Investing in New Generation
By Craven Crowell
January 28, 2001
Long before the lights started going out in California, TVA recognized the importance of investing in new electric generation to protect the prosperity of the Tennessee Valley and to provide for economic growth.
In 1997, TVA developed a 10-year business plan to ensure that TVAs total delivered cost of power would be competitive with the market cost of power expected in 2007. Based on trends at the time, TVA was confident it could avoid spending money on new generation and, therefore, reduce its long-term debt by half within 10 years.
But soon, new developments in the electric utility industry required TVA to take a fresh look at this assumption. Our nations power supply was failing to keep pace with demand. The transmission infrastructure needed to move power from one utility to another was under increasing stress. Environmental expectations were increasing. And the price of natural gasthe fuel used in most new electric generationwas escalating rapidly.
In addition, record-breaking summer power demands showed us that TVA could no longer rely on surplus power from others, as companies that had previously agreed to sell electricity to TVA were unable or unwilling to honor their agreements. Even when electricity was available, often it was very costly, and sometimes there wasnt enough transmission capacity to move it.
Faced with these developments, TVA made necessary adjustments, including investing more than $400 million in additional combustion turbines whose capacity proved critical in helping meet record power demands.
Last August, TVA met five peak power demands higher than the previous years record, including an all-time peak of 29,344 megawatts on August 17. On Jan. 3, TVA met an all-time winter peak demand of 27,015 megawatts, and the winter is not over.
To pay for the new generation needed to meet these demands, TVA took a new look at how fast we could reduce the debt and, at the same time, avoid the kind of problems now plaguing California. Its interesting to note that TVA was tempted to follow Californias examplerely on the marketplace for electricity rather than investing capital in new generating capacity. However, by following an alternative strategy--making prudent investments to increase our generation, while at the same time reducing the debtTVA remains on target to achieve our original goal of having a competitive cost of power by 2007.
TVAs debt had been going up continuously for 35 years before we decided it needed to be capped and reduced. This year will mark our fourth consecutive year of debt reduction. By the end of this fiscal year, we expect to have paid down TVAs debt by some $2.2 billion to about $25.5 billion.
TVA will continue to reduce its debt for the foreseeable future. The question before us: how fast is fast enough, consistent with our mission of keeping the lights on in the Valley?
We should also ask those who have criticized our current approach to give us their ideas on how to reduce the debt faster without jeopardizing the reliability of the TVA power system, which is operating more efficiently and cost-effectively than at any time in the past three decades.
TVA nuclear units have increased their output seven years in a row, set new generation records five years in row, and for the third year in a row have ranked among the top 25 performers in the United States and among the top 50 worldwide. In addition, all five TVA nuclear units have received the highest performance rating possible from the industry.
TVA fossil and hydroelectric plants also are performing better than ever, thanks to efficiency improvements that have yielded more than 2,100 megawatts of additional capacity. TVA also has invested in upgrading the capacity and reliability of its 17,000-mile transmission system, including the construction of 700 miles of new lines and 122 new customer delivery points.
As California has discovered, there is no easy solution when you get it wrong so badly. We simply must do it right in the Tennessee Valley, for there is too much at stake to do otherwise.
Craven Crowell is Chairman of the Tennessee Valley Authority
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