TVA sets goal for lower debt and rates

Metro ▼ Chattanoogaanow

Thursday, August 23, 2001

TVA sets goal for lower debt and rates

By Dave Flessner
Business Editor

DECATUR, Ala. -- TVA's new chairman said Wednesday he wants the utility to improve its power capacity and environmental cleanup while paring its debt and price of power.

In his first board meeting as chairman, Glenn McCullough admitted it won't be easy.

"It's quite a balancing act," he said.

Mr. McCullough directed top managers to report back to the board in September on how TVA can continue to pay down its $25.5 billion debt -- the largest of any electric utility in the country -- and pursue the option of restarting TVA's oldest nuclear reactor and cleaning up the agency's dirtiest coal plants. In outlining his goals, Mr. McCullough also pledged to keep electric rates in the Tennessee Valley lower than in most of the country.

"We are a government corporation," he said. "At the same time, we must make the right business decisions to compete in a vigorous marketplace."

With capital needs rising and congressional pressure to cut its long-term borrowing, TVA is considering more leasing options for new power plants, including its idle nuclear plants. By leasing its plants, TVA is able to get extra power generation without incurring new debt.

"We need to carefully study all of our options," TVA Director Skila Harris said.

TVA directors recently authorized a leaseback plan for eight new combustion turbine generators being added this year to the TVA system. A similar $300 million leaseback plan was used last year for eight other combustion turbines used for peak power production.

As a result of the leased plants and other power purchase agreements, TVA has managed to add 3,500 megawatts of generating capacity while trimming its overall debt by $2.2 billion since 1997. TVA has trimmed its debt for each megawatt of power generation by 20 percent since its peak four years ago.

Chattanooga financier Franklin Haney has proposed an even more ambitious leaseback plan to TVA, which he says could add another 3,500 megawatts of baseload generation without any additional debt. Over time, Mr. Haney claims his plan could allow TVA to repay its entire debt and still have billions of dollars left over.

Mr. Haney wants to pay TVA up to $4 billion to restart Browns Ferry Unit 1 near here and finish construction of the Bellefonte Nuclear Plant in Hollywood, Ala. Mr. Haney would recoup his investment from lease payments from TVA over the next 20 years.

Mr. McCullough and Ms. Harris both said it is too early to discuss Mr. Haney's proposal, which still is being studied by TVA's staff. Mr. Haney is scheduled to meet again on Sept. 13 in Chattanooga with a team of TVA nuclear and financial managers headed by Senior Vice President Jack Bailey.

"We're now undertaking an environmental impact study on restarting Browns Ferry Unit 1, which won't be done until January," Ms. Harris said. "That decision (about whether Browns Ferry is needed for power or not) is still months away and that has to come before we consider what type of financing we might use."

During Wednesday's hearing, anti-nuclear activists denounced the board for even

considering adding more nuclear power.

Edward Passerini, a professor of environmental studies at the University of Alabama and one of several members who spoke on behalf of the Southern Alliance for Clean Energy, said TVA has consistently overestimated power demand and underestimated the costs of nuclear power.

"These plants certainly won't be needed in the next 20 years," he said.

But Calvin Underwood, a 32-year engineer who serves as president of the TVA Engineering Association, urged the board to recoup its $6 billion investment in the idle Browns Ferry and Bellefonte reactors.

"Nuclear power is safe and economical, and these plants should be put into use to help create more jobs for our workers," he said.

Mr. McCullough said he wants TVA to "clean up its books" this fall and may consider writing down some of its hefty nuclear investment. But he also said he expects TVA's future "will be in line with the president's energy policy," which supports more nuclear power.

TVA is considering reactivating work on its idle nuclear units at the same time it faces costly environmental upgrades on its coal plants. TVA also is preparing its costliest transmission line upgrade ever to handle growing demands to move electricity. And the utility could soon face billions of dollars in extra costs to meet proposed federal rules for mercury pollution and new source requirements for sulfur and nitrogen oxide removal at seven of its oldest coal plants.

"Our capital spending has come down significantly from most of the 1980s and 1990s, but those costs are tending higher again," said David Smith, chief financial officer for TVA.

Nonetheless, Mr. Smith said TVA expects to exceed its goal this year of cutting its debt by more than the $450 million budgeted a year ago.

E-mail Dave Flessner at dlfessner@timesfreepress.com