TVA's Role as a Regulator

We conducted a review to assess the TVA role as rate regulator over municipal utilities and cooperatives (collectively "distributors") which purchase TVA power. The TVA Act imposes only one regulatory requirement, prohibiting discrimination between consumers of the same class. The TVA Act, however, also gives the Board authority to include terms and conditions in power contracts as needed to carry out the purposes of the Act, which include keeping rates as low as feasible. Pursuant to this authority, most power contracts include, in addition to the required nondiscriminatory provision, terms and conditions related to resale rates, use of revenues, and financial and accounting requirements. In summary, we determined the following:TVA is in a unique position as both a seller of electric power and a regulator over the rates charged by many of its customers. We believe there is an increasing inherent conflict in TVA serving as a regulator while working to ensure good customer relations. TVA routinely reviews and approves resale rates and use of funds for nonelectric system purposes. We determined TVA should develop additional guidelines to assist in their reviews. Thirteen distributors used electric system funds for nonelectric purposes, while the joint use agreements may not have been modified to permit such use. TVA management agreed with our recommendations, and we concur with their planned actions.