Detailed Information on the
Tennessee Valley Authority Power Assessment

TVA will develop a detailed business plan that provides specific information on how it intends to achieve the goals espoused in TVA's new strategic plan, which was released in May 2007.

TVA will develop and adopt a debt reduction plan and targets by September 30th, 2003, to bring the agency's debt level into a range comparable with that of other utilities. The Budget proposes legislation that makes explicit that lease/leaseback and similar long-term financing liabilities are treated as equivalent to traditional financing notes and bonds and will count against TVA's $30 billion "debt cap."

TVA will develop a strategic plan which should help TVA evaluate major TVA-proposed investments in new power plants and transmission lines.

Measure: Cost of TVA's delivered power Metric is presented in cents/KWH. Metric also will be developed to account for financial advantages the federal government provides TVA (such as access to capital at AAA bond rates and no payments to the federal government in lieu of taxes).

Explanation:The cents/KWH metric is no longer tracked by TVA. TVA has not produced a metric to record the financial advantages the federal government provides TVA.

Is the program purpose clear?

Explanation: The purpose of TVA's power program is to provide TVA's customers ample supplies of economical and reliable power.

Evidence: TVA's power program today is a $7 billion per year business. The basis in law for TVA's power program is the TVA Act of 1933 (48 Stat. 58). Section 10 reads "The Board is hereby empowered and authorized to sell the surplus power not used in its operations..." Building on this somewhat narrow base, and working to serve its customers' needs, the agency expanded its power program during World War II. Congress delineated TVA's service area in 1959. The agency embarked on a major expansion of its power plants during the 1980s, so that today TVA is one of the five largest electric power companies in the country. The purpose of TVA's power program today is spelled out further in the agency's Vision Statement, its Government Performance and Result Act (GPRA) statements and related documents.

Does the program address a specific interest, problem or need?

Explanation: TVA supplies the power needed by 8.3 million people -- four percent of the nationwide total -- living in Tennessee and parts of six neighboring states.

Evidence: There is a 70-year legislative history supporting TVA's mission to meet the power needs of the people the agency serves.

Is the program designed to have a significant impact in addressing the interest, problem or need?

Explanation: See the box immediately above. TVA generates power and transmits it to 158 municipal utilities and rural electric cooperatives. They in turn deliver the power to retail customers. TVA played a leadership role in helping accelerate the availability of electric power in rural areas at affordable prices

Evidence: TVA Act, Sec. 11 - " permit domestic and rural use at the lowest possible rates and in such manner as to encourage increased domestic and rural use of electricity."

Is the program designed to make a unique contribution in addressing the interest, problem or need (i.e., not needlessly redundant of any other Federal, state, local or private efforts)?

Explanation: TVA made a unique contribution during its start-up phase, supplying power to small towns and rural areas at low prices. Its role today is important but not unique. Electric power today is of course widely available throughout the US and around the world. That power is supplied by non-federal governmental and privately owned entities, as well as federal entities. Each of these approaches works reasonably well and each has its advocates. Each of these approaches is capable of providing affordable power. Note, for example, that some non-federal power companies supply power at costs that are lower than those TVA charges. In short, there are a number of ways to provide the economical power TVA currently supplies.

Evidence: For information on the US electric power industry and alternate organizational forms of electric utilities, turn to the information and statistics provided by the Energy Information Administration (EIA) in the Department of Energy. Investor-owned utilities supply 75 percent of the country's power, municipal utilities 15 percent and cooperatives 10 percent. See the related EIA link: www.eia.doe.gov/cneaf/electricity/page/prim2/fig4.gif The prices TVA charges for power are lower than many utilities but higher than some, including utilities neighboring TVA's service area.

Is the program optimally designed to address the interest, problem or need?

Explanation: TVA's power program has had its ups and downs. The program today is taking the steps needed to improve its design and operation and to prepare for changes now occurring in power markets. Three areas where TVA is seeking to improve include national energy policy, debt reduction, and strategic planning: (1) The Administration is working with the Congress on reforms of the electric power industry, seeking to modernize the nation's transmission system and to introduce competition in the nation's electric power markets. TVA could play a leadership role, for example, opening up its transmission system and allowing its customers to shop for power. (2) TVA needs a debt reduction plan. GAO and some TVA customers have expressed concern that TVA's debt is too large and needs to be reduced. (3) As noted in the next section below, TVA does not have a business plan and a strategic plan, explaining how it will operate in the changing electricity markets of the future.

Evidence: Links and other evidence related to program design changes TVA needs to consider follow: (1) The President's National Energy Policy Report is available at the following link: www.energy.gov/HQPress/releases01/maypr/energy_policy.htm (2) The following GAO report catalogues concerns about TVA's finances and evidence the agency need to reduce its debt TVA Debt Reduction Efforts and Potential Stranded Costs (GAO-01-327, February 2001) (3) TVA itself argued debt reduction was important in the TVA Ten Year Business Outlook, which TVA published in July 1997. TVA has since revised its position, saying cost-effective investment in new power plants and environmental mitigation is more important than debt reduction. (4) TVA has hired a corporate strategic planner and is working to develop its strategic plan.

