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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.


U.S. House of Representatives,

Subcommittee on Water Resources and Environment,

Committee on Transportation and Infrastructure,

Washington, DC.

    The subcommittee met, pursuant to notice, at 10:02 a.m. in room 2167, Rayburn House Office Building, Hon. Sherwood L. Boehlert (hairman of the subcommittee) presiding.

    Mr. BOEHLERT. Good morning and welcome to the Water Resources and Environment Subcommittee.

    Today we begin the first in a series of hearings to examine the current and future management of the Tennessee Valley Authority.
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    We are honored to kick off our first hearing in the 105th Congress on TVA with a distinguished panel of our colleagues, all of whom have been actively involved in the debate over TVA's future. I look forward to my colleagues' thoughts and insights on the many issues surrounding the management of TVA.

    While the focus of this hearing will be on TVA's non-power programs, I suspect we will hear a great deal about its power programs, as well. The fact is, the two are intricately related and must both be addressed in any serious discussion of TVA's future.

    For many of us representing Congressional Districts outside the TVA region, the stark differences in electric rates for our constituents and those living in the Valley are an area of major concern. While the residents of New York State are paying over $0.13 per kilowatt hour for electricity, those residing in TVA country pay less than $0.06 per kilowatt hour. This regional inequity is a longstanding concern of mine and will be the focus of future inquiries regarding TVA.

    The Tennessee Valley Authority was established in 1933 to assist in the development of a region of our country that faced significant and unique economic challenges. A great deal has changed in the economic landscape of our Nation since 1933, and TVA must change to reflect the realities of the coming century. We, too, are part of the bridge-building team.

    Again, the primary focus of today's hearing will be on the various proposals that have been forwarded to phase out much of TVA's involvement in non-power programs such as flood control, recreation, and navigation. Though I believe that TVA's role in these programs will change, I also believe that the Federal Government must continue to support and manage critical flood control, navigation, and recreational activities within the Tennessee Valley.
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    The elimination of TVA's appropriation for non-power activities is an issue that is on the table and one that must be considered carefully. However, the termination of important navigation and flood control programs is not on the table. There is a very strong Federal interest in flood prevention and efficient navigation that we cannot abandon.

    TVA's role in these activities will change, but the Federal Government's commitment to these activities will remain.

    While preparing for this hearing, the subcommittee has become aware of a disturbing number of complaints against TVA, including concerns about heavy-handedness, collusion with private interests, and misleading the public. This subcommittee takes its oversight role very seriously and welcomes credible evidence and information on such issues.

    The future of TVA will be directly linked to its ability to manage responsibly and fairly.

    Before recognizing the distinguished ranking member of the subcommittee, I would like to remind all present that on June 21st the subcommittee will be holding a field hearing in Murray, Kentucky, on the current and future management of TVA's Land Between the Lakes.

    I now recognize my good friend, the distinguished ranking member from Pennsylvania, Mr. Borski.

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    Mr. BORSKI. Thank you very much, Mr. Chairman. I want to commend you for your leadership in holding this hearing on the Tennessee Valley's non-power program.

    TVA was established in 1933 by Congress to help develop the Tennessee Valley region through navigation improvements, flood control, electrification, resource conservation, and economic development. It is quite clear that TVA has been successful in carrying out its charge.

    With the help of TVA's program, the region has experienced significant industrial and economic development. Residents of the region have also seen their standards of living improve substantially. However, TVA is at a crossroads. The question facing us now is: what should the future role be of TVA?

    Some have suggested that TVA should narrow its focus to the core business of power generation to become America's power company. Others disagree. They point out that TVA's non-power program of navigation, flood control, economic development, and resource conservation are essential to the original mission of the agency.

    Unless and until Congress amends TVA's organic act, TVA must continue to fulfill its Congressional mandate of providing non-power program services to the people of the Tennessee Valley.

    This hearing will help us learn about some of the issues surrounding TVA's future roles and responsibilities. I look forward to hearing from our witnesses today so that we can better understand the complexity that accompanies a wide-ranging reexamination of TVA's mission.
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    Congress should take a deliberate approach in evaluating the different alternatives; therefore, Mr. Chairman, I want to thank you once again for holding this hearing before Congress acts so that we can have an opportunity to familiarize ourselves with the issues that affect TVA and the people it serves.

    Mr. BOEHLERT. Thank you very much, Mr. Borski.

    Mr. Duncan?

    Mr. DUNCAN. Thank you, Mr. Chairman.

    First of all, I want to thank you for calling this hearing. Certainly the Tennessee Valley Authority has played a long and significant role in the history of the southeastern United States, and I think that both you and Mr. Borski have given very accurate opening statements as to what this hearing is all about.

    Obviously, by its mere size, being the largest producer of power in the United States, the TVA is an important institution, both in our region and to the Nation, as a whole.

    To say that TVA is significant and important is not to say, however, that it is a sacred cow whose actions and policies should never be questioned.

    During its history, TVA has done some things well and some things poorly. Now, because of tremendous growth in our region and because of possible deregulation, and perhaps other reasons, TVA faces a period of potentially major change.
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    We need to ask questions and look closely at the future role of TVA. The focus of this hearing is the non-power role. Of course, Chairman Crowell has made some suggestions in that regard that have caused some controversy.

    When discussing major changes in the operation of the TVA, my main concern is the effect on the rate-payer. In that regard, some people believe that TVA will have to impose a very large rate increase in the coming months. I hope this is not the case. I understand that TVA has had an increase in revenues of approximately $1 billion over the last 10 years, an average increase of about $100 million per year. I hope that this tremendous growth in revenues and increased efficiencies will allow TVA to hold any future rate increases to the lowest amount possible.

    I think most people regard TVA's most serious problem to be its horrendous debt of almost $28 billion. Because this debt is so large, I have said many times that TVA should be operated in an ultra conservative manner from a fiscal standpoint. TVA should not be spending one penny that is not absolutely necessary.

    About two-thirds of TVA's debt is due to its nuclear program. This debt was incurred by previous boards, primarily because they went head-over-heels into nuclear power. Hindsight is 20/20, and TVA should have tried to get one nuclear plant on-line before proceeding with another. However, I am sure that TVA never anticipated the delays they would run into in getting these plants on-line. It took, I think, 23 years to get Watts Bar on line. In Japan and France and other countries which have used nuclear power, plants have started producing power in 4 or 5 years.
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    I'm no particular fan of nuclear power, but I do not have an irrational fear of it, either. Most of the delays and thus most of the debt of TVA is really the fault of anti-nuclear fanatics and extremists.

    Be that as it may. The questions today will have to focus on the future and where we head from here, rather than what has occurred in the past.

    I look forward to this hearing. I have many questions to ask. I generally do not ask questions of other Members, since I can discuss these matters with them at any time, but I do have many questions that I wish to ask of the other witnesses.

    I want to say, Mr. Chairman, that I appreciate very much your allowing me to participate, since I do not ordinarily sit on this committee, but I admire you greatly and I have great respect for the work that you have done on this committee and this subcommittee.

    Thank you very much.

    Mr. BOEHLERT. Thank you very much, Mr. Duncan. I do appreciate it.

    Mr. Cramer?

    Mr. CRAMER. Thank you, Mr. Chairman.

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    Very quickly, I want to thank you for holding this hearing today. I think it's a very important hearing for us to consider, particularly in light of TVA's recent announcements. I see a number of witnesses here I look forward to grilling, as well, so I think it will be a very productive hearing.

    But before we begin to discuss these issues, I would like to take a minute to remember Congressman Bob Jones. Congressman Jones, my predecessor two times ago, who chaired this full committee, unfortunately passed away yesterday at noon. He served in this Congress from 1947 until 1977, so there are people here that either worked or served with him.

    As former chairman of this committee, he served the country and my Fifth District of Alabama with honor and integrity.

    It is appropriate, in light of this hearing subject matter, that we remember him, because he was a champion of the Tennessee Valley Authority. He supported the agency's much-needed services, both power and non-power programs.

    I am deeply saddened, as I know all of you are, by his death yesterday. We will all remember him with fondness and respect.

    Let us all continue to follow his example as a judicious, fair lawmaker.

    Thank you, Mr. Chairman. I yield back my time.
    [The prepared statement of Mr. Cramer follows:]

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    [Insert here.]

    Mr. BOEHLERT. Thank you very much, Mr. Cramer.

    Mr. Franks?

    Mr. FRANKS. Mr. Chairman, I, too, want to thank you for holding this important hearing today on the future of the non-power programs in the Tennessee Valley Authority.

    I'd ask unanimous consent to submit my complete statement and some reports and news articles as part of the record.

    Mr. BOEHLERT. Without objection.

    Mr. FRANKS. Thank you.

    The specific question before us today is what to do with the non-power programs of the TVA, but all of America knows that at the heart of the TVA is a massive electric power program.

    It is important that today's hearing on the TVA's non-power programs not obfuscate the major policy issue before this committee and before this Congress.

    A number of analyses have shown that the TVA receives approximately $1.2 billion in subsidies each year from the Federal Government. While this allows the TVA to provide some of the lowest electric power costs in the country, it comes at the expense of taxpayers around the country who are forced to pay higher power rates.
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    With the coming age of electric restructuring, having one giant entity with huge taxpayer subsidies competing with other companies that have to pay full tax burdens and adhere to hundreds of costly Federal regulations is, in my judgment, simply unacceptable.

    Earlier this year, TVA Chairman Crowell suggested that the Congress eliminate the $106 million appropriation that supports the TVA's non-power program. I support the chairman's recommendation.

    In February I introduced House Resolution 603, the TVA First Step Reform Act, that would put Chairman Crowell's request into law and eliminate the $106 million appropriation after fiscal year 1998.

    However, it is essential that we look at the TVA beyond its collateral non-power programs. We must take steps now to identify and eliminate any subsidies to the TVA power program.

    H.R. 603 takes the first step by having the Office of Management and Budget report to the Congress on the cost to the Federal Government of any subsidies that are currently provided to the TVA.

    I look forward to the future discussions on that bill.

    Mr. Chairman, I know we're here to discuss the non-power programs of the TVA, but it seems to me that very soon we must move toward a more-comprehensive review of the TVA power program, seek to eliminate TVA's economic subsidies, and create a greater sense of equity for our Nation's electric ratepayers.
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    Thank you.

    Mr. BOEHLERT. Thank you very much.

    [The prepared statement of Mr. Franks follows:]

    [Insert here.]

    Mr. BOEHLERT. Mr. Taylor?

    Mr. TAYLOR. Nothing at this time, Mr. Chairman.

    Mr. BOEHLERT. Mr. Gilchrest?

    Mr. GILCHREST. No comment at this time, Mr. Chairman.

    Mr. BOEHLERT. Is there anyone who seeks recognition at this point?

    [No response.]
    [The prepared statement of Mr. Baker and Mr. Poshard follow:]

    [Insert here.]

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    Mr. BOEHLERT. Let's proceed, then.

    Our first panel we're privileged to have are colleagues, all of whom are very close to this issue and I'm sure will do a good job of expressing to us their point of view in guiding us in our deliberations.

    That panel consists of Congressman Zach Wamp, who is also chairman of the TVA Caucus; Congressman Ed Bryant; Congressman Bob Clement; and Congressman Bart Gordon.

    Gentlemen, let's proceed in the order in which you were announced. Your full statement will appear in the record in its entirety. I would suggest that you might spare us some of your words of wisdom.


    Mr. BOEHLERT. Mr. Wamp, we'll let you go first, as chairman of the caucus.


    Mr. WAMP. Thank you, Mr. Chairman.

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    As the former vice chairman of this subcommittee in the 104th Congress, I want to thank all the Members for attending. This is about as many Members as I have seen at this subcommittee for a hearing such as this, and I think that speaks to the importance of the non-power funding, as well as overall TVA issues.

    Mr. BOEHLERT. We wanted to welcome you back, Mr. Wamp.

    Mr. WAMP. Thank you, sir.

    I think the Appropriations Committee needs a room this large, as well. I thought I'd throw that in.

    I want to start on the non-power funding, but also mention briefly the utility deregulation and the power side, and then discuss some of the proposals very quickly that have been made.

    First, with regard to the non-power funding, which is this subcommittee's jurisdiction, Chairman Crowell made a proposal that, frankly, I think, in the opinion of the majority of the TVA Caucus members, is not acceptable in that it eliminates TVA funding from the Federal Government without clearly defining who then would pick up those responsibilities for land and water stewardship, who would manage the Land Between the Lakes—these issues that are absolutely critical to the people in the seven-State region.

    These decisions were not made. These alternative proposals were not announced when this funding proposal was set forth. And the President's budget did not articulate whether the Army Corps of Engineers would take over these programs. It did not fund the Army Corps of Engineers to take over those programs.
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    So I felt it important to get the proposal back to safer ground as quick as possible and have put forth an alternative proposal that would effectively fully fund the TVA non-power programs for fiscal year 1998, which is the current request before the Appropriations Committee, Mr. Chairman.

    I will submit a copy of my proposal which I made to the Appropriations Committee for this alternative plan to fully fund the TVA non-power programs based on the agreements that had already been made to phase out the Environmental Research Center over a period of time and the economic development programs from the non-power funding, but maintain land and water stewardship and the maintenance and stewardship of Land Between the Lakes into the future.

    Now, my proposal would establish a floor for the out years, fiscal year 1999 and beyond. At that point I felt like the floor would be at least $66 million a year. Two months later or 3 months later, a lot of meetings have been held, a lot of input has been received. I believe that figure is going to come closer to $80 million a year that the Federal Government is going to have to fund one way or another. Either the Corps of Engineers is going to have to provide these benefits, the Department of Interior, or some other related agency would have to take over Land Between the Lakes. Those are Federal obligations that we cannot, in good faith, get out of.

    The Federal Government owes it to the people to maintain that, as they do in other parts of the country, so there is no savings to eliminate these essential programs and funding.

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    TVA is downsizing. Getting to this $80 million figure—I think it's going to be somewhere close to $80 million—is a floor at which the Federal Government is going to be obligated to provide these services. I hope that we can build support around this.

    In this year's funding request there are some essential infrastructure dollars. For instance, $6.6 million for a lock replacement at the Chickamauga Dam in Chattanooga, Tennessee—absolutely critical to interstate commerce. If we go another year without funding this 8-year project, there will be a point at which, I believe, the lock will have to close. That cannot happen. That simply cannot—we cannot, in this Congress, in good faith, upholding the public trust, allow that to happen. There are critical dollars that I think need to be funded.

