Tennessee Valley Authority Payments in Lieu of Taxes

The Tennessee Valley Authority (TVA) is a federal entity that provides electricity for a service area that includes almost all of Tennessee and parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.  TVA acts primarily as a wholesaler for municipally and cooperatively owned local power companies, which resell the electricity to residents and businesses.  It also sells electricity directly to other government agencies and several large commercial and industrial customers.

TVA is exempt from both state and local taxes because it is a federal entity.  But TVA does make payments in lieu of taxes (PILOT) to compensate state and local governments in its service area as required by the TVA Act of 1933—the federal law that created TVA.  In addition to the seven states in TVA’s service area, Illinois also receives a share of the PILOT because TVA owns coal reserves there.

Both TVA’s overall PILOT and its payment to Tennessee increased in federal fiscal year 2022-23¹:

• TVA’s overall PILOT was $611 million, a $99 million increase from the year before.
• Tennessee received $410 million, a $65 million increase.

TVA’s PILOTs have totaled $2.7 billion from federal fiscal year 2018-19 through 2022-23, of which Tennessee has received $1.8 billion (67%).

The Tennessee Advisory Commission on Intergovernmental Relations was directed by the General Assembly in 2009 to (1) monitor and report on changes in the wholesale distribution of electricity by TVA for possible effects on TVA’s PILOT and (2) make recommendations, if any, on adjustments to Tennessee’s tax system that would keep the state and local governments whole (Public Chapter 475, Acts of 2009).  The 2009 act had authorized new entities to wholesale electricity in Tennessee, raising concerns that it could lead to a decrease in TVA’s PILOT, which is based on power sales.  The General Assembly addressed these immediate concerns in 2010 by requiring electricity wholesalers in Tennessee to make PILOTs equivalent to those TVA would have made (Public Chapter 1035, Acts of 2010).  The 2010 act also required the Commission to update its report and any recommendations annually.

The Commission’s latest report, which includes information on factors affecting TVA’s overall PILOT and the amount distributed to Tennessee, can be found here.

¹ _{The federal fiscal year runs from October 1 through September 30.}