Tennessee Valley Authority - Company Profile, Information, Business Description, History, Background Information on Tennessee Valley Authority

400 West Summit Hill Drive
Knoxville, Tennessee 37902-1499

Company Perspectives:

In keeping with its mission of generating prosperity in the Tennessee Valley, TVA's leadership standard is to deliver excellence in business performance and public service by supplying low-cost reliable power, supporting a thriving river system, and stimulating economic growth across a seven-state region of the southeastern United States.

History of Tennessee Valley Authority

Established by the U.S. Congress in 1933 as a critical component of President Franklin Roosevelt's Depression-era "New Deal," the Tennessee Valley Authority (TVA) was initially created primarily to manage the Tennessee River's navigation and flood control problems, to encourage reforestation and proper land use, and to foster agricultural and industrial development. In time, the TVA grew to become the nation's largest public power provider serving more than 8 million customers over an 80,000-square mile region covering the Tennessee Valley. This area includes most of Tennessee and portions of Mississippi, Kentucky, Alabama, Georgia, North Carolina, and Virginia. Following decades of operations as a massive bureaucracy, the TVA has dramatically streamlined itself in recent years in order to boost its competitiveness in preparation for the anticipated onset of deregulation.

The Genesis of the TVA in the Early Twentieth Century

The federal government purchased a site in 1916 on the Tennessee River in Muscle Shoals, Alabama, where a sudden drop in river depth resulted in strong rapids that inhibited ships from progressing further upstream. Dam construction began in this location to produce power for the manufacturing of explosives needed during World War I, but the war had concluded before this new project was operational. During the 1920s, Congress considered whether the property should remain a public site or be sold to the private sector.

Nebraska Senator George W. Norris fought for the property to remain under public control. He had little support from his Congressional colleagues, until the advent of the Depression, when government economic assistance became more widely accepted. President Franklin Roosevelt supported Senator Norris' plan, and envisioned it as one way to help achieve the success of his "New Deal," which aimed to save the U.S. economy from the Depression. With a lack of national investment in the Tennessee Valley region, President Roosevelt requested that Congress create "a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise." In agreement with the President's goal, Congress passed the Tennessee Valley Authority Act on May 18, 1933. Through this legislation, which far exceeded Norris' initial plan, TVA was established as a federal agency charged with improving the navigation and flood control of the Tennessee River, encouraging reforestation and proper land use in the area, leading regional agricultural and industrial development, and operating national defense-related properties in Muscle Shoals, Alabama.

By June 1934, 9,173 people were already employed by the TVA, and 16 dams were built by the agency between 1933 and 1944. Before the TVA, dams were engineered exclusively for either electricity generation or flood control. The agency was able to address both needs within a single dam, which soon became the global standard.

At the time, the Tennessee Valley included some of the most under-served areas of the South. While 90 percent of Americans in urban areas had electricity by the 1930's, merely 10 percent of rural Americans enjoyed the same benefit. Most utility companies avoided powering rural areas due to the significant expense of setting up electric lines over such expansive areas, and because of a concern that rural Americans would not be able to afford electricity. This inequity between urban and rural communities in the United States led to President Roosevelt's resolve that the government must become involved.

Private power companies took issue with the cheaper energy the federally-subsidized TVA provided. President Roosevelt saw the TVA as a benchmark by which the rates of private utility companies could be evaluated. Seen as a threat to the private sector, the TVA was sued by many power companies during the 1930s. One such suit claimed that the government had overstepped its Constitutional powers by creating an electric utility corporation. Testifying before Congress regarding the TVA in 1935, John D. Battle, Executive Secretary of the National Coal Association, stated that, "we are willing to be put out of business if it can be done in a plain straightforward business-like manner, but we do object to our government putting us out of business." The TVA was victorious in a case ruled on by the Supreme Court in February 1936, and in 1939, the TVA Act was upheld by the Supreme Court as constitutional.

Beyond the electricity generated by newly built dams, the founding of the TVA soon resulted in a variety of other important benefits to the Tennessee Valley. The agency provided farmers with advice to boost crop yields, aided in reforestation and forest fire control, and developed fertilizers. Rather than carrying out a predetermined federal master plan, the TVA aimed to develop the region by working with community members and their state and local agencies.

From its inception until 1938, the three members of the TVA's board jockeyed for control of the overall vision for the Authority. President Roosevelt removed Arthur E. Morgan as the TVA's chairman in March 1938 due to internal organizational conflicts, obstruction of the work of the agency, and unsubstantiated allegations Chairman Morgan made against fellow directors.

