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Senator TRIBLE. That is the objective of this legislation.

And with the assurance that the transactions of TVA under present law, whether through the FFB or through the private sector, will appear on the budget, that's the end of the matter as far as this Senator is concerned.

Senator Sasser?


Senator SASSER. Mr. Chairman, thank you. I am delighted to hear the chairman's statement, and I applaud it. I would like, for purposes of the record, Mr. Chairman, to go ahead here and get some questions in the record and get response from either Mr. Sanger or Chairman Dean. Chairman Dean, first let me say I thank you for your statement. I think that you described the situation with regard to S. 1679 very accurately. You documented that the TVA power program is self-sustaining, and does not result in any effect on Federal budget outlays. You documented that the TVA power program does not result in any costs to American taxpayers, that the power program of the Tennessee Valley Authority is fully self-sustaining.

Now, I believe there is potential danger in reimposing any Federal constraints on the power program of TVA. We must bring those off-budget entities which impact upon the Federal budget under stricter control, and for that reason, I am generally supportive of the thrust of this legislation.

But clearly, the TVA power program, a completely self-sustaining program, does not impact on Federal budget outlays. Therefore, it's important to preserve the flexibility of TVA in carrying out its power program in accordance with the mandate of the Tennessee Valley Authority Act, which, as we said earlier, requires the Board to provide electrical energy at the lowest possible cost to its customers.

Now, specifically and for the record, how does section 3 or how could section 3 of this legislation give the Secretary of the Treasury control over the TVA power system in a manner contrary to the provisions of the Self-Financing Act of 1959?

Mr. SANGER. Senator, section 3 would require TVA to first offer any debt for sale to the bank, so we could not issue debt until that obligation had been met. It, in effect, gives the FFB a first option of purchasing our debt.

Senator SASSER. In what way would that transmit power to the Secretary of the Treasury that might be detrimental to TVA?

Mr. SANGER. Well, the Secretary of the Treasury in establishing the interest rates at which FFB would loan money to TVA would affect the cost TVA would have to pay for the debt issued.

Also, the Secretary of Treasury, in running the FFB, charges a margin above the Treasury's actual cost of money, and the size of that margin is flexible. Both of these are obvious ways the Secretary could increase the cost to TVA. It's difficult to imagine in advance other ways, but I am sure there could be some.

Senator SASSER. What disturbs me is that some future administration or some future Congress could utilize the provisions of section 3 to establish an unwarranted control over the TVA power

program in a manner which would be detrimental to the citizens of the valley, specifically the customers of Tennessee Valley Authority.

Now, the traditional historical and statutory flexibility of TVA in meeting its financial obligations could be jeopardized by a future administration or a future Congress which does not share the commitment to low-cost, unsubsidized-I want to emphasize that, unsubsidized-public power.

Now, Chairman Dean, or Mr. Sanger, what recommendations do you have to the committee to clarify this concern to prevent such an unintentional interpretation of this legislation should it become law?

Mr. SANGER. Senator, I think a simple way to do it would be to exclude TVA obligations and guarantees from section 3.

The basis for this is, as you pointed out, that TVA obligations are not obligations of the United States, nor are they guaranteed by the United States. And I think consistent with your suggestion and Senator Trible's suggestion that would be the way to do it.

Senator SASSER. While I am concerned that this legislation could unintentionally-I want to emphasize the "unintentional" aspectresult in future political manipulation of the TVA power program, I am also concerned that limiting access of the TVA power program only to the Federal Financing Bank can result at some future date in increased power system costs, and, therefore, artificially increase electric rates to the citizens of the Tennessee Valley area. I will ask you, Mr. Chairman, if you share that concern, and if you can foresee any circumstances in which borrowing from the private financial market would be cheaper than borrowing from the Federal Financing Bank?

Mr. DEAN. Well, sir, it is of course difficult to foresee everything that might come down the pike. But one example might be if the FFB went to the private market to borrow funds which it now borrows from the Treasury.

Senator SASSER. I think the most critical element of this discussion is the fact that the TVA power program is self-sustaining, and results in no increase in the Federal budget outlays, and it does not increase in any shape, form, or fashion the Federal budget deficit. In the committee reports of the Senate Public Works Committee, when the Congress increased the bonding authority for TVA in 1975, and again in 1979, it was stated explicitly that TVA's bonds do not represent an obligation of the American taxpayer, and do not involve Government funds. The Budget Committee, on which I serve, in its 1975 report took the same position.

