TENNESSEE 

VALLEY AUTHORITY

Actions Needed to 

Better Communicate 

Debt Reduction Plans 

and Address Billions 

in Unfunded Pension 

Liabilities

Report to Congressional Requesters

March 2017

GAO-17-343

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-343, a report to

congressional requesters

March 2017

TENNESSEE VALLEY AUTHORITY

Actions Needed to Better Communicate Debt 

Reduction Plans and Address Billions in Unfunded 

Pension Liabilities

Why GAO Did This Study

TVA, the nation's largest public power 

provider, is a federal electric utility with 

revenues of about $10.6 billion in fiscal 

year 2016. TVA’s mission is to provide 

affordable electricity, manage river 

systems, and promote economic 

development. TVA provides electricity 

to more than 9 million customers in the 

southeastern United States. TVA must 

finance its assets with debt and 

operating revenues. TVA primarily 

finances large capital investments by 

issuing bonds but is subject to a 

statutorily imposed $30 billion debt 

limit. In fiscal year 2014, TVA 

established a debt reduction goal.

GAO was asked to review TVA’s plans 

for debt reduction. This report 

examines (1) TVA’s debt reduction 

goal, plans for meeting its goal, and 

key assumptions; (2) the extent to 

which TVA reports required 

performance information; and (3) 

factors that have been reported that 

could affect TVA’s ability to meet its 

goal. GAO analyzed TVA financial data 

and documents and interviewed TVA 

and federal officials and 

representatives of stakeholder and 

industry groups.

What GAO Recommends

GAO recommends that TVA (1) better 

communicate its plans and goals for 

debt reduction and reducing unfunded 

pension liabilities in its annual 

performance plan and report and (2) 

take steps to have its retirement 

system adopt funding rules designed to 

ensure the pension plan’s full funding. 

TVA agreed with the first 

recommendation and neither agreed 

nor disagreed with the second. GAO 

believes that action is needed as 

discussed in the report.

What GAO Found

To meet its goal to reduce debt by about $4 billion—from about $26 billion in 

fiscal year 2016 to about $22 billion by fiscal year 2023—the Tennessee Valley 

Authority (TVA) plans to increase rates, limit the growth of operating expenses, 

and reduce capital expenditures. For example, TVA increased rates each fiscal 

year from 2014 through 2017 and was able to reduce operating and maintenance 

costs by about 18 percent from fiscal year 2013 to 2016. TVA’s plans depend on 

assumptions that future capital projects will be completed on time and within 

budget, but TVA’s estimated capital costs may be optimistic and could increase.

TVA’s debt reduction plans and performance information are not reported in a 

manner consistent with the GPRA Modernization Act of 2010. Specifically, TVA 

identifies managing its debt and its unfunded pension liabilities as major 

management challenges but has not reported required performance information 

in its performance plans or reports on these challenges, thereby reducing 

transparency and raising questions about how it will meet its goal. As of 

September 30, 2016, TVA‘s pension plan was about 54 percent funded (plan 

assets totaled about $7.1 billion and liabilities $13.1 billion). While TVA’s debt 

has remained relatively flat, its unfunded pension liabilities have steadily 

increased over the past 10 years, as shown below.

Tennessee Valley Authority’s Debt and Unfunded Pension Liabilities, Fiscal Years 2006 

through 2016

Several factors could affect TVA’s ability to meet its debt reduction goal,

including regulatory pressures, changes in demand for electricity, technological 

innovations, or unforeseen events. Also, TVA aims to eliminate its unfunded 

pension liabilities within 20 years, according to TVA officials. However, factors 

such as market conditions could affect TVA’s progress, and no mechanism is in 

place to ensure it fully funds the pension liabilities if, for example, plan assets do 

not achieve expected returns. The TVA retirement system rules that determine 

TVA’s required annual pension contributions do not adjust TVA’s contributions to

ensure full funding and TVA does not plan to contribute more than the rules 

require. Without a mechanism that ensures TVA’s contributions will adequately 

adjust for actual plan experience, unfunded liabilities could remain and future 

ratepayers may have to fund the pension plan even further to pay for services 

provided to prior generations of ratepayers. 

