A ‘Town Hall Meeting’ on paper . . .

Chairman offers Board response to questions about financial health, other key issues

Chairman McCullough’s Town Hall Meetings have enabled employees around the Tennessee Valley to ask questions about TVA’s objectives and its challenges.

Inside TVA has printed many of those questions — and the answers — in past issues.

	Because weather is such a crucial factor in load forecasting, Electric System Operations hired a meteorologist, Patrick Walshe, with rewarding results.

Here are answers to some of the key questions on employees’ minds today:

How is TVA doing financially?
TVA is financially sound and is taking steps to remain financially healthy and competitive as the electric-power industry is restructured.

We have many things to be proud of, including the following:

• The debt was capped in 1997 at $27.7 billion. Between 1997 and the end of fiscal year 2002, TVA has reduced the outstanding balance of its bonds and notes by $2.5 billion, from $27.7 billion to about $25.2 billion.
• By refinancing more than $23 billion in securities on bond markets, TVA has lowered its average interest rate from 7.6 percent in 1997 to 5.89 percent at the end of fiscal year 2002.
• As a result of the reduction in the debt and lowering of average interest rates, the portion of TVA’s revenues servicing the debt has been reduced from 34 cents on the dollar in 1997 to 21 cents at the end of FY ’02.

All this has been done while TVA has been making the investments to maintain the safety and reliability of the power system, add generating capacity to meet the increasing needs of the Tennessee Valley, and install equipment to fossil units to reduce emissions.

Although TVA is financially sound, we have significant challenges ahead of us. Some of the challenges include the possibility of a more aggressive debt payment (see following question), while maintaining generating availability AND reducing the delivered cost of power. (See related story).

It is important that all employees and retirees understand TVA’s finances and the unique challenges facing TVA and our industry. Those of us working here must treat TVA’s budget as our own and make wise decisions on how to use our resources.

What is the Board’s response to the possibility that the Office of Management & Budget may ask TVA to pay down its debt more aggressively than called for in the current business plan?
TVA is working hard to effectively communicate with officials in Washington that we are balancing our responsibilities of delivering affordable, reliable power, cleaner air/water, and economic development, along with the most aggressive debt-reduction resolve in TVA’s history. Today we are striving to do all those things, thanks to the good work of the people of TVA. TVA should be particularly proud of the fact that in 2002 it more than doubled its debt-reduction goal by reducing its debt by $120 million.

What were the reasons behind the decision to restart Browns Ferry Nuclear Plant Unit 1?
The restart of Browns Ferry Unit 1 is almost 15-percent complete and scheduled for completion in 2007 at a cost of $1.8 billion. The Board feels that restarting Unit 1 is the right business decision for TVA and for the Valley because we need the power and this is the lowest-cost option. The unit is expected to add about 1,250 megawatts of clean, economical baseload capacity to the system. With 31,517 MW of net winter dependable capacity right now, the addition of Browns Ferry Unit 1 will increase our generating capacity system by about 4 percent, which will greatly enhance the strength and flexibility of our system as a whole. The Unit 1 restart also is creating some 2,300 temporary and some 100-150 permanent jobs in the Decatur, Ala., area.

What are the current cost projections for TVA’s clean-air initiatives?
TVA is committed to environmental responsibility, and we support clearer skies while also delivering on our mandate for providing affordable, reliable power. We are taking the steps to keep our 11 fossil plants in compliance with EPA standards. Up to now, we’ve spent $3 billion on clean-air equipment. We took a more proactive approach in the early stages, and it has paid off for us in the long run. Our current plans are to spend $2.6 billion more between 2002 and 2010. This comes out to an average of about a million dollars a day. By the end of this decade, TVA will have invested more than $5 billion since the 1970s to achieve an 85-percent reduction of sulfur-dioxide emissions and a 75-percent reduction of nitrogen oxides. So we’re doing our part, and sometimes we feel that we don’t get the credit we deserve on this topic. As we have said before, these expenditures are compelling us to consider the proposed rate increase and make a sound business decision for FY ’04.

What’s the status of the plan to deregulate and restructure the electric-utility industry?
It appears that we’ll see an energy bill this session. How detailed an electricity section will be isn’t known yet. We have the TVA consensus language with our distributors that can be in any legislation. One thing’s for sure, we must reduce our delivered cost of power to ensure that we succeed as the supplier of choice in a “restructured market.” TVA must conduct its business as if the market were restructured, open and competitive today.

With so many employees nearing retirement age, what is TVA doing to ensure continued success in the face of competition?
As we began the new year, there were about 13,240 employees at TVA. Some 4,000 of them will be able to retire in the next five years, so we are continuing our efforts to recruit, train and retain the next generation of employees.  For example, over the past two years, TVA has hired about 212 engineers and started about 46 craft training classes including 530 new employees. This is an ongoing initiative that is bringing us many new faces to carry on the legacy left by generations before them. Longtime employees can help prepare new employees by mentoring them and sharing their experience and knowledge.

March 2003