The Governmental Affairs Committee, on which I also serve, when we reported the Sunset bill exempted the TVA from provisions of that bill because it stated that the TVA power system funds are not Government funds, which means that they cannot be budget authority or budget outlays, as those terms apply in the Congressional Budget Act.

Congress has repeatedly stated the uniqueness of the TVA power program as being self-financing, and not subject to unwarranted constraint and intrusion.

I ask this final question: To your knowledge, Chairman Dean, or yours, Mr. Sanger, do you know of any committee of Congress that has ever said anything to the contrary, so far as TVA is concerned? Mr. DEAN. No, sir; we do not.

Mr. SANGER. I think, Senator, you pointed out the three instances where the correct presentation of the TVA power program budget has been specifically described in the way you indicated. We don't know of any others.

Senator SASSER. Mr. Chairman, you are very kind to allow me the time to make these points, and I think it is important that the point be made as clearly as possible, and repeated, that the TVA power program is self-sustaining. There is a great deal of misunderstanding here in Congress, in the executive branch of the Government—indeed, in the Tennessee Valley area itself some feeling that this power program is subsidized and sustained by taxpayers' money, and that it does add to the Federal budget deficit, when, indeed, it does not.

And Chairman Dean, I want to thank you for your testimony, and for that of Mr. Sanger, and I look forward to working with you and other members of the TVA board and members of this committee in resolving this matter in a way which protects the ratepayers and assures the flexibility of the Tennessee Valley Authority regarding the power program.

I encourage the statements that our chairman, Senator Trible, has made today.

Senator TRIBLE. Thank you, Senator Sasser. I will be able, now, to put this matter in perspective, as I understand it.

Our discussion this afternoon, gentlemen, has focused on TVA's broader requirements. Senator Sasser has made the point that the power program is self-sustaining. It does not depend on the Federal Government. It is my view that the provisions of this bill should not apply to TVA in terms of its own borrowing requirements, and I think that's the point that you have tried to make here today. Now, it is my view, however, that the provisions of this bill should apply to TVA loan guarantees. TVA loan guarantees that use the Federal Financing Bank become off-budget loans, and they do have a very direct impact on the operation of the Federal Government, on the spending and borrowing requirements of the Federal Government. Now, surely, those transactions should be reported in the budget, and I want to make that point clearly here today, because you said nothing about that.

Your focus has been on the financing requirements of TVA. I think your point there is well taken. Those transactions, whether they are pursued through the Federal Financing Bank or through the private sector, are scored today and therefore there is no need to bring you under the provisions of this legislation as it applies to those kinds of transactions.

Thank you very much, gentlemen. We are pleased that you were here.

Mr. DEAN. Thank you, Senator.

[Response to additional questions from Senator Sasser follows:]

Senator Sasser:


Your testimony explains how section 3 of S. 1679
would give the Secretary of the Treasury control
over TVA power system financing.

Section 2 of the

bill is intended to change the way in which FFB

transactions are shown in the budget. How would
section 2 affect the TVA power system budget?

Mr. Dean:

Direct TVA borrowings, as you indicated, are now and
have in the past been shown on the budget. These
borrowings, as you also stated, are not obligations
of the Federal Government--they do not involve
Government funds and do not represent obligations of
the American taxpayer. Section 2 would statutorily
require that TVA financing through the FFB--both
direct borrowings from the FFB and indirect financing
through TVA's nuclear fuel lease with the Seven
States Energy Corporation--be shown as obligations
which will result in immediate or future outlays of
Government funds. As Senator Trible stated, "The
objective of this legislation is simply and solely
to ensure that those transactions (TVA and other
borrowings), whether they move through the Federal
Financing Bank or through the private sector, appear
on the budget. They (TVA's borrowings) do. Therefore,

there is no need to change the law as it applies to TVA." This statement is consistent with the three

committee statements to which you referred as

describing how the TVA power program should be shown in the Federal budget. I should note that OMB has views about this which differ from TVA's.

Senator Sasser:

What is the purpose of the Seven States transactions?

Mr. Dean:

Since 1979, all of TVA's nuclear fuel has been owned
by the Seven States Energy Corporation, a wholly
owned subsidiary of a California banking corporation.
Seven States leases the fuel back to TVA when it is

needed in a nuclear power plant. In the meantime,
Seven States finances the stockpile of fuel it owns
by borrowing from the FFB on the basis of its lease
arrangement with TVA, which the FFB regards as a
guarantee for these loans.

The process of mining, milling, and enriching uranium

and fabricating nuclear fuel takes several years.
The purpose of the nuclear fuel lease with Seven
States is to postpone putting any of these costs

into electric rates until the fuel is actually
created and used.

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