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TVA: Powerfully Positioned

Remarks By Craven Crowell, Chairman
Tennessee Valley Authority
To the TVA Analyst And Investor Luncheon
03/26/99 -- New York, NY

 

INTRODUCTION
Thank you, Sissy . . . and good afternoon ladies and gentlemen . . .

We're delighted to be back here in New York. . . and we're especially pleased to be here with you today because we've got some very good news to report about TVA.

But before we begin, I'd like to take a minute to recognize my colleague on the TVA Board, Director Bill Kennoy. We're glad you could join us today, Bill.

1998 was a very good year for Tennessee--as you know, the Vols won the national football championship . . . the Lady Vols won the national basketball championship for the third year in a row . . . and TVA didn't do too badly, either!
We'd like to talk with you today about our performance in 1998 and the role of TVA and public power in a deregulated electric utility industry.

OPERATIONAL EXCELLENCE
Operationally, 1998 was one of TVA's best years. In the heat of summer, when other power systems were coming up short, we met an all time peak power demand of 27,253 megawatts. Our nuclear plants completed refueling outages in record times and achieved new highs in power production. Last year we said that we planned to continue to set industry standards for operational performance, and Ike Zeringue will give you a full report on how we're doing in a few minutes.

But although power generation is certainly at the core of what TVA does and what TVA is about, we are, as all of you know, a public utility, and we have a variety of responsibilities that go beyond electricity, including flood control, navigation and recreation, as well as stewardship of the land and the environment.

APPROPRIATIONS
Our traditional river and land management programs have historically been paid for by an annual appropriation from Congress, and last year I said I was confident we would arrive at a workable solution with Congress to fund our federal programs.

Today I'm happy to report that TVA will now be able to fund these programs without annual appropriated funds from Congress. Thanks to a far-sighted decision by Congress and the Administration, we've been allowed to re-finance $3.2 billion dollars of our debt, saving TVA well over a billion dollars in interest payments over the next decade. As reflected in the Administration's FY 2000 Budget, which requests appropriations only for TVA's Land Between the Lakes National Recreation Area, TVA is now in position to fund its essential river and land stewardship activities without appropriated funds.

This historic victory will not only give us the financial strength to carry on our traditional river and land management responsibilities, it will speed us along on our program designed to ensure that TVA remains competitive as the electric utility industry is deregulated.

TEN-YEAR BUSINESS PLAN
Most of you know that we adopted a Ten-year Business Plan in 1997 designed to ensure that TVA will be able to compete at the future market price of power. A key objective of that plan is to significantly reduce our level of debt over the next decade. Last year we said our goal was to reduce TVA's debt by $1 billion from its peak of $27.7 billion in 1996. I'm happy to report to you today that we did just that.

In addition, we reduced TVA's annual interest expense by $95 million in 1998. And, as I mentioned, our savings from FFB debt refinancing since October have been significant. You'll hear more about this--as well as about progress on our Ten-year Business Plan --from David Smith in a few minutes.

THE ROLE OF PUBLIC POWER
Let me turn now to a subject that will increasingly dominate discussions about the power industry, both in Congress and, I'm sure, on Wall Street--deregulation. Specifically, I'd like to talk for a minute about the role of public power in a deregulated industry, and what's going on on the legislative front.

Deregulation should, if it works right, lower energy prices for American consumers, and for American industry. In fact, The U.S. government, in a Comprehensive Electricity Competition Plan published by the Administration last year, calculates that retail choice deregulation will cut electricity costs by about 10%, or about $100 dollars per year for a family of four.

At TVA, we're all for reducing prices--as you can see, the Tennessee Valley already enjoys some of the lowest energy prices in the nation. And, again, as a public utility, we're in favor of cutting energy costs for the American people.

Deregulation probably won't lower the electric costs for "all" Americans, but, even if deregulation succeeds in lowering electricity costs for many Americans, there are still questions about the overall benefits of deregulation to the public. Why? Because lower energy costs are not the sole measure of the public good.

At TVA, we try to never lose sight of our top priority: serving the people. And if there's a way to do that better, or more efficiently, we're for it. After all, providing reliable power at the lowest price possible has been TVA's mission for the past 65 years.

The nation will need public utilities more than ever in the next decade and we think public utilities like TVA have a special contribution to make in the deregulated marketplace of the future. In a nutshell: we believe we can set a standard for public service that will help ensure that deregulation does, in the end, serve the public good.

The key to measuring the success of deregulation is, and will be, of course, the degree to which regulatory change benefits the public. But how will this benefit be measured? And what should we look out for?

I would suggest that one of the greatest services public utilities can provide in a deregulated marketplace is vision, especially in the context of the public interest.

