Commercial Recreation Management Fee Guideline

Updated September 15, 2023

Purpose

TVA is implementing this guideline to achieve consistency in its management of commercial recreation agreements, particularly for campgrounds and marinas. As of January 2019, TVA is managing approximately 170 commercial recreation agreements. This guideline outlines standards for the consistent management of new and existing commercial recreation agreements and permits.

Agreement Form and Term

In nearly all instances, TVA’s preference is to grant 30-year easements (without automatic renewals or extensions). Operators may apply for a new 30-year easement at any time. They will be responsible for the administrative cost of processing new requests.

Small campgrounds and marinas with less than approximately $660,000 (2019, escalates 3% per year) in private fixed investments and no plans for additional infrastructure may typically continue to use revocable licenses at the owner’s option and risk. However, in some instances, TVA may require a long-term agreement.

Administrative Fees

Scopes of work, cost estimates, and schedules will be developed, agreed upon, and documented in a commitment letter before any environmental or programmatic reviews are initiated. TVA will develop and implement practices to reduce its own costs associated with these activities and will allow applicants to employ the private sector when possible to complete some tasks (e.g., appraisals, land surveys, and some environmental work). If an applicant employs the private sector to complete a task, the output must still meet TVA standards and be approved by TVA.

Rent Options

The applicant will choose one of two options for rent payment: (1) the market value (MV) approach or (2) the percent of gross revenue (PGR) approach. The calculation of either MV or PGR will take into account the TVA land area involved in the commercial operation and any areas within the associated harbor limits over TVA land. All agreements will be subject to an absolute minimum annual rent ($1,793 for 2019).

FMV Approach

The applicant is responsible for paying for an appraisal. The applicant can pay TVA to conduct the appraisal or choose from a list of appraisers (minimum of 3) provided by TVA. Each will be a Certified General Real Estate Appraiser. The appraisal must meet TVA standards and will be subject to TVA review and approval. The appraisal will determine the FMV of the raw land and any TVA-provided improvements based on the particular type of commercial recreation restrictions involved (i.e., campground or marina) and the area used within any associated harbor limits. The first year’s payment will be a percentage of the appraised value based on TVA’s commercial recreation rate of return. The payment will be escalated each year for the term of the agreement based on TVA’s commercial recreation escalation rate. Once the rate of return and the escalation rate is established for a particular agreement, they will remain constant throughout the term of that agreement. TVA or the applicant can reappraise the property at its own expense after the fifth year of the agreement term and at intervals of not less than five years thereafter. Once TVA has approved a new appraisal, the annual rent payments will be adjusted accordingly. For more information, view the payment illustration. View how to request the FMV payment option.

The commercial recreation rate of return for agreements is 7.25%. The commercial recreation escalation rate for agreements is 2%.

PGR Approach

The PGR approach will be based on a percentage of all gross revenues arising from all operations on TVA land and associated water-based facilities, including any operations by lessees, sublessees, and/or licensees, except for the following exclusions: (1) electric sales that are individually metered and paid to a distributor of TVA power; (2) hunting and fishing license fees; and (3) taxes collected for direct remittance to a taxing authority.

Boat/motor and fuel sales on TVA land will be charged 1% of gross revenues. Restaurant facilities will be charged 2% of gross revenues. All other operations/sales will be charged specified percentages of gross revenue depending on the type of development (see Table 1). The PGR option has a minimum rent rate based upon the number of campsites or the acreage of TVA land/harbor area being used and the respective market category (rural, micropolitan, or metropolitan as determined and published by the U.S. Office of Management and Budget). A minimum rent rate will be established using Table 1, and the applicant will be required to pay the greater of the minimum rent rate or the PGR calculation (i.e., the total of 1% of boat/motor/fuel sales, 2% of restaurant sales and the specified percentage of all other operations/sales). The charges per site, foot, and acre in Table 1 will be increased each calendar year based on TVA’s commercial recreation escalation rate. Under no circumstances will the minimum rent be lower than the absolute minimum rent ($1,793 for 2019). For more information, view graphical illustrations for both campgrounds and marinas.

Documentation of gross revenues from a Certified Public Accountant will be required in accordance with the Documentation section below.

Table 1 — 2023 Annual Minimum Rent Rate

Restaurants

TVA will not approve stand-alone restaurants on TVA recreation lands. However, TVA will consider restaurant facilities that are integral to a campground or marina.

