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White House budget planners say TVA may shift focus off debt

CHATTANOOGA (AP) — The Tennessee Valley Authority may be about to shift its focus from paying down debt toward boosting power generation and pollution controls, White House budget planners said.

In its forecast, the Office of Budget and Management said the nation's largest public utility expects to cut its debt by $529 million this year and another $553 million in fiscal 2008.

The reductions come on top of more than $2.5 billion already cut from TVA's long-term financial obligations since 1997, when the agency's debt peaked at more than $27.7 billion.

The forecast released Monday said the TVA debt reductions will help position the utility "for a more competitive electricity market and achieve a more sound business risk profile."

OMB officials have urged TVA leaders for most of the past decade to pay down the debt, which is more than twice that of any other electric utility in the nation.

Last year, TVA said it planned to cut its overall debt by $7.8 billion, or by nearly a third, by 2016. The OMB budget unveiled Monday included those goals, but noted they soon could be revised by TVA's new board.

TVA directors are expected to adopt a new strategic plan this spring that may put less emphasis on reducing debt and more focus on adding power generation and pollution controls.

TVA officials and distributors said Monday that the share of electricity bills going to pay interest on the debt has dropped nearly 60 percent in the past decade and should continue to shrink over at least the next couple of years.

In a yearend interview in December, TVA Chairman Bill Sansom said he is more concerned about rates and reliability than the agency's balance sheet.

"I don't think we are in too bad of shape, and I certainly don't get up every day worrying about paying down the debt," Sansom said.

"We need to manage TVA in a way that ensures we have low-cost reliable power for the long term."

The share of TVA expenses devoted to interest costs fell from 34 cents of every dollar in 1997 to about 14 cents of every dollar last year. The drop reflects lower interest rates, a reduction in debt and higher revenues for TVA.

In fiscal 2006, TVA boosted rates by more than 17 percent to help cover rising fuel expenses.

Last year, TVA spent $428 million to repair its oldest reactor at Browns Ferry Nuclear Plant in Alabama and paid for those costs without any new borrowing.

"I think TVA distributors want to make sure that rates remain low and competitive and that we don't raise rates unduly just to try to immediately pay off some debt," said Jack Simmons, executive director for the Tennessee Valley Public Power Association. "Sometimes debt isn't bad, especially if you are increasing the value of your assets by adding more generation."

TVA is considering spending more than $7 billion to finish, rebuild and construct new nuclear power plants to gain more power generation. Simmons said distributors may be interested in helping TVA finance new projects by gaining ownership in generating assets.

White House budget planners said TVA also has improved its financial openness with quarterly financial reports under the regulation of the U.S. Securities and Exchange Commission. OMB repeated its call for TVA to register its debt with the SEC and for TVA's Office of Inspector General to be funded independently.

TVA currently is focused on completing a $1.8 billion restart of the Browns Ferry reactor next year and has begun studying completion of a second reactor at its Watts Bar site in Tennessee.

TVA provides wholesale electricity to 158 distributors serving about 8.6 million consumers in Tennessee, Kentucky, Alabama, Mississippi, Georgia, North Carolina and Virginia.

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Information from: Chattanooga Times Free Press, www.timesfreepress.com

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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