TVA Board Approves 2008 Operating, Capital Budgets Geared to Strategic Plan

Sept. 27, 2007

HUNTSVILLE, Ala. -- Following the direction of the new strategic plan, the TVA Board today approved a 2008 budget that includes $9.7 billion to cover total expenses and $2 billion in capital spending.

The capital budget includes $1 billion in spending on new power plants needed to meet continued growth in the demand for electricity in the Tennessee Valley.

The Board also directed TVA staff to work with distributors of TVA power to develop a single-digit rate increase proposal that would provide revenue during the 2008 fiscal year to cover operating expenses and capital expenditures. The Board will consider the rate increase proposal later during the fiscal year, which begins Oct. 1.

“Our budget and business plan for 2008 will enable TVA to continue to meet the energy needs of the Valley by balancing generating capacity and energy supply with customer demand,” TVA President and CEO Tom Kilgore told the Board at a meeting in Huntsville, Ala. “We must start preparing now to meet the growth in demand and reduce our dependence on volatile energy market prices.

“In developing the budget, we followed guiding principles of the Strategic Plan, which include paying down existing debt before our assets are fully depreciated, using new debt to help finance new generation and holding growth in operating and maintenance costs to less than the growth in electricity sales,” Kilgore said.

The budget includes a projected $122 million in productivity improvements during the year to help offset inflation and to hold non-fuel operating and maintenance costs to almost the same level as 2007. The operating budget includes $755 million to reduce existing debt and capital lease obligations, while the capital budget includes $761 million of new debt to help finance new generation assets.

TVA expects fuel and purchased power costs to increase in 2008, primarily because of higher coal prices and deferred power costs from 2007. TVA also anticipates the effects of the drought to linger into 2008, reducing hydro generation from normal levels.

Of the $1 billion in capital spending for new generation, $317 million is budgeted to begin construction of a second unit at TVA’s Watts Bar Nuclear Plant. The capital budget also includes $423 million for investment in additional gas-fired generation, $190 million for transmission system upgrades and $383 million for clean-air initiatives.

New gas-fired generation includes building a 600-megawatt combined cycle gas plant adjacent to TVA’s existing Lagoon Creek peaking plant near Brownsville, Tenn., which was approved by the Board today.

In addition to providing new generating capacity, the Strategic Plan calls for expanded energy-efficiency initiatives. The 2008 budget includes $22 million for the first phase of a renewed emphasis on energy efficiency and reduction in peak power demand.

“We will begin developing a long-term plan in collaboration with our Distributor Customers that we hope will make the delivery of electrical energy to the end-use consumer more efficient,” Kilgore said. “We need to know with some certainty what is theoretically possible and what is practically feasible through a combination of research, education, application and changes in how we all use energy in our homes and businesses.”

The Strategic Plan also included the need for a single-digit rate increase early in the period covered by the plan. “A single-digit rate increase sometime during 2008 will lay the foundation for keeping electricity affordable and reliable for years to come without adversely affecting our competitive position,” Kilgore said.

In other action, the Board:
• Approved submitting an application to the Nuclear Regulatory Commission for a combined construction and operating license for two new nuclear units at TVA’s Bellefonte site in Hollywood, Ala. Construction of the plant would require further Board approval following the licensing process.

• Approved the selection of Ernst & Young LLP as TVA’s external financial auditors, replacing PricewaterhouseCoopers LLP.

TVA is the nation’s largest public power provider and is completely self-financing. TVA provides power to large industries and 158 power distributors that serve approximately 8.7 million consumers in seven southeastern states. TVA also manages the Tennessee River and its tributaries to provide multiple benefits, including flood damage reduction, navigation, water quality and recreation.

Media Contact:
TVA News Bureau, Knoxville, (865) 632-6000

What Others are Saying About TVA’s Application for Bellefonte License

“We’ve seen what the cooperation can bring to a community that supports nuclear energy. The NuStart consortium saw three big plusses for choosing the Bellefonte site -- TVA, a preexisting site, and a community that welcomes a future with nuclear energy. Authorizing the application for a new nuclear plant puts TVA in a leadership position within the nuclear industry that will help our country claim its independence from foreign energy suppliers.”
U.S. Sen. Jeff Sessions of Alabama

“Obtaining licenses for two new technology reactors at TVA’s Bellefonte Nuclear Plant keeps Alabama at the forefront in meeting the energy demands of our growing economy in the Southeast. Completing a new energy plant in our state would be a boon for our economy as it would help draw both people and resources that will improve our attractiveness for more business growth.”
Alabama Gov. Bob Riley

“I applaud TVA’s decision to move forward with their application to the Nuclear Regulatory Commission for a Combined Operating License (COL) for the Bellefonte site in Jackson County. If approved, Bellefonte would be one of the first new nuclear facilities constructed in the U.S. in over thirty years, and one of the first sites to use the next generation of nuclear technology.”
U.S. Rep. Bud Cramer of Alabama

“Jackson County has continuously backed the efforts to finish a power plant at the Bellefonte site for years and appreciates the progress TVA and NuStart is taking to make it happen. We are looking forward to the day when the one of the nation’s first advanced nuclear power plants begins generating much needed electricity right here at our home in north Alabama.”
Dus Rogers, President & Chief Executive Officer of the Jackson County Economic Development Agency

"With the current environmental debate and resultant uncertainty about potential impacts on fossil- fueled generation, TVA is uniquely positioned with Bellefonte to lead the way with a resurgence of clean, reliable and low-cost nuclear power in the Tennessee Valley. TVA has earned a reputation for being one of the best nuclear power operators in the country, and development of the existing nuclear infrastructure at Bellefonte as part of its comprehensive power supply plan should be aggressively pursued."
Jack Simmons, President & Chief Executive Officer of Tennessee Valley Public Power Association

“We appreciate the role TVA is preparing to take on as our NuStart consortium nears completion of an application for a combined construction and operating license for a Westinghouse AP1000 reactor design at TVA’s Bellefonte site. TVA and the other utilities that are among the early submitters are providing the leadership that demonstrates how our nation’s new licensing process will continue to deliver safe and reliable nuclear generation to meet growing energy needs. NuStart’s commitment is to continue providing the resources necessary to support quick and accurate responses as the Nuclear Regulatory Commission conducts its technical and environmental reviews and to ensure the application successfully earns approval.”
Marilyn Kray, President of NuStart Energy