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Exhibit 10.26

Tennessee Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee
37902-1401

Tom Kilgore
President and Chief Executive Officer

March 6, 2007

 
Mr. William R. McCollum, Jr.
116 Mary Mack Lane
Fort Mill, South Carolina 29715

Dear Bill:

The TVA Board has authorized me to offer you the position of Chief Operating
Officer with the Tennessee Valley Authority in Chattanooga, Tennessee.  This
position is responsible for directing and managing the operations of all of
TVA’s generating plants and the Commercial Operations and Fuels Group.  As we
discussed, future responsibilities will eventually include direction and
management of TVA’s Transmission function.  Upon acceptance of this position,
TVA will provide you an annual base salary of $700,000, which will be payable in
equal installments every two weeks.

Additionally, you will be included as a participant in TVA’s Executive Annual
and Long-Term Incentive Plans.  Under the Annual Incentive Plan your annual
incentive opportunity will be 70 percent of your annual base salary beginning in
this fiscal year (FY 2007).  Under the Long-Term Incentive Plan, your award
opportunity will be 70 percent of your annual base salary beginning with the
performance cycle (FY 2005-2007) ending in fiscal year 2007.  Actual annual and
long-term incentive awards are based on performance measured against performance
goals established at the beginning of each performance period.  The incentive
awards are generally paid in the first quarter of the fiscal year following the
fiscal year in which they are earned.  You will have an opportunity to elect to
receive these awards in a lump-sum cash payment or have all or part of the
awards credited to your deferred compensation account, to the extent permitted
by IRS regulations.

Due to the nature of this position, you will also be included as a participant
in TVA’s Supplemental Executive Retirement Plan (SERP) at the Tier 1 level with
the following provisions:

•  
You will be granted an additional 10 years of credited service and the “Prior
Employer Offset” will be waived.  The additional years of credited service will
be for SERP benefit calculation purposes only and will not count toward the
minimum five-year vesting requirement.

 
 

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Mr. William R. McCollum, Jr.
Page 2
March 6, 2007

•  
In the event that you voluntarily terminate your employment with TVA prior to
satisfying the minimum five-year vesting requirement, your termination will be
deemed an unapproved termination under SERP and no benefits will be provided
under the Plan.  In the event of termination for any other reason, other than
termination for cause (as defined below), prior to five years of employment, the
five-year vesting requirement will be waived as long as the termination is
considered acceptable to TVA.

•  
Except for and subject to the conditions stated above, in the event of
termination (other than for cause as defined below), your termination will be
considered an approved termination under TVA’s SERP and a benefit equal to that
calculated for an “Approved Termination” will be payable upon termination as
long as the termination is considered acceptable to TVA.

A general outline of how the SERP calculation works has been furnished to you to
use in your consideration of this offer.

For purposes of this offer, termination “for cause” shall be considered to be
under circumstances involving (1) conviction of a felony or crime of moral
turpitude, or (2) illegal conduct involving dishonesty, fraud, or gross
negligence that directly results in significant economic harm to TVA.

In addition, TVA will enter into a Long-Term Deferred Compensation Plan (LTDCP)
agreement with you that will provide annual deferred compensation credits to
cover a service period of approximately four years and six months.  Under the
agreement, an initial credit of $350,000 will be made to an account in your name
as soon as practicable following the date of your employment with TVA.  You will
be fully vested in this credit at the time it is contributed to your
account.  Subsequent credits of $200,000 each will be contributed to your
account on October 1, 2007, October 1, 2008, October 1, 2009, and
October 1, 2010.  You will become fully vested in the remaining credits if you
remain employed by TVA until the expiration of the agreement on
September 30, 2011.  All vested credits in your account under this LTDCP
agreement will be distributed upon termination of your employment with TVA in
five annual installments in accordance with the distribution schedule set out in
section 3.A.1.b of TVA’s deferred compensation plan (MISRIP).

TVA will also provide you a biweekly vehicle allowance, totaling approximately
$11,700 annually, toward the purchase or lease of a vehicle and operating fees,
maintenance, repairs, accidents, and insurance.  This allowance is considered a
taxable benefit and will be subject to withholding and any other applicable
taxes.

In connection with your move to Tennessee, TVA will pay for the actual and
reasonable travel and moving expenses for you and your immediate family.  TVA’s
Relocation Services Program is available to assist you in the sale of your
present home.  Louise Grishom of our Shared Resources organization will forward
information to you regarding this program.

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Mr. William R. McCollum, Jr.
Page 3
March 6, 2007

In addition to the relocation expenses, TVA will provide you a one-time
relocation incentive payment in the amount of $75,000, which must be repaid to
TVA if (1) you voluntarily terminate employment within one year, unless your
separation from TVA is for reasons acceptable to TVA, or (2) if you are
terminated for cause (as defined above).

TVA also provides employee benefits which are described in materials that will
be sent to you under separate cover.  The TVA Retirement System, of which you
will become a member, provides for vesting after five years of full-time
service, except that eligibility for death benefits vests immediately.  Your
employment will be subject to the usual employment procedures and satisfactory
results of a security investigation, which will include a drug screen.  As we
have discussed, this position will also require a top secret security clearance.

If you have questions, or if I can be of assistance in any way, please do not
hesitate to call me at (865) 632-2366 or John Long at (865) 632-6307.  We look
forward to working with you.

Please sign below indicating your acceptance of this offer and confirm your
anticipated commencement date.

Sincerely,

/s/ Tom Kilgore               
Tom Kilgore

/s/ William R. McCollum, Jr.                                                  
March 9, 2007                                         
      William R. McCollum, Jr.                                            
Acceptance Date

      May 1, 2007                                                              
  Commencement Date