View GAO-17-343. For more information, 

contact Frank Rusco at (202) 512-3841 or 

ruscof@gao.gov.
Page i GAO-17-343 Tennessee Valley Authority

Letter 1

Background 5

TVA Plans to Reduce about $4 Billion in Debt by Raising Rates, 

Limiting the Growth of Operating Expenses, and Reducing 

Capital Expenditures 11

TVA Has Not Reported Required Performance Information on Its 

Debt Reduction Plans and Its Performance Goals Do Not 

Address Billions in Unfunded Pension Liabilities 20

Several Factors Could Affect TVA’s Ability to Meet Its Debt 

Reduction Goal, and No Mechanism Is in Place to Ensure TVA 

Addresses Unfunded Pension Liabilities 24

Conclusions 33

Recommendations for Executive Action 34

Agency Comments and Our Evaluation 34

Appendix I Tennessee Valley Authority’s Debt and Other Selected Financial 

Data, Fiscal Years 2006 through 2016 36

Appendix II Comments from the Tennessee Valley Authority 40

Appendix III GAO Contact and Staff Acknowledgments 42

Tables

Table 1: Tennessee Valley Authority’s Watts Bar Unit 2 

Construction History 18

Table 2: Comparison of Open and Closed Amortization Methods 

Applied to a Balance of $6 Billion in Unfunded Liabilities 

over 30 Years 31

Table 3: Tennessee Valley Authority Debt, Fiscal Years 2006 

through 2016 36

Table 4: Tennessee Valley Authority Selected Financial Data, 

Fiscal Years 2006 through 2016 37

Table 5: Tennessee Valley Authority Pension Liabilities, Assets, 

and Funded Status, Fiscal Years 2006 through 2016 38

Table 6: Tennessee Valley Authority’s Regulatory Assets by Major 

Category, Fiscal Years 2006 through 2016 38

Contents
Page ii GAO-17-343 Tennessee Valley Authority

Figures

Figure 1: Percentage of Tennessee Valley Authority’s Power 

Provided to Customers by Source (based on kilowatt 

hours), Fiscal Year 2016 8

Figure 2: Tennessee Valley Authority’s Actual Debt and Projected 

Debt, Fiscal Years 2013 through 2023 12

Figure 3: Tennessee Valley Authority’s Actual and Planned 

Capital Expenditures, Fiscal Years 2006 through 2023 14

Figure 4: Tennessee Valley Authority’s Construction Expenditures 

and Debt Issued, Fiscal Years 2006 through 2016 16

Figure 5: Tennessee Valley Authority’s Debt and Unfunded 

Pension Liabilities, Fiscal Years 2006 through 2016 22

Figure 6: Tennessee Valley Authority Retirement System Pension 

Plan Assets, Liabilities, and Funded Status, Fiscal Years 

2003 through 2016 29
Page iii GAO-17-343 Tennessee Valley Authority

Abbreviations

CBO Congressional Budget Office 

CEO Chief Executive Officer

DOE Department of Energy 

EIA Energy Information Administration

EPA Environmental Protection Agency

EPU extended power uprate

ERISA Employee Retirement Income Security Act of 1974 

GPRA Government Performance and Results Act of 1993

GPRAMA GPRA Modernization Act of 2010

IRP integrated resource plan 

NRC Nuclear Regulatory Commission

O&M operating and maintenance 

OIG Office of Inspector General

OMB Office of Management and Budget 

SMR small modular reactors

TVA Tennessee Valley Authority 

TVARS TVA Retirement System

TVARS Rules Rules and Regulations of the TVA Retirement 

System

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Page 1 GAO-17-343 Tennessee Valley Authority

441 G St. N.W.

Washington, DC 20548

March 23, 2017

The Honorable Bill Shuster

Chairman

Committee on Transportation and Infrastructure

House of Representatives

The Honorable John J. Duncan

House of Representatives

The Tennessee Valley Authority (TVA)—the nation’s largest public power 

provider—is a federal electric utility with revenues of about $10.6 billion in 

fiscal year 2016.1 TVA’s mission is to provide affordable electricity, 

manage river systems, and promote economic development in the 

Tennessee Valley. TVA provides electricity to more than 9 million 

customers, and its service area covers about 80,000 square miles across 

seven states in the southeastern United States.2 TVA must finance its 

assets with debt and operating revenues—primarily from selling power. 

TVA is a wholesaler of power to 154 local power companies that resell 

electricity to consumers. TVA also sells electricity directly to industrial 

customers and federal entities. Unlike many utilities, state public utility 

commissions do not review or approve TVA’s rates, but its Board of 

Directors must comply with the requirements of the TVA Act, including the 

sale of power at the lowest feasible rates. In addition to providing 

electricity, TVA engages in flood control and environmental stewardship 

activities that include managing the Tennessee River and federal lands 

along the shoreline to provide navigation, flood damage reduction, 

recreational opportunities, adequate water supply, improved water quality, 

and natural resource protection.

TVA primarily finances large capital investments, such as the construction 

of nuclear power plants, by issuing bonds, and it also enters into 

 1

The TVA Act of 1933 established TVA as a federal corporation. Pub. L. No. 73-17, 48 

Stat. 58 (codified as amended at 16 U.S.C. §§ 831 – 831ee (2017)).

2

TVA’s service territory includes most of Tennessee and parts of Alabama, Georgia, 

Kentucky, Mississippi, North Carolina, and Virginia.

Letter
Page 2 GAO-17-343 Tennessee Valley Authority

alternative financial arrangements.3 TVA has a statutorily-imposed $30 

billion debt limit on bonds and notes and “other evidences [sic] of 

indebtedness.”4 As of September 30, 2016, TVA’s debt totaled about $26 

billion—about $24 billion in bonds and notes (debt TVA considers subject 

to the debt limit and refers to as statutory debt) and about $2 billion in 

other financing obligations, such as lease-leasebacks and energy 

prepayments. We have previously reported on TVA’s management of its 

high levels of debt.5 In October 2011, we found that TVA may face 

challenges making planned large capital investments because of existing 

debt and statutory requirements to keep its rates as low as feasible.6 In 

April 2015, at a hearing before the Subcommittee on Water Resources 

and Environment of the House Transportation and Infrastructure 

Committee, TVA’s Chief Executive Officer (CEO) said that TVA had a 10-

year plan to reduce its debt to about $21 billion by about 2023—the fourth 

debt reduction plan in 2 decades. Prior plans did not meet their goals.

TVA’s activities, particularly its power generation activities, are subject to 

Environmental Protection Agency (EPA) regulations in a variety of areas, 

including air and water quality control and management and disposal of 

solid and hazardous wastes. TVA is also subject to certain aspects of 

 3

Alternative financial arrangements include lease-leasebacks, energy prepayments, debt 

related to variable interest entities, and membership interests issued in connection with 

variable interest entities subject to mandatory redemption. Lease-leasebacks involve longterm leasing of power generators to private investors, and TVA retains legal title to the 

assets. Energy prepayments allow customers to prepay for power in exchange for 

discounted rates in advance of the period in which it is provided. Debt related to variable 

interest entities includes certain leasing transactions TVA has entered into with special 

purpose entities to obtain third-party financing for its facilities.

4

In 2003, we concluded that the TVA Act does not clearly and unambiguously address 

whether certain financing arrangements should be counted against the debt limit. We 

suggested that Congress may want to consider amending the TVA Act to clarify whether 

certain financing arrangements should count toward the debt limit, since they have the 

same impact on TVA’s financial condition and competitive position as traditional debt 

financing, but no such amendment was made. GAO, Tennessee Valley Authority: 

Information on Lease-Leaseback and Other Financing Arrangements, GAO-03-784 

(Washington, D.C.: June 30, 2003).

5

GAO, Tennessee Valley Authority: Full Consideration of Energy Efficiency and Better 

Capital Expenditures Planning Are Needed, GAO-12-107 (Washington, D.C.: Oct. 31, 

2011); Tennessee Valley Authority: Plans to Reduce Debt While Meeting Demand for 

Power, GAO-06-810 (Washington, D.C.: Aug. 31, 2006); GAO-03-784; and Tennessee 

Valley Authority: Debt Reduction Efforts and Potential Stranded Costs, GAO-01-327 

(Washington, D.C.: Feb. 28, 2001).

