• 4 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 7 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 11 minutes Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 14 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 3 hours Is $60/Bbl WTI still considered a break even for Shale Oil
  • 3 hours Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 42 mins Theresa May to Step Down
  • 8 hours Old - New Kim: Nuclear Negotiations With U. S. Will Never Resume Unless Washington Changes Its Position
  • 4 hours IMO 2020 could create fierce competition for scarce water resources
  • 7 hours India After Elections: Economy And Hindu Are The First Modi’s Challenges
  • 4 hours IMO2020 To scrub or not to scrub
  • 9 hours Total nonsense in climate debate
  • 4 hours Devastating Sanctions: Iran and Venezuela hurting
  • 13 hours Trump needs to educate US companies and citizens on Chinese Communist Party and People's Liberation Army. This is real ECONOMIC WARFARE. To understand Chinese warfare read General Sun Tzu's "Art of War" . . . written 500 B.C.
  • 6 hours Apple Boycott in China
  • 2 hours Level-Headed Analysis of the Future of U.S. Shale Oil Industry
  • 6 hours Compensation For A Trade War: Argentina’s Financial Crisis Creates An Opportunity For China
Alt Text

The Next $4 Trillion Democratic Party Climate Change Plan

Former Maryland Congressman John Delaney…

Alt Text

The Biggest Losers Of The Trade War

The U.S.-China trade war entered…

Alt Text

Headline Hysteria Suggests Tesla Reversal

There’s been good reason to…

Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

More Info

Trending Discussions

Trump Proposes Sale Of Transmission Assets

Hidden away in the Trump Administration’s long-awaited “Legislative Outline for Rebuilding Infrastructure in America” is the administration’s latest idea to raise some cash without raising taxes.

The government wants to sell the power transmission assets of the Tennessee Valley Authority (TVA), Southwestern Power Administration, the Western Area Power Administration (WAPA) and Bonneville Power Administration (BPA). While it might be churlish to point out, there are actually four federal power marketing agencies plus the TVA. Somehow the Southeastern Power Marketing Administration failed to make the White House list.

The first of these four (actually five) agencies to be created was the TVA in mid 1933. This new federal corporation marked the first time a federal agency was charged with addressing the total resource needs of an entire region. Early efforts, for example, were dedicated to controlling malaria outbreaks. Apart from electricity production, the TVA’s mandate extended to improving navigation, flood control and replanting forests, along with contributing to general regional business development.

The BPA was created in 1937 to harness the vast hydro resources of the Columbia River system. And the federal Flood Control Act of 1944 created two more power marketing authorities. WAPA is a legacy of the Carter administration.

Note that the White House refers exclusively to the sale of federal transmission assets. This strategy, which will bring in far less money than selling the entirety of the five agencies including their vast power-generating resources, has two advantages. First, it will make any inevitable rate hikes needed to pay private return requirements much less noticeable to consumers. The transmission component makes up a relatively small part of the typical ratepayer's electric bill.

Related: Russia Is Taking Over Syria’s Oil And Gas

Second, it gives private equity and infrastructure investors an opportunity to invest in assets with an existing revenue stream. Transmission investment is kind of a no-brainer if the returns are even remotely decent. There's no risk of controversial investments to comply with environmental rules (as with power generation investment) and no worries about potential competition from new power sources like wind and other renewables. These assets are ideal for those seeking infrastructure investments with relatively low risk and steady, regulated returns.

Buying existing assets doesn’t aid existing infrastructure development, help fund needed repairs or even add greatly to new construction jobs. Besides, there’s no shortage of investors for transmission projects despite lack of government subsidy. In other words, the government's proposal has no earthly purpose if judged by goals of encouraging needed but unmade investment or of spurring new employment.

But it does serve other purposes. For those ideologically opposed to government ownership of economic assets, the White House plan would privatize a small fraction of the government’s electricity investments. Oddly enough, it probably privatizes the part of the electricity infrastructure that most serves a quasi-public function.

Second, the assets in question have a pre-depreciated value on the balance sheets of roughly $17 billion and $10.5 billion fully depreciated. If the new owners went to regulatory authorities, they probably could get a return on net plant of roughly 6.5–7% pretax, or $0.7 billion. A motivated leveraged infrastructure investor might find those assets to be worth $11.5–$12 billion or more, until interest rates rise.  

OK, so what is this really about? Simply, it will bring in $12 billion into government coffers, assuming that none of the money goes to pay down debt owed by the four agencies. Not a lot of money in the grand scheme of things.

Related: U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff

But more to the point, the sale of regional transmission assets is likely to stir up political opposition. Particularly in the states served by the agencies which tend to enjoy below average electric rates. Ideologically these states are represented predominantly by conservative Republicans, which causes something of an ideological problem.

Look at it this way: Republican conservatism seems an odd mix of neoliberalism and plutocratic corporatism. That means a unilateral opposition to "unnecessary" government activities — except when one's constituents are the beneficiaries.

The administration decided to create a small annoyance for local politicians in return for a small chunk of cash. We think they’ll back off once the objections begin to pour in. This modest privatization isn’t even worth the effort.

By Leonard Hyman and William Tilles

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Trending Discussions

Leave a comment
  • Lee James on February 15 2018 said:
    Is the current sell-off of Strategic Petroleum Reserve holdings another example of Mr. Trump's enterprising ways regarding disposition of public assets?

    It's nice to have a small infusion of cash coming into the federal budget here and there, but are we shooting ourselves in the foot? What of the big picture? As the article mentions, energy assets serve multiple useful and long-term public purposes.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News