TVA in the 1940s and 1950s: Becoming the Top United States Electric Utility

In the 1940s during World War II, the TVA conducted a remarkable hydropower construction program, one of the largest ever in the United States, to provide electricity for aluminum plants that supplied the much-needed metal to manufacturers of bombs and planes. The TVA had finished a 650-mile navigation channel as long as the Tennessee River by the conclusion of World War II. It had also become the largest supplier of electricity in the country, although demand still exceeded the capacity of its hydroelectric dams.

During the 1950s, unable to secure federal funding of coal-fired plant construction, the TVA lobbied Congress for the ability to issue bonds. President Dwight Eisenhower was not enamored of the TVA, however, citing the agency in 1953 as an example of "creeping socialism." Nonetheless, in 1959, Congress passed legislation which made the TVA a self-financing operation, provided that the TVA would restrict its operations to the existing Tennessee Valley region. More than a dozen public operations similar to the TVA had been created around the world since its creation, with thousands of international visitors having visited the Tennessee Valley to learn about the agency's integrated regional development.

Strip mining and coal burning increased significantly in the 1950s as the TVA worked to meet energy demand--actions that a later chairman of the TVA, S. David Freeman (1978-1981), cited in Environment in April 1985 as causing "environmental problems that spoiled land, degraded waters, and polluted air." Chairman Freeman added that although the TVA's dams protected against flooding, they also created lakes that in turn flooded farmland.

The Advent of the TVA's Nuclear Power Program in the 1960s

In the early 1960's, the TVA developed "Land Between the Lakes," a 170,000-acre national park on a 40-mile strip of wooded land located between two reservoirs in western Kentucky and Tennessee. This outdoor education and recreation area attracts 2 million visitors annually.

The Tennessee Valley experienced strong economic growth throughout the 1960s, as farms and forests were in top condition and residents enjoyed some of the lowest electric rates in the nation. To address the continued growth in demand for economical power, the TVA designed a colossal plan in 1966 calling for the eventual construction of 17 nuclear power plants throughout the region.

Energy Crisis and Environmental Cleanup in the 1970s

The international oil embargo in 1973 dramatically altered the Tennessee Valley's economy, along with that of the rest of the country. Fuel costs continued to rise for the remainder of the decade. In some regions of the Tennessee Valley, alternative energy sources were virtually eliminated over the years, and this became clear with the spiraling energy costs of the 1970s. Many environmentalists opposed the TVA's coal and nuclear power programs, and environmental organizations initiated lawsuits against the TVA with a variety of allegations--including violations of the National Environmental Protection Act of 1969 and the Endangered Species Act of 1973. A serious fire at the Browns Ferry, Alabama nuclear plant in 1975 could have resulted in a catastrophe, but the situation was controlled before reaching that level. The TVA had become the worst United States sulfur dioxide polluter by 1977 (2 million tons emitted annually and one-tenth of U.S. emissions), putting it in violation of the Clean Air Act. In 1978, the TVA began a billion-dollar cleanup initiative to reduce sulfur dioxide emissions from its 12 coal-fired plants. Six years later, sulfur dioxide emissions were cut in half and all plants had become compliant with the Clean Air Act.

A Move Toward Conservation in the Late 1970s and Early 1980s

By the end of the 1970s, the TVA's new leadership headed by Chairman S. David Freeman began to steer the agency in a new direction with conservation programs, experiments in alternative energy sources like solar power, and strengthened relationships with the international community. The TVA started to focus on conservation rather than power-plant construction as a top priority for its customers--offering free audits and low-interest financing in order to foster the winterization of buildings to save energy. The agency's investment in nuclear power was also reduced significantly. Soil erosion due to inferior farming techniques, a problem in the early years of the TVA, returned as a concern in the 1970s and 1980s, which led the TVA to offer technical advise on the problem once more. This work resulted in 1.2 million tons of topsoil saved each year. With the TVA's tree planting projects, the valley reached a forestation level of 60 percent. The TVA's renewed commitment to conservation was also exemplified in a 1983 board policy that halted construction of additional dams or structures along the Tennessee River, and ended the channeling of more streams in the Tennessee Valley.

