Tennessee Valley Authority:

Information on Benchmarking and Electricity Rates

GAO-02-636: Published: May 30, 2002. Publicly Released: May 30, 2002.

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Linda M. Calbom
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contact@gao.gov

 

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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.

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