    On electric utility deregulation, obviously that is the big question mark. How is it going to affect the Tennessee Valley Authority? As with any other deregulation, from airline deregulation or telecommunications deregulation, there are winners and there are losers. Unfortunately, in my part of the world the airline deregulation has hurt the Chattanooga Airport Authority dramatically so that we were one of the losers. We want to make sure that the TVA region is not one of the big losers in this issue of electric utility deregulation.

    I think the TVA must reduce costs, lower their overhead, and reduce their massive debt to prepare for deregulation, and I encourage that. The income is very good at TVA today, but bonuses and things like that, they need more oversight, they need a shorter leash.

    On the proposals that are currently pending—I talked about the two non-power proposals, Craven Crowell's and my own. Senator Frist has said he thought the three-member TVA Board could use a second look, that we might want to look, I think, in the post-deregulated climate on TVA having a new management structure. I think that speaks to what Representative Clement's commission proposal, maybe the intent of that is.
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    I want to commend Representative Clement for his proposal, but I must say I still do not see the justification for this, even though I remain open-minded.

    Two days ago I received the details of this proposal, so it is still fluid in that he's trying his best to make it palatable. There may be a time at which this is something we want to consider, but I think typically commissions are a last resort by elected leaders. When we're not willing to address Social Security, go to a commission. When we're not willing to address closing military bases, go to a commission. A commission typically is when the elected leaders don't have the guts to stand up and do it themselves.

    I believe TVA's oversight should happen by the duly-elected Members of Congress from the House and the Senate in the seven-State TVA region and committees such as this. That is where the buck should stop. We should be more active than ever in overseeing TVA. I think that is the purest approach to TVA's problems as we face electric utility deregulation, and I think TVA is doing some things good. But, just like Congressman Duncan, I believe they can do other things much better, and we will be working more aggressively than in the past, I believe, as a caucus to make sure that TVA makes the right decisions to prepare itself to survive electric utility deregulation.

    Thank you, Mr. Chairman.

    Mr. BOEHLERT. Thank you very much, Mr. Wamp.

    Mr. Bryant?
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    Mr. BRYANT. Thank you, Mr. Chairman.

    I appreciate your allowing me to participate in these proceedings.

    Today's discussion, the future of the Tennessee Valley Authority's non-power programs, is an important one.

    My colleague's within the TVA Caucus are to be commended for working together toward the common goal of ensuring that, as Congress moves toward electric utility deregulation, we don't act upon imprudent or even reckless policies which do more harm than good.

    For several decades, TVA has administered numerous public works and economic development programs that are important to the progress of Tennessee and the Tennessee Valley. Mr. Chairman, not that any particular one of these functions is more important, but I would like to focus my time today on the Land Between the Lakes national recreational area.

    I do want to take an aside at this point and thank the chairman and Mr. Whitfield from Kentucky for helping to arrange your visit in a field hearing in Kentucky. We missed the first one because of bad weather, but we look forward to having you in the region to take a closer look at this particular situation.

    The Land Between the Lakes is a 170,000-acre area of land with 300 miles of undeveloped shoreline along the banks of the Kentucky Lake and Lake Barclay. It's home to some 1,300 plan species, 230 bird species, and 54 mammal species. It attracts more than 2 million visitors from all 50 States each year. This is due in large part to the fact that it's one of only 34 national recreational areas in this country. For boaters, fishermen, water skiers, waterfowlers, LBL is a literal paradise. It has 29 access areas with boat ramps, 4 fishing piers, and 6 beaches.
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    For those who find satisfaction in such simple pleasures as watching a bald eagle soar overhead while taking a walk or biking or horseback riding, LBL offers 300 miles of hiking, biking, and horse trails. Many of the outdoor benefits and qualities are hard to find in an area where other public parks and recreation areas don't have these.

    That speaks volumes about the overall LBL experience over the past 30-plus years, which is to say that TVA has done a commendable job managing it.

    Mr. Chairman, I am going to cut out part of my speech and get to, the meat of the issue. I wanted to give you that background, though, on what exists at the LBL.

    I realize that most of us here today are committed to fiscal prudence and where we can, to reduce the cost and the size of the Federal Government. But where Land Between the Lakes is concerned, it seems to me that there's not a lot of room for savings.

    I feel the Federal Government has an obligation to the public to continue its role at the Land Between the Lakes. We ought to ensure that many of the current policies and practices which guide LBL will be continued in the years ahead.

    I very strongly support the TVA's management style of this area in that they have adopted a multi-use purpose so that it's open to the public for many, many uses. Certainly, my constituency—and I know Congressman Whitfield's constituency in Kentucky—very much support this management plan, and I would hope that my other colleagues on both sides of the aisle would agree with me on this point.
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    For the record, I'm comfortable with TVA's style, as I said earlier, and am somewhat reluctant, as Congressman Wamp has mentioned, to pass these responsibilities on to other Government agencies all at once, because the Land Between the Lakes is not going to go away.

    Chairman Crowell's recent remarks at the annual meeting of the TVA Public Power Association in Jekyll Island, Georgia, indicate TVA wouldn't mind continuing to manage the non-power programs if that's what Congress wants was certainly encouraging to me.

    I can't resist the very terrible pun of speculating that this original proposal to divest TVA from LBL must have been made at Hyde Island. You have to think about that a while.

    But seriously, Mr. Chairman, I do look forward to working with my colleagues in what I hope will be a fair effort on our part to ensure that the compact we have established when we created the LBL some 30 years ago is upheld in the years ahead.

    I thank the Chair for the time.

    Mr. BOEHLERT. Thank you very much.

    Congressman Clement?

    Mr. CLEMENT. Mr. Chairman, if it's okay with you and the committee, I'd like for Congressman Gordon to go first.
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    Mr. BOEHLERT. Fine.

    Mr. GORDON. Mr. Chairman, I thank my friend and neighbor from Nashville.

    I've heard Bob speak on the subject before, and so since we're in the markup in Commerce Committee I thought I'd better move along.


    Mr. GORDON. Since you don't have a five-minute rule here.

    Mr. BOEHLERT. Just shows you the spirit of bipartisanship is alive. We accede to your request.

    Mr. GORDON. Thank you. I compliment you on this hearing today. I think it's a healthy exercise, and I'll follow your advice as submitting my formal remarks for the record and I will try to be brief by concurring with some things that have already been said.

    First, my friend Jimmy Duncan summed up many of my views and thoughts. I'm on the subcommittee where the deregulation of electricity will begin. As Jimmy said, I think that no matter where we live, our first responsibility needs to be the best rates and the best service for our constituents, and I think that's where he and I sit, and I think he summed that up well.

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    The second thing that Jimmy said that I concur with is that over the years TVA has done many positive things for our region but has also made a lot of mistakes along the way. I think that the Board is moving in a good direction now; however, I think a mistake—and one of those mistakes was the recommendation to do away with the non-power revenue appropriation.

    As my friend Zach Wamp says, it was really built on a false premise to think that doing away with this appropriation means that the responsibilities of water management, flood control, stewardship of the lakes, the rivers, and the public lands—it doesn't go away. It's still there. It's still a public responsibility, whether it's done by the Corps of Engineers or by the TVA. And until there is another approach to take care of these important natural resources, then certainly this appropriation has got to be continued and that commitment to those public resources has got to be continued, just as we have a commitment to Yellowstone National Park, and I guess we're buying that new forest in New Jersey. I mean, those are public commitments and things that we need to do for the good of all.

    So I would strongly say that we've got to continue with that public responsibility, and I guess the approximate $80 million range, as Mr. Wamp suggests, and I hope that this committee in this hearing will bring that out and make it very clear that that is in the public good.

    Thank you, Mr. Chairman, and thank you, Bob.

    Mr. BOEHLERT. Thank you very much.

    Now for the much-anticipated testimony from Mr. Clement.
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    Mr. CLEMENT. Thank you, Mr. Chairman and Ranking Member Borski and members of the committee. I want to thank you for your cooperation in fulfilling the request of Congressman Duncan and myself to have these Congressional oversight hearings on the future of TVA.

    I want to take this opportunity to remind my colleagues on the committee of the historic accomplishments of TVA. TVA broke the patterns of poverty in the south and ended the reign of Mother Nature on its soil.

    It is crucial for the United States Congress to understand, as it considers the future structure and funding of TVA, each year Members of Congress from the northeast and midwest, Representative Klug and Congressman Franks and others, rise to oppose TVA's non-power appropriations budget. Every year the members of the Valley delegation have fought diligently to save these funds. We've been successful every time because the truth truly has been on our side.

    Early this year, after consultation with OMB and no consultation with the Congressional delegation, Chairman Crowell announced that TVA favors cutting off its appropriated funding after fiscal year 1998 for the non-power programs.

    Chairman Crowell's proposal opens up Pandora's Box to much broader and challenging issues than merely saving TVA's appropriated dollars.

    It will now be TVA's task to defend itself against those who will say, ''If Tennessee is now just a Federal utility, why shouldn't it be privatized?'' Even that one would be a decent question to ask if it were not for the $27 billion debt which will keep it from competing with other private investor-owned utilities in the country.
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    If Chairman Crowell's real agenda is to make TVA competitive in a deregulated utilities market by chopping off its non-power programs, I question the wisdom of the proposal. I do not believe there is a direct link between TVA's ability to compete and its sustainment of the non-power programs.

    First, these programs comprise only 2 percent of TVA's budget. The benefits of these programs to the Valley and to TVA far outweigh the small cost to the Federal Government and TVA. Truly these programs that are a part of TVA's Congressionally-mandated mission and a unique contribution to the Valley's growth are a fountain of jobs, industrial development, environmental protection, and transportation enhancement.

    I call on my colleagues in the United States Congress to fund TVA at the fullest level possible in order for it to meet the needs of the TVA Act. I call on TVA to set aside its proposal once and for all and do all the work that Congress has asked it to do with pride and excellence, as it has for more than a century.

    The questions of the days ahead of us are difficult and complex. I dare say that none of us know how to proceed, and whatever steps we take, they must include the input of all TVA stakeholders so the Valley is not crippled by deregulation and TVA's future role.

    Mr. Chairman, in order to address these fundamental questions, I propose that the Congress appropriate $2 million in the fiscal year 1998 energy and water TVA appropriations for an independent regional commission to make recommendations in the Congress in 12 months about how to deal with TVA in a deregulation legislation.
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    Let me make it clear: this will be neither a TVA subsidiary or a TVA watchdog group, as my friends at TVA would have you think. It would be a serious commission that would make a series of recommendations to Congress regarding the structure, mission, and role of TVA in the 21st century.

    We can't leave it just at TVA. TVA has lost too much credibility. They've lost too much faith with the 8 million ratepayers in the Valley area. It's a must to establish this regional commission in order for us to look at the future of TVA for the 21st century.

    This TVA 2000 regional commission would be made up of industry leaders, public power utility executives, labor, State and local Government representatives, environmentalists, and ratepayers. I'm proposing that we staff and locate this commission in the heart of the TVA region at the Oak Ridge National Laboratory, a world leader in energy research and development.

    I now urge the members of the TVA Caucus and our chairman, the House Appropriations Committee, and this committee to rally behind this vital, real step, next step in the consideration of TVA's future.

    Thank you, Mr. Chairman.

    Mr. BOEHLERT. Thank you very much, Mr. Clement.

    Someone just passed me a note and said Mr. Franks would volunteer to serve as Chair of that commission.
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    Mr. BOEHLERT. I want to thank all of my colleagues for their excellent testimony, and I want to assure them that we are not going to abandon our commitment to addressing the items you have pointed out—for example, the natural resources stewardship.

    The fact that we are going to Murray, Kentucky, on the 21st of June is evidence of our commitment, and it's a tribute to the tenacity of our colleague, Mr. Whitfield.

    As you know, we were scheduled previously to go to Murray, but the weather conditions on that day made it prohibitive in terms of flying, but we are determined to go and to have that hearing, and I would urge all of you to participate in that. We're not going to walk away from our responsibility.

    Do any of our colleagues have questions?

    [No response.]

    Mr. BOEHLERT. Thank you very much. We really appreciate it.

    [The prepared statements of Messrs. Wamp, Bryant, Clement, and Gordon follow:]

    [Insert here.]
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    Mr. BOEHLERT. Now we will hear from the second panel, consisting of: Mr. Craven Crowell, the Chairman of the Tennessee Valley Authority, accompanied by Director Johnny Hayes and William Kennoy.

    I want to welcome the panel and indicate that your statement will appear in the record at this juncture in its entirety. We are going to try to stick to the 5-minute rule today, but I understand the importance and I think we all appreciate the importance of what is going to be said in the exchange between the subcommittee and our witnesses.

    So, with that instruction, you may proceed, Mr. Crowell.


    Mr. CROWELL. Mr. Chairman, I will try to stick with the five-minute rule, and my colleagues will do the same thing.

    I do want to first thank you and your staff for the courtesies extended to us in preparing for this hearing. We are very pleased to be here and appear before you today.

    As requested by the committee, I have submitted written testimony for the record and, also as you requested, I'll make my opening statement as brief as possible.

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    On behalf of the TVA Board, I would like to say that we are proud to serve as the stewards of TVA under the oversight of Congress and this committee. We are here today to discuss the future of TVA and its tax-funded programs.

    On the electric side of our business, TVA has served the people of the valley by making our operations more cost-effective and efficient. This has been our goal with the tax-funded programs, also. We have improved operations at Land Between the Lakes and increased the part of its annual budget that comes from user fees and from other non-taxpayer sources.

    We have refocused our economic development efforts and initiated a phase-out of taxpayer funding for economic development.

    Likewise, the environmental research center is also in the midst of a transition away from appropriated funds. TVA's tax-funded programs provide the Tennessee Valley with flood control, navigation, land and water management, resource and economic development, and recreation.

    These services are a part of the fabric of life in the Tennessee Valley, from preventing devastating floods to managing shoreline erosion.

    In January, I proposed to Members of Congress that consideration be given to examine alternative ways for funding our appropriated programs. This proposal included the possibility of turning over some programs to other agencies of Government, or, in some cases, eliminating programs altogether.

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    I emphasized from the beginning that it was just a proposal, an opportunity to examine alternatives for funding essential Government services. I also emphasized that the proposal depended completely on the support of Congress.

