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Federal Treasury. The bill would effectively change the provisions of the 1959 law that placed the TVA power system on a completely selffinancing 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. major effects of the bill would be


1. It could raise the cost of power program borrowings.


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 will probably increase. addition, regardless of its source of funds, the FFB has the authority


to "mark up" its funds to borrowers by any amount it chooses.


it would give the Secretary of the Treasury undue control over TVA's

borrowing activities.

Prior to 1959, actions by Government officials were instrumental in preventing TVA from obtaining all 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 four

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. authority is exercised without further executive branch or congressional approvals, within a $30 billion bond ceiling.

From 1960 to 1974 TVA borrowed the funds it needed from the only source available--the public market. With the creation of the FFB a second source became available at the option of 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 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 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.


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 that money was borrowed by 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 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 of 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 Co. 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 triple-A securities--were purchased by private investors. Since 1974 those bonds have been purchased by the



Senator TRIBLE. We thank you for your statement. When TVA sells notes to the FFB and the proceeds are spent, that transaction is recorded in the agency's budget, and the full impact on Government borrowing needs is recorded in the unified budget. This activity performs a useful service and causes no budget distortions. It obviously should be allowed to continue.

Now, you have expressed a concern today that the provisions of this legislation may compromise your management flexibility of funding by requiring you to turn to the Federal Financing Bank. So let's pursue that, because that is surely not the intention of this legislation.

First of all, for the record, what has been the experience of the TVA in generating the funds that are required? What percentage of the transactions have been routed through the Federal Financing Bank? And what percentage through the private sector?

Mr. DEAN. Since the beginning of 1974, all of our borrowings but for one small issue have been through the FFB.

Mr. SANGER. Prior to 1974, we issued our bonds to the public-Senator TRIBLE. Since 1974.

Mr. SANGER. The debt outstanding to the public as of 1974 was $1.725 billion. The power program's total debt now is about $14 billion, so we have sold about $12 billion in bonds to the FFB.

Senator TRIBLE. Since 1974, you have always turned to the FFB for your financing requirements?

Mr. SANGER. That's correct.

Senator TRIBLE. Your concern is you want to at least have the flexibility to turn elsewhere?

Mr. DEAN. The 1959 act, which I referred to in my testimony, gave the TVA Board responsibility for raising the funds necessary to build a power system in the manner which would result in the lowest feasible costs for the ratepayers. We'd like to retain the option to select the lowest cost method of financing.

Senator TRIBLE. Under present procedures, TVA can raise money for power operations through the Federal Financing Bank, as you have done since 1974, and those transactions were scored under the budget. Now, under present procedures, if you turned to the private sector, would those transactions appear on the budget as well? Mr. SANGER. Yes, they would.

Senator TRIBLE. The answer to that question is yes, and that is also the end of the matter, as far as you are concerned.

The objective of this legislation is simply and solely to insure that those transactions, whether they move through the Federal Financing Bank or through the private sector, appear on the budget. They do. Therefore, there is no need to change the present law as it applies to TVA.

Now, on that note, we can go further. But since we have allayed your concerns, we would be happy to hear from you on any other matter. What we had here was an unintended result, a little fish caught in a big net.

The important thing is to insure that the transactions of TVA appear on budget.

Mr. DEAN. I don't mind being a little fish, Senator.

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