Good morning, Mr. Chairman. My name is Craven Crowell and I served for eight years as Chairman of the Tennessee Valley Authority. I had the distinct pleasure of serving the TVA for a total of 17 years, first as a member of the senior management team and then, as I have said, as Chairman of the Board of Directors. I retired last year after 25 years of federal government service and now serve as Chairman of GCW Consulting, an energy and aviation consulting firm with offices in Arlington, VA.
TVA has played a vital role in creating prosperity for people of the Tennessee Valley since its creation in 1933. It brought opportunity and hope to thousands of people who lived mostly in rural areas and who had few prospects for improving their lives and the lives of their children. I can remember as a small child when TVA electricity first came to the farmhouse where my grandparents lived and the excitement electric lighting created in the rural community of Fairview, Tennessee, where they lived.
There is no doubt that the TVA contributed greatly to the quality of life in the Tennessee Valley and it is my fervent hope it will continue to play a vital role in creating opportunity for many generations to come.
I can say with certainty that the TVA has played an important role in my life and career and I shall always be grateful for having had the opportunity to serve the people of the Tennessee Valley.
Mr. Chairman, the Committee has asked me to address two questions: whether the TVA should be required by federal law to disclose financial and operational information to debt holders and prospective investors, and, if so, whether the TVA should be made subject to the requirements of the Securities Act of 1933 and the Securities and Exchange Act of 1934. I want to express my appreciation to the Committee for its interest in my views on this important matter.
I would, however, like to make a few preliminary comments about TVA’s debt that I believe are relevant to our discussion this morning.
In 1959, Congress gave TVA the authority to issue bonds to raise capital for expansion and other related activities and subsequently set a debt limit of $30 billion. For the next 38 years TVA continued to increase its debt until it reached $27. 7 billion. In 1997, TVA realized that not only was the size of the debt coming dangerously close to its borrowing limit but the interest expense as a percent of revenue at 34% was having a negative impact on TVA’s competitiveness.
As a result of concerns about the size of the debt, TVA developed a 10-year plan in 1997 to reduce the debt and create a stronger financial position in preparation for deregulation of the electric power industry. Since 1997, TVA has reduced its indebtedness by almost $2.5 billion and has reduced the interest expense as a percent of revenue to 21 percent—producing a savings of nearly $500 million per year in interest expense.
I’m pleased the current TVA board of directors has continued to focus on reducing the debt. In all likelihood, TVA’s debt is greater than the market value of its total assets in today’s market, although the agency’s book value remains higher than its indebtedness. It is my hope the TVA board will continue to reduce the debt in the years ahead.
Now, if I may, let me speak to the issue of the disclosure of financial and operational information by the TVA.
During my tenure as Chairman, TVA undertook a significant expansion of its finance program in order to lower interest costs. The collective result of those efforts over the last few years has resulted in TVA being recognized for its innovation and responsiveness to investors.
TVA entered the global bond market for the first time in 1995 and the same year issued its first bonds targeted to retail investors. The retail bonds were enormously successful and resulted in a large increase in the number of TVA investors.
With this came the recognition that TVA would need to increase the opportunities to further disclose and communicate information about the agency that was of significance and importance to the investment community.
So in 1996, TVA created a staff of investor relations professionals to ensure that investors in TVA bonds had information they needed to make informed investment decisions.
The broad responsibilities of this group were to ensure the adequacy and accuracy of disclosures in TVA’s annual report, quarterly reports, information statements and periodic offering circulars.
Additionally, the investor relations department routinely handled hundreds of inquiries from investors. The TVA board also became more active with the investment community and began hosting meetings in New York with major investors and began meeting with investors in other countries.
In every meeting I attended, TVA was viewed as a stable, well-run government corporation that offered a sound investment opportunity. In no instance did any investor ever express to me the slightest concern about the business standards of TVA, the soundness of the business or the adequacy or timeliness of our disclosures.
I might add that stable rates are an important signal to investors of TVA’s business stability. But there are other significant signals, as well. Investors have taken note of the outstanding operating performance of TVA’s power system. Capacity and efficiency are continuing to increase, and, during my tenure, TVA’s nuclear program was recognized by the industry for its high level of performance.
In this discussion, we also should recognize that TVA’s operations and bond indebtedness are already subject to significant oversight to guarantee proper and complete disclosure. Two examples include an independent auditor in the form of an Inspector General who will be appointed by the President with Senate confirmation, and the General Accounting Office that has full and complete access to all documents and information in TVA’s possession.
TVA routinely provides information about its finances and operations in many other ways. TVA board meetings are conducted in public with opportunities for the public and news media to ask questions on any subject; press releases are issued anytime an event occurs of interest to the citizens of the Tennessee Valley or members of the investment community; public meetings on a variety of subjects are conducted throughout the TVA area; and, perhaps of most significance, TVA’s operations and activities come under the jurisdiction of oversight committees in both the Senate and House.
It is my opinion, Mr. Chairman, TVA already exceeds the reporting requirements that would be expected of any other corporation both public and private.
But, let us not forget a key element in this discussion. TVA is a government corporation—100% owned by the U. S. Government. It exists for the sole purpose of serving the citizens of the Tennessee Valley. Its mandate is to provide services at the lowest possible cost and it does not seek to enrich shareholders or corporate executives, since it has only one shareholder—the U. S. Government.
We all are aware that bonds act differently in the marketplace than equity ownership through stocks. Stock prices can change depending on the vagaries of the marketplace and, therefore, are subject to manipulation as all of us with 401(k)s have painfully experienced in the past few months. Bonds, on the other hand, are priced at the time of issue, and, while liquidity and interest rates can contribute to some changes in value, they are a stable and predictable investment. TVA does not issue stock.
In response to the committee’s question about whether TVA should be made subject to the requirements of the Securities Act of 1933 and the Securities and Exchange Act of 1934, I would hope the committee would review carefully the disclosures TVA already makes before acting on legislation that, in my view, would simply add another layer of bureaucracy to TVA’s operations and result in additional cost and a decrease in flexibility.
In managing its debt, TVA needs the ability to move quickly and take full advantage of refinancing opportunities without being encumbered by another layer of process.
I
wish to thank you, Mr. Chairman, and the other members of the committee for
asking me to appear here today.
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