    Since January we have heard many valid concerns from our constituents in the Valley and elsewhere and from Members of Congress. We're holding public meetings and gathering input from our stakeholders across the Valley. In public meetings and in phone surveys, the overwhelming opinion has been that TVA should continue to carry out these essential functions.

    The members of the TVA Appropriations Task Force are currently reviewing the public input. They are weighing the options for the future, including the compromise plans proposed by Congressman Zach Wamp and Governor Don Sundquist of Tennessee.

    The task force will also report on the levels of funding that will be needed to maintain essential services in future years.

    It seems likely that TVA will need to maintain its current budget level of $106 million in fiscal year 1998. This was the request that the Board made to the Congress in March, and it includes funding to begin engineering and relocation planning to replace the failing navigation lock at Chickamauga Dam.

    When the task force makes this report to the Board, we fully expect to discuss its findings with the appropriate Members of Congress and proceed only with the advice and consent of this committee.

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    Mr. Chairman, I'd like to assure the members of this committee that if Congress wishes TVA to carry out its tax-funded programs, we will continue to apply the same dedication to improvement and efficiency that we have brought to bear in the power system.

    I have been the chairman of TVA for 4 years. My first appearance before this committee was three years ago—just 3 years ago. At that time, Mr. Chairman, TVA had a costly construction program of unfinished nuclear plants, debt that was rapidly increasing and threatening our debt ceiling, a nuclear unit at Watts Bar without a license and producing no revenue, a second nuclear unit out of service for 10 years, and no strategic plan for the future.

    Today I'm pleased to report that we have stopped construction of our unfinished nuclear plants, we've capped our debt. For the first time in 35 years, we will not increase the size of the debt this year. In fact, we will reduce it by a small amount.

    We brought Brown's Ferry III and Watts-Bar I nuclear units into operation, and they're producing revenue for us.

    We've improved the operations at our generating facilities, increasing overall capacity factor by 20 percent.

    And we've developed a long-term strategic plan.

    All this in a 3-year period.

    Overall, TVA's power system is operating better today than it has since the 1960s, and that was not the case 3 years ago.
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    For the effort and dedication that have made these achievements possible, I want to acknowledge the employees of TVA, and I certainly think they deserve an A-plus. They have cut costs and improved productivity, and they are now producing the second-lowest-cost power among the Nation's 50 largest utilities.

    In the coming years, TVA must meet the challenges of the deregulated utility marketplace, and to meet those challenges we are continuing our efforts to cut costs and increase efficiency.

    Although we have capped the debt, a third of every TVA dollar goes to interest on the debt. This board is committed to decreasing the debt and to improving TVA's competitive position.

    Mr. Chairman, the members of this board are available to work with you and the members of this committee to achieve an outcome for TVA that best serves the Valley and the Nation.

    Mr. BOEHLERT. Thank you very much, Chairman Crowell.

    Mr. Hayes?

    Mr. HAYES. Mr. Chairman, thank you and good morning.

    As Craven just indicated in his comments, TVA's performance is at near record levels in almost every aspect of our operations. The men and women at TVA have done a great job in making TVA one of the country's most efficient power producers, and they deserve our acknowledgement and recognition for what they've done.
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    This Board has worked to move forward in all areas, and that includes making appropriated programs self-sufficient wherever possible.

    I want to report that we are making excellent progress in our initiatives to phase out taxpayer funding for economic development and the Environment Research Center at Mussel Shoals. We launched these initiatives because both of these areas perform functions that are wholly integrated into our business operations.

    I'm especially pleased with the transition of our economic development work. The move to phase out appropriated funding has incorporated an aggressive restructuring focused on public/private partnerships to create jobs. Fiscal 1998 is the last year in which TVA will seek appropriations for its economic development activities.

    We also are successful in phasing out TVA's appropriated funding for the Environmental Research Center. By the end of this fiscal year, we expect that 52 percent of the center's budget will come from sources other than direct appropriated funding. By the end of fiscal year 1998, we expect to be at 79 percent funding from other sources, and at 100 percent by 1999.

    We are proud to see both of these programs moving successfully to phase out appropriated funding. The employees and managers involved in these efforts deserve recognition for their contributions to increase the value and self-sufficiency of TVA's services. I'm certainly proud of what they have accomplished.

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    Thank you.

    Mr. BOEHLERT. Mr. Kennoy?

    Mr. KENNOY. Thank you, Mr. Chairman, for this opportunity to talk about TVA's future.

    I'd like to add to Craven's comments about the tax-funded services that TVA provides, and those include stewardship of 54 dams in the Tennessee River system, maintaining navigation channels and 14 locks, and managing 11,000 miles of shoreline, and also managing public lands, including campgrounds, recreation areas, and the 170,000-acre Land Between the Lakes National Recreation Area.

    As Craven said, the public has indicated that it values these services and wants TVA to continue providing them. That's true. No one doubts the importance of flood control. Each year, the experienced operation of TVA's dams prevents an estimated $70 million of potential flood damage in the Tennessee Valley.

    I don't think anyone doubts, either, the commercial importance of the navigation on the Tennessee River. Each year, TVA's locks and navigation channels ensure passage for some 34,000 barges and 48 million tons of cargo. This is impressive.

    TVA's lakes are the hubs for a $2 billion recreation and tourism industry.

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    And Land Between the Lakes—which is close to me because I am from Kentucky, and more than two-thirds of LBL lies within that State—it's the largest uninterrupted stretch of public land between the Rocky Mountains and the Appalachian Mountains, and it's within 1-day's drive of one-third of the population of the United States. It received 2 million visitors a year from each of the 50 States. As I said, it's the center of a $400 million tourism industry.

    I value the input gathered by our taskforce that is working hard now, and I look forward to hearing that group's report and sharing those findings with the appropriate committees, including this one.

    Mr. BOEHLERT. Thank you very much.

    Mr. Chairman, other witnesses testifying today have suggested in their written testimony that merely divesting TVA of its non-power programs will not adequately address the competitiveness concerns of shareholder-owned utilities and will not end the perception that TVA is subsidized. They believe that the only way to level the playing field is to make TVA internalize the cost of its non-power programs, as they assert other power companies already do.

    Since you were heavily emphasizing in your statement, your formal submission, the power portion of the program, I feel that's fair game to ask that question. So what's your opinion on that?

    Mr. CROWELL. Let me answer the question this way: we keep two separate accounts at TVA, one is the tax-funded programs and one is the power programs, and we have some concerns legally about how to make sure that those stay separate.
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    For example, we are concerned about using any power funds for navigation and flood control, so there are some concerns. If you look at the TVA Act, or some other—are the bond-holders, the bond covenants could pose some difficulties for us if we tried to put those accounts together.

    Now, let me say this. You talk about the subsidy issue. Sometimes I think one person's subsidy may be somebody else's policy from the standpoint that I hear a lot about the advantages TVA has over private power companies, and there certainly are advantages that TVA has, but, Mr. Chairman, I don't see a lot of discussion about the advantages that private power companies have. For example, they have the deferred taxes of some $100 billion. They get tax credits for pollution control equipment, which we don't get. They have tax-exempt bonds, which we don't get.

    So, in dealing with the subsidy issue, I would just hope that we would look at advantages not only that TVA has as a Government corporation, but look at the advantages that others have.

    Mr. BOEHLERT. I think you'd be hard-pressed to convince others in other sections of the country that it's a level playing field.

    Let me ask you one more question before I move on to the rest of the panel, because I'm going to adhere to the five-minute rule, as I will ask all others to.

    Various groups have characterized TVA's attempts to divest itself of its non-power programs as an attempt to provoke a smoke screen to divert attention from these hidden subsidies. They've estimated that TVA receives hidden subsidies of up to $1.2 billion a year.
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    Part of TVA subsidies that are under attack are types of charges born by private utilities that TVA avoids completely. They cite payments to FERC, certain taxes, and the cost of securing FERC licenses.

    Can't the lack of a requirement to pay these fees be considered a subsidy?

    Mr. CROWELL. We worked with FERC in 1979 to develop the guidelines that are being used throughout the country right now, and we certainly abide by all the FERC regulations.

    We maintain our projects the same as a private power company does, except in our case we do it directly and, in effect, eliminate the middle man, which would be FERC, on those payments.

    Private power companies, for example, do not have responsibility to fund Federal land management, national laboratories, national recreation areas, and those other activities that are inherent within the TVA system, so I think we have to look at all the different things that TVA is required to do in trying to determine whether or not there is fairness between us and the private power companies.

    Mr. BOEHLERT. Yes, but, Mr. Chairman, in all fairness, you're funding those other activities with Federal dollars, appropriated dollars. That's what we're talking about here today.
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    Mr. CROWELL. Well, we put over $100 million a year from power funds into our reservoir system, so there is maintenance going on there the same as a private power company does with their projects, so there is a lot of money that goes in from the revenue from electric sales.

    Mr. BOEHLERT. But that's in your enlightened self-interest to do so.

    Mr. CROWELL. Yes. Of course, the same as a private power company has.

    Mr. BOEHLERT. I will go to Mr. Clement now, but let me tell you, I think you still have a very hard case to prove, especially to someone who, like me, is from New York, or Mr. Franks from New Jersey.

    As we look at the history of the whole program, we applaud FDR for what he did, his foresight, but let me tell you, you guys are doing quite well down in Tennessee these days, and in the northeast we're hurting somewhat, and one of the reasons we're hurting is because of the differential in power cost, and one of the reasons why we have a differential in power cost is because I think a clear case can be made that you guys get subsidies and we don't.

    Mr. CROWELL. It's interesting, Mr. Chairman, and Mr. Franks, too, that back home in the Tennessee Valley I get encouraged on a pretty daily basis about trying to keep our rates lower than they are now, and so it's—I guess a lot of it probably depends on where you sit or where you stand sometimes, and so I get encouragement back home to lower them, and then here there are concerns expressed about us being too low, and therefore being disadvantage to the rest of the country.
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    It's an interesting phenomenon, I must say, when I'm dealing with——

    Mr. BOEHLERT. Just let me tell you, before deferring to Mr. Clement, that when I say my nightly prayers I pray for lower utility rates for the northeast.

    Mr. CROWELL. Right.

    Mr. BOEHLERT. Thank you very much.

    Mr. Clement?

    Mr. CLEMENT. Thank you, Mr. Chairman.

    Chairman Crowell and Director Kennoy and Director Hayes, I know what a tough job you've got. I was there, and a lot of you know I'm a former TVA Board member, and I know it's a tough job, but I'll say, in recent months I've been awfully disappointed, particularly when I feel like I got the shaft and a lot of other people did, Chairman Crowell, when you went around us and went directly to the Office of Management and Budget, didn't consult with any of us, and some would say sold us down the river in terms of going from $106 million a year in appropriated funding dollars for important programs such as flood control and navigation and recreation and environmental protection and operation of Land Between the Lakes—and a lot of those people were forced off their property to create that beautiful area, and then TVA reneged on its commitments from the past.
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    But I have to ask you, you know, a lot of people think there was an ulterior motive, that you didn't want to be—you felt like if you could zero out appropriated dollars and get away with it, that you wouldn't have to have any oversight authority any more over TVA. TVA directors could go their merry way and make whatever decisions they want to make, since you don't have a public service commission or public utilities commission overseeing your rates, that you would make those decisions and you would be totally in charge with no oversight at all.

    Mr. CROWELL. Mr. Clement, I'm sitting right here right now in front of this committee in an oversight hearing. I certainly don't know where anybody could have gotten that idea. I mean, we are owned 100 percent by the U.S. Government. This is our oversight committee. We have an oversight committee in the Senate. We are appointed by the President. We have to get confirmation through one House of Congress to sit on the Board. I can't imagine it's anything that we could do ourselves or that we would have the power to do to avoid any oversight of any sort from Congress because that's—TVA was created by Congress. Congress can change TVA, and Congress can require us to appear at oversight hearings, so that certainly is not something that——

    Mr. CLEMENT. Chairman Crowell, respectfully, why wouldn't you at least—you know, when you're making a policy decision, why wouldn't you have a vote of the Board before you'd take it directly to OMB to make such a drastic decision which, in my opinion, changes the TVA Act, changes the TVA mission, and very well could be responsible for selling TVA?

    Mr. CROWELL. This was—and I emphasized this in my testimony—this was a proposal that I made. It was never something that we could do ourselves. I made that clear. It did not require a vote of the TVA Board for the simple reason that we simply could not implement such a decision without Congress agreeing to it. So it's really a decision for Congress, not a decision for us.
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    Discussing a proposal to try to make us more efficient and try to find ways to prepare us for deregulation is certainly something we ought to be doing on a regular basis.

    It certainly was not my intention to surprise anyone, and in my meeting with the caucus, as you remember—and you were present there—I made the comment that I learn something every day, and I did learn I need to communicate better with our caucus out of this whole process, and so I'm trying to do a much better job of that.

    Mr. CLEMENT. Mr. Chairman, I'm holding these flyers up that Congressman Franks and Congressman Klug have sent out, and, just like what his statements were a while ago, he's quoting exactly what you said right here, ''With your help, we can end taxpayer funding of TVA-appropriated programs and begin a new era for TVA.'' And then, on the next page, Congressman Frank and Congressman Klug said—and this was sent to every Member of Congress, Democrat and Republican, alike, all 435 of us. Then it says by the two of them, ''Okay, let's help. Please co-sponsor H.R. 603. It does what the Chairman wants.''

    Mr. CROWELL. I'm not sure how to——

    Mr. CLEMENT. I ask you again, what are we supposed to do as Congressmen? I want to protect, defend, and support TVA. I want to help TVA. But you've put us in a very precarious position. You've put us in a very dangerous position, and it very well could set back our economic development, our environmental protection program for 30 years.

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    Do you realize the significance of what you did in the proposals you've made? And are you saying today, ''I'm sorry I made those proposals. I should have never made those proposals, and I'm withdrawing them right today''?

    Mr. CROWELL. Let me respond this way: My whole direction since I've been Chairman at TVA is try to prepare TVA for deregulation into the next century, and I just read off a list of things that had happened in the last 3 years from the last oversight, and it shows that we are making great progress in our performance in preparing TVA for the future.

    This proposal was all part of the preparation for the future.

    TVA has reinvented itself in the past, sometimes in very dramatic ways. In 1959, for example, we were dramatically changed.

    It is my opinion that deregulation will dramatically change us in the future, and all I'm trying to do is get TVA prepared for the future, and this was all part of that effort. It was not something that was separate from the total mission that I see in getting us prepared for the future. It's all part of the same effort.