6

GAO-12-107. 
Page 3 GAO-17-343 Tennessee Valley Authority

Federal Energy Regulatory Commission jurisdiction that affect TVA’s 

generation and transmission system and Nuclear Regulatory Commission 

(NRC) requirements for licensing, operation, and decommissioning of its 

nuclear generating facilities. NRC also has authority to impose fines, shut 

down units, or modify, suspend, or revoke operating licenses.

You asked us to review TVA’s plans for debt reduction. This report 

examines (1) TVA’s debt reduction goal, plans for meeting its goal, and 

key assumptions; (2) the extent to which TVA reports required 

performance information; and (3) factors that have been reported that 

could affect TVA’s ability to meet its debt reduction goal. To address all of 

our objectives, we reviewed TVA documentation including its long range 

financial plan, strategic plan, annual reports, and budget submissions. We 

also reviewed financial data from TVA’s annual reports (audited financial 

information reported on the Securities and Exchange Commission Form 

10-K) including revenues; debt; pension and other liabilities; and 

expenditures such as operating and maintenance (O&M), interest, and 

capital.7 In this report, unless otherwise indicated, when we refer to TVA’s 

pension funding—unfunded liabilities and funded ratios—we are referring 

to the Projected Benefit Obligations TVA discloses in its financial 

statements.8 We also obtained data from TVA on historical and projected 

revenue, debt, capital expenditures, and O&M expenses. To assess the 

reliability of these data, we reviewed documentation, corroborated the 

data with TVA’s audited financial statements and other published sources 

of the data, and consulted with knowledgeable officials. We compared 

TVA’s projections with historical data and information from TVA’s capital 

expenditure, resource, and other business plans to determine how they 

compared with these sources and whether relevant costs and revenue 

 7

TVA reports on debt using a measure of total financing obligations that includes bonds 

and notes, which TVA considers “statutory debt,” and other financing obligations, which 

include lease-leaseback obligations, energy prepayment obligations, debt related to 

variable interest entities, and membership interests issued in connection with a lease 

financing transaction.

8

TVA’s Projected Benefit Obligations are calculated in accordance with Accounting 

Standards Codification 715. Other measures of pension funding such as those used to 

determine contribution requirements per the TVA Retirement System rules, may use 

different assumptions that result in different views of the plan’s funding. For an 

examination of different interest rate and other measurement standards used in the 

determination of pension liabilities, see GAO, Pension Plan Valuation: Views on Using 

Multiple Measures to Offer a More Complete Financial Picture, GAO-14-264 (Washington, 

D.C.: Sept. 30, 2014).
Page 4 GAO-17-343 Tennessee Valley Authority

sources were considered. We determined that the data were sufficiently 

reliable for the purposes of our review.

We also reviewed legislation and other sources of TVA’s financial, 

planning, and reporting requirements and policy including the TVA Act, 

the GPRA Modernization Act of 2010 (GPRAMA),9 the Office of 

Management and Budget (OMB) Circular A-11 and Circular A-136, and 

TVA board and other policies and compared these sources with TVA’s 

debt reduction plans. We reviewed our prior reports and those of the 

Congressional Budget Office (CBO), TVA Office of Inspector General 

(OIG), and others to identify key issues TVA faces and factors that could 

affect TVA’s ability to meet its goals. We identified these reports based on 

discussions with CBO and TVA OIG officials, searches of their websites, 

and recommendations of federal officials and representatives of 

stakeholder groups. We interviewed TVA and TVA OIG officials and 

others knowledgeable about TVA, its goals and assumptions, issues 

facing the utility and the industry, and TVA’s service area. We identified 

and selected a nongeneralizable sample of federal officials and 

representatives of industry and stakeholder groups to interview by 

reviewing TVA documents; reviewing our prior reports and those of CBO 

and OIG; and obtaining recommendations during our interviews about 

others we could interview who were knowledgeable about TVA. We 

interviewed federal officials from the Department of Energy’s (DOE) 

Energy Information Administration (EIA), EPA, NRC, the Federal Energy 

Regulatory Commission, CBO, OMB, and the Department of the 

Treasury.10 We interviewed representatives of industry and stakeholder 

groups including the American Public Power Association, Edison Electric 

Institute, North American Electric Reliability Corporation, Nuclear Energy 

Institute, SERC Reliability Corporation, TVA Retirement System (TVARS) 

Board, Tennessee Valley Public Power Association, Tennessee Valley 

Industrial Committee, Southern Alliance for Clean Energy, and Southern 

Environmental Law Center. We also interviewed officials with credit rating 

institutions including Moody’s, Standard & Poor’s, and Fitch. Information 

obtained from our interviews cannot be generalized to those officials or 

representatives we did not interview.

 9

Pub. L. No. 111-352, 124 Stat. 3866 (2011). GPRAMA updated the Government 

Performance and Results Act of 1993 (GPRA), Pub. L. No. 103-62, 107 Stat. 285 (1993).

10EIA is the statistical agency within DOE that collects, analyzes, and disseminates

independent information on energy issues.
Page 5 GAO-17-343 Tennessee Valley Authority

We conducted this performance audit from August 2015 to March 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

This section describes TVA’s (1) legislation and governance, (2) 

operations and planning, (3) debt ceiling, and (4) retirement system.

TVA is an independent federal corporation established by the TVA Act. 

The act established TVA to improve the quality of life in the Tennessee 

River Valley by improving navigation, promoting regional agricultural and 

economic development, and controlling the floodwaters of the Tennessee 

River. To those ends, TVA built dams and hydropower facilities on the 

Tennessee River and its tributaries. From its inception in 1933 through 

fiscal year 1959, TVA received annual appropriations to finance its cash 

and capital requirements. In 1959, however, Congress amended the TVA 

Act and provided TVA with the authority to finance its power program 

through revenue from electricity sales and borrowing and required it to 

repay a substantial portion of the annual appropriations it had received to 

pay for its power facilities. Under the TVA Act, TVA must design its rates 

to cover all costs but also keep rates as low as feasible. TVA must charge 

rates for power that will produce gross revenues sufficient to provide 

funds for its costs including operating, administrative and maintenance 

costs. TVA can borrow by issuing bonds and notes, an authority set by 

Congress that cannot exceed $30 billion outstanding at any given time.11

Legislation also limits competition between TVA and other utilities. When 

the TVA Act was amended in 1959, it prohibited TVA, with some 

exceptions, from entering into contracts to sell power outside the area 

where it or its distributors were the primary source of power supply on 

July 1, 1957. This is commonly referred to as the “fence,” because it limits 

TVA’s ability to expand substantially outside its service area. In addition, 

the Federal Power Act includes a provision that helps protect TVA’s ability 

 11If adjusted for inflation, the $30 billion limit last changed in 1979 would be about $83 

billion in 2016 dollars. In this report, all data are fiscal year data and historic dollar values 

are not adjusted for inflation unless otherwise indicated.

