Tennessee Valley Authority:

Assessment of the 10-Year Business Plan

T-AIMD-99-295: Published: Sep 22, 1999. Publicly Released: Sep 22, 1999.

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Pursuant to a congressional request, GAO discussed its work analyzing the Tennessee Valley Authority's (TVA) 10-year business plan, focusing on: (1) whether the plan objectives address the key issues confronting TVA; (2) major costs that were not included in the plan; (3) whether the goals and assumptions in the plan are achievable or reasonable; and (4) TVA's plans to formally update the plan for significant changes.

GAO noted that: (1) TVA's 10-year plan is moving TVA in the right direction by addressing the most important issues facing TVA--its high fixed financing costs and limited financial flexibility and the large amount of deferred assets that TVA has not recovered through rates; (2) however, because TVA's actual experience and assumptions about certain major costs have varied in significant ways from those envisioned in the 10-year plan, it is unlikely that TVA will generate sufficient cash flow to reduce debt and the corresponding fixed interest costs to the extent stated in the plan through 2007; (3) TVA has acknowledged that its debt reduction goal will not be achieved until at least 2009; (4) to the extent it does not sufficiently reduce debt and related fixed costs and increase financial flexibility during the 10-year period, TVA's ultimate strategic objective--to be able to offer competitively priced power by the end of 2007--could be jeopardized; (5) however, since it is not possible to accurately predict what the market price of power will be in 2007, TVA could still achieve its objective of offering competitively priced power, even if it does not fully achieve the plan's other goals and objectives; (6) conversely, depending on the market price of power, TVA could fully achieve all of the goals and objectives outlined in the plan and still not be positioned to offer competitively priced power in 2007 and beyond; and (7) nevertheless, any progress it makes toward its goals and objectives will put TVA in a better competitive position.

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