The Giant in the Valley

Electricity Abroad In the latest report in our series on international electricity markets, Vincent DeVeau examines The Tennessee Valley Authority, a unique achievement in regional development and an incredibly vast power generation entity. Now in its eighth decade, EM looks at one of America's most successful - and controversial - powerhouses.

From the moment in May 1933 when U.S. President Franklin D. Roosevelt signed the Act of Congress which created it, the Tennessee Valley Authority - or TVA, as it is better known - has been a source of immense pride and intense controversy. What is beyond controversy, however, is that the TVA has helped to shape modern American history, and that 73 years on, it is both a continuing success story and the largest public power company in America.

In the early 1930s, America, like much of the rest of the world, was firmly in the grip of the Great Depression. Unemployment, poverty, and a growing sense of hopelessness and desperation were reaching crisis point, threatening social and political upheaval on a massive scale.

The newly elected President Roosevelt knew that he needed new ideas and innovative solutions to the nation's problems, and he needed them fast. He found them in his socalled "Brain Trust" - a loosely organised group of the nation's leading economists, academics and jurists who enjoyed the President's confidence, and who were largely responsible for the revolutionary measures which were signed into law during Roosevelt's legendary "First Hundred Days" in office.

In unprecedentedly swift succession, Roosevelt put in place institutions which continue to hold centre-stage in the American economy today, among these, Social Security, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the TVA.

The TVA was conceived as a totally new type of agency. Roosevelt described it as " a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise." It is a geo-political entity larger in both territory and resources than many nations, with some of the powers of a state (like eminent domain), but having no citizens or elected officials. It was the first large regional planning agency of the U.S. federal government and remains the largest to this day.

Because of its size, scope and power, some saw it as an almost Stalinist invasion of private commerce by big government. For many others, however, it seemed nothing less than economic and social salvation. The tasks set for the TVA weren't limited to electricity generation or job creation - the new agency was commissioned to tackle problems as diverse as river navigation, flood control, malaria prevention, reforestation, and erosion control, across an area which included the seven U.S. states through which the Tennessee River Valley passes. The TVA had to develop a new, integrated and yet mission-focused approach to attack its dauntingly wide brief.

Although its current power generation business relies on a very mixed bag which includes fossil-fuel and nuclear plants, the TVA's original conception was based on hydroelectricity. The Norris Dam was the first to be built by the TVA, and was completed in 1936, just three years after the agency was founded. Today, the TVA operates a total of 29 hydroelectric dams and one pumped-storage plant. Many of these hydroelectric facilities were built during the Second World War, in response to the need for aluminium plants - which required enormous amounts of electricity - for warplane construction. In 1942, when the effort was at its peak, 12 hydroelectric projects were under construction simultaneously.

Over the decades since, the TVA has evolved to include 11 coal-fired and six combustionturbine plants as well as three nuclear power stations. New, more eco-friendly technologies have become part of the mix in recent years, and the TVA also operates 17 solar power sites, one wind-power site, and one methane gas site.

With the passage of time, the TVA's mission also evolved. Today it is primarily an electric power wholesaler, selling to 158 retail power distributors and 61 direct industrial and governmental customers. It provides power to 8.5 million end-users in the Tennessee Valley, generates $8 billion in revenues annually, and employs more than 12,000.

Despite its size and status, not even the TVA was immune to the worldwide market forces which began to make their presence felt in the 1990s. As the electric utility industry began its historic shift toward restructuring and deregulation, the TVA - for the first time in its history - faced the prospect of competition.

While work on deregulation is ongoing, and the necessary legislation has not yet been fully put in place, the TVA has developed a strategic plan to prepare the organisation for competition by simulating it, giving the organisation the analytic tools necessary to review its operations and financial options in a competitive environment. The plan is now being used to implement what the TVA itself describes as "the most detailed and rigorous competitive-risk analysis in [its] history." The plan consists of four main concentrations:

• The development of new, more differentiated pricing structures, services, and contract terms that more closely tie the cost and the risk of the product to its terms and pricing.
• Examining how the TVA will interface with surrounding markets and how it will charge for transmission services when distributors can choose other suppliers.
• Accelerating debt reduction so that TVA has the financial flexibility to thrive in a more dynamic, competitive market.
• Maintaining and operating the TVA power system so that customers can count on a safe and reliable power supply.