GAO: TVA’s Financial Condition Could Curb Funding of New Planned Projects

A report released by the Government Accountability Office (GAO) last week finds that the Tennessee Valley Authority’s (TVA’s) financial condition could hamper its ability to fund capital improvements—including a 20-year plan to meet power demand with more natural gas generation, three new nuclear reactors, and expanding energy efficiency programs.

In the study, which the GAO performed at the request of Sen. Barbara Boxer (D-Calif.), the congressional investigative arm examined how the TVA plans to meet future demand for electricity and how the nation’s largest public power provider’s resource planning and forecasts compared to other sources. The GAO also studied the TVA’s energy efficiency efforts, as well as its financial condition and its ability to meet operational and financial goals.

Among its key findings were that the TVA’s forecasts of peak demand growth (at an average annual rate of about 1% for the next 20 years) was in the range of long-term forecasts from other sources, including the DOE and investor-owned utilities.

But the TVA’s plans did not reflect “the full energy efficiency potential of its service area, since it has not yet completed a study of that potential,” the GAO said. “As a result, TVA cannot be sure that its current resource plans reflect the full scope and possible extent of energy efficiency programs or that the plans are realistic.” The study also says the TVA’s use of energy efficiency is constrained by several factors, including its planning approach, “which did not allow for potentially more cost-effective levels of energy efficiency in its planning model.”

Financially, the TVA isn’t in the best shape to take on all the projects planned, the GAO suggests. As of Sept. 2010, the entity’s debt was $23.6 billion, and as the GAO noted, the utility plans to spend almost $10 billion by fiscal year 2013 for various capital investment projects. “Given the significant delays and cost overruns that TVA has historically experienced, these projects could potentially face similar issues,” the GAO says. In addition, under a settlement with the Environmental Protection Agency, the TVA agreed to invest $3 billion to $5 billion in the next 10 years on new and upgraded pollution controls at existing power plants. It also anticipates increases in operating costs, the GAO notes.

“All of these factors could reduce the available funds TVA could use for its planned capital investments,” the GAO says. “TVA’s financial condition leaves it with difficult decisions to make in order to meet electricity demand while keeping its debt within the statutory limit. TVA does not have a formal capital expenditure management plan that identifies assets to be acquired, their costs, and funding sources. The lack of such a plan may impede TVA’s long range financial planning.”

As a possible remedy, the GAO recommends that the TVA develop a written capital expenditure plan that includes the full costs of the assets the TVA plans to acquire and the sources of funding for acquiring those assets.

Sources: POWERnews, GAO

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