Background

Legislation and 

Governance
Page 6 GAO-17-343 Tennessee Valley Authority

to sell power within its service area. This provision, called the “anticherrypicking” provision, exempts TVA from being required to allow other 

utilities to use its transmission lines to deliver power to customers within 

its service area.12 The anti-cherrypicking provision reduces TVA’s 

exposure to loss of customers and competition from other utilities.13

A nine-member Board of Directors nominated by the President and 

confirmed by the U.S. Senate administers TVA. The board sets TVA’s 

goals and policies, appoints the CEO, develops long-range plans, seeks 

to ensure those plans are carried out, and approves TVA’s budget. The 

board also approves rate changes and has the sole authority to set 

wholesale electric power rates and approve the retail rates charged by 

TVA’s distributors. TVA’s board approves the agency’s strategic plan 

which outlines TVA’s broad goals, priorities, and performance measures. 

TVA’s most recent strategic plan covers fiscal years 2014 through 2018 

and outlines its “strategic imperatives”—namely, to “maintain low rates, 

live within our means, manage our assets to meet reliability expectations 

and provide a balanced portfolio, and be responsible stewards of the 

region’s natural resources.”14

In August 2013, TVA’s board approved the goal to reduce TVA’s debt to 

about $22 billion by fiscal year 2023. TVA developed this goal during its 

fiscal year 2014 long-term financial planning process, but TVA updates its 

long range financial plan each year. The TVA board approves the budget 

each fiscal year, and the board is updated at least semi-annually on the 

long-range financial plan. TVA uses a 10-year long-range financial plan to 

determine the amount of funds that will be available for capital 

investment. Operating priorities are detailed in business unit plans, such 

as the power supply plan, the transmission assessment plan, and the coal 

and gas operations asset plan. In addition, TVA files publicly available 

quarterly and annual financial reports with the Securities and Exchange 

Commission. TVA also submits a budget proposal and management 

 1216 U.S.C. § 824k(h)(2) (2016).

13TVA faces some competitive pressure common to all utilities. For example, the cost of 

power could affect decisions by TVA’s customers to move or expand outside TVA’s 

service area or by businesses to move into its service area. In addition, customers can 

decide to generate their own power for on-site use. However, as long as the legislative 

framework continues to insulate TVA from direct competition for its wholesale customers, 

it will remain in a position similar to that of a regulated utility monopoly. 

14Tennessee Valley Authority, Strategic Plan: Fiscal Years 2014-2018 (March 2014).
Page 7 GAO-17-343 Tennessee Valley Authority

agenda (performance report) to Congress and a performance budget 

(performance plan) to OMB.

To meet demand for electricity, utilities can construct new plants, upgrade 

existing plants, purchase power from others, and provide incentives to 

customers to reduce and shift their demand for electricity through energy 

efficiency or demand-response programs.15 Since its establishment, to 

meet the subsequent need for more electric power, TVA has expanded 

beyond hydropower to other types of power generation such as natural 

gas, coal, and nuclear plants. In fiscal year 2016, TVA provided nearly 

159 billion kilowatt-hours to customers from its power generating facilities 

and purchased power, as shown in figure 1.16

 15By helping to reduce demand for electricity, energy efficiency programs can reduce the 

need for either new generating capacity or power purchases. Demand-response programs 

provide customers with financial incentives to reduce their electricity use during periods of 

peak demand.

16A kilowatt-hour is a measure of electricity defined as a unit of work or energy, measured 

as 1 kilowatt (1,000 watts) of power expended for 1 hour. 

Operations and Planning
Page 8 GAO-17-343 Tennessee Valley Authority

Figure 1: Percentage of Tennessee Valley Authority’s Power Provided to Customers 

by Source (based on kilowatt hours), Fiscal Year 2016

Note: Renewable resources (nonhydroelectric) from TVA facilities total less than 1 percent and 

therefore are not represented. Purchased power contains the majority of nonhydroelectric renewable 

energy supply.

To guide TVA decisions about the resources needed to meet future 

demand for electricity and determine the most cost-effective ways to 

prepare for the future power needs of its customers, TVA periodically 

develops an integrated resource plan (IRP).17 TVA’s 2015 IRP found no 

immediate needs for new baseload plants—plants that generally have 

been the most costly to build but have had the lowest hourly operating 

costs—beyond the completion of the Watts Bar Unit 2 nuclear plant in 

Tennessee and the expansion of capacity at the Browns Ferry nuclear 

plant in Alabama.18 In October 2016, TVA completed Watts Bar Unit 2—

 17As required by law, TVA conducts least-cost planning through an integrated resource 

planning process. TVA completed an IRP in 2015, updating its 2011 IRP. 
Page 9 GAO-17-343 Tennessee Valley Authority

the first nuclear unit to enter commercial operation in 20 years. Beyond 

those projects, the 2015 IRP found that TVA could rely on additional 

natural gas generation, greater levels of cost-effective energy efficiency, 

and increased contributions from competitively priced renewable power.

TVA develops forecasts of demand for electricity that help it make 

resource planning decisions, such as how much and what kind of 

capacity to build, how much power to buy from other sources, or how 

much to invest in energy efficiency. To forecast the demand for electricity 

in its service area for the next 20 or more years, TVA employs a set of 

models but forecasting beyond a few years into the future involves great 

uncertainty. Utilities deal with uncertainty partly by producing a range of 

forecasts based on demographic and economic factors, and by 

maintaining excess generating capacity, known as reserves. Models help 

utilities choose the least-cost combination of generating resources to 

meet demand. If demand forecasts are unreasonably high or low, a utility 

could end up with more or less generating capacity than it needs to serve 

its customers reliably, or it could end up with a mix of generating capacity 

that is not cost effective. These outcomes can affect electricity rates as 

well as the utility’s financial situation. TVA experienced less than 

anticipated electricity demand growth over the past 20 years and now 

forecasts little, if any, growth in demand for electricity in the upcoming 

years.

