TVA expects to add $921 million to its debt this year, pushing the utility's total obligations to close to 90 percent of its borrowing ability.
But a new long-term power plan -- the Integrated Resource Plan -- being developed by TVA doesn't include raising the $30 billion cap on debt set for it by Congress more than three decades ago. Even with continued construction of nuclear plants and cleanup of older coal plants, TVA President Tom Kilgore said he doesn't plan to ask for more borrowing authority at least for several years.
"We've survived since 1979 with this debt cap and there is a limit on how long that can go, but we're not at that point yet," Kilgore said. "We are working on that and thinking what we may want to do."
TVA, which spent 34 cents of every dollar on debt service in the late 1990s, has cut those borrowing expenses to 12 cents of every dollar.
BY THE NUMBERS* $26 billion -- Current level of TVA debt and debt-like obligations* $30 billion -- Debt cap set by Congress for TVA in 1979* $3.3 billion -- New borrowings in fiscal 2011 for new plants, refinancing and environmental cleanup* $2.4 billion -- Debt paydown in fiscal 2011* $921 million -- Net new borrowings projected for current yearSource: Tennessee Valley AuthorityTVA DEBT GUIDELINES* Retire debt over useful life of assets* Issue new debt only for new assets* Prepay a portion of capital costs for new nuclear plants* Rate increases to fund increased operating costsSource: TVA Financial Guidelines adopted by the board in 2008.
"If anybody's mortgage is 12 cents out of every dollar spent, that's a pretty good thing," Kilgore said. "We're improving our financial stability."
Even so, in the long run, TVA likely will have to ask for a higher debt cap from Congress, Kilgore said.
A proposed power plan for the next 20 years calls for TVA to build up to four nuclear power plants -- at a potential total cost of more than $15 billion -- and to add several billion dollars' worth of pollution control equipment on aging coal-fired plants.
TVA also must spend up to $1.2 billion to clean up the Kingston, Tenn., coal ash spill from 2008 and up to $2 billion more to convert its coal-ash disposal methods at six plants from wet-ash ponds to dry-ash disposal and recycling, which are considered safer and better long-term solutions.
"In order to be able to accomplish all of our goals over the next 10 years, there is going to be a challenge about how we finance it," TVA Chairman Dennis Bottorff said. "I don't want to jump off and say we need to increase the debt. We've got to figure how we can do what we can within the limitations we have, if we can."
TVA is paying down debt on its older power plants, and its distributors have offered to help pay for new power plants in a partnership with TVA through its Seven States Power Corp.
political challenge
U.S. Sen. Lamar Alexander, R-Tenn., is pushing plans for the U.S. to build 100 nuclear reactors, and he wants TVA "to be the national leader in the nuclear renaissance."
But Alexander is cautious about asking his fellow senators to boost TVA's borrowing authority, since the utility still enjoys the implied backing of the U.S. government although TVA financially is separate from the government.
"I'm more interested in making sure that TVA has a good mission, and I'm open to any reasonable thing it needs to do to pay its bills," Alexander said. "But I haven't had any kind of request from the board about changing its debt limit."
Alexander noted that TVA upgraded and repaired its Browns Ferry plant in Alabama and built the first unit at its Watts Bar plant in Tennessee largely out of its cash flow.
"It [the debt cap] probably affects the rate of building -- how rapidly the plants will be built -- more than anything else," Alexander said.
Stephen Smith, executive director of the Southern Alliance for Clean Energy and a member of the task force that reviewed TVA's proposed long-term power plan, urged the agency to be cautious about seeking more borrowing authority.
"TVA's power demand is not growing like it has in the past, and they need to have a full explanation of what they are trying to do by raising the debt [limit]," he said.
"They shouldn't just be given unlimited borrowing authority to do what they want, because the debt cap is one of the important ways that Congress still has some oversight of TVA."
borrowing authority
TVA is owned by the federal government and has borrowed through the federal government and its lending arm -- the Federal Financing Bank -- through most of its history.
But TVA has paid off most of that federal debt and now borrows through bond issues on Wall Street, although it enjoys a top triple-A rating from bond agencies because of its government ownership and implied federal backing.
Alan Pulsipher, a former TVA economist who now heads the Center for Energy Studies at Louisiana State University, said TVA's debt ceiling "has no logic and no functional purpose" any longer since it borrows like other corporations.
"It was a political, not an economic, move when the debt cap was imposed," he said. "It's a vestige of TVA's past, and it no longer makes any economic sense."