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I think it is important that the committee recognize the unique position of Tennessee Valley Authority in the question of the Federal Financing Bank.
There has been a substantial amount of misinformation in the Congress and in the executive branch over the years concerning the uniqueness of the Tennessee Valley Authority, and I want to help clear up some of this confusion before Chairman Dean delivers his testimony today. I am confident that he will clarify the matter in some detail as well.
Mr. Chairman, the Tennessee Valley Authority power program is self-sustaining. In 1959, the Congress passed the Self-Sustaining Act, which has assured that the TVA power program is financed entirely by the ratepayers of the region: not a dime comes from the taxpayers. The TVA power program receives no Federal subsidies in any form and is truly self-sustaining.
Now, the key issue here, I believe, is that under the provisions of the Tennessee Valley Authority Act, the Board of Directors of TVA is charged with responsibility of providing electricity at the lowest possible cost to its customers.
In this regard, TVA, in my opinion, must be provided with continued access to the Federal Financing Bank, as well as access to the private bond market.
Now, it is true that since 1974 TVA borrowing has been primarily from the Federal Financing Bank, but the day may come when borrowing on the private market will provide a lower cost financing mechanism.
So what I am saying is that no legislation reported by this committee should restrict the historical flexibility of the Tennessee Valley Authority's power program.
I have said on many occasions that I oppose any effort to reduce the flexibility of the Tennessee Valley Authority administering its power program in the lowest cost manner. Likewise, I must oppose any legislation that would have an effect, whether intentional or unintentional, which could result in an unwarranted involvement of either the executive branch of the Government or the Congress in the operations of the Tennessee Valley Authority power pro
Certainly, the Congress should continue an effective oversight of all of TVA's programs, and I think I have a long history, as Chairman Dean can attest, as can his predecessor, of holding TVA's feet to the fire on a broad range of issues. I will continue to exercise that responsibility because I think it is a responsibility that a Senator from the Tennessee Valley region who sits on committees of appropriate jurisdiction should exercise.
But I am concerned about the future of the Tennessee Valley Authority. Only 2 years ago, the Reagan administration attempted to deny the TVA access to the Federal Financing Bank, and I opposed that measure successfully, along with my distinguished colleague, Senator Baker.
Likewise, I must oppose a provision which would restrict TVA only to the Federal Financing Bank.
In other words, we must provide the flexibility or maintain the flexibility of TVA to provide the lowest cost electrical power to its customers, as they are required to do by the TVA Act.
So, Mr. Chairman, I thank you for this opportunity to make this brief statement, and I look forward to hearing Chairman Dean's testimony. I welcome him here today, along with the distinguished General Counsel of TVA, and I look forward to working with the committee and insuring that TVA's uniqueness is preserved in any legislation that might become the law.
Senator TRIBLE. Thank you, Senator Sasser.
STATEMENT OF CHARLES H. DEAN, JR., CHAIRMAN OF THE BOARD, TENNESSEE VALLEY AUTHORITY, ACCOMPANIED BY HERBERT S. SANGER, JR., GENERAL COUNSEL
Mr. DEAN. This is Herbert S. Sanger, Jr., General Counsel of the Tennessee Valley Authority.
Mr. Chairman, Senator Sasser, members of the subcommittee, I appreciate the opportunity to be here today to support this subcommittee's efforts to reestablish control over Federal spending and credit programs.
We agree with your remarks upon the introduction of S. 1679, the Honest Budgeting Act of 1983, that some Federal programs are entering into obligations, for which the Nation's taxpayers will be responsible, far beyond the figures actually shown in the unified budget.
We also agree that for Congress to get a better handle on the true scope of these programs and what they mean to future taxpayer liability, the unified budget must become a more accurate measure of taxpayer expenditures and taxpayer obligations.
We understand that the purpose of S. 1679 is to improve the quality of information presented in the unified budget, and this worthy goal has our support.
The bill as currently drafted would, however, unintentionally impose constraints upon the self-financing TVA electric power program, a program that does not involve Government funds and which receives no financial subsidy from the Federal Treasury.
The bill would effectively change the provisions of the 1959 law that placed the TVA power system on a completely self-financing basis.
The essence of the 1959 self-financing amendment was to relieve the Federal Treasury of the burden of financing the TVA power system with appropriations while relieving the power system of the uncertainties of the Federal budgeting and appropriation process. Two major effects of the bill would be: first, that it could raise the cost of power program borrowings; and second, that it would give the Secretary of the Treasury unwarranted control over power program borrowing activities.
We strongly urge that the relationships between TVA and the Treasury worked out in 1959 and successfully carried out for a quarter century not be changed.
The bill's requirement that all direct agency borrowings and all agency-guaranteed borrowings be first offered to the Federal Financing Bank under Treasury Department regulations poses two problems for TVA.
First, it could prevent the TVA power system from being able to borrow from the public if it were cheaper to do so. For example, if the FFB raises its funds by selling its own securities to the public rather than to the Treasury, its cost of money would probably in
In addition, regardless of its source of funds, the FFB has the authority to mark up its funds to borrowers by any amount it chooses.