    Mr. CLEMENT. Thank you.

    Mr. BOEHLERT. Thank you, Mr. Clement. That's an interesting segue into one of the stars of this hearing, Mr. Franks.

    Mr. FRANKS. Mr. Chairman, it is becoming impossible to tell who is on what team here in the absence of an updated program.
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    Mr. CROWELL. I must say, Mr. Franks, I get a lot of help every day, and some days I think I get a little more help than I need. But I do appreciate everybody's comments to try to get us to focus on the real issues.

    Mr. FRANKS. Mr. Chairman, I warned against obfuscation at the outset of my remarks, and in that you didn't, I don't think—you answered my distinguished colleague and friend, Mr. Clement, when he asked you are you withdrawing your proposal, your failure to answer in the affirmative causes me to believe that you retain your stance.

    I have a couple news articles here that talk about the recommendation that you made. You're trying to distinguish now between proposal and recommendation.

    Mr. CROWELL. Right.

    Mr. FRANKS. Did the proposal stem from you?

    Mr. CROWELL. Yes. The proposal stems from me.

    Mr. FRANKS. But it is not your recommendation?

    Mr. CROWELL. No, but it was a proposal for the simple reason I could not implement any sort of recommendation involved in that because I don't have the power to do so.

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    Mr. FRANKS. Clearly, you don't have self-executing authority——

    Mr. CROWELL. That's right.

    Mr. FRANKS.——to put it into effect.

    Mr. CROWELL. Right.

    Mr. FRANKS. But it was, in fact, your proposal?

    Mr. CROWELL. Yes, it was. And therefore, if you want—if a recommendation——

    Mr. FRANKS. Staying with obfuscation for a moment, you talked about the fact that TVA abides by all FERC regulations. I have a list of about 137 regulations to which the TVA is not required to—adhere to, and 21 of those are major FERC regulations, just to make certain that there is not obfuscation.

    Mr. CROWELL. I appreciate that. I did make a misstatement. What I was talking about, we abide by all FERC regulations as they relate to dam safety, and that's what I thought the question was. I'm sorry. I apologize for that. It was dam safety is what I was trying to address.

    Mr. FRANKS. I appreciate that.
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    The suggestion was that you made this proposal shot from the hip, didn't think about it, didn't understand its consequences, didn't consult with anyone. I listened to your testimony this morning. You seem to be a very bright guy, clearly know the inner workings of the TVA better than anyone, I presume. Tell us who in your mind would have stepped up to the plate and taken responsibility for some of these non-power functions. Or, in fact, did you have no idea?

    Mr. CROWELL. Well, I obviously had some ideas, but let me——

    Mr. FRANKS. Could you elaborate on that? I'd like to hear your ideas, though, on who that was to have been.

    Mr. CROWELL. Okay. I thought that the Corps of Engineers would be a principal player in the biggest part of any changes that occurred. Part of my proposal, as you recall, was to have better coordination between the Cumberland River and the Tennessee River, and it was my expectation that, since the Corps already operates the locks on the Tennessee River and therefore it is active on the Tennessee River, that the largest portion of those could be coordinated between the Cumberland and Tennessee Rivers, so that was my initial thought.

    But I do want to say this, though: I discussed this proposal with OMB on numerous occasions over several months before I made it, so it was not something that I decided on my own because, as you recall, the President's budget had exactly the same proposal in it when it came over to Congress, so I do want to—I try to make my decisions in a very deliberative manner and not to shoot from the hip, and I pride myself in being deliberate. This was a deliberate look at a proposal.
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    Now, there was some concern from our delegation that I didn't consult enough of them. I just acknowledged that that is a valid issue and I've met with the caucus about it.

    Mr. FRANKS. Specifically, we're talking about, among other things, flood control and dam maintenance, shoreline and land use management, recreation areas and campgrounds, water quality initiatives, navigation channels and locks. Are any of those activities engaged in by other privately-held utilities?

    Mr. CROWELL. Yes. Obviously some are. I don't know of any private utility, for example, that has an Environmental Research Center or Land Between the Lakes or some of these other things that——

    Mr. FRANKS. Where there is an overlap, where the TVA performs a function relative to non-power activities that is also performed by another utility, how does that other utility support those activities?

    Mr. CROWELL. They pay for them from their power revenues, I'm quite certain. Is that what——

    Mr. FRANKS. So the ratepayers——

    Mr. CROWELL. The ratepayers. Yes. Right.

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    Mr. FRANKS. The ratepayers pay for them?

    Mr. CROWELL. Yes. And the issue that we have—and this is what I was trying to respond to the chairman earlier. The issue we have, of course, is that the TVA Act, which set up TVA, has certain provisions in it on navigation and flood control, and there are some legal concerns we have about what we can put power funds into from the standpoint of maintaining them, and so that's an issue for us, and I certainly think in deregulation it may be something that you want to look at, Mr. Franks, from the standpoint of making some changes.

    But I'm trying to do the best I can under the mandate that we have, and to try to do it legally in the right way.

    Mr. FRANKS. Mr. Chairman, I appreciate that. We'll work very carefully to review the bill.

    Mr. Chairman, I think that's my 5 minutes. Thank you.

    Mr. BOEHLERT. Thank you very much.

    Mr. Johnson?

    Mr. JOHNSON OF WISCONSIN. Thank you, Mr. Chairman.

    Let me ask you, Mr. Crowell, you've heard the proposal about the independent commission and the future of the TVA as proposed by Congressman Clement. I wonder if you can tell us today your view of this. Will it help? Will it hurt? What's your view?
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    Mr. CROWELL. I guess the best way for me to answer that is to say that I listened very carefully to what Congressman Wamp said, and I could not add a single word to that description. I agree with him completely.

    I think that we should be answerable to Congress, I think it would be very uncomfortable for us to have somebody between us and Congress that had oversight responsibilities over TVA. I think it would create great mischief for us and so therefore I think it's not a good idea.

    I think that what we need is more interaction between us and this committee and other Members of Congress.

    Mr. JOHNSON OF WISCONSIN. If Congress appointed this commission as it's sort of deputy to help facilitate and do its work, is that something you see as favorable?

    Mr. CROWELL. As I said, I don't think it's a good idea, but if Congress acted on it I certainly would support whatever Congress wanted me to do completely and whole-heartedly.

    Mr. CLEMENT. Would the gentleman yield just for 30 seconds?


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    Mr. CLEMENT. I want to explain about that regional commission. It's not an oversight operation. It's not a subsidiary of TVA. It would only be in existence for 12 months to make recommendations to Congress and to the President—recommendations and suggestions about their structure, about their size, about their finances—and get us ready for that time when it comes when we'll have deregulation.

    And we're going to debate deregulation, which is bigger than telecommunications, trucking deregulation, airline deregulation all combined, and that time is coming.

    Just to get us prepared for the 21st century, but it won't be any permanent commission—just to make recommendations and suggestions, and only be in existence for 12 months.

    Thank you.

    Mr. JOHNSON OF WISCONSIN. Based on that, any change of mind?

    Mr. CROWELL. No, sir.

    Mr. JOHNSON OF WISCONSIN. Still don't like it?

    Mr. CROWELL. Still don't like it. Let me emphasize, though, that that's not my decision to make at all, so I don't want the fact that my—I certainly have opinion on things, but a lot of things I have an opinion on I don't have any control over, and this is one of them.
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    Mr. JOHNSON OF WISCONSIN. Your annual report for 1996 says you have some $4 billion in retained earnings or proprietary capital. What are the balances of these funds used for?

    Mr. CROWELL. The retained earnings, we have—I think it's about $3.4 billion the last time I looked on retained earnings, and that does not necessarily represent cash flow. That is the net income that has been accrued over the years, so it's just carried on the books as deferred income, and it's not cash flow.

    Mr. JOHNSON OF WISCONSIN. Is it possible that any of these funds can be used to pay for the land management responsibilities TVA is charged with?

    Mr. CROWELL. No. As I said, it's not cash flow in the sense that it's dollars that we could spend, so from that standpoint the retained earnings are just the value of the company. So if you were to pay anything as a result of the net income—I mean, the balance of the 3.4 billion, you would actually be depleting the value of the company over a period of time, so I don't see how that could work for us.

    Mr. JOHNSON OF WISCONSIN. Thank you very much, Mr. Crowell.

    Thank you, Mr. Chairman.

    Mr. BOEHLERT. Thank you.

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    Dr. Ehlers?

    Mr. EHLERS. Thank you, Mr. Chairman. I apologize. I've been in and out. We have an Aviation Subcommittee hearing across the hall on a grounded airline, and so I missed much of your testimony. If you've previously responded to these questions, simply indicate that. There's no need to repeat it.

    My question will be very simple. What is the current rate per kilowatt hour that your residential customers pay?

    Mr. CROWELL. It's a little under $0.06 total.

    Mr. EHLERS. Under $0.06. And how much out of your budget is spent on the so-called ''ancillary activities'' that you think TVA should not be pursuing at this point?

    Mr. CROWELL. It's $106 million.

    Mr. EHLERS. And what is your current debt?

    Mr. CROWELL. Current debt is $27.3 billion.

    Mr. EHLERS. All right. The $106 million that you referred to, what percentage is that of your annual gross revenues?

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    Mr. CROWELL. It's 1.8 percent.

    Mr. EHLERS. And what about your net revenues? Or I guess you don't keep a profit and loss sheet, do you?

    Mr. CROWELL. We do, and the—our power revenues are $5.7 billion a year, so the money we get from taxpayer funds is a very, very small part of our budget.

    Mr. EHLERS. You mentioned that you believe that the current law does not allow you to pay this $106 million out of your power revenues. Has that——

    Mr. CROWELL. There are some issues—sorry.

    Mr. EHLERS. Has that been tested in the courts, or is this an opinion given by your attorneys, or is this well established?

    Mr. CROWELL. This is an opinion by our attorneys, and it really principally involves navigation and flood control, and one of the tasks that we assigned to the working group that we have looking at my proposal in January was to look at whether or not the split—when I say ''split,'' the amount of money from power revenues that goes into these programs is at the right level. So I would expect to get some further advice from our task force on whether or not we are calculating it correctly.

    Mr. EHLERS. And do you pay any State, local, or Federal taxes?

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    Mr. CROWELL. We pay, in lieu of taxes, 5 percent of gross revenue, which last year was $250 million. I might add, if we paid Federal income tax last year it would have been $25 million, not $250 million, based on income. But we pay to States and local Governments, not to the Federal Government.

    Mr. EHLERS. And what is the split between local and State payments?

    Mr. CROWELL. I don't remember. Of course, Tennessee is the largest——

    Mr. HAYES. It all goes to the State, and they——

    Mr. CROWELL. And then they send it to the local governments. We are one of the largest taxpayers in Tennessee.

    Do you remember what the amount of that in lieu of tax——

    Mr. HAYES. It's $144 million.

    Mr. CROWELL. It's $144 million or something like that to Tennessee each year.

    Mr. EHLERS. And your payment in lieu of taxes was how much, again, in dollars?
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    Mr. CROWELL. It was $250 million.

    Mr. EHLERS. Okay, $250 million.

    Mr. HAYES. It's 5 percent of the gross income.

    Mr. EHLERS. Mr. Chairman, it just seems to me that the people of that area are getting substantial benefit from the operation of the TVA. They're getting relatively low electricity rates. They're getting a lot of other public services. It concerns me to have taxpayers from the rest of the Nation paying for the ancillary activities when, in fact, that area is benefitting a great deal from having the project there.

    If statutory change is necessary to allow them to pay for the ancillary activities out of the rate revenues, I think that would be appropriate.

    Thank you very much.

    Mr. BOEHLERT. I thank my colleague from Michigan for his observation.

    Mr. Cramer?

    Mr. CRAMER. Thank you, Mr. Chairman.

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    To Mr. Crowell and members of the Board, I appreciate your appearance here today, and I want to say to the committee and beyond the committee to the full committee that I hope we can have annual opportunities where you come before at least this committee and account for your activities. I think that would give a number of us—I happen to be a TVA District that I represent—an opportunity to talk with you on the record about issues that occasionally we get extremely frustrated about.

    Consequently, as a trench warrior for you, I'm in an interesting position now, as other Members of Congress react to this proposal in a not-so-positive way, so I hope that we can do this more regularly.

    Along the line of the last—Mr. Franks and Mr. Ehlers—I want to give you, Chairman Crowell, and your board members, as well, an opportunity to talk about the task force that you appointed that is an internal task force to evaluate not only the deregulation side, but on the side of the non-power programs, the consequences of being eventually zeroed out by Congress. Would you talk to this committee and to this Congress about the efforts of that task force? Where are you? When do you think you'll have a final report available for us? And how far do you see that task force going?

    Mr. CROWELL. Certainly. One of the first things I did when I made the proposal in January was to set up—the Board set up a 19-member task force in TVA to look at how such a proposal could be implemented.

    Since then, we've changed the mandate of the task force to include any compromise proposals that might be available, such as Congressman Wamp's proposal and Governor Sundquist's proposal, so the mission of the task force has been expanded along the way.
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    The purpose of the task force was—and Mr. Franks asked this question earlier—was for this Board not to try to decide how to implement such a proposal and try to get into the details of who does what, but to have somebody take a very thorough look, get input from the stakeholders, make sure that Members of Congress were fully advised and had input on how the report eventually comes out.

    The report is due, according to the President's budget, October 15th, but we certainly expect to have it some time prior to that. So I would say that we will have a report from them certainly in the next few weeks.

    Mr. CRAMER. Running the risk of interrupting you, will that report tackle making a clear recommendation back to Congress as to what other Federal agencies would have to be appropriated X number of dollars in order to do the things that TVA has been doing with those funds, or the things that TVA is mandated to do by its charter that it will give up doing?

    Mr. CROWELL. Yes, it will from the standpoint that the task force certainly has the authority to consider some other proposal other than the one that I made in January. For example, if the task force decided that either Governor Sundquist or Congressman Wamp's proposal was a much better one, then they certainly have the flexibility to endorse that as an alternative, but there would be obviously some programs that would have to be eliminated in the process.

    So the task force really, Mr. Cramer, has a very broad mandate on how we ought to proceed in the future with the tax-funded programs, and the recommendations that they want to make, considering the fact that we can't implement any of them.
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    Mr. CRAMER. Well, for example, I hear——

    Mr. WHITFIELD. Would the gentleman yield a moment?

    Mr. CRAMER. I'd be happy to yield to my colleague from Kentucky.

