TVA on pace for $500 million in cuts after eliminating 2,000 jobs

Steam rises from the cooling tower of the single operating reactor at the Watts Bar Nuclear Plant in Spring City, Tenn., in this file photo.
Steam rises from the cooling tower of the single operating reactor at the Watts Bar Nuclear Plant in Spring City, Tenn., in this file photo.

The Tennessee Valley Authority has cut nearly 2,000 jobs over the past couple of years, reducing its staff size to the lowest level sinceTVA's second year of operation in 1934.

TVA President Bill Johnson, who ordered the staff cuts shortly after he took control of the federal utility two years ago, said TVA has become more focused and efficient and has already cut $400 million of annual operating expenses from its nearly $11 billion-a-year budget. TVA's staff shrank from 12,800 employees two years ago to 10,900 employees today as part of an initiative to trim $500 million in annual expenses from its budget.

WINTER PEAKS

Cold weather this winter pushed TVA power peaks to: * The third highest all-time TVA winter peak on Jan. 8 * The highest all-time peak for February on Feb. 19 * The second highest March peak on March

The cost reductions helped TVA more than double its net income in the past six months despite an unexpectedly large drop in electricity sales so far in fiscal 2015.

"We started by focusing on the work we have to do every day and then aligning an organization around that work," Johnson told industry analysts and reporters during a conference call Friday. "We did this in a very thoughtful way and constructed a budget to take us to a place where we could live within our means."

TVA plans to trim another $100 million in operating and maintenance expenses this year. But Johnson said most of the additional cuts planned this year "are baked into the budgets" and should be achieved by the end of the fiscal year in September without another round of employee layoffs.

"If we just follow our plan and stick to our budget, we should achieve that number," he said.

TVA reported Friday that its net income in the first three months of 2015 was up 68 percent from a year ago to $496 million on revenues of $2.8 billion. Despite colder winter temperatures that temporarily pushed TVA power peaks to near record levels in January, February and March, overall power sales were down 1.5 percent from the same period last year, including a 1.2 percent drop in sales to local power distributors such as EPB in Chattanooga.

TVA's sales to its biggest industrial customers slipped by 3.6 percent and sales to federal agencies plunged 10.8 percent due to the shutdown of the U.S. Enrichment Corp. facility near Paducah, Ky., last year and increased energy efficiency measures from manufacturers recovering from the recession.

"The decline was a bit more than we expected, and it's something we certainly will continue to watch," TVA Chief Financial Officer John Thomas said.

Colder winter weather drove the number of heating degree days in the first half of the year 10 percent higher than normal. TVA set a new demand record for the month of February when temperatures averaged 7 degrees Fahrenheit across its seven-state service area the morning of Feb. 19. Peak power demand exceeded 32,000 megawatts.

"This winter tested the resiliency of our system," Johnson said.

But TVA met the peak demands with fewer workers and operating costs, which were down 8.7 percent in the first half of the year.

The Tennessee Valley Authority, which was created in 1933 to harness the power of the Tennessee River and develop the impoverished southern Appalachian region, reached a peak of 51,704 employees in 1980 at the height of its nuclear power construction program when the agency was pursuing plans for 17 nuclear reactors. All but six of those proposed reactors have been scrapped or mothballed.

TVA's current staff is 79 percent smaller than it was 35 years ago. But some of that decline reflects the decision in the 1980s to outsource most construction and outage repair work. TVA's contract staff often swells higher than its own employment total during outages and major building projects.

Nonetheless, TVA's overall workforce is declining and likely to fall further as the Watts Bar Nuclear Plant is finished this year, eliminating most of the 2,600 construction workers now at the plant finishing up the $4.2 billion project.

TVA customers said they welcome Johnson's efforts to trim expenses and hold down rate increases.

"TVA has pledged to cut its costs and is actually ahead of schedule in doing that, which we applaud since that helps hold down our rates," said Donald Huffman, executive director for the Chattanooga-based Associated Valley Industries. "TVA should be like the industries it serves and eliminate jobs that are not truly productive to increase TVA's efficiency. We think Bill Johnson has done that."

Huffman said the operating cost reductions, combined with Valley Investment incentives given to major industry, have helped pare 7 percent of power costs for many industrial customers compared to what they otherwise would have had to pay.

TVA, which once boasted some of the lowest electric rates in the nation, is only about average in its industrial rates among Southern utilities today, according to recent Associated Valley Industries price comparison surveys. But TVA's cost-cutting efforts - and improvements in the overall U.S. economy - helped TVA lure $4.9 billion of new business investment and 44,200 additional jobs to the Tennessee Valley in the first half of the current fiscal year.

Contact Dave Flessner at dflessner@timesfree press.com or at 757-6340.

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