Board of directors brings business approach to running TVA

Board of directors brings business approach to running TVA

BY DAVE FLESSNER
BUSINESS EDITOR

The Tennessee Valley Authority, created as part of Franklin Roosevelt's New Deal in 1933 to help rescue Appalachia from the Great Depression, remains one of America's boldest experiments with a government-run corporation.

But to preserve the federal utility in a deregulated electric market, the current TVA board members want to run the agency more like a business.

"The overarching theme for me is to bring some business analysis and perspective to TVA," said Bill Baxter, the Knoxville Republican businessman who joined the TVA board a month ago. "From the conversations I had with senators going through the confirmation process, the message was 'run TVA like a business.' I heard that more than any single thing."

It's an approach already set by Glenn McCullough since he was elevated to chairman of the three-member TVA board in July. Mr. McCullough, a Mississippi Republican who joined the TVA board two years ago, has set a goal of keeping TVA's rates below the regional average while upgrading the utility's power generation, pollution controls and balance sheet.

"It is a new day at TVA," Mr. McCullough told members of Congress last fall. "We are committed to making TVA a more responsible and businesslike agency."

McCullough was clearly proud of TVA's results.

"Our production went up, our debt went down and our rates remained stable and competitive," he said in a year-end interview.

Although on the financial ledger TVA racked up its biggest loss ever in fiscal 2001 when Mr. McCullough ordered the write-off of more than $3 billion in unused nuclear plant investment values, even some of TVA's frequent critics praise the more open atmosphere of the current board.

"Bill Baxter is just getting started, but we've been pleased with what we've seen from both Glenn and Skila (Harris)," said Dr. Stephen Smith, executive director of the Southern Alliance for Clean Energy.

"But the tougher decisions come in 2002 when the board decides what to do about Browns Ferry Unit 1 and other power options," Dr. Smith said. "TVA needs to be more than just another power company."

Mr. McCullough said the write-off was a move to clean up TVA's books and better reflect the business. TVA had been carrying its unfinished nuclear plants at full value for more than a decade. Writing off the unused investment better reflects the business and prepares it for the future, he said.

"TVA is stronger operationally and fiscally as the entire organization prepares for the future of competition," Mr. McCullough said. "We can't afford to carry unused assets."

But in the year ahead, TVA directors will have to make some tough choices faced by no other utility in the country. TVA has the last remaining unfinished licensed nuclear plant in the country and will soon have to decide whether to revive its oldest reactor.

The TVA board also believes it must afford to pay more to its employees, at least when they meet the utility's objectives. TVA more than tripled its bonuses to the general staff and nearly doubled reward incentives for its executives this year after the agency met its performance goals.

That boosted the total compensation of TVA President O.J. "Ike" Zeringue to more than $1.1 million — one of the highest pay levels of any federal employee in the United States. But TVA directors, who are paid only $125,700 a year, insist top staffers at TVA should be paid comparably to investor-owned utilities.

"TVA has the same executive management requirements as private utilities and other large corporations," Director Harris said.

TVA is increasingly comparing itself to other private electric utilities.

"We want to continually measure our performance and benchmark ourselves against the best in the nation," Mr. McCullough said.

POWERFUL CHOICES

By the middle of the year, TVA directors are expected to decide whether to try to restart the unit 1 reactor at the Browns Ferry nuclear plant near Athens, Ala. Within the next couple of years, the board will likely decide whether to try to generate power at the long-idled Bellefonte Nuclear Plant in Holly-wood, Ala. — either as a nuclear plant or as some type of natural gas or coal gasification project.

The choice pits TVA's 4-year-old effort to pare its debt — the largest of any utility in America — against its desire to boost generation capacity to meet future load growth. Board members vow to try to find the right balance.

TVA's $26 billion debt is more than twice as much as its competitors. Most of the debt stems from the unexpectedly high costs of building TVA's nuclear power plants in the 1970s and 1980s.

TVA directors each have voiced support for nuclear power, which they say avoids the air pollution problems of coal plants and can generate sufficient power to meet growing loads. But they vow to look closely at the finances of any such proposal.