    Mr. WHITFIELD. I just wanted to say that the chairman had mentioned this hearing on June the 21st down in Kentucky, and one of the purposes of that hearing is to hear testimony from a lot of other Federal agencies to determine what type of activities they allow and disallow. I think, after that hearing has been completed, we will have some idea on the best way to go. That's another avenue that's being looking at, in addition to his internal task force.

    Thank you very much.

    Mr. CRAMER. Sure. As well, I want to say to Chairman Crowell and to Mr. Hayes, particularly, I appreciated your supportive remarks about the ERC, the environmental center there. I've carried on an active dialogue with you about that center and your commitment to your center. I would love to hear you express that commitment again.

    Mr. CROWELL. Thank you, Congressman. As you know, the ERC is an important part of the TVA, and we embarked a couple years ago, at Congress' request, on phasing out the Environmental Research Center as an appropriated program, and making it market-driven and self-sustaining.
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    I'm glad to say that this year we are at 52 percent of using funds other than appropriated funds. Next year we'll be at 79 percent, so we're well on our way.

    The people and the employees in Mussel Shoals in that area have done a great job of working with us in the programs that they are working in, and we're pleased to see that, and we're committed to making that work, and that's another part of doing things different at TVA.

    Mr. WAMP. Will the gentleman yield for a brief point of information?

    Mr. CRAMER. What little time I have, I'd be happy to.

    Mr. WAMP. I just want to point out that the TVA Caucus is scheduled a week from today to hear an update from Dr. Kate Jackson, who has been in charge of this transition effort next week, a week from today, and a report from the Association of Tennessee Valley Governments on our schedule next week, and then a roundtable discussion on the heels of this hearing today, so certainly all of those representatives that have a vested interest in the TVA region will have that opportunity a week from today.

    Mr. CRAMER. I appreciate hearing that, and thank you for your remarks. I think it's important that we not pull the rug out from under the ERC program.

    Mr. CROWELL. I agree.
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    Mr. BOEHLERT. Thank you, Mr. Cramer.

    I would like to observe—the Chair would observe that we've had, at one time or another, 19 Members, colleagues here, which shows the interest in this subject.

    In the interest of moving the hearing along in an expeditious manner, the Chair is going to reserve the questioning time for members of the full committee or the subcommittee.

    We're pleased to have as our guest Mr. Whitfield and Mr. Jenkins and Mr. Wamp.

    Next up is Mr. Duncan.

    Mr. DUNCAN. Thank you, Mr. Chairman.

    Chairman Crowell, my first question really was going to be about this charge of the subsidies, and you basically have responded to that, but I'm a little bit interested, though, in this specific figure of $1.2 billion, which has been mentioned several times.

    Have you looked closely at that? You said TVA has some advantages, but private companies have some advantages. Is that $1.2 billion even close to being accurate, in your opinion?
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    Mr. CROWELL. No, it is not. I can't find the $1.2 billion. In fact, there was one magazine that reported that we had a $4 billion subsidy which, out of a $5.7 billion budget, that would be pretty nice to have that.

    In fact, there was a cartoon in your home town and our headquarters that depicted TVA employees in our towers looking for the $1.2 billion subsidy and they couldn't find it. We are not sure exactly how that got calculated.

    But I do want to emphasize, though, that there are some advantages to being TVA and being a Government agency. The only thing I would hope that we would look at is to look at the advantages out there to that the private power companies have and not just focus completely on one side of the ledger.

    Mr. DUNCAN. My next question was going to be about what—was your plan or you proposal designed in some way to lessen Congressional oversight, but I think you basically have responded to that, so let me just actually combine the next couple of questions that I have, because this 5 minutes moves very quickly.

    There was a recent article in ''The Wall Street Journal'' about your situation with Bristol, and just a couple of days ago we had an article about Paducah wanting to pull out. A few weeks ago there was a four-county area in Mississippi, and I think you've gotten them back in, but they were wanting to come out.

    Is that some sort of trend or problem? And is it because they're expecting some sort of massive rate increase? And is there going to have to be some sort of massive rate increase in the next few months?
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    Mr. CROWELL. Just on Tuesday we signed a 15-year contract with Fort Payne, Alabama.

    Mr. DUNCAN. I saw that.

    Mr. CROWELL. They did not have a contract with us. So we have one distributor that signed a 15-year contract, another one whose contract expires at the end of the year and they've decided to go with another supplier, and then you have the issues from time to time about whether or not our customers should serve notice on their 10-year contracts.

    We have 158—now 159 out of the 160 distributors that have either 10- or 15-year contracts with us.

    I think a lot of that is, quite frankly, a reaction to the expectation of a new marketplace out there, and I think we're going to continue to have to be innovative with our customers to try to make sure that we respond in a proper and appropriate way to the concerns they have about the future, same as we have concerns about the future. We're simply going to have to get more innovative and move faster than we are.

    Now, on the issue of the rate increase, we've not had a rate increase in 10 years. I don't expect we will need a rate increase next year for operating and maintenance costs at TVA, but the real issue is: do we need to raise rates to pay on the debt, because it affects the fixed cost on the interest that we have, which is 33 cents out of every dollar?

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    We have not made a decision on that yet. We have an annual business planning process we go through typically in July, and when the staffs of TVA come before the Board with their budget requests for the next year. It's during that period of time that we would decide on any revenue requirements for next year.

    Mr. HAYES. Could I, Congressman Duncan?

    Mr. DUNCAN. Yes.

    Mr. HAYES. I get out with the distributors a lot and our customers, and certainly in this marketplace and this environment people are nervous, but there are other parts of the country that are losing customers and customers switching back and forth as we speak, and some in our area close to us. But it's certainly not new for TVA customers.

    But I think it's the deregulation issue and the issues of whether we can do better. Everybody is a little nervous and looking for something.

    Mr. DUNCAN. Right.

    Mr. Kennoy, what is your opinion? I don't really know how you feel exactly about these proposals to create a new commission to oversee TVA. How do you feel about that?

    Mr. KENNOY. Well, we do report directly to Congress. I think that Congress has the full ability to regulate TVA. And we are going through some very difficult times right now. The whole electric issue is going through those times. We really have to ask ourselves what I call questions outside the box. We really have to challenge everything—all our expenses, all these things we need to take a close look at.
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    I'm not real sure in deregulation if one of the major issues may become reliability of supply. You know, out west they had a problem when there were a lot of traders back and forth on the market and they over-extended some supply lines and had brownouts, blackouts. Those things are devastating to industry. I think in deregulation we need to be very cognizant of that, and I think we need to move cautiously, and I think this Board is moving cautiously, and I think we are trying to examine every issue that comes before us in a proper manner.

    I think when this task force reports back to us in October there will be a lot of questions that you all want answered, will be there for you to evaluate.

    So I really think that Congress is fully capable of directing us, working with us, and we want to work closer with you. These are difficult times. There are a lot of questions that you have in other parts of the country, and many things affect those rates that aren't readily apparent.

    Mr. BOEHLERT. Mr. Kennoy, does that constitute an endorsement of the responsibility of the Congress?

    Mr. KENNOY. Yes, sir, it does.


    Mr. BOEHLERT. We found somebody that thinks we're responsible.

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    Mr. DUNCAN. I've got some other questions, but my time has expired, so I'll hopefully get to them later maybe.

    Mr. BOEHLERT. Yes, and your question brought up, once again, a very interesting topic about the subsidies, or alleged subsidies.

    Without objection, I would like to insert in the record an article from the May 19, 1997, ''Forbes Magazine'' written by Bruce Upin. We're going to be in communication with Mr. Upin to see if he might share some of his information with us, because, among other things, he says, ''Although all Americans subsidize the TVA to the tune of nearly $4 billion a year, only a handful of Americans, the 8 million people who live inside the 80,000-square-mile area where the TVA is by law the sole supplier, enjoy the cheap power the subsidies buy.''

    And then, further on in the article he refers to ''one recent study put the value of all indirect subsidies to the TVA at $3.7 billion for 1993, alone.''

    So I'm most anxious to have Mr. Upin, if he will, share some of his information with the committee, because I think that will help us in our deliberations.

    Mr. CROWELL. Mr. Chairman, that would help me, also, if I could find out where those numbers came from.

    Mr. BOEHLERT. Yes. I might also add that the article has a very flattering picture of you in here, Mr. Chairman.

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    Mr. CROWELL. The picture is one thing, Mr. Chairman; the article was something else.

    [The article follows:]

    [Insert here.]

    Mr. BOEHLERT. Without objection, I would also submit for the record questions from Congressman Frank Riggs and Congressman Richard Baker, so we will have other questions for you in writing that we should appreciate your responding to in a timely fashion.

    Mr. CROWELL. We will respond very promptly, Mr. Chairman.

    Mr. BOEHLERT. Thank you very much.

    Mr. Mascara?

    Mr. MASCARA. Good. Thank you, Mr. Chairman.

    Would someone explain to me briefly how you have retained earnings of 3–4/10 billion dollars and explain how you got those earnings? It had to come from some kind of a profit.

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    Mr. CROWELL. Yes, but it primarily came off the balance sheet each year as we looked at the net income at the end of the year.

    We are obviously a not-for-profit organization, but we do have net income each year, and what we normally try to call it is ''retained earnings'' as opposed to ''net income,'' and——

    Mr. MASCARA. But you said that cash is not available.

    Mr. CROWELL. I'm sorry?

    Mr. MASCARA. You say that is not real money? Explain that to me.

    Mr. CROWELL. It wasn't as a result of cash flow. It was a result of bookkeeping.

    Mr. HAYES. It's reinvested in the entire system.

    Mr. CROWELL. It's reinvested in the system.

    Mr. MASCARA. So you've reinvested it into capital equipment and what have you?

    Mr. CROWELL. Precisely.
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    Mr. MASCARA. All right. But you must have some cash flow then in order to operate a $5 billion business?

    Mr. CROWELL. Yes. I hope I didn't leave any misimpression that we don't have a large cash flow. We do. But the retained earnings—the point I was simply trying to make is that's not cash sitting there.

    Mr. MASCARA. Okay.

    Mr. CROWELL. That has been reinvested.

    Mr. MASCARA. How much do you charge your customers for a—kilowatt, is it? How you measure so many cents per kilowatt? What do you charge your ratepayers currently?

    Mr. CROWELL. Just under $0.04 is what we charge.

    Mr. MASCARA. Under $0.04. The reason I asked that is my real question was that I think it's fair for you to say that it was TVA's preparations to compete in a deregulated industry and that at the same time, though, you are not advocating that TVA completely privatize?

    Mr. CROWELL. That's correct.

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    Mr. MASCARA. That's correct. Then my question is why should my constituents and the constituents of Pennsylvania pay tax dollars to support TVA when TVA may then come into Pennsylvania in a deregulated industry and compete with our industries, who are regulated by the State of Pennsylvania?

    Mr. CROWELL. That's the issue that was discussed in my proposal, and I was suggesting that we not take any more tax dollars for TVA, but there have been some compromise proposals suggested since then. It's obvious that my proposal is not going to carry through as it was originally proposed, but the TVA has a mandate from Congress that requires us to undertake certain responsibilities in the Tennessee Valley, primarily the management of the Tennessee River, and we traditionally received tax dollars since 1933 for those activities, and we keep two separate books, two separate accounts on the tax funds and the electric revenue.

    The issue is, if TVA does not provide those services as mandated by the TVA Act, then somebody else would be required to do so, unless Congress decided to change that mandate.

    Mr. MASCARA. Just off the top of my head, at $0.04, Allegheny Power, which supplies some of the power in Pennsylvania, especially where I live, can compete with that, but Duquesne Light, which is twice that, I'm wondering how they could compete if you were selling power in Pennsylvania at $0.04 and they're charging $0.08.

    Mr. CROWELL. Yes. We are restricted by territorial—we have territorial restrictions around TVA which we call ''the fence.'' We cannot sell power outside of our service area except in very specific cases involving 14 utilities which are neighbors of ours. So we are not able to sell power anywhere we want to.
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    Mr. MASCARA. At first blush, when I started to read all of this—some of it quite boring, esoteric, and arcane—I thought you were being magnanimous by taking the non-power funding and saying you don't want any Federal dollars for that, and then I want to associate myself with the remarks of Representative Wamp, who said, as a former local government official, county official, ''Who will be paying that $106 million?'' We'll just use that figure because Representative Clement said 60, 80. Whatever that might be, who will be picking up those costs? If you're not going to do that work, then who is going to be paying for it?

    Mr. CROWELL. I mentioned earlier that we set up a task force to determine, if TVA did not perform those activities in the future, who would do that. I mentioned that I had always thought and it was my expectation that there would be a further joint relationship between us and the Corps of Engineers on the Cumberland and Tennessee Rivers, which would make it possible for the Corps to perhaps take over most of those responsibilities.

    Mr. MASCARA. So there's no savings then, really?

    Mr. CROWELL. Yes. Our expectation would be that there would be some savings, but not a total of $106 million. It would be something less than that, but certainly some savings.

    Mr. MASCARA. Thank you, Mr. Chairman.

    Mr. BOEHLERT. Thank you.
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    Mr. Chairman, let me ask, when Dr. Ehlers asked a question about your rates, I thought you said something your kilowatt hours were——

    Mr. CROWELL. Were $0.06.

    Mr. BOEHLERT.——slightly over $0.05 an hour, but when Mr. Mascara asked you said it was under $0.04. Are they going down as we speak?


    Mr. CROWELL. No, no. I'm sorry. We are a wholesaler of power. We don't retail. We don't sell power retail. Our wholesale rate is $0.04. Typically in the Tennessee Valley the retail rates are a little under $0.06.

    Mr. BOEHLERT. Okay.

    Mr. CROWELL. But we have a distributor. I should have made that distinction. But I was talking about our wholesale rate here, and the typical average rate through our suppliers was about $0.06.

    Mr. BOEHLERT. When is the last time you had a rate increase?

    Mr. CROWELL. Ten years ago.

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    Mr. BOEHLERT. Ten years ago?

    Mr. CROWELL. Ten years ago. Yes.

    Mr. BOEHLERT. Is there any other utility in the country that has gone 10 years without a rate increase?

    Mr. CROWELL. I don't know. Not very many.

    Mr. BOEHLERT. I think we'd be hard-pressed to find any. Maybe there's a direct relationship here to alleged subsidies and stable utility rates.

