Summary: Implementation of its 10-year business plan is moving the Tennessee Valley Authority (TVA) in the right direction by addressing key issues--its high fixed financing costs and large investment in nonproducing and other deferred assets that have not been recovered through rates. The plan, which was issued in July 1997, called for lowering fixed costs by reducing outstanding debt by about one-half--to about $14 billion--by 2007. The plan also provides for the recovery through rates of all but about $500 million of the $8.5 billion in deferred assets outstanding. The year 2007 is important for TVA because it expects to face greater competition by then and because many long-term contracts with customers could expire at about that time. However, TVA's plan does not address certain costs, including (1) the capital costs to increase generating capacity to meet the growth in demand for power as is now planned; instead, it expects to meet the rise in demand by buying power from other utilities; (2) the cost of complying with environmental regulations; and (3) the cost of nonpower programs that were formerly funded through appropriations. TVA estimates that the additional costs will total at least $1 billion. Also, some of the plan's goals and assumptions were not achievable, largely because of the additional costs described above. Because of the additional costs not addressed in the 10-year plan, it is unlikely that TVA can reduce its debt to the extent planned by 2007. Although TVA has acknowledged major changes to several of the plan's goals and assumptions and has factored these into its internal planning, the 10-year plan has not been formally updated to reflect these changes. Until the plan is formally updated, Congress and other users of the plan will lack the information needed to make policy, oversight, and investment decisions about TVA.
