BRIEF-Belden announces EUR 400 mln private offering of senior subordinated notes
* Belden announces €400 million private offering of senior subordinated notes
By John Kemp
LONDON May 10 For free-market purists, the Tennessee Valley Authority (TVA) is a monstrous hybrid - part giant electric producer, part government agency.
The Obama administration has announced a strategic review that could recommend privatisation. But the case for reform is weak and there is little chance of a significant change owing to TVA's powerful political connections.
"Given TVA's debt constraints and the impact to the federal deficit of its increasing capital expenditures, the administration intends to undertake a strategic review of options for addressing TVA's financial situation, including the possible divestiture of TVA, in part or as a whole," the White House announced last month.
But the fact the announcement was made in the president's fiscal 2014 budget, in a chapter hopefully entitled "Creating a 21st century government," is a clue to its likelihood of success.
By law, the president must submit a unified budget to Congress. But nothing obliges legislators to act on it or even use it as a starting point for revenue and spending bills. Especially in recent years, the budget has become more or less a work of fiction, bearing little resemblance to eventual tax and spending outturns.
"Is the Obama administration really going to sell TVA?" Senator Lamar Alexander asked incredulously at a hearing on April 24. Alexander is not only the senior senator from Tennessee. He is also the highest-ranking Republican on the Senate Appropriations Subcommittee on Energy and Water Development, which controls the energy portion of the federal budget.
"You might suggest to the president's advisers that if he's going to sell the agency that produces tritium - all the tritium for our nuclear weapons system - he might get some advice from the Department of Energy before he does so," Alexander told the acting administrator of the National Nuclear Security Administration, which manages the nation's stockpile of nuclear weapons, at the hearing.
Created in 1933 by Congress as a federally chartered corporation, TVA has always been a strange hybrid. President Franklin Roosevelt asked Congress to create "a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise."
TVA was intended to operate "in the interest of the national defense and for agricultural and industrial development, and to improve navigation in the Tennessee River and to control the destructive flood water in the Tennessee River and Mississippi River Basins", according to the act which set it up.
Operating in one of the poorest parts of the country at the height of the Great Depression, TVA built a series of dams to control flooding and generate power. It also ran conservation and farming programmes to develop fertilisers, improve crop yields and replant forests.
Initially, the corporation was funded from the budget, but since 1959 its power programme has been funded by electricity sales, and federal funding for its environmental activities was phased out by 1999, according to the corporation's website. TVA is now fully self-financing, mostly through electricity sales.
TVA supplies power to nine million people over 80,000 squares miles in seven states, including most of Tennessee as well as neighbouring parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina and Virginia. In much of this area it is the exclusive power producer and transmission system owner, protected by anti-cherrypicking provisions.
TVA has shifted far from hydro. Most power is now produced by TVA's 59 coal-fired generating units (of which about 50 are active); 98 gas-fired units; and 6 nuclear units. The authority's 29 hydroelectric dams accounted for less than 10 percent of power generated in the year to September 30, 2012.
Much of the controversy surrounding TVA concerns the status of its debt. By law, TVA can issue bonds worth up to $30 billion (16 USC 831n-4(a)) but they are not guaranteed by the federal government (16 USC 831n-4(b)).
"Bonds issued by the corporation ... shall not be obligations of nor shall payment of the principal thereof or interest thereon be guaranteed by the United States," the law states.
Nonetheless, TVA bonds have usually traded as if they enjoyed a government guarantee. Like the pre-crisis borrowing of Fannie Mae and Freddie Mac, investors have treated TVA bonds as implicitly backed by the Treasury.
The confusion is not surprising. TVA has both corporate (www.tva.com) and government (www.tva.gov) web addresses. It appears to be as much a government agency as a power producer and transmission operator.
Uniquely, the law gives TVA "power in the name of the United States of America to exercise the right of eminent domain, and in the purchase of any real estate or the acquisition of real estate by condemnation proceedings, the title to such real estate shall be taken in the name of the United States of America" (16 USC 831c(h)).
The corporation's current capital investment plan includes more than $25 billion of spending over the next decade, according to the president's budget.
TVA's coal-dominated power generation system is vulnerable to toughening emissions controls. It has already agreed to phase out 18 coal-fired generating units by the end of 2017. Cleaning up the power supply and modernising the transmission system will cost a lot of money.
The problem is that TVA already has $24 billion of bonds outstanding. "TVA's anticipated capital needs are likely to quickly exceed the agency's $30 billion statutory cap," the president's budget concludes.
In an article published on April 27, "The Economist" favoured shifting TVA to the private sector. "Privatising the TVA would end the perception of an implicit federal debt guarantee. A similar implicit guarantee for Fannie Mae and Freddie Mac ... ended up costing taxpayers untold billions" ("Dammed if you don't: Barack Obama mulls privatising America's biggest public utility").
"Divestiture would also free the TVA to raise more capital than the $30 billion debt cap allows ... though it would probably pay steeper interest rates." Less plausibly, the Economist thought power prices might come down if TVA's monopoly was ended and multiple private companies start competing for business.
The Economist has never seen a government agency it doesn't think would be better privatised so its position is hardly surprising. But the arguments for privatisation are not strong.
TVA's borrowing is several orders of magnitude smaller than the housing agencies, and it does not engage in risky maturity and credit transformation, so the comparison is not valid. It is not clear privatising or breaking up the power producer would result in lower bills.
The main problem is optical. TVA's debt limit may need to be raised, or creatively evaded, at a time when policymakers are worried about the rising tide of red ink in the federal budget.
However, TVA's indebtedness is tiny in the overall picture. It does not count towards the overall federal limit.
The main fear seems to be that without an increase in the corporation's own $30 billion limit it will need to turn to the federal government to meet its capital expenditure plans. But that seems highly unlikely. TVA executives have insisted they can operate within the existing limit.
"TVA may not be able to use bonds and notes to finance all of the capital investments planned over the next decade, but TVA has the ability to use other alternative forms of financing," the corporation noted in its own 2014 budget.
TVA can probably make use of leasebacks, and energy prepurchase agreements with power distributors, which do not count against the statutory ceiling, to cover the cost of modernising its power plants and infrastructure and avoid breaching the cap.
With so many other options for creative financing, and entrenched political opposition to changing TVA's status, the prospects for privatisation are slim.
* Belden announces €400 million private offering of senior subordinated notes
SAN FRANCISCO, June 26 Chipmaker Nvidia Corp announced on Monday it was partnering with Volvo Cars and Swedish auto supplier Autoliv to develop self-driving car technology for vehicles due to hit the market by 2021.