    Mr. CROWELL. Mr. Chairman, I've always thought there was a terrific role for public power and deregulation, and perhaps we may have picked up something here that we can work on together.


    Mr. BOEHLERT. With that I'll turn to Mr. Poshard.

    Mr. POSHARD. Mr. Chairman, let me tell you, if Bobby Clement were still on that Board it would have been 20 years since they had a rate increase.


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    Mr. POSHARD. Mr. Crowell, I represent southern Illinois, and I have to tell you that over many, many years we have greatly admired the work of the Tennessee Valley Authority, and especially with respect to the management of the Land Between the Lakes.

    I'm sorry. I have three subcommittees going on at the same time this morning, so I didn't get to hear earlier testimony, but I'm sure my good friend, Mr. Whitfield, referenced the role of TVA and Land Between the Lakes.

    Our people use that area so much in southern Illinois. We've enjoyed it for many, many years.

    As you know, we have a high sulfur/coal in our industry, which has been decimated by the Clean Air Act for the most part, and our people don't have the ability to go to California or Hawaii on vacation. They never have had. They use the Land Between the Lakes tremendously. That has been a great recreational opportunity for us.

    So I hope that, whatever the future holds, it doesn't alleviate us from continuing a management style that you folks have performed there over the years. That's a great area for us.

    In fact, southern Illinois, in replacing many of the jobs that we lost in our coal industry, has become a major pleasure boat manufacturing area, and a great deal of our marketing is in that area, as you know, so it has been very helpful to us.

    Let me state again our admiration for the work of the TVA over the years.
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    Let me just ask another question of you. We have an opportunity to revive our coal industry. I think you folks know Kentucky and Tennessee and others, being a producer of high-sulfur coal in some areas also, how costly it is to build scrubbers and other kinds of de-sulfurizing equipment onto the energy production plants.

    But we're getting a great deal of interest in our area. We have 300 years of high-sulfur coal left in the Illinois basin right now. You folks buy some of that from us, thankfully, and we're very appreciative of that. Believe me.

    But we have major companies now entertaining the notion of sinking some new mines in our area, building plants in expectation of deregulation and being able to wheel energy out across the Nation.

    In the State of Illinois, we're going to be decommissioning several nuclear power plants, mainly in the northern end of the State, some time probably within the next 10 years or so, and we look upon our coal fields as producing energy to supply perhaps that part of our State. And we've seen various studies that concluded, due to the extraordinary growth of the southeastern United States over the next decade, plus, that they're going to be needing more and more energy in that area, and these people who are looking to develop the production plants in our area using coal and building this $350 million scrubber technology onto the plants have to get to the southeastern United States to compete in some way, and I don't see how they do that without coming through TVA.

    Now, how does deregulation affect you folks with respect to other people using your lines and getting to parts of the country to compete for contracts in Florida and Georgia and other places that are growing extraordinarily? Are you going to make money off of that? What's your anticipation of deregulation with respect to your participation?
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    Mr. CROWELL. First of all, we're not sure how deregulation is going to turn out for the industry. I don't think anybody else is at this point. I think that it is imperative and incumbent upon us to have the most efficient power system we can possibly have at the time when things change for us, because I think that puts us in a very strong position to succeed in the long term, however that comes out structurally.

    But, speaking to your concern about the Illinois basin coal, which we purchase a great deal of, we obviously are trying our best. We understand the economic ramifications of what has happened in the coal areas, particularly in the Illinois basin over the past few years, and we have undertaken activities such as blending of coal——

    Mr. POSHARD. Yes.

    Mr. CROWELL.——the low-sulfur coal from out west and purchased coal in the Illinois basin area to blend it and to burn it in the plants to meet Clean Air Act requirements.

    So we are very much focused on the concerns there, but I'm not sure how it's all going to turn out for us in the long term on deregulation, what that means for us, on your question about power coming in and out of TVA.

    Mr. HAYES. But I think, Congressman, that we have agreed to abide by FERC's, although we're not—don't have to. We've agreed to abide by their regulation on transporting power.
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    Mr. POSHARD. Thank you, Mr. Chairman.

    Mr. BOEHLERT. Thank you, Mr. Chairman. Wait, one further question. Does TVA believe changes to the 1933 act are necessary in order to accomplish the recommendations you've advanced? Is a power only mission consistent with the missions provide for in the 1933 act?

    Mr. CROWELL. No and no, I think, Mr. Chairman. Let me—I never anticipated that the act would need to be changed in order to accomplish the proposal, as long as we were able to get coordination between us and the Corps of Engineers on the Cumberland and Tennessee Rivers, because, in essence, we'd be outsourcing those activities to another Government agency such as the Corps of Engineers, so I never expected that.

    What was the second question again, Mr. Chairman?

    Mr. BOEHLERT. Is a power only mission consistent with the missions provided for in the 1933 act?

    Mr. CROWELL. I believe so, from this standpoint: TVA is a regional development agency, and we have consistently believed that one of the best things we can do for economic development of the Tennessee Valley is to keep our rates as low as possible. We also put a great deal of power money, power revenues into economic development activities.

    As I mentioned earlier, TVA has reinvented itself in the past, and I certainly did not see this as any change in the overall mission of TVA, which is to provide for the well-being and economic development of a specific region of the United States.
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    Mr. BOEHLERT. I might point out that you're going to have some disagreement with that.

    Mr. CLEMENT. Mr. Chairman, I might, just for clarifying, Mr. Chairman, I know, Chairman Crowell, you mentioned this, but, you know, it sure talks a lot in the mission statement of TVA—you know, power is not mentioned first. A lot of other activities are mentioned before the generation of power.

    If that $106 million is going to disappear and TVA is inclined to pick up all of those activities, even though in other parts of the country they don't have a TVA, but those Federal dollars are funneled through other entities to provide those services, isn't that going to affect the rates so that the ratepayer is going to have to pay if they are going to have to pick up that $106 million plus?

    Mr. CROWELL. It was not—it was my expectation that whatever funds Congress provided would be provided to someone else other than TVA, so I never suggested—and I hope I was not misunderstood about this—I never thought that we'd save $106 million. We'd save some portion of that, but there would still be a requirement for some tax funds to someone who performed those other than TVA.

    Mr. CLEMENT. So what you're saying is, if Congress does zero out those appropriated dollars, that you're presently getting $106 million, you want some other agencies to provide those services?

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    Mr. CROWELL. Someone would have to provide some of those services. Correct.

    Mr. BOEHLERT. Thank you very much, Mr. Clement.

    Mr. Chairman, Mr. Kennoy, Mr. Hayes, thank you very much.

    Mr. BOEHLERT. Thank you, Mr. Chairman. We appreciate it.

    Mr. HAYES. Thank you.

    Mr. KENNOY. Thank you.

    Mr. BOEHLERT. Our third and final panel for the day consists of David Ratcliffe, co-chairman of TVA Watch; Sam Head, vice president ex officio of the Tennessee Valley Public Power Association; Miles Mennell, executive director of the Association of Tennessee Valley Governments; Jan Jones, executive director of the Tennessee River Valley Association; and John Hatmaker, chairman of the Tennessee Valley Industrial Committee.

    I'd like to point out that, through the course of this hearing, we've had an unusually high number of Members who have participated at one point or another—20 Members. Let me tell you, that's a pretty good record for any subcommittee on Capitol Hill these days.

    I would advise all of our panelists that your statements will appear in the record in their entirety. The Chair would ask that you summarize your statements in 5 minutes or less.
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    Thank you so much for agreeing to participate. This is a very important hearing, and we look forward to your testimony.

    I will go in order of announcement. Mr. Ratcliffe, you're up first.


    Mr. RATCLIFFE. Thank you, Mr. Chairman and members of this committee. I appreciate the opportunity to appear before you today.

    I am David Ratcliffe, co-chair of TVA Watch, and senior vice president of external affairs at Southern Company.

    TVA Watch is a coalition of shareholder-owned utilities working judiciously and legislatively to ensure that TVA complies with the TVA Act.

    In addition, TVA Watch supports efforts to bring meaningful reform to the Federal utility.

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    TVA Watch members include American Electric Power, Carolina Power and Light, Duke Power, Entergy, Kentucky Utilities, SCANA, and Southern.

    Many of the programs Congress supports through funding to TVA are beneficial to the Tennessee Valley and were the heart of TVA's original mission. TVA's Board recently proposed to move those programs to other agencies to allow TVA to concentrate solely on its ''core business'' of producing and selling electricity.

    Shareholder-owned utilities in the normal course of business fund and operate similar programs, as has been pointed out here this morning, to those for which TVA receives Federal funding. The most obvious example is in the areas of economic development and hydroelectric-related operations.

    TVA has proposed transferring or eliminating these programs in an attempt to end the perception that TVA is subsidized. However, asking some other agency to pay for these programs doesn't end the subsidy, it simply disguises it. We believe TVA should begin to include the cost of its non-power programs in the power program cost.

    Under the fiscal year 1997 budget, Congress has appropriated $15 million for TVA's economic development programs. Each year, private utilities spend millions of dollars in community and economic development activities without the benefit of Federal funding for many of the same type programs that TVA promotes.

    Like private utilities, TVA should support economic development activities, but without taxpayer funding.
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    TVA Watch companies, like TVA, operate and maintain multipurpose dams that provide flood control, recreation, navigation, and produce electric power. When you consider TVA's hydroelectric operations, you must remember two things: first, because TVA is a Federal agency, it does not have to license its projects and is exempt from many taxes and fees; second, TVA receives Federal appropriations to pay costs that our customers and shareholders bear.

    Let me elaborate.

    TVA avoids many charges altogether, such as payments to the Federal Energy Regulatory Commission to fund its operations, certain taxes that we pay, and the costs we incur in securing FERC licenses.

    Southern Company operates hydro facilities and sites under these FERC licenses, and this year, alone, we will pay more than $5 million in fees and charges related solely to hydro operations. TVA pays nothing.

    While TVA pays only 5 percent of the power revenues in lieu of State taxes, shareholder-owned utilities pay an average of 8 percent for State and local taxes, alone.

    In addition, shareholder-owned utilities pay the Federal Government an average of 26 percent of income in taxes. TVA doesn't pay taxes to the Federal Government.

    The other major cost of our hydro operations is the expense of securing and retaining FERC license. For example, Southern Company spent 9 years and $9 million just to license 5 of its 33 hydro projects. TVA bears no similar expense.
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    The fact that TVA does not have to pay any FERC fees, that it does not have to obtain FERC licenses, and that it avoids many taxes are all significant competitive benefits that shareholder-owned utilities do not enjoy.

    TVA also receives direct Federal funding for many activities we must pay as part of the routine cost of business. For example, Congress appropriates $25 million to TVA's stewardship programs for dam maintenance, reservoir operations, land administration, and facility upgrades at dam sites. By contrast, at privately-built dams these same costs are born entirely by our customers.

    Simply put, we believe TVA should recognize these expenses as another cost of their core business of producing and selling electricity.

    In conclusion, while TVA's non-power appropriations have declined over the last several years, TVA operates with direct Federal support many programs and activities that we undertake without Federal assistance.

    Transferring TVA's programs to another entity does not solve Congressional budgetary concerns or respond to competitive concerns. On the other hand, requiring TVA to include in their power program cost the same kinds of costs that shareholder-owned utilities routinely bear makes both budgetary and policy sense and it is the essence of TVA Watch's recommendation to this committee.

    Thank you, Mr. Chairman, for this opportunity.
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    Mr. BOEHLERT. Thank you so much.

    Mr. Head?

    Mr. HEAD. Mr. Chairman, distinguished members of this panel, I appreciate the opportunity being granted me to speak.

    My name is Sam Head. I'm the general manager of the Columbus Light and Water Department in Columbus, Mississippi. It's a municipally-owned utility which purchases all of its electricity at wholesale from TVA.

    I'm representing also TVPPA, Tennessee Valley Public Power Association, which is an organization that represents all of the distributors that buy power from TVA wholesale and sell retail and sell to approximately 8 million customers in the Valley.

    As a TVPPA representative, I should tell you that I'm a past president of that organization. I'm presently the chairman of the Power Supply Committee and a member of the Restructuring Legislation Committee that is addressing deregulation, so we are very much interested in the outcome of this hearing.

    TVPPA represents the interests of 110 municipalities and 50 rural electric cooperatives which purchase all of their power from TVA. That represents 85 percent of the revenue that TVA gets. The other 15 percent is from direct-served large industry.

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    I understand that the principal focus of this hearing is TVA's non-power program, and consequently my remarks will address that aspect of TVA's responsibility. However, I will be glad to respond to questions or provide clarifications about the power program if it is appropriate.

    Although TVA's non-power program represents less than 2 percent of TVA's budget, it is an integral part of TVA and is one of the principal reasons that TVA was formed, as has been pointed out already.

    TVA serves a number of functions that are direct Government functions. The Environmental Research Center has been funded in the past, land and water science, biotechnology and remediation, atmosphere sciences, resource management, public land stewardship, recreation, camping, day youth services, resident centers, resource stewardship, supportive infrastructure, water quality, dam safety, flood control, and waterway navigation—all of these facilities are not normally taken care of by any private industry.

    In January of 1997, TVA Chairman Craven Crowell proposed that Federal appropriations for the non-power programs should be abolished after the 1998 fiscal year. At the same time, he initiated the study that you've already heard him mention by a task force to investigate the potential transfer of these non-power programs.

    TVPPA has a direct stake in the non-power program as it relates to TVA's navigation, the flood control, and the stewardship responsibilities, and TVA's hydroelectric power production, which is TVA's lowest form of power supply.

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    Transferring the operation of the dams and the reservoirs and the pertinent programs to another agency could have an adverse impact on power production and the price of power to the Valley.

    Because of the operation and maintenance of navigation, flood control, and stewardship activities, and recreational benefits, Federal hydroelectric power projects are traditional Federal power responsibilities. These functions would merely shift, as has already been stated, to another Federal agency, and therefore you have not cut the cost to the Federal Government. There would be no direct savings to the Government.

    To the contrary, it is possible that the cost of carrying out these functions transferred to someone else could actually cost the Government more money.

    It's the opinion of most of us who deal with TVA on a regular basis that they are doing an efficient job and are doing the job as cheaply as it could be done.

    We are also concerned that transferring these functions to another agency would likely require amending the TVA Act, as somebody has already alluded to. We think this would be a bad time to consider the amending of the TVA act when we're looking at the deregulation of the industry and there are private industries and private companies that are wanting to privatize TVA already. So opening the act we think would be a mistake.

