TVA Second Quarter Results Impacted by Dry Conditions, Mild Winter

May 16, 2007

TVA has reported that net income for its 2007 fiscal year is forecasted to be 13.9 percent, or $60 million, less than what was expected, primarily because of mild winter weather and dry conditions in the Tennessee Valley.

TVA’s quarterly report, filed on Form 10-Q with the Securities and Exchange Commission Tuesday, May 15, contains financial results for the quarter and six months ending March 31. The 2007 fiscal year began Oct. 1, 2006 and ends Sept. 30, 2007.

Power sales are 2.8 percent below budgeted amounts for the first half of the fiscal year as a result of decreased demand, primarily due to unseasonable weather. Hydro generation, TVA’s cheapest source of power, is 27.8 percent below the budgeted amount, primarily due to dry conditions.

“We expect the dry conditions, which we have experienced since December, to continue to affect TVA’s hydro generation output and revenue outlook throughout the summer months,” said TVA President and CEO Tom Kilgore. “Some of the shortfall from projected results has been offset by lower interest expense than was planned.”

Conditions in the eastern section of the Tennessee Valley are the driest in 118 years, with rainfall 67 percent of normal and runoff (water that drains into the reservoirs) 62 percent of normal. The dry conditions, high fuel costs and longer outages at TVA power plants have prompted TVA to pursue operating and maintenance cost reductions for the remainder of the fiscal year.

TVA reported net income of $177 million for first half of the fiscal year compared to a $39 million net loss for the same period in 2006. The increase is primarily a result of increased rates. TVA reported relatively flat electricity sales for the first six months of its 2007 fiscal year compared to the same period in 2006.

Total operating revenues for the second quarter were $2.3 billion, an 11-percent increase over the same period last year. Total operating expenses were $1.9 billion, a 7-percent increase over TVA’s second quarter of 2006. This was driven primarily by higher fuel and purchased power expenses.

Highlights for the three months ending March 31 include:

• TVA met an all-time record peak winter demand of 30,320 megawatts on Jan. 31.
• The recently purchased Gleason combustion turbine facility became available for service in January 2007.
• Efforts to restart Unit 1 at Browns Ferry Nuclear Plant were approximately 99.5 percent complete as of March 31. TVA is preparing to return Unit 1 to service this month.

The Consolidated Appropriations Act, 2005, that restructured the TVA Board to nine members also requires TVA to file certain financial reports with the SEC beginning with its fiscal year 2006 annual report on Form 10-K, which was filed Dec. 15, 2006.

Investors are encouraged to read the second quarter report, which includes financial, operational and descriptive information, including financial statements for the quarter and six months ended March 31, 2007. The quarterly report may be read along with the annual report and current reports on Form 8-K that TVA has filed with the SEC. The public may read reports or other information that TVA files with the SEC at the SEC’s Public Reference Room at 100 F St., N.E., Washington, D.C. 20549. TVA’s SEC reports are also available to the public on the SEC’s website at www.sec.gov, from TVA’s website at www.tva.com/finance, or by calling TVA toll-free at (888) 882-4975.

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.

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