Congress increased TVA’s debt ceiling four times from 1966 to 1979, 

from $750 million to $30 billion. In the years following these increases, 

TVA’s financial condition worsened, largely as the result of construction 

delays, cost overruns, and operational shutdowns in its nuclear program. 

In the late 1960s and 1970s, TVA started construction on 17 nuclear units 

but completed only 7 because of lower-than-anticipated demand for 

electricity, resulting in billions of dollars of debt. In February 2001, we 

reported that TVA had about $6.3 billion in unrecovered capital costs 

associated with uncompleted and nonproducing nuclear units.19 In fiscal 

 18Electricity demand can vary throughout a day, as well as seasonally, so utilities use 

baseload plants and peaker plants. A baseload plant is operated close to its maximum 

output all the time it is available for service and generally includes the units whose energy 

costs are among the lowest on the system. Peaker plants generally operate at a higher 

hourly cost and can rapidly be brought online or offline in response to changes in 

electricity demand. 

19GAO-01-327. 

Debt Ceiling
Page 10 GAO-17-343 Tennessee Valley Authority

year 2016, TVA had about $1.1 billion in unrecovered costs associated 

with uncompleted nuclear units.

While the debt ceiling has not been changed since 1979, TVA’s business 

and operations have grown along with the power needs of the Tennessee 

Valley. TVA has continued to add generating capacity to the system, as 

its customer base has increased, and environmental spending 

requirements have increased. TVA generally uses debt financing for 

capital investments in new generation capacity and environmental 

controls and uses revenues for operation and maintenance of the power 

system. TVA can borrow funds at competitive interest rates as a result of 

its triple-A credit rating which is based, in part, on its ownership by the 

federal government. Appendix I includes historical data on TVA’s debt 

and other selected financial data.

TVA’s board established TVARS in 1939. TVARS is a separate legal 

entity from TVA and is administered by a seven-member Board of 

Directors.20 The TVARS board manages the retirement system, including 

decision-making on investment portfolios, the interest rate or rates used 

in actuarial and other calculations, and benefits. The Rules and 

Regulations of the TVA Retirement System (TVARS Rules) establish how 

the retirement system is administered and what benefits are payable to 

participants.21 The TVARS Rules establish the minimum amount TVA 

must contribute to the system each year. The TVARS board can amend 

the TVARS Rules, but TVA has veto power and amendments proposed 

by the TVARS board become effective only if TVA does not exercise its 

veto within 30 days. As a governmental plan, TVA’s plan is not subject to 

the Employee Retirement Income Security Act of 1974 (ERISA), which 

 20Three of the directors are appointed by TVA and three are elected by and from the 

participants in the system. A seventh director is selected by the other six.

21TVARS administers three different benefit structures for members of the system: 

employees hired prior to January 1, 1996 (and who did not elect to switch pension 

structures) participate in a defined benefit plan. Employees hired on or after January 1, 

1996 (or who elected to switch pension structures) are eligible to participate in a defined 

benefit (converted to a cash balance formula) and a defined contribution 401(k) plan. 

Employees hired on or after July 1, 2014 are generally eligible for a retirement benefit in 

the 401(k) plan only. Changes made to the system in fiscal year 2014 closed the defined 

benefit plan to new entrants. In addition, TVARS provides a supplemental medical benefit 

to eligible retirees. TVA administers a Supplemental Executive Retirement Plan for certain 

executives in critical positions. 

Retirement System
Page 11 GAO-17-343 Tennessee Valley Authority

sets minimum standards for pension plans in the private sector.22 As of 

September 30, 2016, the defined benefit pension plan (which we refer to 

as the pension plan in this report) had about 34,000 participants, of whom 

about 24,000 were retirees; it is a “mature” plan, in that there are more 

than twice as many retirees and beneficiaries as employees participating 

in the plan.

To meet its goal to reduce its debt from about $26 billion in fiscal year 

2016 to about $22 billion by fiscal year 2023, TVA plans to increase 

revenue through rate increases, limit the growth of operating expenses, 

and reduce capital expenditures. TVA’s plans assume the completion of 

capital projects will occur on time and within budget. TVA’s plans also 

include costs for investigating the development of new nuclear technology 

but do not include capital costs for construction.

According to TVA officials, TVA aims to increase its overall financial 

flexibility over the long term to ensure sufficient room under the debt 

ceiling so it can access capital for future investments to meet its mission. 

TVA plans to gradually decrease debt through 2023 (see fig. 2).

 22The pension benefits are not insured by the Pension Benefit Guaranty Corporation 

which is a federal agency established under ERISA to insure pension benefits in certain 

private-sector defined benefit plans. ERISA also includes requirements for benefit accrual 

and minimum standards for vesting and plan funding.

TVA Plans to Reduce 

about $4 Billion in 

Debt by Raising 

Rates, Limiting the 

Growth of Operating 

Expenses, and 

Reducing Capital 

Expenditures

TVA Plans to Increase 

Rates, Limit the Growth of 

Operating Expenses, and 

Reduce Capital 

Expenditures
Page 12 GAO-17-343 Tennessee Valley Authority

Figure 2: Tennessee Valley Authority’s Actual Debt and Projected Debt, Fiscal 

Years 2013 through 2023

Note: TVA reports on debt using a measure of total financing obligations that includes bonds and 

notes, which TVA considers “statutory debt,” and other financing obligations, which include leaseleaseback obligations, energy prepayment obligations, debt related to variable interest entities, and 

membership interests issued in connection with a lease financing transaction. As of September 30, 

2016, TVA’s debt totaled about $26 billion, which included about $24 billion in bonds and notes and 

about $2 billion in other financing obligations.

To meet its goal to reduce its debt to about $22 billion by fiscal year 2023, 

TVA’s plans include the following.

Rate increases. TVA’s plans include annual rate increases not to exceed 

1.5 percent of the retail rate as needed to maintain its debt reduction 

trajectory. According to TVA officials and documents, TVA’s plans 

included rate increases of 1.5 percent for about $200 million in annual 

revenue. TVA can use increased revenue to refinance existing debt or to 

fund certain expenditures rather than taking on new debt, but TVA’s 

board must approve rate increases. TVA increased rates each fiscal year 

from 2014 through 2017. According to TVA officials, annual rate 

increases through 2023 could result in the reduction of debt to about 
Page 13 GAO-17-343 Tennessee Valley Authority

$19.8 billion by fiscal year 2023, which would exceed the agency’s debt 

reduction goal.