    In addition to the other adverse impacts, as I pointed out, this whole thing could cause a complete change in the whole program of TVA.

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    The President's budget calls for an appropriation of $106 million in fiscal year 1998, the same amount that Congress appropriated for 1997. Representative Zach Wamp, chairman of the TVA Congressional Caucus, who has spoken earlier today, has proposed that the funding for the 1998 fiscal year be established at $96 million. That's slightly less than the amount the House approved in 1997. We also are hearing a figure of $66 million as a floor.

    TVA applauds Representative Wamp's recognition that certain core functions of TVA must continue to be performed and commends his efforts to identify those basic necessities. However, TVPPA members believe that funds for TVA power programs specifically mentioned in the TVA Act, as well as certain other related non-power programs, must still be provided to meet the basic critical needs of the Valley and require appropriations of at least $80 million, as someone else has already spoken of.

    In view of the above that I have spoken of, the Tennessee Valley Public Power Association suggests that we oppose the termination of Federal funding for the non-power programs for 1998. We support continued Federal funding of TVA to maintain the navigation, flood control, stewardship, and certain other non-power programs, including the Environmental Research Center and the Land Between the Lakes, at a level of $106 million for 1998.

    We support the establishment of a floor of at least $80 million in Federal appropriations for 1999 and thereafter until certain critical questions can be answered through other meetings of this type.

    We urge that representatives and stakeholder groups in the Tennessee Valley be given ample opportunity to present their views to the task force that has been appointed by TVA to study the possibility of transferring the non-power functions of TVA to other entities, and we request that TVA permit stakeholders to review and comment on the TVA task force report and any other proposals for transferring or altering significantly the non-power programs before such reports are submitted to Congress.
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    Mr. Chairman, I appreciate the opportunity to come before you.

    Mr. BOEHLERT. Thank you very much, Mr. Head.

    Ms. Mennell?

    Ms. MENNELL. Mr. Chairman, members of the committee, thank you for allowing the Association of Tennessee Valley Governments, ATVG, to present testimony to you.

    I am Miles Mennell, executive director of ATVG. I present this comment to you on behalf of the officers, directors, and entire membership of our association. Our president is Donna Hubbard, who is executive of Bradley County, Tennessee.

    ATVG represents the 201 counties and their 198 county seat towns and cities in the seven States of the Tennessee Valley. We are advocates for local government in Alabama, Georgia, Kentucky, Mississippi, North Carolina, Tennessee, and Virginia. Our primary purpose is to serve the interests and give voice to the concerns of local government.

    Issues of particular interest and urgency to our members include continuing to support funding for TVA's non-power programs, providing a forum for understanding electric industry restructuring, and communicating directly with Congress about our mutual concerns and needs.

    An organization each of ATVG's local governments has in common is the Tennessee Valley Authority. It is on behalf of TVA and the future of TVA's power and non-power programs that we submit this comment.
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    To reiterate, ATVG strongly supports the continuation of TVA's non-power programs. Approval of any proposal to zero out TVA's Federal appropriation would create dramatic changes in the Tennessee Valley and potentially throughout the Nation.

    At issue, especially for local governments, is what would become of the vital services TVA provides, and to TVA's responsibility for navigation, flood control, land management, and economic development. Not all of our local governments in the Tennessee Valley receive TVA power. The appropriation is needed under the present interpretation by TVA for those local governments to continue to receive and have access to those non-power resources.

    We believe there is much at stake with eliminating TVA's non-power public service programs and with the altering of TVA's mission. Last year, TVA paid State and local governments a record $255.7 million in tax-equivalent payments. This year TVA has estimated tax-equivalent payments totaling $272 million. These payments are critical to the economic well-being and vitality of the State and local governments of the Tennessee Valley.

    TVA we believe has improved the lives of millions. It has served as a teacher and role model in energy generation and conservation, pollution control, clean water, environmental waste, waste management, agricultural technology, economic development, and stewardship of our natural resources. Its programs are a vital part of the past, present, and future of the citizens of the Tennessee Valley region. We ask you to continue your support of them.

    We encourage your support of the continuation of the TVA programs, services, and resources now being financed through Federally-appropriated funds, including the continued utilization of appropriated funds by Congress for purposes complimentary to but above and beyond the generation and distribution of electrical power.
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    We request that you support maintaining the appropriated funding of TVA's non-power programs in fiscal year 1998 at $106 million, as proposed in the budget submitted by President Clinton to Congress in February.

    We endorse the creation and funding of an independent TVA Valley Regional Commission, as proposed by Congressman Bob Clement, Fifth District, Tennessee, for the purpose of studying and making recommendations about the future of TVA. We want to have a voice in the process. We ask for the opportunity for a representative of ATVG to be appointed to serve on that commission.

    We urge your ongoing and proactive support of TVA in its visionary mission of service to the people of the Tennessee Valley, Nation, and world. Working together, we can effect change, but change that will have the greatest positive impact on quality of life and opportunity for all of our constituents in the Tennessee Valley and beyond.

    I thank you for the opportunity to share our concerns for TVA with you in relationship, particularly, to local government. We respectfully urge that the committee give thoughtful consideration to our comments and our requests.

    Mr. BOEHLERT. Thank you very much.

    Ms. Jones?

    Ms. JONES. Mr. Chairman and members of this distinguished committee, I am Jan Jones, executive director of the Tennessee River Valley Association. I appreciate the opportunity to appear before your committee on behalf of our association to voice our concerns and our vision for TVA's non-power programs.
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    Today I will propose a significant and historic change in the way these programs can be funded.

    Before I make my proposal, however, let me first say that the Tennessee River Valley Association is a nonprofit organization of public and private leaders throughout the entire Tennessee Valley who promote economic sustainability, water and land resource development, navigation, and environmental responsibility in the Tennessee Valley, a 41,000-square-mile area in parts of seven States.

    Since its creation by the Congress in 1933, we feel that TVA has championed the wise use of the natural resources of the Tennessee Valley. It has certainly harnessed a raging river with a series of dams and locks, which improved navigation, prevented devastating floods, and offered hope of employment to thousands of destitute people.

    Today, TRVA and the people of the region are concerned about the future of TVA's non-power programs. Funding for their continuation has been challenged both within and outside the agency.

    I'm well aware of the mood in Congress to balance the budget, to question the need for continuing Federal appropriations for many programs.

    I'm also very much aware of the pending power utility deregulation issue and the potential impact that this could have on programs such as TVA.

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    In such an atmosphere, funding for TVA's non-power programs will continue to be in question or in jeopardy.

    Mr. Chairman, I support continued funding for TVA's non-power programs; however, I know that the long-term future is not promising and that for them to continue will require a historic change in the way these programs are funded.

    I propose that TVA's hydroelectric generation activities be recommitted to address the original charter of TVA, to provide for the multipurpose development of the Tennessee Valley region.

    Simply put, I urge Congress to direct that TVA's resource management program, which includes all of the non-power programs, be given authority and management charge to integrate the hydropower system into the river basin management. Such a bold move by Congress would assure that all of the non-power programs continue without Federal funding.

    Revenues generated from the sale of hydropower could finance all of the non-power programs of TVA, as well as continue to make payments to the U.S. Government on the initial indebted investment that the Federal Government made in TVA.

    Hydropower sales could also provide for capital outlay projects such as lock replacement or improvement.

    A major benefit would be to consolidate the river basin management, hydropower production, land and water protection, and environmental research, including Land Between the Lakes, into one responsible entity. In other words, Mr. Chairman, let the river system pay for itself.
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    Mr. Chairman, this proposal is timely. It is in concert with the original intent of TVA, would build on the past successes, and enhance TVA's services to the region. And it would also do so at no cost to the U.S. taxpayer.

    In conclusion, I would like to salute Congressman Bob Clement, whose distinguished service as a former member of the TVA Board of Directors certainly makes him uniquely qualified to propose legislation to establish the TVA Regional Commission. I feel that this commission would be most timely, certainly necessary because of the complexity of TVA. I would most humbly welcome the opportunity to be involved in the process.

    Thank you, Mr. Chairman, for the opportunity to be here today.

    Mr. DUNCAN [assuming Chair]. Thank you very much, Ms. Jones, for your very fine presentation.

    The next witness will be Mr. John Hatmaker, who is chairman of the Tennessee Valley Industrial Committee.

    Mr. Hatmaker?

    Mr. HATMAKER. Good afternoon, Mr. Chairman, members of the subcommittee.

    As you indicated, my name is John Hatmaker, and I'm here today as chairman of the Tennessee Valley Industrial Committee, a not-for-profit organization of industries which purchase electricity directly from TVA. In all, there are 32 member companies of TVIC, and these companies provide jobs for approximately 35,000 citizens at close to 50 locations throughout the TVA power service area.
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    The member firms of TVIC are predominantly in what might be called ''basic industries''—primary metals, chemicals, agricultural products, and paper, along with manufacturing and assembly operations for the automotive industry. In addition to the more than one-half billion dollars our companies pay to TVA for electricity each year, we believe we make a substantial contribution to our communities in the form of payrolls, taxes, and talented work forces who get involved in many positive ways, ranging from schools to civic organizations.

    Included with my testimony for the subcommittee's information is a listing of TVIC companies and their plant locations.

    The principal, if not only, purpose of TVIC is to work with TVA for the efficient and economical production, sale, and use of its power resources. Stated more simply, we need TVA power that is reliable and competitively priced in order to preserve the jobs our companies currently are providing, as well as to encourage growth as expansion opportunities are considered for our plants.

    For many of our operations, power is the largest single production cost, so we try to be aware of and work with TVA on any problem or subject area which has an impact on the cost of electricity to industries. We commend you, Mr. Chairman, for calling this hearing. It seems to us to be one of the beginning steps in what needs to be a careful process.

    The gathering today to hear options for the future of TVA's non-power programs, those funded by Congressional appropriations, seems to have come about largely because of the power program, which is funded by TVA ratepayers. More specifically, TVA's preparations to compete in a deregulated electricity market apparently led the agency to suggest that Congress transfer many of its non-power functions to other agencies of Federal or State government.
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    While our companies have an interest in that aspect of TVA's business as corporate citizens and residents of the Tennessee Valley, you likely will hear from others who are more directly impacted. The reason I am here representing our 35,000 jobs is that any Congressional consideration impacting TVA in a way that affects the power program in turn affects the life blood of our industries—a reliable supply of economically-priced electricity.

    We are here to listen and learn, as well as to provide suggestions on potential impacts to the Valley's power supply as the subcommittee moves forward.

    For that reason, we respectfully request that the subcommittee staff add us to the routine mailing and notification lists of those parties who would like to be kept informed as the oversight and/or legislative process involving TVA proceeds.

    For today, we would offer the following observations:

    TVA has done an excellent job of reducing its costs over the last several years, and should be given credit for that achievement. Our encouragement is that the agency continue to look for ways to hold costs down so that it will be a more effective competitor when deregulation comes.

    This subcommittee's TVA responsibilities will give you a very large voice in the deregulation of electricity, not only in the Tennessee Valley, but elsewhere because of TVA's size and because of the size of the surrounding utilities who want to take TVA's customers.

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    In this connection, we assume, as I mentioned this morning, you've heard what may be termed ''all we want is a level playing field arguments.'' We also assume that, as your Members have dealt through the years with the deregulation of natural gas, transportation, telecommunications, and other industries, you may have come to realize that, despite everyone's plea for it, there is no real level playing field; rather, there tend to be inherent advantages and disadvantages that must be exploited or overcome through increased productivity, cost cutting, or other measures that come to bear in a competitive situation.

    Third, perhaps the principle fairness issue that will need to be addressed is the fence around TVA constructed in the 1959 legislation that gave TVA self-financing authority. Deregulation, by definition, will bring the fence down, and I hope the committee will agree that if customers inside TVA's service area may choose an outside supplier, which we may want to do under certain circumstances, it is only fair that customers outside TVA's service area have the same choice to be served by TVA.

    In conclusion, we believe TVA has done a good and credible job in recent years. Ten years of steady rates to a great degree speaks for itself and the marketplace. At the same time, the agency has received considerable recent criticism in the political arena. That criticism also may have been duly earned. We can't say for sure.

    While it obviously will take a political process for Congress to determine how competition in the electricity market will develop, we believe our group and all customers will be best served if the competition, itself, is based on service and price, not on politics.

    Again, Mr. Chairman, we appreciate the opportunity to be heard. We believe in the concepts of customer choice and deregulation. We anticipate continuing to purchase power on the basis of service and price and look forward to additional choices as to suppliers and to the mix of products and prices.
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    Thank you for you attention.

    Mr. BOEHLERT [resuming Chair]. Thank you, Mr. Hatmaker. I want to thank all of the panelists.

    Mr. Clement?

    Mr. CLEMENT. Thank you, Mr. Chairman.

    Mr. Ratcliffe, what is the purpose of the TVA Watch?

    Mr. RATCLIFFE. Congressman, as I stated in my remarks, this is a group of shareholder-owned utilities whose purpose is to monitor TVA's activities under the TVA Act and to make certain that TVA complies with the provisions of that act.

    Mr. CLEMENT. Is this the same organization or a different organization from the TVA Reform Alliance?

    Mr. RATCLIFFE. It is a different organization.

    Mr. CLEMENT. Thank you. The committee has some other questions that we want to ask you, but we'll submit it for the record.

    Mr. Head, why are TVA's distributors, particularly the Big Five, intent on renegotiating their contracts with TVA? And what aspects of the contract do the distributors find unsatisfactory?
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    Mr. HEAD. I have not discussed with the Big Five. They are meeting as a group, considering the restructuring of the electric industry. And none of us know for sure where this is going. They, like all of the distributors of TVA power, would like to buy power at the best price they possibly can so they can pass it on to the ratepayers.

    They, as far as I know, have no particular interest of looking outside the Valley for another supplier for their whole power supply, but they are interested in finding spot power or small portions of power that they might purchase to help meet the needs that they have for growth or the specific needs that they have for an industry that's in their area. If they can supply that power at a cheaper rate, they'd like to do it.

    Mr. CLEMENT. Thank you.

    Ms. Mennell, I know you mentioned this regional commission that I've proposed. As you know, I know some have tried to imply that it's some permanent agency or commission, which is not true. It would just be for 12 months that would make recommendations and suggestions about what we want in TVA for the next century, for the 21st century, to get prepared.

