To those ends, TVA  erected dams and hydropower facilities on the Tennessee River and its  tributaries. To increase its  financial flexibility and future competitiveness by generating cash that  could be used to reduce debt, TVA increased its electricity rates beginning  in 1998, and planned to reduce expenses and limit capital expenditures. These  studies initially assessed the staffing levels of TVA’s nuclear program and,  in 1998, TVA began to assess its non-nuclear business units as well. Recent  benchmarking studies performed by Navigant have indicated that TVA’s  nuclear and transmission units are close to the industry’s best in terms of  staffing efficiency, but that opportunities for improvement exist in all four  of the business units most recently benchmarked—Fossil Power Group,  Transmission Power Supply, Nuclear, and River System Operations &  Environment. TVA continues to utilize benchmarking to assist  in identifying potential areas for improvement. TVA’s Electricity Rates are Relatively Low Compared to Likely Competitors

TVA has the statutory authority to raise its electricity rates, is legislatively  protected from most competition, and has current rates that are low when  compared to likely competitors. If TVA were to choose to raise electricity  rates selectively and use the additional cash generated to pay down debt, it could reduce its financing costs (interest expense), thereby strengthening  its ability to respond to future challenges (as discussed in previous GAO  reports). TVA is, however, currently subject to some level of  competition. TVA officials told us that they believe an  increase in electricity rates could result in the loss of customers, lower  power sales, and possibly less overall revenue. Another potential negative  consequence is the impact a rate increase could have on the regional  economy as a whole. A rate increase could also affect the distributors’  perception of TVA just before they may be given the choice of selecting  their suppliers. As suggested by the data in table 2, any decision to raise electricity rates  would need to be considered differently for each rate category because the  difference between TVA’s rates and those of its likely competitors varies by  rate category.
What GAO Found

The Tennessee Valley Authority (TVA) declared its intent to become competitive by reducing its cost of power and becoming more financially flexible by reducing debt from $27.4 billion to $13.2 billion by 2007. Since the 1980s, TVA has used benchmarking to assess staffing levels for its nuclear program and it began to use benchmarking studies for its non-nuclear business units in 1998. Recent studies indicate that TVA's nuclear and transmission power supply units are close to the industry's best in terms of staffing efficiency. TVA has taken several actions to improve performance and efficiency, including reorganizing its human resources and business services organizations and automating its hydropower production facilities to reduce future staffing. TVA continues to utilize benchmarking to assist in identifying opportunities for improvement. TVA's current electricity rates are low when compared to 12 likely competitors and to national averages. Although TVA's electricity rates are relatively low, it is legislatively protected from most competition, and it has the statutory authority to raise rates. If TVA were to choose to raise electricity rates selectively and use the additional cash generated to repay debt, it could accelerate debt repayment and reduce fixed interest costs. Doing so would enhance TVA's ability to respond to future competitive pressures. But TVA is already subject to some competitive pressures and a decision to raise electricity rates could result in potential long-term negative consequences on power sales. TVA also is concerned that a a rate increase could affect distrubutors' perception of TVA before the they may be given the choice of selecting their suppliers. Increasing electricity rates could result in the loss of some customers, lower power sales, and possibly reduce revenue. Increased rates also could have an impact on the regional economy. Increased rates should be considered differently for each rate category because the difference between TVA's rates and the rates of other utilities varies by rate category.