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.







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.





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