At $24 billion in debt, what's next for TVA?

By Trevor Stokes,
Staff Writer

May 20, 2008

TVA lost its federal appropriations for power in 1959 through a congressional act and became completely self-financed in 1999.

It also started racking up debt, which in 2007 reached $24.7 billion, about 82 percent of the maximum $30 billion in debt.

Many blame that debt on TVA's overeager nuclear program from the 1970s when, at one point, TVA had plans to build 17 nuclear power plants.

With escalating construction and energy costs, the agency eventually cut its nuclear program back and built a total of six reactors, half of which never functioned, at a cost of $6.3 billion.

Now that TVA has entered another nuclear renaissance and is seeking to get three nuclear reactors operational, many worry that TVA's debt might only increase.

"I think we're fine for the next several years, perhaps up to a decade," said TVA President and CEO Tom Kilgore. "We've gotten the cost of that debt down to where it's only about 13 to 14 cents out of every dollar. I think you and I would love to have a mortgage that cost us 15 cents out of a dollar that we made. We think the debt service is very reasonable and should not be the driving factor in our financial metrics."

In the first quarter of 2008, TVA reported a net loss income of $17 million, potential fallout from the record drought that has plagued the southeast.

"The amount of electricity that we are able to generate from our hydroelectric plants depends on a number of factors outside TVA's control," Kilgore stated in a press release. "When these factors are unfavorable, TVA must increase its reliance on more expensive generation and purchased power."

Operational costs increased 14 percent in the same time period, mainly from rising fuel costs.

That may mean other rate increases similar to the seven percent increase TVA customers experienced this past April.

TVA has had a history of debt reduction plans that didn't pan out. In July 1997, TVA increased its rates 5.5 percent and rolled out its 10-year plan to half its debt, which had peaked the year before, to $14 billion.

Ten years later, TVA's debt had decreased by $2.7 billion, about 10 percent.

In 2005, TVA unrolled another 10-year plan to cut its debt by a more modest $7 billion.

At the time, TVA Director Bill Baxter told the board, "The amount of debt we are paying down in 2005 is grossly inadequate. Our Strategic Plan, which we just adopted eight months ago, calls for TVA to reduce its debt by $3 billion to $5 billion in 10-12 years. At the 2005 level of debt reduction, it will take 35 to 59 years to achieve this critical goal."

TVA's plan now calls for a debt reduction of $7 billion

TVA also has had a history of raising its debt limit. In 1959, the original limit was $1 billion that was last amended by Congress in 1979 from $15 billion to its current $30 billion.

Some of the ways TVA is considering to help bring down its debt include:
  • charging more for electricity used during more expensive peak times.
  • increasing consumer efficiency with home energy audits.
  • an efficiency policy to reduce energy use the equivalent of one nuclear reactor by 2012.

    "They are very pre-occupied, as they should be, with their level of debt," said Rep. Bud Cramer (D-Ala.) who co-chairs the TVA Caucus.

    "They are carefully considering ways to bring that debt down. They are not so obsessed with it that they're paralyzed by it. They can't be paralyzed by it."

    Trevor Stokes can be reached at 740-5728 or trevor.stokes@timesdaily.com    .

    • Source: The Times Daily