"I think nuclear power clearly has a role for us in the future, but whatever decision we make we need to do it in a businesslike manner," Mr. Baxter said.

Despite TVA's widespread nuclear plant problems in the 1980s, Mr. McCullough said the industry "has proven that electricity can be generated in a reliable and safe manner."

"Nuclear power is a very important part of our mix, and I think there is potential for growth," Mr. McCullough said.

Mr. McCullough also thinks that adding more nuclear power at TVA would fit with President Bush's energy policy, which encourages more nuclear power generation.

Alabama lawmakers are urging the TVA board to reactivate the oldest unit at Browns Ferry and to finish the Bellefonte plant.

"I can't imagine why we don't bring on the (Unit 1) nuclear reactor at Browns Ferry," said U.S. Sen. Jeff Sessions, R-Ala. "There's every reason to believe that if TVA wants to, it can bring a Bellefonte reactor on line, which would handle their base load demands for a number of years to come. ... Now that we have got a full board, we need to expect some smart, tough decisions to be made."

But nuclear power opponents insist there is plenty of power generation in the region from other utilities, independent power producers, conservation and new green power sources.

"The Southeast is awash in energy if we use it wisely," Dr. Smith said. "TVA has never finished any nuclear program on budget or on time, and there's no reason to believe they can at Browns Ferry."

Power system

• TVA transmission reliability was three times better than the industry average.
• The agency's coal-fired plants set an all-time record for electricity.
• All three nuclear plants achieved top ratings from the Institute of Nuclear Power Operations and the Nuclear Regulatory Commission.
• TVA added 680 megawatts of generating capacity at gas-fired turbines and broke ground on the nation's first large-scale flow-battery energy-storage plant — the Regenesys plant in Mississippi.

Financial

• TVA reduced its debt by $610 million, bringing its total reduction since 1997 to $2.4 billion.
• The agency provided more than $15.7 million in economic development loans and helped create or retain more than 47,800 jobs.

Environmental cleanup

• TVA announced plans to spend $1.5 billion to construct five scrubbers at coal plants in Tennessee, Alabama and Kentucky. Collectively, the new units will cut sulfur dioxide emissions by 200,000 tons a year. The agency also continued its $1 billion program to reduce nitrogen-oxide emissions. The improvements are projected to cut NOx emissions by at least 70 percent.

TVA is still studying its future power needs, which could be lessened by the slowing economy and by a new option for distributors to buy a limited amount of power from other sources and to produce some of their own power.

"Whatever we do, we're going to make our decision on a businesslike manner," Mr. McCullough said.

LOOKING FOR INPUT

The new board is also reaching out to solicit ideas from TVA distributors, members of Congress and advocacy groups.

"Glenn, Skila and Bill have opened the door pretty wide for us," said Richard Crawford, president of the Tennessee Valley Public Power Association, the trade group that represents the 158 distributors of TVA power.

"TVA is trying to do a better job of listening to its customers, which they are going to have to do in an era of electric competition and deregulation."

Under the TVA act, TVA both regulates and sells power to the municipalities and cooperatives across the Tennessee Valley that distribute electricity.

"Sometimes in the past, TVA didn't seem as interested in our views as distributors," Mr. Crawford said. "That's changed."

U.S. Rep. Zach Wamp, R-Chattanooga, a frequent critic of former TVA Chairman Craven Crowell, calls the current 3-member board "one of the best" in recent history.

But Mr. Smith worries that TVA has narrowed its scope too much.

TVA was forced to abandon many of its nonpower programs after Congress cut off federal funding for TVA four years ago. TVA now generates all of its revenues from the sale of its electricity.

But Mr. McCullough, who previously served as mayor of Tupelo, Miss., where TVA first provided electricity in the 1930s, insists that TVA is more than just a source of electricity.

"We have a tremendous river system to manage for the economic, recreational and environmental needs of the Valley," he said.

But to continue its river stewardship, TVA must be able to successfully compete against other power suppliers in the future, TVA directors said. Mr. McCullough said he is optimistic TVA will.

"I am certain that we will succeed in the competitive marketplace as people continue to recognize the value TVA delivers through excellent business performance," he said.

Staff writer Andy Sher contributed to this report.