In  addition to uncertainties over the future market price of power, TVA’s  future competitive position will be affected by a number of issues,  including  the specific requirements of any legislation that might remove TVA’s  legislative protections, including whether it would be able to retain  some or all of the competitive advantages described previously;  actions being taken by TVA to prepare for competition in relation to  those being taken by TVA’s competitors;  the amount of time before TVA might lose its protections from  competition and is required to compete with other utilities—the longer  TVA is legislatively protected from competition, the longer it will have to  reduce its debt and related financing costs and recover deferred costs  through rates;   the extent to which TVA would write off all or a portion of the cost of its  deferred nuclear units to retained earnings should it go from a regulated  to a restructured, competitive environment. Conclusions

If TVA were to lose its legislative protections today, its high level of debt  and corresponding high financing costs would be a competitive challenge. This competitive challenge would be even greater if it were at the same  time attempting to recover costs of deferred assets through rates. Despite  having reduced its debt and deferred assets over the past 3 years, TVA still  compares unfavorably to its likely competitors in these regards. In  addition, TVA is revising its goals for reducing debt and deferred assets  downward significantly. Whether or not the deferred assets will contribute  to stranded costs that are recoverable from customers depends on the  specific requirements of any legislation that might remove TVA’s legislative  protections and TVA’s ability to retain its current competitive advantages in  a restructured environment. Ultimately,  TVA’s ability to be competitive will depend on the future market price of  power, which cannot be predicted with any certainty.
What GAO Found

If the Tennessee Valley Authority (TVA) were to lose its legislative protections today, its high level of debt and corresponding high financing costs would be a competitive challenge. This competitive challenge would be even greater if it were at the same time attempting to recover costs of deferred assets through rates. Despite having reduced its debt and deferred assets over the past three years, TVA still compares unfavorably to its likely competitors in these areas. In addition, TVA is revising its goals for reducing debt and deferred assets downward significantly. Whether or not the deferred assets will contribute to stranded costs that are recoverable from customers depends on the specific requirements of any legislation that might remove TVA's legislative protections and TVA's ability to retain its current competitive advantages in a restructured environment. In addition, the longer that TVA has to prepare for competition, the longer it will have to reduce debt and recover the costs of its deferred assets and position itself more competitively. Ultimately, TVA's ability to be competitive will depend on the future market price of power, which cannot be predicted with any certainty.