Thayer Watkins

The Tennessee Valley Authority TVA

The Tellico Dam Project

The Tellico Dam on the Little Tennessee River was approved and funded by Congress in 1966. TVA did a benefit cost analysis of the Tellico Dam in 1968 and declared the dam was economically worthwhile. The land which would be submerged had already been purchased and construction was scheduled. But in 1973 Congress passed the Endangered Species Act and it was determined that the Tellico Dam would be a danger to a tiny fish called the "snail darter." Construction was stopped while the issue of the snail darter was resolved. The dam was completed in the late 1970's.

There were two cost benefit studies carried out for the Tellico Dam, the first by TVA in 1968 and a second for the Endangered Species Committee. Their results are shown below:

Cost Benefit Analyses
for the Tellico Dam
on the Little Tennessee River
 TVA 1968ESC 1978
Electrical Power$0.9 million$2.7 million
Navigation Benefits$0.9 million$2.7 million
Flood Control$1.1 million$1.0 million
Recreation Benefits$3.7 million$2.5 million
Water Supply (agric.)$0.2 million$0.15 million
Employment Created$8.1 million$0.0 million
Enhanced Land Value$1.6 million$0.0 million
Annualized Dam Cost$5 million$3.2 million
Annualized Land Costs$0.0 million$4.0 million
Net Benefits
Net Benefits$11.5 million-$0.75 million

There were some major conceptual errors in the TVA1968 estimates. These include:

TVA's estimate of the value of the power generated was low. This was not a conceptual error. TVA did not and could not have anticipated the increase in the price of energy in the 1970's. TVA also did not anticipate the decline in barge traffic and hence overestimated the value of navigation resulting from the project.

The conclusion of the Endanged Species Committee is that the net benefit of the project was negative and therefore it was not worthwhile. This is in contrast to TVA's conclusion that it was worthwhile. Nevertheless the Tellico Dam was completed.

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