By DAVID MOON, Moon Capital
January 16 2005
An elephant is a huge target, hard to kill, but easy to shoot, at least if
there is one in the neighborhood. We have a few in our neighborhood: the
city and county governments, TVA, UT ' these are the big ones. They are
easy to pick on. I do it all the time. But just because something's
easy doesn't mean it's right. I thought about that as I read the criticism
of the compensation and year-end bonuses of certain TVA employees.
In a town where the average household income is $40,000, it is pretty easy to
criticize a government agency that pays its president $1.5 million. That's
what TVA president Oswald Zeringue earned in 2004. Critics of the agency
called the amount unnecessary, exorbitant and a rip-off. Many of these
critics are the same ones who perpetually call for TVA to be 'run like a
Look at TVA as a business. It has three separate missions, only one of
which generates any meaningful revenue: the power business. The economic
development and resource management components of TVA are cost centers.
Despite the resources required and consumed by these functions, lets ignore them
for a moment. Think of TVA as just a power company.
TVA has more than 31,568 megawatts of power generating capacity.
As a comparison, next-door neighbor, Duke Power has only 19,000 megawatts of
capacity. TVA owns and operates more transmissions lines than Duke,
providing electricity to almost four times as many end users. The
president of Duke Power, Ruth Shaw, doesn't have to weigh the interests of
boaters, environmentalists, fisherman, preservationists, regional historians and
power consumers every time she makes a business decision. And she doesn't
have to report to Congress. Excluding stock options, she makes $1.3
million a year, comparable to her counterpart at TVA, despite the fact that Duke
Power is a smaller enterprise.
With 39,000 megawatts of generating capacity and $11.7 billion in annual
revenues, Southern Company is a bit larger than TVA. Southern's CEO
made $4 million in pay and exercised stock options last year. I wonder if
he would run TVA for $40,000, a company car and a driver?
I want to see TVA run like a business. So do Congressman Duncan and the
rest of the congressional delegation from the Tennessee valley. But TVA is
a business that, among other things, runs nuclear power plants and big
dams. My preference is to have fairly competent people running those kinds
of things. You can't say you want it run it like a business but then try
to do it with the lowest paid people. There may be plenty of folks willing
to work for TVA out of a sense of regional pride, but the most highly skilled
chief nuclear officer in the country is not one of them. The critics are
right: TVA should be run like a business. Restructuring the board to look
like a real business is another step in that direction. Complaining about
market pay scales is not.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).