Questions and Answers Regarding Legislative Changes to TVA
The Consolidated Appropriations Act, 2005, which was signed into law in December 2004, changes the structure of TVA’s management and contains new financial reporting requirements for TVA. Here is a list of answers to frequently asked questions regarding these changes.
Q: What changes did this legislation bring to TVA?
A: Among other things, it changes the structure of TVA’s management and requires TVA to begin filing financial reports with the Securities and Exchange Commission (SEC). More specifically, the legislation:
- Changes the structure of the TVA Board of Directors (Board) from a three-person, full-time Board to a nine-person, part-time Board, which meets at least four times per year. The new Board members are still appointed by the President and confirmed by the Senate
- Affirms that the Board will retain the ability to set power rates for TVA.
- Stipulates new qualifications for Board members and changes the appointment term to five years.
- Establishes the new position of Chief Executive Officer (CEO), to be appointed by the new Board.
- Requires the Board to approve a Compensation Plan for TVA employees.
- Outlines the requirements and duties of the Board and CEO and their relationship to each other. In general, the Board establishes TVA’s strategic direction and policies, while the CEO oversees implementation of such direction and policies, and TVA’s overall operations.
- Creates an Audit Committee, composed solely of Board members independent of management, which (1) in consultation with the Inspector General of TVA, recommends the external auditor to the Board, (2) receives and reviews reports from the external auditor and TVA’s Inspector General, and (3) makes such recommendations to the Board as the Audit Committee deems necessary.
- Directs TVA to begin filing reports on Forms 10-K, 10-Q, and 8-K with the SEC. (TVA's SEC reporting commenced with TVA’s fiscal year 2006 annual report.) The legislation does not require TVA to register its securities with the SEC.
Q: Has TVA’s status as a wholly owned government corporation been changed by the legislation?
A: No. The legislation does not affect TVA’s status as a wholly owned entity of the U.S. federal government or its mission under the TVA Act, nor does it diminish or impair the Board’s authority in carrying out its statutory functions (including setting power rates).
Q: When was TVA required to begin filing with the SEC and what documents does it file?
A: Beginning with its annual report for fiscal year 2006, TVA is now required to file annual reports (10-Ks), quarterly reports (10-Qs) and current reports (8-Ks) with the SEC. However, the new legislation does not require TVA to register its securities with the SEC.
Q: Is TVA exempt from any SEC requirements from which IOUs are not exempt?
A: Under the new legislation, TVA files periodic reports with the SEC, but, unlike IOUs, TVA does not register its securities with the SEC. Accordingly, TVA is not subject to SEC regulations relating to the registration of securities. In addition, TVA is not subject to SEC regulations relating to equity securities (since TVA is not authorized to issue stock).
Q: Is TVA now subject to the Sarbanes-Oxley Act of 2002?
A: Since TVA is not an “issuer” for purposes of the Sarbanes-Oxley Act of 2002 (Act), TVA is technically exempt from many provisions of the Act. By virtue of filing reports on Forms 10-K, 10-Q, and 8-K, though, TVA is required to comply with certain provisions of the Act, including the requirement that TVA officers certify annual and quarterly reports in accordance with sections 302 and 906 of the Act and that TVA report on the effectiveness of its internal controls over financial reporting in accordance with section 404 of the Act.
In addition, the legislation requires TVA to comply with the audit requirements of the Act that are incorporated into section 10A of the Securities Exchange Act of 1934 (other than the requirements contained in subsections (m)(1) and (m)(3) thereof), many of which TVA already follows.
Q: What do these changes mean for investors?
A: The changes made to TVA by the legislation do not affect the features of any TVA bonds and notes held by investors, or the provisions of the Basic Tennessee Valley Authority Power Bond Resolution.
TVA securities continue to carry the same state and local income tax exemption described in the TVA Act of 1933, as amended.
Additionally, while TVA had previously provided information to the public, financial information is now available in a form that is more familiar to the investment community. By virtue of filing reports with the SEC, TVA is subject to SEC oversight and enforcement actions. TVA is also subject to a great deal of other oversight. For example, TVA’s actions are reviewed by an Inspector General appointed by the President, the Office of Management and Budget, the Government Accountability Office, and Committees of Congress. While the relationship of TVA and these entities was not changed, SEC reporting adds an additional layer of oversight.
For example, instead of publishing an annual Information Statement, TVA now files its Annual Report on Form 10-K with the SEC. In addition, TVA now is able to disclose certain current events on Form 8-K.