1). Within an affirmation requirement for the  Board, the TVA Act recognizes that TVA’s broad missions and objectives  include being a national leader in technological innovation, low-cost  power, and environmental stewardship. TVA’s Plans Focus on Building Natural Gas and Nuclear Capacity, and Its Forecasts Are Largely in Line with Others

TVA plans to meet future electricity demand primarily by expanding  natural gas-fired and nuclear-powered generating capacity, reducing the  amount of coal-fired generating capacity, and expanding energy efficiency  programs. These plans were informed by TVA’s planning forecasts, which  we determined were largely in line with forecasts from other sources for  the Southeast. TVA also plans expansions of  energy efficiency programs. TVA’s Resource Planning and Forecasts Are Largely in Line with Plans and Forecasts for the Southeast from Other Sources

The average annual rates of growth in TVA’s long-term plans and  forecasts are largely within the range of the average annual rates of  growth in long-term plans and forecasts for the Southeast from other  sources. TVA expects its peak demand will grow at an annual rate of about 1.2  percent, on average, from 2010 through 2030. Although Expanding Its Energy Efficiency Programs, TVA May Not Be Fully Considering This Resource

TVA plans to expand its energy efficiency efforts to meet future demand  for electricity. However, as TVA has not used studies of the energy  efficiency potential of its service area as the primary basis for its energy  efficiency goal, it cannot be sure that its current plans reflect the full  scope and possible extent of energy efficiency programs nor that its  current plans are realistic. In addition, TVA’s use of energy efficiency is  constrained by several factors, including how TVA treats energy efficiency  in its resource planning approach, and the fact that TVA is not subject to  certain key mandates or incentives that apply to some other utilities. In March 2011, TVA signed a contract  commissioning a third party to study the energy efficiency potential of  TVA’s service area, which is scheduled to be completed by October 2011. As a  result, TVA does not know whether the model would have identified other  potentially more cost-effective levels of energy efficiency resources. TVA’s Financial Condition May Hamper Its Ability to Fund Capital Improvements

TVA’s financial condition may hamper its ability to fund planned capital  improvements over the next several years. Therefore, the lack of an effective plan may impede TVA’s long-range  financial planning. Other electric utilities  have experienced similar issues. TVA is  also the only utility with a statutory debt ceiling. Issue new debt for new assets.   Consider significant out-year increases in operating expenses. As of  September 30, 2010, TVA’s statutory debt was $23.6 billion, and it plans to  spend about $10 billion through fiscal year 2013 for capital expenditures  related to new and upgraded nuclear, fossil fuel, and hydropower plants. Moreover, pursuant to a settlement with EPA, TVA agreed to invest an  additional $3 billion to $5 billion in the next 10 years on pollution control  devices on existing power plants. Further, in the absence of a capital expenditure management plan,  TVA may also face challenges in achieving the full range of the Board’s  stated objectives, including its commitment to be a “national leader in  technological innovation, low cost power and environmental stewardship.”

	Recommendations for Executive Action

Consistent with TVA’s goals, objectives and policies, including TVA being  a national leader in technological innovation, low-cost power, and  environmental stewardship, and to better ensure that TVA has the  financial resources to accomplish the Board’s broader objectives, we  recommend that TVA’s Board:    use information on the energy efficiency potential of TVA’s service  area from its commissioned study to better ensure that TVA’s future  resource planning process reflects the most cost-effective mix of  resources to meet the demand for electricity, and    develop a written capital expenditure plan that includes the full costs  of the assets in which TVA plans to invest and the sources of funding  for acquiring those assets. In its written comments, TVA agreed with our first  recommendation, and while TVA did not expressly agree with our second  recommendation, it noted the importance of utility companies having a  written capital expenditure plan. GAO staff who made major contributions to this report are  listed in appendix V.

Appendix I: Scope and Methodology

Our report objectives were to examine (1) how the Tennessee Valley  Authority (TVA) plans to meet future demand for electricity and how  TVA’s resource planning and forecasts compare to plans and forecasts  from other sources, (2) TVA’s efforts to use energy efficiency to meet  demand for electricity, and (3) TVA’s financial condition and how it affects  TVA’s ability to meet its operational and financial goals.
Why GAO Did This Study

The Tennessee Valley Authority (TVA), the nation's largest public power provider, is a self-financing, federal electric utility with annual revenues of about $11 billion. TVA has financed large capital investments mostly by issuing debt and is subject to a $30 billion debt ceiling imposed by the TVA Act. TVA is governed by a 9-member Board. Within an affirmation requirement for the TVA Board, the TVA Act recognizes that TVA's broad missions and objectives include being a national leader in technological innovation, low-cost power, and environmental stewardship. GAO was asked to examine (1) how TVA plans to meet future demand for electricity and how TVA's resource planning and forecasts compare to those from other sources, (2) TVA's efforts to use energy efficiency to meet demand for electricity, and (3) TVA's financial condition and how it affects TVA's ability to meet its operational and financial goals. GAO analyzed data from TVA and third parties, reviewed agency documents, and interviewed federal and state officials and industry stakeholders.

What GAO Found

According to its 2010 power supply plan, by 2029 TVA plans to meet electricity demand primarily by expanding natural gas-fired generating capacity, adding three nuclear reactors, and expanding energy efficiency programs. TVA also plans to retire some coal-fired capacity. These plans are informed by TVA's resource planning forecasts, which GAO determined were largely in line with plans and forecasts for the southeastern United States from other sources. For example, TVA forecasts that peak demand will grow at an average annual rate of about 1 percent for about the next 20 years, which is within the range of long-term forecasts for the Southeast from other sources, including the Department of Energy and a GAO nonprobability sample of five investor-owned utilities. TVA also plans to increase its generating capacity and total electricity generation by about 1 percent per year on average, both of which are within the range of plans and forecasts from other sources. While TVA plans to expand its energy efficiency efforts to meet future demand for electricity, TVA may not be fully considering this alternative. For example, TVA's plans may not reflect the full energy efficiency potential of its service area, since it has not yet completed a study of that potential. 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. In March 2011, TVA commissioned a study on the energy efficiency potential of its service area, which is scheduled to be completed by October 2011. In addition, TVA's use of energy efficiency is constrained by several factors, including TVA's planning approach, which did not allow for potentially more cost-effective levels of energy efficiency in its planning model. In addition, TVA is not subject to certain key mandates and incentives that apply to some other utilities, such as the requirement in California for utilities to consider energy efficiency before other resources. TVA's financial condition may hamper its ability to fund capital improvements. As of September 30, 2010, TVA's statutory debt was $23.6 billion, and TVA 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. In addition, under a settlement with the Environmental Protection Agency, TVA agreed to invest $3 billion to $5 billion in the next 10 years on new and upgraded pollution controls on existing power plants. TVA also anticipates increases in operating costs. All of these factors could reduce the available funds TVA could use for its planned capital investments. 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.

What GAO Recommends

GAO recommends that TVA (1) use information from the energy efficiency study it commissioned to inform its future resource planning process and (2) develop a written capital expenditure plan that includes the full costs of the assets TVA plans to acquire and the sources of funding for acquiring those assets. TVA agreed with GAO's first recommendation and generally agreed with the second recommendation.