategic review.

Jim Rossi (Vanderbilt University)

“Ultimately, whether consumers are better off or see their rates increase, which TVA maintains would happen, would depend on state regulators and what happens within individual states,” said Jim Rossi, professor of law, who specializes in state and local utility regulation, energy policy and administrative law. “But there is definitely a scenario where consumers could be better off if private ownership better aligns risks and incentives than the current approach.”

For example, as a public company, TVA has no incentive to sell off assets, a policy that likely would be revisited under private ownership. “Just to take one example, private ownership may lead TVA to reassess the future profitability of coal plants, rather than to merely focus on recovering the costs of these plants, and would probably encourage TVA to sell some of them to get rid of the uneconomic assets,” Rossi said.

TVA currently enjoys “significant advantages” that a private utility would not, Rossi added, including access to tax exempt financing and federal powers of eminent domain. “Privatizing TVA would mean that shareholders (and to an extent, consumers) would bear the risk of financing, and that eminent domain would unfold state-by-state through regulation rather than through centralized TVA management,” he said.

Bruce Oppenheimer
Bruce Oppenheimer (Vanderbilt University)

Bruce Oppenheimer, professor of public policy and education at Vanderbilt University, noted that it’s ironic for Democratic leadership to consider selling off government assets, a move usually associated with Republican strategists.

“Even if you want to do it, there’s the question of how much you could get for it,” he said. “Everybody gets concerned about these things because you don’t know if it would be more or less efficient and what the rates would be.”

Oppenheimer noted the politics of the move are interesting since President Obama has experienced difficulties getting his candidates approved for the TVA Board. “It’s a modest shot across the bow,” he said.

Oppenheimer’s research primarily focuses on Congress and American political institutions. His primary current interest examines how process changes have affected the ability of Congress to develop energy policy over the past half century.