The encyclopedia · Strategy & Leadership · Strategic decision · 1933
TVA funded dams by selling their electricity
TVA funded its flood-control dams by selling the electricity they generated, ending appropriations by 1959.
Tennessee Valley Authority (TVA)
the move
The Tennessee Valley in the early 1930s was chronically poor, prone to destructive seasonal flooding, and largely without electricity outside its few cities -- exactly the kind of region private power utilities had no commercial reason to build into, since the sparse, low-income rural population offered a poor return on the capital a dam and transmission network would require. Flood control and river navigation improvements were classic public goods: valuable to the whole region, but with no direct buyer and no state government able to fund or coordinate infrastructure spanning an entire multi
Building the dams needed for flood control was going to be expensive regardless of who paid, and a project funded purely through recurring federal appropriations would depend on Congress renewing that spending, year after year, for a region with no way to prove the investment was paying for itself in any measurable way.
why it works
- Dams generate power as a physical byproduct, so selling it requires no extra investment.
- Electricity sales create a recurring revenue stream from an asset built anyway.
- Revenue decouples the program from annual political appropriations.
- Stable power market ensures the byproduct has value.
what transfers
When building a public good yields a sellable byproduct, capture that revenue to fund ongoing costs instead of relying on appropriations.
what came after
Federal appropriations for TVA's power program ended in 1959; by 2011 it generated roughly $12 billion a year from electricity sales alone.
references
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