Limits in the growth of operating expenses. TVA plans to continue 

evaluating its operations and to limit the growth of its operating expenses. 

Having fewer operating expenses frees up revenue from rates that TVA 

can use to repay outstanding debt or fund certain expenditures without 

taking on new debt. In fiscal year 2016, TVA’s O&M expenses totaled 

about $2.8 billion—a reduction of about 18 percent from $3.4 billion in 

fiscal year 2013.23 As part of its cost-reduction initiatives, TVA eliminated 

2,200 positions through attrition and elimination of vacant positions. TVA 

plans to pursue additional workforce reductions to offset increases in 

retirement benefit and labor costs.24 According to TVA documents, 

reductions in expenses associated with coal plant closures will offset 

some of the increase in labor-related costs but other reductions will be 

required. TVA officials said that additional reductions could involve 

contract labor in its nuclear group. In July 2016, TVA offered a voluntary 

reduction-in-force program to all 3,500 employees in its nuclear group, 

providing an opportunity to retire or depart; as of January 2017, TVA 

officials had not provided information on the number of employees 

participating in this program. In fiscal year 2016, TVA’s workforce 

included 10,691 employees and 12,729 contractors. According to TVA 

documentation, as a major component of its O&M costs, TVA 

continuously evaluates its staffing levels, both employees and 

contractors. TVA plans are being finalized, over the next several years, to 

decrease the overall workforce through various mechanisms as TVA 

aligns its workforce with changes to its generating assets; these 

mechanisms may include reductions-in-force, attrition, and elimination of 

 23Routine O&M expenses include labor, benefits and materials for the general 

maintenance and operation of TVA’s generating facilities and corporate functions. TVA’s 

other O&M expenses include outage expenses (work completed during outages of 

nuclear, coal, gas and hydro generating facilities); expenses for strategic projects at 

generating facilities and programs, such as energy efficiency and demand response; and 

other expenses (fuel-related O&M, portions of retirement benefits, and the amortization of 

costs associated with the cleanup of a large coal combustion residual (coal ash) spill that 

occurred in December 2008 at TVA’s Kingston, Tennessee, coal-fired unit).

24These costs include employee salary growth, retirement benefit changes, and labor for 

new gas plants. Amendments to the TVARS Rules that reduced future pension benefit 

accruals and increased 401(k) contributions became effective on October 1, 2016. These 

changes reduced TVA’s pension liabilities by about $960 million, but TVA anticipates an 

increase of about $63 million in retirement expenses consisting of $25 million in additional 

contributions ($300 million up from $275 million) to fund the pension plan, including 

benefits that have already accrued, and about $38 million in contributions to the 401(k). 
Page 14 GAO-17-343 Tennessee Valley Authority

vacant positions. However, early retirements and severance associated 

with workforce reductions could also pose additional expenses.

Reductions in capital expenditures. TVA plans to reduce its capital 

expenditures through fiscal year 2023. Over the past decade, TVA’s 

capital expenditures increased by over 180 percent—from about $1.2 

billion in fiscal year 2006 to about $3.4 billion in fiscal year 2015.25 TVA 

aims to decrease capital expenditures to about $1.8 billion by fiscal year 

2023 (see fig. 3).

Figure 3: Tennessee Valley Authority’s Actual and Planned Capital Expenditures, Fiscal Years 2006 through 2023

Based on its electricity demand forecast, TVA does not anticipate the 

need for additional baseload capacity until the 2030s beyond completion 

of Watts Bar Unit 2—which cost about $4.7 billion—and capacity 

expansion at three nuclear units. TVA’s capital expenditure plan from 

 25If adjusted for inflation, TVA’s capital expenditures increased by about 133 percent, from 

about $1.5 billion to about $3.5 billion, from fiscal years 2006 to 2015 (in 2016 dollars). 
Page 15 GAO-17-343 Tennessee Valley Authority

fiscal years 2016 through 2023 includes a total of about $17.4 billion; 

about $8.3 billion for base capital projects to maintain the current 

operational state, about $5.2 billion for capacity expansion projects, and 

about $3.9 billion for environmental and other projects.26 Under TVA’s 

financial guiding principles, TVA may issue debt for new assets, including 

capacity expansion and installation of environmental controls, but, 

according to TVA officials, TVA plans to primarily fund capital 

expenditures with revenue, as opposed to issuing new debt, to reach its 

debt goal. TVA increased construction expenditures from fiscal years 

2006 through 2016 from about $1.4 billion ($1.6 billion in 2016 dollars) to 

about $2.7 billion while reducing the amount of new debt issued (see fig. 

4).27

 26Base capital includes projects aimed at maintaining the current operational state—for 

example, replacing parts and systems based on requirements of maintenance 

agreements, assessing age and condition, and addressing operating problems.

27Construction expenditures include expenditures for property, plant, and equipment 

additions, including clean air projects and new generation but do not include expenditures 

for certain costs associated with TVA facilities (including costs associated with the 

Kingston coal ash spill, deferred costs for construction activities at nonproducing units, 

and settlement of asset retirement obligations associated with the future retirement of 

TVA’s generating facilities). Capital expenditures include construction expenditures and 

costs associated with the aforementioned facilities.
Page 16 GAO-17-343 Tennessee Valley Authority

Figure 4: Tennessee Valley Authority’s Construction Expenditures and Debt Issued, 

Fiscal Years 2006 through 2016

Note: TVA did not issue any power bonds in fiscal year 2016.

According to TVA officials, TVA’s plans assume that the completion of 

capital projects will occur on time and within budget. TVA’s plans included 

the assumption that it would complete construction of a new nuclear

unit—Watts Bar Unit 2—in 2016. Watts Bar Unit 2 began commercial 

operation in October 2016. By completing construction of this unit in 

2016, a key assumption underlying TVA’s debt reduction plans was met. 

However, TVA’s plans include other key capital projects such as the 

construction of two natural gas plants, modification of a coal plant to 

install clean air controls, and two smaller nuclear projects. Information 

about these two nuclear projects follow.

