The Tennessee Valley Authority delivers cheaper and more reliable power than most utilities, but it still spends more than its peers on operating and maintenance expenses, according to a new review of the agency.

In the first major assessment of its kind, TVA’s Office of Inspector General found that TVA is better than most neighboring power companies in its rates and service. But with an aging fleet of coal plants, the federal utility’s nonfuel costs for operating and maintaining its plants is higher than most other utilities and the availability of many TVA power plants was below average in the period studied by the watchdog agency.

“Overall, TVA’s performance results in the area of customer relations are excellent,” TVA Inspector General Richard Moore said in the performance review. “However, it is important to note that TVA faces many significant management challenges in maintaining effective relations with its customers.”

The agency review highlighted the challenges presented by rising fuel and construction costs for new power plants and the difficulties of managing its coal plants which, on average, are more than 50 years old. TVA derives more than 60 percent of its electricity from its 59 coal-fired units, most of which were built in the 1940s through the 1960s.

“TVA enjoys a lot of advantages, but still it is dealing with a very old fleet of coal-fired power plants and nuclear plants, and they are having to spend billions of dollars to clean up those plants and build new units,” said Stephen Smith, executive director of the Southern Alliance for Clean Energy, a Knoxville environmental group that monitors TVA activities.

He said he believes the situation “highlights the need for a more comprehensive plan that looks at all of the energy alternatives for the future.”

The inspector general’s study found TVA’s nonfuel operating costs from 2004 to 2006 were nearly 15 percent above the industry average, placing TVA in the bottom quartile of comparable utilities.

Despite higher-than-average operating expenses, TVA’s electric rates still average about 24 percent below the U.S. average, the study found. As a federal corporation, TVA is able to borrow money more cheaply and doesn’t have to pay profits to shareholders or income taxes to the federal government.

Located along the Tennessee River in the seven-state Tennessee Valley, TVA also benefits by getting a portion of its power from 29 power-producing dams and is able to buy Appalachian coal cheaper than many other utilities.

TVA also had 32 percent fewer power interruptions than the industry average, and the federal utility has achieved 99.999 percent reliability for each of the past eight years, according to the inspector’s report.

To move from the bottom to the top quartile of utilities, TVA set a goal of reducing nonfuel operating and maintenance expenses by more than $400 million by 2010. To cut expenses, TVA is filling only some of the jobs vacated after resignations and retirements. As a result, TVA’s staff dropped from 12,013 at the end of fiscal 2007 to 11,584 at the end of fiscal 2008.

TVA spokesman John Moulton said TVA’s operating expenses for fiscal 2008 ended up $90 million below budget.

“We have been holding our O&M (operations and maintenance) expenses flat in recent years, and we expect to make significant movement in closing our gap with the rest of the industry,” Mr. Moulton said.