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Despite a 1.6 percent drop in power sales last fall, the Tennessee Valley Authority boosted its net income in the final three months of calendar 2014 to $81 million after TVA lost $67 million in the same period a year earlier.

The federal utility raised its base rates last fall and over the past three years the agency has trimmed $500 million in annual operating expenses through staff and program cuts. Those measures combined to improve TVA's financial standing even as the agency spends a record $3.5 billion this year on new generation and pollution controls.

"We are off to a good financial start this year thanks to the progress made in reducing TVA's controllable costs," TVA President and CEO Bill Johnson said. "We remain on track to hit our $500 million target for sustainable annual operating and maintenance cost reductions as we work to keep rates low."

TVA raised its rates about 1.6 percent last fall -- the second year of power rate increases for TVA below the overall rate of inflation.

The rate hike adopted last August helped TVA generate $29 million more operating revenue in the first quarter of TVA's fiscal year even though sales were down in the most recent three-month period. The money is being invested in large capital projects such as new nuclear and gas construction, emission controls, hydro modernization and transmission projects.

"Overall, it was a relatively good quarter, and pretty much on track with our projections for the rest of the year," TVA Chief Financial Officer John Thomas told industry analysts Wednesday.

TVA is spending another $1 billion this year to finish a second reactor at its Watts Bar Nuclear Plant. But after four decades of construction starts and stops, the unit should be generating power by the end of the year.

Johnson said the Watts Bar Unit 2 being built near Spring City, Tenn., "is on time and on budget" to be completed and generating power by December.

TVA plans to conduct hot functional testing at Watts Bar in March and expects regulators to begin their operational readiness assessment of the new reactor this spring to allow nuclear fuel to be loaded by this summer and generation to begin sometime between September 2015 and June 2016.

Johnson said Watts Bar project is now expected to cost about $4.2 billion since TVA reactivated work on the reactor five years ago.

TVA originally began building Watts Bar in 1974. Work was halted in 1988 after employee safety concerns were raised about the way the plant was built. TVA resumed work on the unit in the 1990s and finished Unit 1 in 1996 at a cost of more than $6 billion.

Although TVA is working to meets its schedule for Unit 2, Johnson stressed that TVA will not be rushed to finish the work at Watts Bar, which is located on the Tennessee River near Spring City, Tenn. Three years ago, TVA was forced to delay and revamp its schedule at Watts Bar Unit 2 when the original 5-year, $2.5 billion estimate proved inadequate.

"It is being finished the right way -- safely and with high quality," Johnson said.

The new nuclar unit is now more than 90 percent complete and the work done so far is passing initial acceptance testing 97 percent of the time, Johnson said. TVA said workers at Watts Bar have completed more than 30 million work hours without a lost time accident.

The work on Watts Bar, combined with new natural gas plants being built in Kentucky and Tennessee and pollution controls being installed at the Gallatin and Shawnee fossil plants, boosted TVA's total debt obligations in the last quarter by $491 million to nearly $26.6 billion. But after peaking in the next year, TVA expects to bring its overall debt down in coming years with fewer new construction projects.

Such debt reduction plans helped convince budget planners in the White House this week to drop their push to try to sell TVA. Although TVA is an independent, self-financing federal corporation, its debt is counted as part of the federal debt and the Office of Management and Budget for President Obama pushed in previous budget plans for the federal government to sell or transfer ownership of TVA to other private companies or state and local agencies.

Obama's budget plan for fiscal 2016 said a strategic review of TVA had determined that the federal utility was moving in the right direction.

"We continue to believe that the TVA model is best of the people of the Tennessee Valley," Johnson said.

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

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