Hard Times for the TVA's Nuclear Program in the mid-1980s

By the early 1980s, Tennessee Valley electric rates were five times higher than a decade earlier. As was the case with other U.S. utilities, several nuclear plant construction projects were terminated due to lower energy demand and higher construction costs, with billions already spent on these sites. The TVA's management of its nuclear power program came under serious attack in the mid-1980s. The agency had received 12 Nuclear Regulatory Commission fines since 1980, and was under Congressional investigation for alleged mismanagement and cover-ups. The TVA had to shut down its five functioning reactors in 1985, due to tough new federal nuclear regulations. The TVA's plans to recover from these closings were in disarray, and responsibility for the nuclear power program had been shared across multiple divisions, making it difficult to proceed with an integrated plan. Eventually, the TVA obtained new consultants and staff with expertise in nuclear power. During 1988, almost one-third of the TVA's 33,000 employee workforce was laid off and management salaries were frozen. By 1989, two nuclear reactors were operational. The massive borrowing practices of the TVA, keeping the agency on the verge of bankruptcy, led to $20 billion of nuclear debt. Congress placed a debt ceiling of $30 billion on the TVA.

1990s: The TVA's Return to Nuclear Power

In an effort to return to a stronger position in the industry, the TVA's Chairman Marvin Runyon focused the agency on cutting costs and boosting efficiency and productivity. Electric rates stabilized in the late 1980s, and this stability continued well into the 1990s. Much of the TVA's lauded 1985 energy conservation program was scrapped, in favor of a renewed interest in nuclear power to meet anticipated growth in energy demand, much to former Chairman S. David Freeman's dismay. By 1991, three inactive nuclear reactors went back on-line after years of inactivity.

In May 1992, the TVA purchased emissions allowances from Wisconsin Power and Light, considered one of the cleanest operations in the United States This type of transaction, enabling the TVA to emit 10,000 tons of sulfur dioxide, became permissible under the 1990 Clean Air Act and was cheaper than using alternative fuels. The TVA's 1992 net income of $120 million had fallen significantly from the previous year's total of $286 million. By 1993, having exceeded requirements of the Clean Air Act, the TVA earned its own emissions allowances for its use and sale.

The TVA continued to pursue adding additional nuclear power capacity in 1994, with three reactors operational at the time. Two reactors in Watts Bar, Tennessee remained under construction, originally budgeted at $625 million 22 years previously, with $7.7 billion spent as of 1994. In February 1995, the TVA announced plans to terminate its three remaining nuclear reactor construction projects, which would have required at least another $8.8 billion to complete, if not more. This decision brought an end to a 28-consecutive-year program of nuclear reactor construction. The TVA sought partners to help convert one of those sites into a gas-firing plant. One reactor at Watts Bar was still able to begin operations later that year, with commercial power generation starting the following year.

The U.S. General Accounting Office questioned the TVA's long-term sustainability in 1995, but with its recent change in direction, the TVA was optimistic about its prospects for achieving a more competitive position. As the $208 billion electric power industry moved towards deregulation as an inevitability, the TVA formed a Public Power Alliance with Municipal Electric Authority of Georgia, Old Dominion Electric Cooperative of Virginia, and the Municipal Energy Agency of Mississippi in order to serve as an effective lobbying entity and to share strategies and innovations with each other. A deregulated industry would create a free market environment where customers and distributors could openly select utilities regardless of their location in the country.

Regaining Competitive Position in the Late-1990s

During the 1990's, the TVA significantly reduced its operating costs, cut its workforce by more than 50 percent, and boosted plant capacity, earning the company a third place ranking for lowest production costs by a major electric utility in 1997. Early that year, the TVA Chairman Craven Crowell offered, but soon retracted, a suggestion that Congress spin off the TVA's non-power-related operations to other public agencies and eliminate the federal funding it received for those programs--enabling it to focus on the electric utility industry. The TVA had been receiving just over $100 million from Congress each year, which was less than 2 percent of the agency's $5.7 billion budget. The TVA's private utility competitors argued that the public agency's indirect subsidies, mostly tax exemptions, totaled $1.2 billion annually--making it difficult for private utilities to compete. Southern lawmakers were shocked that such a proposal could be suggested by someone within the TVA, rather than by the agency's opponents, as was usually the case. They worried that this situation would lead Congress to eventually sell off the TVA as a private utility, which might bankrupt the organization due to the agency's $27 billion of debt.

In July 1997, the TVA settled a lawsuit with several private utilities that accused the TVA of selling electricity beyond its limited region mandated by Congress. As part of the settlement, the TVA promised to cooperate in future deregulation efforts by the electric industry. With especially high energy demands during the summer of 1997, the TVA found that purchased power was not as reliable as it needed. This led the TVA to plan on establishing firm contracts with others for power and exploring the possibility of purchasing other utility operations entirely to guarantee reliability.