Browns Ferry extended power uprate (EPU). TVA’s capital plans 

include a project that aims to increase generation capacity at the Browns 

Ferry nuclear plant’s three existing units. TVA began the project in 2001 

TVA’s Plans Assume 

Completion of Capital 

Projects on Time and 

within Budget
Page 17 GAO-17-343 Tennessee Valley Authority

and anticipated completion within 2 to 4 years but the project remains 

incomplete.28 As of September 30, 2016, TVA reported that it anticipates 

completion of the project by 2024 at a total estimated cost of about $475 

million—an increase of 25 percent from an estimated $380 million in fiscal 

year 2014. According to TVA documentation, the agency spent about 

$191 million on the project through fiscal year 2016. The project involves 

engineering analyses and modification and replacement of certain 

existing plant components to enable the units to produce additional 

power. To allow operation at the higher power level, the license for each 

unit requires modification that would occur in parallel with the NRC 

license amendment review process. TVA originally submitted the 

licensing amendment requests to NRC in June 2004. However, TVA 

withdrew these requests in September 2014 and submitted a new request 

in September 2015. According to NRC, it is planning to complete its 

review by fall 2017.

Watts Bar Unit 2 steam generator replacement. TVA’s capital plans 

include about $438 million to replace steam generators at the newly 

operational unit. The existing generators prematurely developed leaks 

and other problems occurred at nuclear plants, including Watts Bar Unit 1 

which required replacement of the generators 9 years into operation. 

According to TVA officials, TVA has completed steam generator 

replacements at other nuclear units without significant cost overruns or 

schedule delays.

Given historical trends in nuclear construction, TVA’s estimated capital 

costs may be optimistic and could increase. Any cost overruns or delays 

on its nuclear or other capital projects could require adjustments to its 

future financial plans. TVA’s history of cost overruns and schedule delays 

includes the construction of Watts Bar Unit 2 which began commercial 

operation in October 2016 after decades of construction (see table 1).

 28At the request of TVA management, the OIG reviewed the causes of the delays in the 

Browns Ferry EPU project and concluded that TVA senior management’s decisions early 

in the EPU project were the most significant factor in the lack of progress in the project. 

Specifically, the TVA OIG found that senior management directed staff to keep the EPU 

proposal within a certain cost, requiring the staff to report an artificially optimistic scope 

and ultimately, leading a contractor to propose use of a methodology that was not 

approved by NRC. 
Page 18 GAO-17-343 Tennessee Valley Authority

Table 1: Tennessee Valley Authority’s Watts Bar Unit 2 Construction History

1973 TVA received a construction permit for Watts Bar Units 1 and 2. TVA’s original cost estimate for units 1 and 2 

totaled about $500 million, with estimated completion dates in 1976 and 1977, respectively.

1985 Construction proceeded on unit 2 until TVA halted construction in 1985 after more than a decade of construction. 

The reactor was approximately 60 percent complete. 

November 2006 TVA informed the Nuclear Regulatory Commission of its intent to perform a study of the feasibility of completing 

Watts Bar Unit 2, with the goal of producing power from the reactor in 2013.

August 2007 TVA revived the project and the TVA board approved the completion of the unit, at a cost of $2.5 billion to be 

completed in 60 months (i.e., by August 2012). 

April 2012 The TVA Office of Inspector General determined TVA’s construction was significantly behind schedule and 

grossly over budget, despite information released by TVA senior management to the contrary. TVA’s board 

approved a revised cost estimate of between $4.0 billion and $4.5 billion, up from $2.5 billion, and the unit was 

forecasted to come on line by December 2015. 

January 2016 TVA’s board approved additional funding, up to a total estimated cost of $4.7 billion with completion of the unit 

anticipated in June 2016.

October 2016 Watts Bar Unit 2 entered commercial operation. 

Source: GAO analysis of TVA documents. | GAO-17-343

Note: Dollar values are not adjusted for inflation.

TVA did not complete another nuclear project. TVA auctioned off the 

1,400 acre site of the Bellefonte nuclear plant in Alabama, including two 

unfinished nuclear units, in November 2016 for $111 million—a fraction of 

the approximately $5 billion TVA had spent on the plant.29 TVA began 

building the plant in 1974, but several stops and starts in construction 

occurred primarily as a result of lower-than-anticipated growth in 

electricity demand. According to TVA officials, TVA decided again to 

complete unit 1 in 2011 but stopped work in 2013 because of reduced 

electricity demand, Watts Bar Unit 2 concerns, and anticipated increases 

in construction costs. In 2013, TVA estimated that the cost to complete 

the unit had grown from its prior approved cost of $4.9 billion to at least 

$7.5 billion or more. TVA stated that it wanted to complete Watts Bar Unit 

2 and await the results of its IRP process. Based on the 2015 IRP, TVA 

 29These capital expenditures data do not include the effect of inflation over the years 

during which the expenditures occurred. Nuclear Development LLC purchased the 

Bellefonte site in November 2016 and plans to complete construction of the plant. The 

company has up to 2 years from the purchase date to close on the site, which TVA will 

maintain in the meantime. TVA constructed various facilities on the site, including two 

partially completed pressurized light-water reactors, reactor containment buildings, a 

control building, cooling towers, warehouses, office buildings, railroad spurs, and a 

training center. When TVA first halted construction in 1988, Bellefonte Unit 1 was about 90 

percent complete, and unit 2 was about 58 percent complete. TVA did not begin 

construction on the other two units that were initially planned at the site.
Page 19 GAO-17-343 Tennessee Valley Authority

decided not to complete construction of Bellefonte. According to TVA 

documentation, TVA spent about $10 million to $12 million annually 

maintaining the Bellefonte site. TVA’s plans do not anticipate any such 

events occurring with its current projects that would interfere with timely 

completion within budget.

TVA’s plans include costs for investigating the development of new 

nuclear technology but do not include capital costs for construction of the 

technology. Specifically, TVA is assessing the potential of its Clinch River 

site in Tennessee for the construction of small modular reactors (SMR).30

According to TVA documentation, these efforts include research and 

development activities that support its technology innovation mission. In 

2016, TVA submitted an early site permit application to NRC to assess 

the suitability of the site for construction and operation of SMRs at its 

1,200-acre Clinch River site. An early site permit is valid for up to 20 

years and would address site safety, environmental protection, and 

emergency preparedness associated with any of the light-water reactor 

SMR designs under development in the United States. According to TVA 

documentation, TVA has not selected a technology and has not entered 

into any contracts for design work.

