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Industry News

TVA Hit by GAO Report on Financial Difficulties

LCG, May 4, 2001--A report issued yesterday by the U.S. General Accounting Office sheds further light on serious financial problems facing the Tennessee Valley Authority and demonstrates the need for TVA to take aggressive action to reduce its $26 billion long-term debt, a group representing utilities operating on TVA's periphery said.

The organization, TVA Exchange, admittedly has an axe to grind. Its members have been pulling guard duty to keep TVA from sneaking over its federally mandated "fence" and nibbling away at their service territories by offering subsidized power.

"TVA faces an uncertain future unless it brings its financial problems under control and GAO is to be commended for its thorough and candid analysis of those problems," said John Howes, coordinator of the group. Those problems are not new news.

Forbes Magazine, in its May 19, 1997 issue, profiled TVA, and reported that the taxpayer-owned utility's debt was so massive that it paid 35 cents out of every dollar it took in just to service its debt. Investor-owned utilities are no pikers when it comes to running up debt to build power plants and other expensive things, but they use a lot less than half of that to service their debt.

On May 27, 1997, the Wall Street Journal told in its lead story on the front page how TVA bullies small municipal utilities into signing 10-year contracts that renew themselves every year. It took 10 years of hard work for the muni in Bristol, Va., to unplug itself from TVA.

Today, TVA is competing with private companies it was never meant to compete with, and it's doing it with government backing. A study a few years ago estimated that the value of all the indirect subsidies enjoyed by TVA was on the order of $3.7 billion for 1993.

Among the indirect subsidies enjoyed by TVA is the AAA credit rating of its bonds. Those bonds are not guaranteed by the U.S. government, but their buyers think they are. The GAO report says the high rating "is largely based on the perception that its debt is federally backed because of its ties to the federal government as a wholly owned government corporation and its legislative protections from competition."

Legislation introduced by Sens. Jim Bunning and Mitch McConnell, both Kentucky Republicans, would rein in TVA's spending on new power plants and have the utility pay off its bonds with the three cents of each operating income dollar it gets to keep after servicing its debt and paying other expenses. The measure could be a big help to TVA, which hasn't made any progress on a 10-year plan to cut its debt in half by 2007.

"TVA's financial problems have been building for years and it's unfortunate that they have notreceived enough scrutiny," Howes said. "Hopefully, these new GAO reports will heighten awarenessof TVA's problems so an initiative like the one sponsored by Sens. Bunning and McConnell will resultin TVA aggressively reducing its debt, something it should have done long ago."

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