Second, as mentioned previously, it would give the Secretary of Treasury undue control over TVA's borrowing activities.
Prior to 1959, actions by Government officials were instrumental in preventing TVA from obtaining the capital it needed for building new electric powerplants to keep pace with the growing demands for electric power. The 1959 self-financing amendment was an express repudiation by Congress of this administrative restriction.
The amendment took 4 years to hammer out and established most of TVA's unique financial characteristics. Although the TVA Board always had the responsibility of providing a supply of electric power at the lowest feasible cost, the 1959 amendment delegated to it the exclusive authority to decide how best to finance the power system to meet this responsibility.
This authority is exercised without further executive branch or congressional approvals, within a $30 billion bond ceiling which was established by Congress.
From 1960 to 1974, TVA borrowed the funds it needed from the only source available, the public market. With the creation of FFB, a second source became available at the options of TVA and the Treasury.
In each instance since 1974, TVA has considered the cost of funds from each source and has obtained funds from the source that would cost the electric power consumers the least.
In every instance thus far, the lowest cost source has been the FFB, and we see no reason that this situation should change if the FFB continues its current operating and pricing practices.
We do not have guaranteed access to the FFB, and we seek no guarantee. We borrow from the FFB at the discretion of the Treasury. We do not want the absolute rights or the obligations of FFB borrowings but are glad to continue the status quo using the FFB when it is mutually agreeable.
Should the FFB change its practices or another source of funds become available at a lower cost, TVA should be able to take advantage of that source for the benefit of its electricity consumers. A statutory or administrative prohibition preventing us from doing so would be contrary to TVA's statutory responsibility for making power available at the lowest feasible cost.
Equally as important, giving the Secretary of the Treasury first right of refusal on the purchase of TVA bonds or participation in other financial undertakings would give the Secretary the power to delay the financing TVA needs to conduct its power program for the benefit of its consumers and actual authority, if not outright legal authority, to control the terms and conditions of TVA's borrowings.
After much debate, the 1959 self-financing amendment relegated the role of the Secretary of the Treasury only to the timing of bond issues and the maximum interest rates that such bonds could bear, so as not to interfere with the marketing of the Treasury's own securities. This relationship was preserved later in the FFB Act.
Although section 7(a) of the FFB Act gave the Secretary broad authority over the manner, source, and terms and conditions of the financing of other Federal agencies, TVA was excluded from such additional authority.
The power program must by law charge electric rates that are high enough to meet its obligations and maintain its financial health. One of those obligations is to repay each year to the Treasury part of the taxpayer funds that were originally invested in the power system before 1959.
In addition, each year TVA, with revenues acquired from the consumers of TVA electricity, pays the Treasury a dividend on the outstanding taxpayer investment. Moreover, the amount of the dividend is based on current interest yields, not on the original rates of about 3 percent, at which the money was borrowed from the Federal Government.
These payments to the Treasury for fiscal year 1983 will be more than $126 million.
TVA is also required by law to charge electric rates that are high enough to meet obligations on the bonds it has issued since 1959 to finance the power system.
Before closing, let me emphasize one final point. The TVA power program is unlike any other federally owned undertaking from a financial standpoint. The Federal taxpayers do not back the TVA power program. The power program is entirely self-financing, although all of its assets are owned by the United States.
The TVA power program budget presents the financial activities of the power program each year to Congress for its information and review. The TVA power program is on budget. Nothing is hidden. Its borrowings are neither obligations nor guaranteed by the United States. Federal courts have absolved the United States of liability where an instrumentality of the United States defaulted on bonds which, like TVA's, were specifically not obligations of the United States, Bankers Farm Mortgage Company v. United States, 69 F. Supp. 197 (1947).
Although the taxpayers do not back the TVA power program, they do invest in the program in the same way as do private investors. Until 1974, TVA power bonds, always rated as AAA securities, were purchased by private investors. Since 1974, those bonds have been purchased by the FFB.
[The complete statement follows:]
CHARLES H. DEAN, JR.
CHAIRMAN, TENNESSEE VALLEY AUTHORITY
BEFORE THE SUBCOMMITTEE ON FEDERAL CREDIT PROGRAMS
SEPTEMBER 19, 1983
S. 1679, "HONEST BUDGETING ACT OF 1983"
Chairman Trible, Senator Sasser, subcommittee members, I appreciate the opportunity to be here today to support this subcommittee's efforts to reestablish control over Federal spending and credit programs. We agree with your remarks upon the introduction of S. 1679, the "Honest Budgeting Act of 1983," that some Federal programs are entering into obligations-for which the Nation's taxpayers will be responsible--far beyond the figures actually shown in the unified budget. We also agree that for Congress to get a better handle on the true scope of these programs and what they mean to future taxpayer liability, the unified budget must become a more accurate measure of taxpayer expenditures and taxpayer obligations. We understand that the purpose of S. 1679 is to improve the quality of information presented in the unified budget, and it has
The bill would, however, unintentionally impose constraints on the selffinancing TVA electric power program, a program that does not involve Government funds and which receives no financial subsidy from the