The U.S. Department of Energy decided in 1999 it would eventually produce radioactive tritium gas at one of the TVA's nuclear reactors for use in nuclear weapons--anticipated to begin during 2003. This would mark the first time a commercial U.S. nuclear reactor would be used for military purposes--a prospect that led critics of the decision to express grave concern about the blurring of the separation between civilian and military operations. The TVA switched to cleaner coal for its plants in June 1999, helping the agency adhere to environmental regulations. In September, the TVA announced it would not raise rates for the following year, and planned to keep rates stable for the following decade through increased productivity and controlled operating costs.

The Environmental Protection Agency (EPA) charged the TVA in November with violating pollution regulations of the Clean Air Act in seven coal-fired plants, with a cleanup that would cost upwards of $1 billion. The TVA challenged the EPA's interpretation of the Clean Air Act, and a U.S. Court of Appeals ordered in 2002 that the two parties use a mediator to resolve the issue, though this approach failed which put the case back to the court. The TVA's Congressional appropriations were terminated for fiscal year 1999, though the TVA was permitted to refinance some of its high interest debt, which will result in significant savings in the future. Despite the loss of Congressional appropriations, the TVA posted net income of $119.3 million in 1999.

In 2000, a new Public Power Institute was formed by the TVA, marking a return to its past conservation and energy development initiatives. The TVA began to explore means to produce electricity drawn from the sun, wind, and landfill gas sources, while charging customers a premium price for "green power." A $3.4 million wind-powered generator construction project was announced in September 2000 for Knoxville, Tennessee, and demand for cleaner energy continued to grow. Five nuclear reactors were operational in 2000, although $10 billion of investment from terminated reactors had not yet been written off. Debt reduction was not progressing as rapidly as planned, but $1.7 billion had been cut since 1996's debt cap of $27 billion.

Heading Towards Deregulation in the Twenty-First Century

The TVA's board voted in May 2001 to invest in the upgrading of two nuclear power plants in order to meet growing demand for electricity and avoid relying on outside providers. Having been among the nation's worst nuclear programs in the 1980's, the TVA had made significant progress in the 1990s and, by 2001, was ranked in the top quartile in the United States Partnering with the British corporation Innogy PLC, the TVA also announced plans to construct a $25 million energy storage plant--the first of its kind in the United States--using regenerative fuel cell technology to store energy in bulk. In July 2001, President George W. Bush named TVA board member Glenn McCullough to replace outgoing Chairman Craven Crowell. Later in the year, Chairman McCullough voiced his support for an electric utility deregulation bill that would provide competition and choice throughout the TVA's current region, and this bill was under consideration by Congress in 2002.

The TVA wrote off $3.4 billion in assets from unfinished nuclear reactors, resulting in a $3.3 billion deficit for fiscal year 2001. With a $7.1 billion budget adopted for fiscal year 2002, the TVA launched a $2.5 billion capital spending plan--its largest since the mid-1990s--focused on new transmission lines, pollution reduction from coal-fired plants, and increased productivity from current and future plants. At this point, residential customers' rates had only been raised once since 1987. Chairman McCullough pledged to improve industrial rates, which had been kept at an average level over the years.

In April 2002, the TVA partnered with Southern Co. of Atlanta, Entergy of New Orleans, and Midwest Independent Transmission System Operator of Carmel, Indiana in an agreement to provide "seamless wholesale power trading" in the Southeast and Midwest, providing uniform access and more effective transmission of electricity. In May, the TVA's board approved restarting the Browns Ferry nuclear reactor, the agency's oldest, which was shut down in 1985 due to safety concerns and would cost an estimated $1.8 billion to restart. Repairs were slated to begin in 2003, with the reactor expected to restart in 2007. A 2002 U.S. General Accounting Office study of the TVA found that its customers rates were between 14 and 22 percent less than competitors, and that the agency functions with a smaller staff than other electric utilities.

The Tennessee Valley Authority has faced a variety of significant challenges and controversies over the course of its lengthy history. Although the TVA began as a dynamic new model for regional integrated resource development and ballooned into an immense bureaucratic agency with billions in debt that remain today, it has transformed itself in recent years into a much leaner operation that appears to be committed to debt reduction and is preparing for the arrival of deregulation.


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