A proposal by the Trump Administration that calls for divesting the transmission assets of the Tennessee Valley Authority and Bonneville Power Administration “is likely to raise transmission rates for BPA and TVA customers because the new private owners would have higher capital costs that would need to be recovered in rates,” Moody’s Investor’s Service said in a Feb. 14 report.
The rating agency noted that on Feb. 12, the Trump administration released its budget proposal for fiscal 2019 and its infrastructure proposal, both of which contemplate that the federal government divest certain assets, including the transmission assets of TVA and BPA.
“Such a sale would be credit negative for each entity because it would reduce transmission related revenue, a stable revenue source and weaken federal government support, key considerations that support their respective ratings,” Moody’s said.
“There have been other divestiture proposals for TVA over the past decade. None has been seriously pursued by Congress, which has to agree to any such proposal and enact it into legislation,” Moody’s noted.
Last year’s budget also included language about selling the transmission assets of BPA, and to date there has been no action taken on that proposal, the rating agency said.
Moody’s said that the budget justification for divesting the BPA and TVA assets is that ownership of transmission assets is best carried out by the private sector, where there are appropriate market and regulatory incentives.
“While this may be a fair consideration, we believe that TVA’s and BPA’s assets have operated well from a reliability and cost standpoint,” Moody’s said. “We also believe that any divestiture is likely to raise transmission rates for BPA and TVA customers because the new private owners would have higher capital costs that would need to be recovered in rates.”
The American Public Power Association on Feb. 12 expressed disappointment that the Fiscal Year 2019 budget request released by Trump proposed to divest the transmission assets held by TVA and three of the Power Marketing Administrations -- Southwestern Power Administration, Western Area Power Administration and BPA.
The Association said that it would “adamantly oppose any effort by the federal government to privatize TVA and PMA assets that have been paid for by electricity customers.”