Does the program have a limited number of specific, ambitious long-term performance goals that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: TVA is in the process of developing a strategic plan, a business plan and a debt reduction plan. TVA does have six strategic objectives. In 1999, the TVA Board adopted 6 strategic objectives designed to achieve their vision of "Generating Prosperity in the Valley." 3 of those objectives pertain specifically to TVA's power program. This section of the PART assesses TVA's strategic planning effort in terms of TVA's three power-related strategic objectives.

Evidence: TVA hired a nationally recognized expert on electric industry restructuring and regulation in June 2002 as its Senior Vice President for Strategic Planning and Analysis. She will be working with TVA and TVA stakeholders to develop a strategic plan for TVA. In addition, the following references are relevant for assessing TVA's GPRA-related plans: TVA 2003 GPRA Performance Plan; TVA 2001 Annual Report

Does the program have a limited number of annual performance goals that demonstrate progress toward achieving the long-term goals?

Explanation: TVA is in its second full year of a new "Winning Performance" program. It includes a "Balanced Scorecard" which contains specific annual goals and performance targets which are aligned to the long-term strategic objectives. As noted on the PART summary, TVA performance measures are useful in part, but metrics need to be developed further. E.g. the cost of power metric needs to be developed to account for the fact that TVA has access to capital at AAA bond rates.

Evidence: TVA 2003 GPRA Performance Plan; TVA 2002 Balanced Scorecard

Do all partners (grantees, sub-grantees, contractors, etc.) support program planning efforts by committing to the annual and/or long-term goals of the program?

Explanation: TVA plans to involve its stakeholders in its new strategic planning process.

Evidence: The process began in June 2002 and stakeholder involvement has not yet begun.

Does the program collaborate and coordinate effectively with related programs that share similar goals and objectives?

Explanation: TVA has long been an active participant in national and regional electricity reliability councils (NERC), has strong partnerships with 158 public power municipal and cooperative distributors, and good relationships with private power utilities.

Evidence: NERC committee representation, TVPPA partnership and contracts, TVA's Public Power Institute, power interchange agreements and regional transmission MOU's.

Are independent and quality evaluations of sufficient scope conducted on a regular basis or as needed to fill gaps in performance information to support program improvements and evaluate effectiveness?

Explanation: TVA conducts continuous performance reviews on its own, has topical reviews by an Inspector General and GAO, receives annual independent financial audits. There have rarely been full-scope independent evaluations of the entire power program's effectiveness, however.

Evidence:  

Is the program budget aligned with the program goals in such a way that the impact of funding, policy, and legislative changes on performance is readily known?

Explanation: TVA has developed a rigorous integrated performance planning and budget process, with a foundation of individual plant and business unit plans that are aligned with corporate goals and objectives . This is to the agency's credit. However TVA began its strategic planning effort in earnest the summer and has yet to establish its power program goals in a way that the effect of policy changes and legislation on performance is apparent. See column to the right for more details.

Evidence: Examples of TVA successes include the following: Winning Performance Program and Balanced Scorecards; Annual Performance Plans; Monthly Executive reviews of financial and operational performance. Examples where TVA has additional work to do (related to its strategic plan and business plan) include the following: the effect of allowing TVA customers to shop for power; the effect of joining a regional transmission organization; the effect of an environmental surcharge on TVA's debt, interest expense and competitiveness; and the effect of new energy legislation expected this year.

Has the program taken meaningful steps to address its strategic planning deficiencies?

Explanation: As the PART summary notes, in OMB's view TVA does a good job operating its power plants but has not yet squarely addressed the strategic planning task that lies ahead of it. The agency is taking steps to address its deficiencies. See the column to the right.

Evidence: TVA hired a corporate strategic planner in June 2002 and has given her the task of helping TVA assess its business environment, identify options and assess them, and generally prepare TVA to deal with the changing market conditions the agency will face in the future.

Are acquisition program plans adjusted in response to performance data and changing conditions?

Explanation: Capital projects are continually reviewed as part of an intensive Project Justification Process.

Evidence: Example: A $300 million combined-cycle plant project was cancelled as a result of changing conditions both within TVA's operations and the bulk power market.

Has the agency/program conducted a recent, meaningful, credible analysis of alternatives that includes trade-offs between cost, schedule and performance goals?

Explanation: This is an ongoing part of TVA's planning, budgeting and performance management process, aided by independent reviews and recommendations by the Inspector General.

Evidence: Examples: (1) Recent major power supply decisions have resulted in both "build" (BF1) and "buy" (Calpine contract) based on economics. (2) A Nashville office space relocation based on costs, economic benefits to the local region, and IG recommendations.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: TVA has an ongoing monthly budget and performance reporting system that includes both TVA organizational and contractor performance information. Budgets are reallocated as necessary to address emerging problems or opportunity . TVA is currently implementing Activity Based Management (ABM) as another tool to manage performance.

Evidence: Winning Performance Program; Corporate and Business Unit Balanced Scorecards; Monthly Executive Performance Summary report.

Are Federal managers and program partners (grantees, subgrantees, contractors, etc.) held accountable for cost, schedule and performance results?

