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TVA Board Approves 2005 Budget, Power Rates To Remain Stable

September 22, 2004

The TVA Board, by a 2 to 1 vote, today approved a budget for 2005 that holds electric rates stable, continues the trend of reducing financing obligations and provides capital for clean air improvements, new power generation and transmission system upgrades.

The 2005 budget with projected revenues of nearly $7.9 billion was presented by TVA Chief Financial Officer Michael Rescoe at a board meeting in Knoxville. He recommended no rate increase in support of the budget for the 2005 fiscal year, which begins Oct. 1.

Rescoe reported to the Board that the 2005 budget allows TVA to continue its mandate of providing affordable and reliable power to the Tennessee Valley. He said TVA faces many challenges in the coming years, including rising costs of fuel and purchased power and uncertainty in environmental costs. TVA must focus on controllable costs and examine all options to hold down costs, Rescoe said.

The 2005 budget calls for a $225-million reduction in total financing obligations, which includes debt and other financing obligations for pre-paid power and lease-back transactions. Total financial obligations are also expected to be reduced by $275 million during the current fiscal year, which is $50 million higher than planned for the year.

TVA Director Bill Baxter made a motion to amend the budget to increase the amount of statutory debt reduction to $300 million and reduce the amount of money budgeted for operating and maintenance expenses by $215 million. The motion failed for lack of a second, and Baxter voted against the budget.

TVA Chairman Glenn McCullough Jr. and Director Skila Harris voted in favor of the budget.

In 2005, TVA is projected to spend $432 million on new generation for the recovery of Unit 1 at Browns Ferry Nuclear Plant, $265 million on transmission improvements to improve reliability, and $261 million continuing its commitment to the clean air program.

TVA is the nation’s largest public power provider and is completely self-financed. TVA provides power to large industries and 158 power distributors that serve approximately 8.5 million consumers in seven southeastern states. TVA also manages the Tennessee River and its tributaries to provide multiple benefits, including flood control, navigation, water quality and recreation.

Statements By TVA Board Regarding 2005 Fiscal Year Budget

Chairman Glenn Mccullough Jr.

This budget supports TVA’s efforts to provide low-cost reliable power, improve air quality, maintain and improve the reliability of the transmission system and continue the trend of reducing TVA’s financing obligations. Reducing total financial obligations provides a more disciplined and comprehensive approach to managing TVA’s overall financial health. To improve TVA’s financial flexibility, we must reduce all of TVA’s financial obligations, including debt, pre-payments for power and lease-back transactions.

We have approved a budget for 2005 that provides the funding needed to operate a safe and reliable power system and that has aggressive, yet realistic, goals for reducing total financial obligations. The Board is committed to implementing the objectives called for in the Strategic Plan.

The men and women of TVA responded well in 2004, successfully meeting operational and financial challenges, including a record power demand in July.

Director Skila Harris

From the forecast for 2004 and the budget for 2005, it is evident that TVA faces many cost pressures now and in the future, and we must sharpen our focus on how we spend our revenues. We must find the right balance in delivering safe and sound operations, being responsive to our customers and supporting our employees, while also working to reduce our total financing obligations. This budget achieves that balance. The discussion we had over the budget reflects how difficult this task is and the passion that all the board members have about preparing TVA for competition. I think we share the same goal, but the speed with which we reach it is the only issue.

It was my understanding when the strategic plan was adopted that our goal is to reduce total financial obligations, not just debt. We knew that 2005 and 2006 would be challenging years because of the recovery of Browns Ferry Unit 1 and capital expenses for clean air. We have a realistic goal that supports the Strategic Plan.

Director Bill Baxter

I do not support the 2005 fiscal year budget for three reasons:

  1. This year, for the first time, we have changed the measures of debt reduction to include things never included before. Under the new measures, we say we are reducing our debt by $225 million, but we are really paying $140 million of lease and other monthly obligations, and only reducing our debt by $85 million. We’re changing the rules to make ourselves look better off than we are.

  2. The amount of debt we are paying down in 2005 is grossly inadequate. Our Strategic Plan, which we just adopted eight months ago, calls for TVA to reduce its debt by $3 billion to $5 billion in 10-12 years. At the 2005 level of debt reduction, it will take 35 to 59 years to achieve this critical goal.

  3. This budget spends $244 million more than we take in next year. We cannot afford to do this. We must balance each and every one of our budgets at TVA.

Adopting this budget for 2005 puts us in a very difficult position in 2006, making it likely that another round of major cuts, or a rate increase, or both, will be necessary. We are passing the buck to future budgets and future Boards by not making the tough decisions this year.

I propose that we amend this budget to increase true debt reduction (not counting leases and other new items) to $300 million in 2005, which would require an additional $215 million in spending reductions for next year. My motion failed for lack of a second.

Media Contact:

Gil Francis , Knoxville
TVA News Bureau, Knoxville, (865) 632-6000

TVA Newsroom

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