Rate of Return Calculation

TVA will determine the required rate of return to be applied to the FMV. Once the rate of return is set for a particular agreement, it will stay the same for the entire term of the respective agreement. The rate in effect at the time TVA accepts the application is the rate that will be used. TVA will provide a 3/4 of 1% discount off its standard rate of return calculation for commercial recreation agreements. The current standard rate of return is 8%; the discount of 3/4 of 1% results in the current 7.25% commercial recreation rate of return. This rate will be updated no more often than every five years starting on January 1, 2016.

Escalation

Minimum rent rates in Table 1, the FMV, and the absolute minimum rent will be escalated by a specified percentage per year (rounded to the nearest dollar). This escalation rate will be based on TVA’s estimated rate of inflation. Once the escalation rate is set for a particular agreement, it will remain constant for the entire term of the agreement. The rate in effect at the time TVA accepts the application is the rate that will be used. TVA will provide a 1% discount off its standard escalation calculation for commercial recreation agreements, with an absolute floor of 1%. The current standard escalation rate is 3%; applying the 1% discount results in the current 2% commercial recreation escalation rate (see Table 2 for illustration). This rate will be updated no more often than every five years.

Table 2 — Minimum Rates as escalated 2% annually

Infrastructure

Investments in infrastructure and their economic justification are solely the responsibility of the agreement holder. However, all infrastructures must be pre-approved by TVA in accordance with the terms of the relevant agreement.

Documentation

Under the PGR approach, financial statements identifying gross revenues must be submitted annually to TVA. The statements must be compiled or reviewed (based on the revenue amount as shown in Table 3) and signed by a Certified Public Accountant (CPA). As an alternative to having the CPA sign the financial statements, federal and state tax returns prepared and signed by a CPA may be submitted. However, the financial statements identifying the gross revenues must still be signed by the operator and submitted to TVA. Statements will clearly identify the various revenue sources from the operations on TVA land and associated harbor limits. The agreement will allow TVA to conduct financial audits at any time at its discretion. If TVA conducts an audit that shows revenues underreported by 10% or more, TVA will charge the reasonable costs of the audit and a penalty to the operator. TVA will determine the penalty. The operator must also pay the appropriate rent due with respect to the unreported revenue. TVA has the right to terminate the agreement for inaccurate reporting of revenue.

Table 3

Public Agencies

TVA will not charge rent for any public or commercial campground or marina operated by a local, state or federal government as long as fees charged are reasonable and used to maintain or improve recreational facilities. These entities are using public resources to provide public benefits, and no private concern is making a profit from the use of these public resources.

A public agency holding a public or commercial recreation agreement will not be allowed to enter into a sub-agreement with a non-public owner/operator (e.g., someone who will invest in infrastructure and may have standing in the land by way of a lease/sublease) unless specifically allowed by the terms of the agreement at issue. (For example, particularly in the case of an existing commercial recreation easement, TVA must review the specific terms of the agreement at issue to determine whether TVA has approval authority over sub-agreements that do not violate the agreement’s use restrictions.) Instead, the public agency wishing to enter into such an agreement must notify TVA, and TVA will establish a new commercial recreation agreement directly with the non-public owner/operator once the public agency has agreed to abandon its existing agreement. Similarly, if a public agency has no current agreement but proposes a new agreement under which they would enter into a sub-agreement with a non-public owner/operator, the public agency will not be permitted to do so. This does not apply to concessionary agreements where public agencies hire contractors/concessionaires merely to operate publicly-owned facilities.

Management

TVA has one department focusing solely on the administration and management of public and commercial recreation agreements and permits.

Existing Agreements

TVA will not seek to change existing lease or easement agreements until they expire. TVA will honor assignments and existing sub-agreements that it has previously approved in writing.

As existing recreation easements and leases expire, they will be converted to the new guideline standards. Requests for assignments will be managed in accordance with the specific agreement, and TVA may convert to the new fee structure at that time.

Staff will evaluate all existing licenses for conversion to long-term agreements. Some agreements will remain as licenses, but all will be converted to the new rent structure. However, where a large investment in infrastructure is in place or is proposed, TVA may require the applicant to apply to TVA for a long-term agreement.

Changes to Guideline

TVA’s Vice President, responsible for managing land and shoreline activities, is authorized to approve changes and modifications to this Commercial Recreation Management Guideline such as, but not limited to, the specific documents that TVA will require to substantiate gross revenues, the frequency that TVA reviews the escalation and rate of return, and details regarding how to implement and administer the guideline.