Explanation: The Winning Performance program includes a process of both individual and business unit goal-setting and periodic performance review. A portion of individual compensation is "at risk" based on performance achieved.

Evidence: Quarterly Business Performance reviews; Quarterly individual performance reviews; Pay for Performance targets and awards; Contract incentives for major plant maintenance partners.

Are all funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: TVA's financial reporting system includes detailed reports of actual vs. budget expenditures on a monthly (and for some components weekly) basis.

Evidence: Monthly and quarterly performance reports; monthly "savings and use" reports (mechanism for reallocating resources when needed).

Does the program have incentives and procedures (e.g., competitive sourcing/cost comparisons, IT improvements) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: TVA includes performance requirements in all major procurement and contractor "partner" agreements. Incentives are designed such that the supplier and TVA share in cost savings achieved.

Evidence: TVA Procurement Group's "Strategic Sourcing" initiative ($100 million reduction in material inventory over 5 years); Fossil Group's maintenance contractor "partner" contracts.

Does the agency estimate and budget for the full annual costs of operating the program (including all administrative costs and allocated overhead) so that program performance changes are identified with changes in funding levels?

Explanation: TVA's internal accounting system is an accrual-based, full-cost allocation system, including such indirect costs as employee benefits (pension, medical) and support services (computer support, building facilities).

Evidence: Monthly financial reports; IBS (automated G/L system); independent financial audit.

Does the program use strong financial management practices?

Explanation: TVA has developed over the years strong centralized financial systems through which all transactions are recorded and controlled.

Evidence: Clean audit reports (PWC). Internal audit reports (IG).

Has the program taken meaningful steps to address its management deficiencies?

Explanation: TVA has developed a highly qualified executive management team, all of which have private sector as well as public sector experience. Within the operating groups, functional "peer teams" have been established across all major disciplines. They meet regularly to evaluate all business processes, do extensive benchmarking studies, and implement "best practices" from other units and other companies.

Evidence: Winning Performance Program; STAR 7 training program; Nuclear's Pentagen program; COO peer teams.

Does the program define the required quality, capability, and performance objectives for deliverables?

Explanation: These features are built into all major procurement contracts and project proposals.

Evidence: Fossil "Partner" contracts; Lignite Plant performance contract (TVA compensated by supplier for delays); Project Justification procedure.

Has the program established appropriate, credible, cost and schedule goals?

Explanation: TVA develops extensive cost and benefit analysis on all asset acquisitions ranging from computer systems to generating units.

Evidence: Published procurement RFP's; Project Justification process.

Has the program conducted a recent, credible, cost-benefit analysis that shows a net benefit?

Explanation: TVA conducts hundreds of individual project/acquisition assessments each year. Major projects are reviewed/approved by the Board.

Evidence: Browns Ferry Unit 1 project analysis included a 6-month "detailed scoping and estimating program" and a Supplemental EIS.

Does the program have a comprehensive strategy for risk management that appropriately shares risk between the government and contractor?

Explanation: While there are many examples of specific "risk management" techniques, the risk of the overall power program rests primarily with TVA.

Evidence:  

Has the program demonstrated adequate progress in achieving its long-term outcome goal(s)?

Explanation: As the President's Budget notes, TVA operates its existing assets efficiently and has received industry awards for operating its nuclear and coal-fired power plants cost effectively, a significant improvement from the past when those plants posed major problems. TVA's power program scores less well, however, in terms of strategic planning, competitive bidding and debt reduction.

Evidence: TVA GPRA Performance Plan; TVA Balanced Scorecard.

Does the program (including program partners) achieve its annual performance goals?

Explanation: Targets achieved on 2 of 3 goals.

Evidence: TVA GPRA Performance Plan; TVA Balance Scorecard

Does the program demonstrate improved efficiencies and cost effectiveness in achieving program goals each year?

Explanation: TVA's cost of power is lower than many other producers. However, there are lower cost producers than TVA.

Evidence: Annual budget documents. Annual reports.

Does the performance of this program compare favorably to other programs with similar purpose and goals?

Explanation: TVA conducts extensive benchmarking studies in all business areas. Ranks in industry top quartile or better in nuclear, fossil, and transmission.

Evidence: EUCG benchmarking data. Tim Martin (Navigant) staffing studies. TVA Business Unit balanced scorecards.

Do independent and quality evaluations of this program indicate that the program is effective and achieving results?

Explanation: TVA's nuclear program is reviewed regularly by NRC and INPO and TVA is receiving highest ratings. Regular assessments are conducted by the IG and as requested by Congress, GAO.

Evidence: GAO Report May 2002 : "TVA - Information on Benchmarking and Electricity Rates." IG Report May 2001 - "Selected Power Rate and Cost Issues."

Were program goals achieved within budgeted costs and established schedules?

Explanation: TVA has consistently operated within its overall operating and capital budgets.

Evidence: Financial performance is reviewed monthly with the TVA Board and Executive Committee. Broader business unit performance plan reviews are held quarterly. But TVA needs to improve its strategic planning and better prepare for competitive markets