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Management’s
Discussion
and Analysis |
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Overview
TVA is
one of the largest electric power systems in the United States, having
produced over 148 billion kilowatt-hours (kWh) of electricity in 1999.
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 Mississippi, Kentucky,
Alabama, Georgia, North Carolina, and Virginia. TVA also manages the
Tennessee River, the nation’s fifth-largest river system.
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Sales
of Electricity
(millions of
kWh)
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TVA is a wholly
owned corporate agency and instrumentality of the United States, 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 $6.6 billion in 1999. No tax dollars fund
TVA’s power program.
Unless otherwise
indicated, years (1999, 1998, etc.) in this discussion refer to TVA’s
fiscal years ended September 30. References to “notes” are
to the Notes to Financial Statements.
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Weather
Degree Days
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Business
Outlook
Progress
on Ten-Year Business Plan
TVA’s
management has developed and will continue to reevaluate plans and strategies
it believes will position TVA to successfully compete in a restructured
electricity market. In July 1997, TVA released its Ten-Year Business
Plan (the Plan) that set targets for achieving a total cost of power
that would be competitive with projected market prices in 2007.
TVA’s total
cost of delivered power for 1999 was approximately 4.15 cents per kWh.
As of September 30, 1999, TVA had reduced its total debt by more than
$1.3 billion since September 30, 1996. These achievements reflect performance
in line with the Plan’s goal of providing a competitive cost of
power in the future. While the Plan was built on assumptions that were
reasonable at the time, numerous factors, such as those described in
the “Forward-Looking Statements” section of this Annual Report,
could cause actual results to differ materially from those projected.
TVA continues to project that the Plan will result in a competitive
total cost of power in the future, although some of the original assumptions
and estimates contained in the Plan have changed. TVA expects to update
the Plan in 2000.
TVA
and Competition
In
the future, it is likely that the current law that serves to limit competition
between TVA and other power systems will change. In the past two 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. Hearings on various
topics of competition and electric industry restructuring have been
held in the House of Representatives and the Senate. 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.
In May 1999, bills
containing the Clinton Administration’s legislative proposal for
restructuring the electric utility industry were introduced in both
the House of Representatives and the Senate. TVA endorses the Administration’s
proposal which includes provisions regarding TVA’s power business
that are largely based on agreements among TVA, distributors of TVA
power, the U.S. Department of Energy and many other TVA customers and
stakeholders. Enactment of this proposal would, among other actions,
possibly result in a reduction in the terms of TVA’s power contracts
with the distributors of its power and in the amount of power the distributors
must purchase from TVA under those contracts; possibly result in a loss
of customers due to repeal of the Anti-Cherrypicking Amendment of the
Energy Policy Act of 1992 under which TVA is not required to deliver
power from another utility for consumption within the TVA service area;
and permit TVA to sell excess wholesale power outside its current service
area at rates set by the TVA Board of Directors.
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