TVA is an agency in desperate situation, GAO says

TVA is an agency in desperate situation, GAO says

By Betsy Kauffman
News-Sentinel staff writer

TVA's management has been so irresponsible the agency now needs tighter congressional oversight, according to a U.S. General Accounting Office report.

The result of a yearlong investigation of TVA, its debt and its future viability, auditors for Congress' investigative arm say in a draft report that TVA is in serious financial trouble from borrowing billions of dollars to support its largely failed nuclear power program.

The report, which has not been publicly released, lists several options for reining in TVA, including placing the agency's wholesale power rates under the oversight of the Federal Energy Resource Commission, expanding its board of directors, requiring some agency decisions to be reviewed by a regulatory council and creating a federal public utility commission to oversee TVA.

The draft also says TVA could consider a 10 percent rate increase that, over 10 years, would pay off about $5 billion of its $26 billion debt.

After being briefed on the report by GAO officials Thursday, TVA officials dismissed the auditors' findings as "lacking substance."

"I would say it's a year long and an inch deep," said Joe Dickey, TVA's chief operating officer. "It offers no conclusions or constructive recommendations."

Following a press conference where he and Chief Financial Officer David Smith said the auditors didn't consider TVA's unique makeup and steps the agency is taking to control spending and debt, Dickey said the audit will have no impact on TVA's future operations.

"We're confident Congress will see the fallacy in this report as well," Smith said.

The Tennessee Valley's congressional delegation is to be briefed on the audit by the GAO this morning.

The draft report details how TVA's nuclear program has saddled the agency with massive debt, and it spells out what the debt means for ratepayers and what it could mean for taxpayers.

It does not recommend the agency be privatized, as TVA officials said last month. Instead, the auditors point out, TVA's non-working nuclear plants comprise such a large chunk of the agency's assets it's unlikely anyone would buy them. The report says TVA's debts probably could not be paid by selling its assets.

According to the report, $14 billion of TVA's debt is tied to "nonproducing nuclear assets," and that debt currently isn't factored into TVA's rate calculations. That circumstance has allowed TVA to keep rates frozen for eight years, but it could force a 9 percent — or possibly a 12 percent — increase when the debt is figured into the rates.

The report says TVA has spent about $25 billion on its nuclear program and only has three working nuclear units to show for it. The combined cost of those units was about $5 billion.

Other findings in the report include:

• TVA had to borrow money just to cover expenses last year.
• In a comparison with privately owned American Electric, the auditors found TVA needs "twice the investment in assets" to produce the same amount of power and revenue.
• While investment in the nuclear program accounts for 69 percent of TVA's power expenses, nuclear units produce only 14 percent of its power. Coal-fired and hydro units produced 86 percent of the power but accounted for only 19 percent of expenses.
• For long-term competitiveness, TVA needs to reduce its financing costs, which are double those of neighboring utilities, a move that means cutting its debt by $13 billion. That would likely require "some form of federal intervention."

The auditors don't list recommendations: They list options for Congress to consider. Among them are these:

• Allowing TVA to continue as it is now "to see if it can survive in a competitive market." But, the report warns, if TVA can't make its bond interest payments or restructure the debt, bond holders — which include mutual funds, pension funds and insurance companies — would have to absorb the loss. Since the market perceives the federal government would prevent such a move, not bailing out TVA "may call into question the government's financial backing" of some $1.4 trillion debt other federally related organizations owe.
• The statutory fence around TVA could be removed, but it likely would be unable to compete with neighboring utilities.