Tennessee Valley Authority

The Tennessee Valley Authority (TVA) is $26 billion in debt and has invested $14 billion in nonproducing nuclear assets that are not included in its electricity rates. As a result, TVA has far more financing costs and deferred assets than its likely competitors have, which gives TVA little flexibility to meet competitive challenges. To the extent that TVA cannot compete effectively and improve its financial condition, the federal government may have to pick up the tab for some of TVA's debt. TVA's troubled financial condition has been caused largely by construction delays, cost overruns, and operational shutdowns in its nuclear program. TVA's links to the federal government and its high debt limit have allowed it to borrow the billions of dollars needed for its nuclear construction program. Although no cash crisis exists today, GAO believes that TVA's financial condition threatens its long-term viability and places the federal government at risk. GAO highlights several options that could reduce risk to federal taxpayers and help prepare TVA to compete in the electricity market.

GAO found that: (1) TVA is $26 billion in debt and has invested $14 billion in deferred assets that are not included in its electricity rates; (2) TVA has little flexibility to meet competitive challenges due to more financing costs and deferred assets than its competitors; (3) the federal government is at risk for some of TVA debt, since TVA cannot compete effectively to improve its financial condition; (4) TVA troubled financial condition has been caused by construction delays, cost overruns, and operational shutdowns in its nuclear program; (5) TVA current rates are too low to recover its relevant costs, since TVA has excluded the costs of its deferred assets from its electricity rates for a long period; (6) TVA will have to raise its current rates, since it anticipates spending billions more dollars to complete its nuclear construction activities and modernize its coal and hydroelectric plants; (7) although TVA is currently protected from competition by legislation and its customer contracts, it will have to compete with other utilities in the long run; and (8) TVA financial condition threatens its long-term viability and places the federal government at risk, and resolving its financial problems will be costly and require difficult decisions.