By Craven Crowell
By Craven Crowell
By Craven Crowell, Chairman
Tennessee Valley Authority
To the TVA Analyst And Investor Luncheon
03/26/99 -- New York, NY
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,
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,
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.
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.
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.
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
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
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
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.
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.
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. .
is Chairman of the Tennessee Valley Authority
All site content ©2004