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Financial advisor recommends against divesting TVA

From the June 9, 2014 issue of Public Power Daily

Originally published June 9, 2014

By Robert Varela
Editorial Director

An independent strategic review by an financial advisory firm, Lazard, Frères & Co. LLC, has recommended that the federal government not divest the Tennessee Valley Authority. TVA said it is pleased the report "supports TVA’s financial and operational plan." The utility engaged Lazard to assist in analyzing financial data for the Obama administration’s strategic review of options for addressing TVA’s financial situation, including the possible divestiture of the utility. The Lazard report "concluded that the business model with TVA’s financial and operational plan is the best current option for the citizens of the [Tennessee] Valley and others," TVA noted.
"The review also validated that TVA provides substantial economic and other benefits for the region," the utility said.

TVA said it "will continue to collaborate with the Administration on its ongoing strategic review, while remaining focused on its mission of providing lower-cost, reliable power, environmental stewardship and economic development."

"TVA’s current strong financial position, ability to self-fund its construction program and anticipated improvements in cost structure, environmental profile and asset mix, and other benefits ... suggests no impetus for the Federal Government to change course," the Lazard report said. The government is likely "to realize minimal, if any, value from a divestiture without a significant value transfer from ratepayers in the form of higher rates, even prior to taking into account various other costs which may significantly detract from value."

Lazard said it is not clear "how TVA’s non-power mission and activities would logically fit within a divested TVA structure—any reductions in the scope of the non-power mission and activities could potentially have a negative impact on the region."

The high level of complexity associated with a possible divestiture "would likely lead to a costly, multi-year process to execute any such strategy, during which time TVA would experience organizational disruption and which would result in an uncertain outcome," the report said. The complex network of TVA stakeholders would add to the difficulty of divesting TVA "in a manner that creates value for all parties," Lazard said.

While the administration’s 2015 budget does not include a proposal to divest TVA (as the 2014 budget did), "it does state the Administration stands ready to work with Congress and other TVA stakeholders to explore options to reduce or end Federal ties, including alternatives such as a transfer of ownership to state or local stakeholders," TVA noted. TVA President and CEO Bill Johnson said last month that the Office of Management and Budget is exploring options for possible divestiture in a way that would preserve public ownership of the utility. Lazard looked at a range of options, including privatization, public sector spinoff and status quo/enhanced status quo alternatives.

TVA released the Lazard report on June 4 as part of a mandatory Form 8-K filing with the Securities and Exchange Commission. The 8-K document is available on the TVA website.


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Vice President, Integrated Media and Communications
Meena Dayak

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

Communications Assistant
Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

Integrated Media Editor 
Laura D’Alessandro