Congress will have to again raise the U.S. debt ceiling next month for
the United States to pay its debts, but the debt cap for one federal agency
appears to no longer be a problem -- at least for the foreseeable future.
The Treasury Department estimates the federal government will max out its borrowing authority by mid-October as the U.S. debt hits its $16.4 trillion limit. But the Tennessee Valley Authority, the federal utility which has its own $30 billion debt cap, won't be asking Congress to raise its borrowing authority for at least the next decade.
The debt cap Congress put on the TVA a generation ago probably won't be the problem agency officials worried it would be just a few years ago. With the growth of electricity demand slowing, TVA should be able to reduce its net borrowing within a couple of years and shave nearly $5 billion off its debt over the next decade.
TVA's debt is projected to peak in 2015 about $3.5 billion below the $30 billion limit and then begin to decline, according to spending plans adopted last month by the TVA board.
"We have a window now of four or five years where we can finish our big capital projects and then turn that statutory debt line down," TVA President Bill Johnson said. "If we have a fairly accurate projection of the future and we tend to our business well, we should be well under that debt cap for at least the next decade."
That's far different from the warnings a few years ago from both TVA's inspector general and the White House's Office of Management and Budget, which scolded TVA for not having a better debt reduction plan.
In a 2011 assessment of TVA's debt, TVA's internal inspector general said the agency "faces a challenging financial situation in the near future" and warned that the $30 billion limit on borrowing was "a major impediment to making needed investments."
TVA Chairman Bill Sansom, who recalls how board members in 2006 worried about how they would pay the agency's bills without more borrowing authority, said the fiscal needs of America's biggest government utility have changed. The effort six years ago to try to convince Congress to raise TVA's debt cap may not be necessary.
"We spent a lot of time in the past trying to figure out our debt cap and working with OMB and others about what to do with our debt limit," Sansom recalls. "We managed to put in some formula like you would in your own personal lives to manage our debt stream. Now all of that has changed."
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The slowdown in power demand and adherence to TVA financial principles adopted seven years ago helped change the debt direction for the utility.
TVA expects to end fiscal 2014 with a debt of $25.9 billion and cap its debt at no more than $26.5 billion a year later.
The current ceiling on TVA's authority to issue bonds, set in 1979, stands at $30 billion. When adjusted based on historical consumer price indices, this debt ceiling is equivalent to more than $90 billion in 2010 dollars. In other words, since 1979, inflation has reduced the purchasing power of the debt ceiling by almost two-thirds, to about $10 billion in 1979 dollars.
"I personally think the debt cap is wrong," Sansom said. "That was put on in 1979, and we're a lot bigger and we've invested a whole lot more since then."
But convincing a debt-wary House of Representatives to raise TVA's debt ceiling
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