    We know deregulation is around the corner. I'm sure Congress—I doubt if they'll take it up in this Congress, but they sure will in future Congresses, as well, as it may very well become a reality. Will TVA be ready, prepared, in a deregulated environment to be able to compete? And what this regional commission would do is review the TVA Act, look at an assessment of the financial viability, assessment of TVA's responsibility for flood control, etc.
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    I know Senator Frist is sure interested in looking at the assessment of a structure of TVA's board and whether its size, selection process, and organization are adequate for a utility of TVA's magnitude.

    Are these some of the reasons you like the idea of the regional commission?

    Ms. MENNELL. Yes. Our primary concern is to have the opportunity to be involved in the process. TVA obviously has tremendous impacts and tremendous importance to our local governments. Whatever decisions are made as we go forward, we want to be sure that the 201 counties and 198 county seat towns and cities in the Tennessee Valley have had some direct access into that process.

    So the short answer to your question is yes, those are some of the reasons. And, just as importantly, we want to be sure that we have the opportunity to articulate our very specific concerns and have some role in the decision-making process.

    Mr. CLEMENT. Thank you.

    Ms. Jones, as you know, representing the Tennessee River Valley Association, much is changing. The electrical utility industry is undergoing profound changes, particularly in the area of deregulation and market competition. Such issues as retail wheeling, stranded investment, commodity pricing, universal service, environmental regulation will be considered, while attempting to protect the public's interest.
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    Is that the reason why you sort of like the idea of the regional commission, knowing that it's not going to be any permanent commission and only be in existence for 12 months?

    Ms. JONES. Congressman Clement, I think that, yes, for all of those reasons and all of the reasons that you stated before in questions to Ms. Mennell.

    TVA is a very, very complex corporation. I would certainly like, on behalf of our membership, to participate in the process, but, more than that, it is so important that this commission look at all the various aspects of TVA, not throw the baby out with the bath water.

    TVA wasn't created simply on a whim, and on a whim let's don't dismantle TVA.

    I think that this commission could truly look at all of the varied aspects of TVA, certainly from power to the non-power, and I think that there is too little understanding of the difference between the non-power programs and power programs, and I think this would be an excellent opportunity on a short-term basis to come up with some answers.

    Mr. CLEMENT. Thank you.

    Mr. Hatmaker, I know you're very concerned about what Chairman Crowell and the Board are stating about a rate increase of a great magnitude and what impact it might have on the Tennessee Valley area. Could you expand on that?
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    Mr. HATMAKER. Well, any type of rate increase obviously has an impact on our member companies, on our businesses. We compete not only with our competitors, but within our own companies against other divisions, other plant locations. Of course, in a global economy that we're now in, we also compete with competitors around the world, as well as divisions within our own companies that are located elsewhere around the world.

    So, obviously, any increase in power prices to us is detrimental in the Valley. We are not for rate increases.


    Mr. BOEHLERT. That's a surprise to everyone. Believe me.


    Mr. Duncan?

    Mr. DUNCAN. Mr. Chairman, first of all, I had several more questions from the Board that I wish to submit for the record.

    Mr. BOEHLERT. Without objection, so ordered.

    Mr. DUNCAN. Also, I had some questions that were submitted by Congressman Gordon that he would like submitted for the record, particularly that deal with TVA Watch.
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    Mr. BOEHLERT. Without objection, so ordered.

    Mr. DUNCAN. Mr. Ratcliffe, what percentage of your company's power is purchased from SEPA, the Southeast Power Administration?

    Mr. RATCLIFFE. Congressman, I don't have that specific percentage in front of me right now. I don't have it in my head. I don't know that number. It's a very small percentage.

    Mr. DUNCAN. You know, that's a Federally-subsidized agency.

    Mr. RATCLIFFE. Yes, sir.

    Mr. DUNCAN. Ms. Mennell, do you know anything about the current status of the Chickamauga Lock, and would you—could you tell us something about the economic impact or the recreational impact of the Chickamauga Lock? Do you know anything about that?

    Ms. MENNELL. Well, our association has gone on record, and especially in support of the Tennessee River Valley Association—we're working with them—in support of the Chickamauga Lock. Our local governments support the rebuilding of the lock. We're very concerned that, were it to be allowed to fall into disrepair, that the economic impacts would be significant.

    I can't give you exact figures, but I can say that it would mean an enormous loss of jobs, an enormous loss of income, and it would be an enormous blow to the east and northeast Tennessee and Alabama and, in fact, the entire Tennessee Valley region, were the flow of traffic throughout Chickamauga Lock to be halted in any way.
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    So we are very, very strongly in favor of the building of the new lock going forward and have gone on record as such.

    Mr. DUNCAN. Are you doing anything specific to make sure that that work gets done?

    Ms. MENNELL. Well, we're doing it within our organization. Our entire body has passed a resolution in support of the Chickamauga Lock and the funding thereof. Many of our local governments have also passed a resolution, and through our efforts the Tennessee Legislature has also enacted a resolution which will be coming to you or may have. It was passed last week. That will be coming to Congress and distributed through the TVA Congressional Caucus in support of that.

    So we've done what we can and are doing what we can to make the issue very visible among our local governments and to encourage their active participation and active contact with the Members of Congress about the issue.

    Mr. DUNCAN. All right. Thank you.

    Mr. Hatmaker, you said in your testimony that you feel TVA has done a good job in holding down costs but it needs to do more or hopefully will do better in the future, or some words to that effect. Do you have any suggestions about things that TVA could do or should do to improve its operation or hold down costs in future years?

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    Mr. HATMAKER. No, sir. I don't have any specific recommendations as such. I think TVA needs to continue to run as a business. They are a business, even though they're a Government agency. Like any business, they need to look at what they're doing, work on their cost structure.

    We don't want to get involved directly. We're trying to—we don't want to run TVA. We just think there are areas they need to focus on probably, look at some of their cost structures on what they're doing.

    Our concern here today, when we start talking about appropriated funding, we get concerned if we lose appropriated funding for non-power programs and TVA is still charged with carrying out the programs. Who is going to pay for that? The ratepayers. That is our concern.

    Mr. DUNCAN. All right. With the questions I'm submitting for the record, Mr. Chairman, that's all I have at this point.

    Mr. BOEHLERT. Thank you very much, Mr. Duncan.

    Mr. Franks?

    Mr. FRANKS. Mr. Chairman, I thank you.

    I'll try to be brief and ask each one of the panelists, if I can, one question.
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    Mr. Ratcliffe, my constituents in central New Jersey pay between $0.105 and $0.12 per kilowatt. We heard Chairman Crowell indicate that retail resale of electricity from TVA goes to about $0.06, just under $0.06.

    The fact is that the TVA is, in fact, exempt from 137 different Federal rules and regulations, 21 of those being expensive FERC compliance regulations. TVA is exempt from paying Federal taxes. TVA is exempt from antitrust laws. TVA is exempt from mandatory wheeling under the 1992 Energy Policy Act.

    Is there a relationship between those exemptions and the fact that my constituents pay twice as much for energy as ratepayers in the TVA area?

    Mr. RATCLIFFE. Yes, sir, I think there is.

    Mr. FRANKS. Suggests to me there might be.

    Mr. Head, I know that you are calling for continuation of Federal policy as it currently is construed, but there are some difficulties, I think, that we need to look at.

    I'm wondering if you are aware of a study done by the Natural Resources Defense Council, one of the Nation's leading environmental organizations, produced in April of this year, just 2 months ago, that found, while the TVA is one of the largest energy power providers, it is also one of the dirtiest sources of pollution in terms of pounds per megawatt hour. Are you aware of that study and is it of concern to you?
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    Mr. HEAD. I have not seen the study, myself. I am aware of such a study, but I have not had any opportunity to look at it.

    Mr. FRANKS. Thank you.

    Ms. Mennell, I want to go back to the chairman's observations that there is an internal task force at the TVA looking to reconstruct perhaps the mission, and it might be in conflict to the approach that you support by Mr. Clement's bill. I'm curious, in terms of the TVA internal effort, has your group been invited to participate within that internal structure?

    Ms. MENNELL. Kate Jackson, who is chairing that task force, has attended two of our meetings and has updated us, and we very much appreciate that, and we support the internal task force.

    Mr. FRANKS. But do you participate in it? Are you a member——

    Ms. MENNELL. We do not participate directly, no, because we are not members of TVA.

    Mr. FRANKS. Do the governors of the States participate in that internal task force, to your knowledge?

    Ms. MENNELL. The only participants to my knowledge in the internal task force are employees of TVA.
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    Mr. FRANKS. Employees.

    Mr. CLEMENT. Would the gentleman yield just for 10 seconds?

    Mr. FRANKS. I am so short on my time again that I just don't want to do that.

    Mr. CLEMENT. Okay. That's fine.

    Mr. FRANKS. So there is obviously, we believe, no representative from the Federal Government, which is responsible for the TVA—they're the only 100 percent owned Federal power generator. There is no representative. So it really is just employees of TVA?

    Ms. MENNELL. It's employees, members of TVA's staff who are looking at the situation internally.

    Mr. FRANKS. Fair enough.

    Mr. Hatmaker, Chairman Crowell testified before another committee in this House back in March about TVA's efforts to solicit business to relocate from my State to TVA's service area. I'm aware of efforts made by the TVA in India and other foreign nations to recruit businesses. How do you feel about that?

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    Mr. HATMAKER. I don't think TVIC has a position on that, sir.

    Mr. FRANKS. Well, I can tell you my constituents resent it. There's a small firm called Accupowder in Union, New Jersey, that has competitors who reside in the TVA service delivery area. Every one of these small companies is fighting in the global marketplace to survive. My folks, those 80 employees at Accupowder in Union, New Jersey, pay taxes that contribute not only to the $106 million annual appropriation that is part of the TVA's existence, but helped to underwrite the far-broader subsidies that I just listed in my question to Mr. Ratcliffe, when, in turn, they pay taxes to Washington, which buy airline tickets for TVA officials to come up and take our jobs down to energy States that charge half the rate for electric power. It's causing great resentment in my area, and it's an inequity, in my judgment, and its one of the things that I'm going to try to seek to address.

    Thank you.

    Mr. BOEHLERT. Thank you very much, Mr. Franks.

    I want to thank all who participated today. I'd like to thank our panelists for being resources for us.

    This is not the end of the discussion on TVA and related activities. The next hearing of this subcommittee on this subject area will be June 21st in Murray, Kentucky, and I look forward to my visit there.

    Thank you very much.
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    Mr. BOEHLERT. The hearing is adjourned.

    [Whereupon, at 12:35 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

    [Insert here.]









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JUNE 5, 1997

Printed for the use of the

Committee on Transportation and Infrastructure


BUD SHUSTER, Pennsylvania, Chairman

THOMAS E. PETRI, Wisconsin
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HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
SUE W. KELLY, New York
RAY LaHOOD, Illinois
FRANK RIGGS, California
CHARLES F. BASS, New Hampshire
JACK METCALF, Washington
ROY BLUNT, Missouri
JOSEPH R. PITTS, Pennsylvania
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JOHN R. THUNE, South Dakota
CHARLES W. ''CHIP'' PICKERING, Jr., Mississippi
JON D. FOX, Pennsylvania
J.C. WATTS, Jr., Oklahoma

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BOB CLEMENT, Tennessee
ROBERT E. (BUD) CRAMER, Jr., Alabama
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
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JAMES E. CLYBURN, South Carolina
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
BILL PASCRELL, Jr., New Jersey
JAY W. JOHNSON, Wisconsin
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania

Subcommittee on Water Resources and Environment

SHERWOOD L. BOEHLERT, New York, Chairman

JOHN R. THUNE, South Dakota Vice Chairman
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THOMAS E. PETRI, Wisconsin
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
SUE W. KELLY, New York
FRANK RIGGS, California
BUD SHUSTER, Pennsylvania
(Ex Officio)

ROBERT A. BORSKI, Pennsylvania
JAY JOHNSON, Wisconsin
ROBERT E. WISE, Jr., West Virginia
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FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
BILL PASCRELL, Jr., New Jersey
JAMES P. McGOVERN, Massachusetts
NICK J. RAHALL II, West Virginia
(Ex Officio)




    Bryant, Hon. Ed, a Representative in Congress from Tennessee

    Clement, Hon. Bob, a Representative in Congress from Tennessee

    Crowell, Craven, Chairman, Tennessee Valley Authority, Knoxville, TN, accompanied by Johnny H. Hayes, Director, and William H. Kennoy, Director

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    Gordon, Hon. Bart, a Representative in Congress from Tennessee

    Hatmaker, John, Chairman, Tennessee Valley Industrial Committee, Oklahoma City, OK

    Head, Sam A., Jr., Vice President Ex Officio, Tennessee Valley Public Power Association, Columbus, MS

    Jones, Jan, Executive Director, Tennessee River Valley Association, Decatur, AL

    Mennell, Miles, Executive Director, Association of Tennessee Valley Governments, Nashville, TN

    Ratcliffe, David M., Co-Chairman, Tennessee Valley Authority Watch, Atlanta, GA

    Wamp, Hon. Zach, a Representative in Congress from Tennessee


    Baker, Hon. Richard H., of Louisiana

    Bryant, Hon. Ed, of Tennessee

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    Clement, Hon. Bob, of Tennessee

    Cramer, Hon. Bud, of Alabama

    Gordon, Hon. Bart, of Tennessee

    Franks, Hon. Bob, of New Jersey

    Poshard, Hon. Glenn, of Illinois

    Wamp, Hon. Zach, of Tennessee


    Crowell, Craven

    Hatmaker, John

    Head, Sam A., Jr

    Jones, Jan

    Mennell, Miles

    Ratcliffe, David M
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Crowell, Craven, Chairman, Tennessee Valley Authority, Knoxville, TN:

The Tennessee Valley Anachronism, article, Forbes, May 19, 1997

Responses to questions from Rep. Boehlert

Responses to questions from Rep. Duncan

Responses to questions from Rep. Riggs

Responses to questions from Rep. Baker

Ratcliffe, David M., Co-Chairman, Tennessee Valley Authority Watch, Atlanta, GA, and Senior Vice President of External Affairs, Southern Company:

Responses to questions from Rep. Gordon

Letter to Rep. Duncan, June 24, 1997


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    Cordaro, Matthew C., President and CEO, Nashville Electric Service, statement

    Sundquist, Hon. Don, Governor, State of Tennessee, statement

    Waters, John B., Jr., Director and later Chairman of Tennessee Valley Authority, statement