Let me give you an example of why vision is important. A strong economy in North America is causing demand for energy to grow faster than projected--the actual growth rate over the last few years is 70 percent higher than current projections! But unfortunately, generation and transmission capacity additions are not keeping pace.

Next summer, if we're unlucky -- and let's hope we're not -- we could find ourselves seriously short of power in one or more major American cities. We had some shortages scattered across the U.S. last summer, and we could find ourselves in even worse shape in years to come.

Today's reality is that in areas where deregulation has occurred and market forces are driving decisions, capacity is not being added until frequent power interruptions begin to occur and prices become exorbitant. Unfortunately, it takes a few years to bring a new generating plant into service and serious shortages are possible in the interim.
This could cause serious problems. Operating reserve margins are expected to fall dangerously short in the U.S. over the next decade. Complicating matters, few bulk transmission additions are planned in the next 10 years, which will make it increasingly difficult to deliver purchased power. The bottom line is that the electricity needed to fuel continued economic growth in the U.S. may fall seriously short of the nation's requirements.

Now, private utilities know that the American economy is increasingly dependent on electrical power -- just as TVA does -- but their bottom-line calculations usually don't allow for the development of a whole lot of new capacity just because we might, in a heat wave, find ourselves running short. Right now, construction of another nuclear plant or coal-fired facility might not produce the return on investment their shareholders demand. Surplus capacity is unsold inventory. It's "inefficient."

At TVA, of course, we don't have shareholders demanding that they get a high return on their investment. We have the public. So, while TVA doesn't build facilities for power production greater than the requirements of our service area, we do operate with a reasonable margin to avoid a power shortage to our customers. At TVA, we see it as our public responsibility to continue to provide a reliable power supply to meet the Valley's growth demands.

Public utilities, which serve the interests of the people -- not just corporate shareholders -- will provide a benchmark by which the performance of all power companies will be measured. They will help to define "the public good" as it applies to energy production and distribution. And for this reason alone, they deserve their place in the deregulated marketplace of the next century.

Deregulating electric utilities should lower energy costs for our citizens and our industries and it's our responsibility to work together -- public utilities and independent providers, industry executives and political leaders -- to achieve this goal.

LEGISLATIVE UPDATE
Let's talk for a few minutes about what deregulation means to TVA specifically. As I told you last year, any changes to TVA's position will be addressed at the national -- not the state -- level. Yet, Federal lawmakers are discovering, especially after the shortages of last summer, that the $210 billion electric utility industry is too complicated and too important to every facet of American life to risk making mistakes. We expect to see some national restructuring bills introduced over the next few months--and we're likely to see a proposal from the Administration very soon -- but we believe Congress will proceed cautiously in addressing this increasingly contentious and complex issue.

And many others around the U.S. are drawing the same conclusion. Consumers are urging caution based on their experience with deregulation of other service industries. States are asserting their rights to decide how to implement deregulation. The USDA recently reported that prices are likely to go up in 19 states as a result of deregulation. And 37 U.S. senators signed a letter last week urging President Clinton not to recommend restructuring federal power programs when the Administration forwards its electricity deregulation proposal to Congress.

At the state level, activity on electricity deregulation is increasing. On the national level, things had been comparatively quiet, at least until the last couple of weeks. At TVA, we are actively engaged in the national deregulation debate to make sure that any legislation, whenever or however it comes about, is fair to public and private power; is fair to all regions of the country and fosters all utilities' responsibilities to customers for reliability, universal access, environmental stewardship and economic development. We remain confident that comprehensive deregulation legislation will address these issues and that TVA and the people of the Valley will be treated fairly.

And when deregulation does come, TVA will be ready. TVA has worked hard over the past decade to become one of the most efficient, competitive power companies in America. We're competitive today, and we intend to remain competitive in the deregulated marketplace of the future.

We have a professional workforce that is second to none. We have a record of efficient and reliable service that is the envy of the industry. We've embarked on a 10-year program to prepare for industry deregulation, and, with recent refinancing assistance from Washington, we're well on the way to realizing our goal of remaining competitive in the future. We have sound relationships with our customers, with the Valley delegation and with the Administration.


CONCLUSION
You know, President Franklin Roosevelt said at the creation of the Tennessee Valley Authority that TVA was to be "a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise." I believe TVA still has that dual identity -- public ownership and public responsibilities - but fast on its feet, nimble and flexible, like a private corporation. These are the qualities that have helped TVA grow and prosper, and they're the same qualities that will help us meet the many challenges that lie ahead.

As I said, it's been a terrific year for TVA. And I'm confident 1999 will be even better. Now, Ike Zeringue will report on our operational performance, then David Smith will give you an update on our progress on the Ten-year Business Plan. Thank you all very much for your kind attention. Ike. . .
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Craven Crowell is Chairman of the Tennessee Valley Authority

 

 

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