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Management’s
Discussion
and Analysis |
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Overview
TVA’s
electric power system is one of the largest in the United States, having
produced 152 billion kilowatt-hours (kWh) of electricity in 2000. TVA
is primarily a wholesaler of power. Its customers include three major
groups: (1) distributors, consisting of municipal and cooperative systems;
(2) industries that have large or unusual loads; and (3) Federal agencies.
In addition, TVA sells and buys power through exchange power agreements
with most of the surrounding electric systems. TVA’s power service
area covers 80,000 square miles in the Southeastern United States,
including most of Tennessee and parts of Alabama, Georgia, Kentucky,
Mississippi, North Carolina and Virginia. TVA also manages the Tennessee
River system, the nation’s fifth largest.
TVA is a wholly
owned corporate agency and instrumentality of the U.S., established
by Congress in 1933 primarily to develop and manage the resources of
the Tennessee Valley region to strengthen the regional and national
economy and the national defense.
TVA’s electric
system operations are required to be self-supporting from power system
revenues, which were about $6.8 billion in 2000. No tax dollars fund
TVA’s power system and river management functions. Prior to 2000
TVA received Federal appropriations for essential stewardship activities
related to its management of the Tennessee River system and TVA properties
(nonpower programs). Congress did not provide any appropriations to
TVA to fund such activities in 2000. Consequently, TVA paid for essential
stewardship activities primarily with power revenues, with the remainder
funded through user fees and nonpower fund balances unused in prior
years.
Unless otherwise
indicated, “years” (2000, 1999, etc.) in this discussion refer
to TVA’s fiscal years ended September 30. References to “notes”
are to the Notes to Financial Statements.
TVA and Competition
In the future, it is likely that the current law that limits competition
between TVA and other power systems will change. In the past three years,
numerous bills have been introduced in Congress designed to restructure
the electric utility industry and mandate or promote competition in
the industry. Passage of these types of bills would result in major
changes in the electric power industry that would significantly impact
both privately owned utilities and publicly and consumer-owned electric
power suppliers like TVA and the distributors of TVA power. It is likely
that the level of government regulation, particularly for the publicly
and consumer-owned power suppliers, would increase. Some key issues
for TVA are: (1) whether TVA rates will be regulated by the Federal
Energy Regulatory Commission (FERC); (2) whether TVA and the distributors
of TVA power will be able to sell power outside the TVA service area;
(3) whether Congress will attempt to shorten the terms of TVA’s
present wholesale power contracts with the distributors of its power;
and (4) whether TVA will have the right to recover its power system
investments that would no longer be economical under full and open market
competition (stranded costs). TVA anticipates that in the event any
restructuring legislation is enacted, such legislation would enable
TVA and the distributors of its power to take part, reciprocally, in
competition outside the area for which they can now be a source of electric
power supply.
TVA worked closely
with the Tennessee Valley Public Power Association, the association
that represents all distributors of TVA power, to further refine the
position on industry restructuring reached by TVA and the vast majority
of distributors of TVA power in September 1999. A consensus position
on the TVA provisions to be included in national restructuring legislation
was reached by TVA and all distributors of TVA power in May 2000. It
includes the following key features: (1) simultaneous repeal of (i)
the statutory restrictions on sales of power by TVA outside the area
served with TVA power and (ii) the statutory impediments to transmission
into that area of power being sold by competitors, which repeals would
occur on the effective date of the restructuring legislation; (2) renegotiation
of power contract terms, with distributors having a statutory right
to terminate their contracts upon three years’ notice; (3) distributors
having a statutory right to take partial requirements from other suppliers
in the absence of reaching a different agreement with TVA on partial
requirements; and (4) reduction in most of TVA’s existing regulatory
roles with respect to distributors. U.S. Senators Bill Frist, Fred Thompson
and Thad Cochran introduced a bill in the U.S. Senate that incorporates
the new consensus position.
2000
compared with 1999
Operating
Revenues
Operating revenues were $6,762 million in 2000, compared with $6,595
million in 1999. The $167 million increase was primarily due to an increase
in energy sales to municipalities and cooperatives as a result of the
hot summer during 2000. Accordingly, total kWh sales increased 3.6 billion
kWh, from 156.0 billion in 1999 to 159.6 billion in 2000.
Operating
Expenses
Operating expenses increased $93 million, or 2 percent, from $4,926
million in 1999 to $5,019 million in 2000. This increase was primarily
due to higher fuel and purchased power expense of $183 million in 2000
as a result of hotter summer weather and increased power demand, and
establishment of a $75 million inventory valuation reserve, partially
offset by a $140 million reduction in the amount of accelerated amortization
recorded in 2000 (see note 1—Accelerated amortization).
Interest
Expense
Net interest expense declined $41 million from $1,777 million in 1999
to $1,736 million in 2000. Total outstanding indebtedness, as of September
30, 2000, was $26.0 billion, with an average
interest rate of 6.83 percent; as of September 30, 1999, this amount
outstanding was $26.4 billion, with an average interest rate of 6.83
percent.
Results of Operations
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