BusinessTN

Popular wisdom holds that safety concerns, fueled by the 1979 accident at Three Mile Island, Penn., eventually shuttered nuclear construction by the Tennessee Valley Authority—the most ambitious commercial nuclear power program in United States history.

Not so, says David Freeman, the former TVA chairman largely credited with putting the brakes on the utility’s nuclear construction in the 1980s.

“We had to shut them down, even though they were under construction, because they cost too much,” he recalls. “We didn’t shut those plants down on account of their being unsafe. That should have been a reason, but it was the economics.

Some 20 years later, as TVA still carries most of the debt from its first nuclear program, the nation’s largest public utility is poised to incur further debt to launch a second wave of nuclear construction—less ambitious, to be sure, but with the same party bearing the financial risk: the ratepayer inside of TVA’s “fence.

The Fallout
Ratepayers on both sides of that fence paid for the past failures of nuclear power; Three Mile Island was just the final blow to an entire industry in meltdown. Nationwide, utilities that had invested in the promise of clean, relatively inexpensive nuclear energy instead faced spiraling cost overruns compounded by stricter federal regulation.

But because of TVA’s unique political nature, the fallout from its first nuclear program was particularly heavy. Congress, charged with overseeing the nation’s largest public utility, did not have the will to cancel massive construction projects that, though financially disastrous, nonetheless translated into jobs for cash-strapped rural areas. The result was a $27.7 billion debt—most of which is still with TVA, and the cost of which has been shouldered entirely by the utility’s ratepayers, who don’t have stockholders to share the burden.

Freeman, now an outspoken opponent of nuclear energy, says it was the Tennessee Valley’s businesspeople, frustrated with debt-related rate hikes, who finally gave him the leverage to cease TVA’s nuclear construction.

“It took a lot of political courage to shut down those plants with those thousands of construction workers put out of a job, and I’m very proud that we had the integrity to do it,” he says. “But if we hadn’t, TVA would be broke now.” In fact, numerous analyses—ranging from the halls of academia to the General Accounting Office—have depicted the utility as perilously close to “broke.” As recently as four years ago, economists Dennis Logue and Paul MacAvoy assessed TVA’s balance sheets through fiscal year 2000 and concluded that if TVA were a private utility, answerable to stockholders, it would be considered “virtually insolvent.”

Now, recent developments at TVA are inviting more overt comparison to private utilities, which in 2004 served as the model for legislation updating the governance of the 74-year-old, self-funded federal agency. “A committee of three should not be running an $8 billion-a-year business, which is what a utility is,” says Sen. Lamar Alexander, who was a strong supporter of the legislation crafted by then-Sen. Bill Frist. As of last year, TVA’s three-director board was replaced by a nine-member, part-time board, which oversees Tom Kilgore in the newly created position of CEO.

As of March, that new governance was still hammering out details of a “strategic plan,” which Kilgore says will be “evolutionary, not revolutionary.” Revolutionary or not, the plan will depart from TVA’s more recent long-term strategies, which sought to reduce its debt (albeit with only marginal success). Board member Dennis Bottorff, a primary architect of the utility’s new financial strategy, says his 30-plus years as a Nashville banker give him a broader perspective on TVA’s debt, which he insists cannot be singled out as an indicator of the utility’s health. While its debt currently stands at some $25 billion, for example, its debts-to-assets ratio has declined—a truer measure of TVA’s financial viability, he says.