History, Status, and Alternatives: TVA Financial Flexibility

TVA's challenges are great with the need for financial flexibility to ensure the TVA mission of delivering low cost power is achieved. The current debt ceiling could limit TVA's financial flexibility and require TVA to seek higher cost financing options or require significant rate increases that could adversely affect the economic development of the Tennessee Valley region. Although TVA is in the process of evaluating options, TVA's position is that a financial metric (e.g., something similar to the debt service coverage ratio), rather than a debt ceiling stated in terms of an arbitrary dollar amount, would provide control of TVA's borrowing authority that is tied to TVA's ability to pay outstanding debt, similar to investor owned utilities, while still providing Congress with oversight and control.The Inspector General agrees with TVA management in their efforts to maintain maximum financial flexibility, including (1) the adoption of sound financial principles, (2) ensuring multiple options and strategies are pursued to achieve the most economical approach, and (3) seeking to ensure that debt remains a viable option in future financing decisions.TVA should be able to support additional debt to help meet energy demands as long as the TVA Board maintains its ratemaking authority, TVA maintains its service territory and customer base, and TVA uses the debt proceeds to successfully build generating capacity.