A review by TVA's Office of Inspector General of TVA’s financial performance found a number of concerns.

The report says, "This review was the second in a series of reviews that will benchmark TVA's performance in key areas and answer the question, 'How is TVA doing in regard to financial performance.'

"In conducting this review, we: (1) assessed key performance measures and their alignment with the key strategic objectives, (2) evaluated TVA's results relative to targets and available benchmark information, and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives.

"In our judgment, TVA’s overall financial performance for this assessment period was adequate; however, the agency faces several significant financial challenges, some of which have recently emerged. This conclusion is based on our analysis of TVA’s financial health in three areas: (1) maintaining adequate revenues, (2) making sound capital investments, and (3) containing costs.

"In summary:

• TVA’s ability to set its own rates and the implementation of a fuel cost-adjustment clause provides flexibility to help maintain adequate revenues to cover costs. Additionally, TVA operates in a service area that is largely free from competition and has a large diverse customer base.

• TVA has made certain investment decisions in the past that did not pay off. TVA is seeking to improve its capital investment decisions and the financial performance of its capital assets. However, TVA’s ability to make these large investments pertaining to (1) new generation and transmission assets, (2) environmental requirements, and (3) existing assets that are aging and need regular updates to keep running, will be a challenge given its financing structure and legislative debt ceiling.

• TVA is attempting to reduce certain costs to improve its financial position. TVA fairs poorly when compared to other electric utilities with respect to non-fuel operation and maintenance (O&M) costs. TVA is seeking to reduce non-fuel O&M costs but has made limited progress to date. TVA has also focused on reducing interest costs as a percentage of revenues and has made progress in doing so in recent years.

"Recent events have negatively affected TVA financially including: (1) a wet coal fly ash spill at the Kingston Fossil Plant, (2) a downturn in the economy causing declining power sales, (3) a court ruling on a lawsuit brought by the state of North Carolina, and (4) significant losses on accounts established to fund pensions and asset retirements. Our report includes discussions of the necessity to manage commodity price, investment price, credit, and capital requirement risks, and the risk that interest rates might rise.

"In addition, while TVA’s bond rating is based primarily more on its federal ties that its financial position, TVA management has identified maintaining the AAA bond rating as a risk factor in its 2008 U.S. SEC Annual Form 10-K."

The report is at
http://oig.tva.gov/