TVA proposes to cut debt by $7.8 billion in a decade

Wednesday, February 8, 2006

KNOXVILLE, Tenn. -- The Tennessee Valley Authority says it will reduce its long-term debt by $7.8 billion over the next decade, indicating a more aggressive attempt than last year to get its finances in order.

That forecast objective, contained in President Bush's $2.77 trillion budget proposal released Monday, is "to position TVA for a more competitive electricity market and achieve a more sound business risk profile," TVA officials said.

The country's largest public utility ended fiscal 2005 last fall with a total long-term debt of about $25.6 billion, largely the result of an overly ambitious nuclear power program in the 1970s that led to several plant cancellations.

The plan outlined in the president's budget would reduce the self-financing agency's debt to $18.4 billion by 2016, starting with a $340 million principal reduction in 2006 and a $529 million reduction in 2007.

TVA spends millions of dollars on interest costs to service its debt annually, making the level of debt a key factor in setting electricity prices. TVA provides power to 158 power distributors serving about 8.5 million people in Tennessee and parts of Alabama, Kentucky, Mississippi, Georgia, North Carolina and Virginia.

The $7.8 billion projected reduction by 2016 in the latest budget forecast is up from a $5.6 billion debt projection over the next decade predicted in last year's budget.

"That assumes two things," TVA spokesman John Moulton said Monday. "That we would recover our fuel and purchase power costs through revenues. And that we would hold our other operating and maintenance costs 0.5 percent below inflation."

That projection also comes as TVA, with an annual budget of more than $8 billion, faces lawsuits and tighter regulation on pollution from its coal-fired power plants.

TVA is considering reviving rate adjustments to cover rising fuel charges and costs to buy power from other utilities. The practice is common among distributors and was used by TVA until an extended rate freeze in the 1990s.

TVA directors will consider the agency's first midyear rate adjustment for fuel charges in at least 25 years when they meet next Monday in Knoxville. The action comes less than four months after a 7.5 percent hike took effect, also blamed on fuel and purchased power costs.

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