If TVA decides to construct SMRs, its costs are uncertain but could total 

about $3 billion after cost sharing through public-private partnerships but 

expenditures prior to a construction decision would be a very small 

portion of this cost, according to TVA documentation. The total estimated 

costs for TVA to develop, submit, and support the NRC application and 

review include about $72 million, according to an interagency agreement 

with DOE, and TVA is responsible for half of these costs. According to 

TVA documentation, the agency spent about $23 million on SMR 

 30SMRs are nuclear power reactors with a generating capacity of less than 300 

megawatts of electricity generally, while TVA’s existing nuclear units generate about 1,190 

to 1,270 megawatts. As we reported in July 2015, light-water SMRs are a new reactor 

concept that may provide some benefits but that also face some development challenges 

even though they are similar to existing large light-water reactors, such as at TVA’s 

Sequoyah, Browns Ferry, and Watts Bar plants. We reported that common challenges 

include long time frames and high costs associated with the shift from development to 

deployment—that is, the construction of the first commercial reactors of a particular type. 

GAO, Nuclear Reactors: Status and Challenges in Development and Deployment of New 

Commercial Concepts, GAO-15-652 (Washington, D.C.: July 28, 2015). According to TVA, 

the smaller size enables components to be shipped to the site by rail or truck, allowing 

more of the construction to take place in factories which increases standardization, 

improves quality and shortens construction durations.

TVA’s Plans Include Costs 

for Investigating New 

Nuclear Technology 

Although Its Study 

Concluded the Technology 

Is Cost-Prohibitive
Page 20 GAO-17-343 Tennessee Valley Authority

activities through fiscal year 2015 and estimates spending about $5 

million in fiscal year 2016.31 According to TVA, it spends about $10 million 

to $15 million on research and development activities each year as part of 

its technology innovation organization (not including spending on SMRs). 

TVA officials said that the agency will not decide whether or not to 

construct SMRs for at least 5 years. However, TVA is investigating SMRs 

even though its 2015 IRP found that TVA does not need additional 

baseload power plants beyond the projects currently under way and that 

SMRs are cost-prohibitive.

TVA’s debt reduction plans and performance information are not reported 

in a manner consistent with GPRAMA requirements. GPRAMA requires 

agencies, including TVA, to report major management challenges that 

they face, and for each major management challenge that agencies 

develop and report performance information—including performance 

goals, measures, milestones, and planned actions to resolve the 

challenge.32 TVA identifies managing debt and its unfunded pension

liabilities as major management challenges but TVA has not reported 

required performance information in its annual performance plan or report 

on these challenges.33

For managing debt, TVA’s CEO stated a goal for debt reduction by 2023 

during a congressional hearing in April 2015 and the goal is reported in 

internal documents and Board presentation slides available on TVA’s 

website. In addition, according to TVA’s 2016 performance report, its 

strategic objectives include “effectively manage debt to ensure long-term 

 31Dollar figures are not adjusted for inflation. 

32The GPRA Modernization Act of 2010, Pub. L. No. 111-352, § 3, 124 Stat. 3866, 3867 

(2011). GPRAMA establishes a framework aimed at taking a crosscutting and integrated 

approach to focusing on results and improving government performance. In addition, OMB 

guidance on implementing GPRAMA instructs agencies to highlight management issues 

and risks and how the agency will address major management challenges; in the 

performance plan agencies are to describe progress made on management priorities and 

challenges. Office of Management and Budget, Circular A-11, Preparation, Submission 

and Execution of the Budget, Part 6, § 210 (November 2014). 

33For a discussion of its major management challenges, TVA’s strategic plan refers 

readers to other documents, including its performance report, which discusses “managing 

debt,” “debt reduction,” and “pension fund.”

TVA Has Not 

Reported Required 

Performance 

Information on Its 

Debt Reduction Plans 

and Its Performance 

Goals Do Not 

Address Billions in 

Unfunded Pension 

Liabilities
Page 21 GAO-17-343 Tennessee Valley Authority

financial health.”34 TVA’s 2016 performance report includes a goal related 

to total financing obligations for fiscal years 2016 and 2017, but the goal 

shows these obligations increasing, and the report does not include 

information on planned actions to resolve the challenge. Although TVA 

established a goal to reduce its debt, it has not documented in its annual 

performance plan or report strategies for how it will meet its goal, as 

required by GPRAMA, thereby reducing transparency and raising 

questions about how the agency will meet its goal.35

For TVA’s unfunded pension liabilities, TVA officials have stated a goal to 

eliminate the pension funding shortfall (about $6 billion at the end of fiscal 

year 2016) by 2036, but TVA has not identified such a goal or milestones 

in its performance plan or report. As of September 30, 2016, TVA’s 

pension plan was about 54 percent funded with a funding shortfall of 

about $6 billion (plan assets totaled $7.1 billion and liabilities $13.1 

billion).36 While TVA’s debt has remained relatively flat, its unfunded 

pension liabilities have steadily increased over the past 10 years (see fig. 

5).

 34Tennessee Valley Authority, Budget Proposal and Management Agenda (Performance 

Report) for the Fiscal Year Ending September 30, 2017 (February 2016). TVA has not 

published a separate performance plan since 2014. Performance Budget for the Fiscal 

Year Ending September 30, 2016 (September 2014). 

35In June 2016, we found that 22 of the 24 agencies we reviewed did not report complete 

performance information for each of their major management challenges. GAO, Managing 

for Results: Agencies Need to Fully Identify and Report Major Management Challenges 

and Actions to Resolve them in their Agency Performance Plans, GAO-16-510 

(Washington, D.C.: June 15, 2016).

36The $13.1 billion in pension liabilities does not include TVA’s other post-retirement 

benefit obligations which totaled about $571 million as of September 30, 2016. In addition, 

TVA administers a Supplemental Executive Retirement Plan for certain executives in 

critical positions and TVA has historically funded the annual calculated expense. In fiscal 

year 2016, TVA made contributions of about $6 million to the Supplemental Executive 

Retirement Plan and $47 million to the other post-retirement benefit plans.
Page 22 GAO-17-343 Tennessee Valley Authority

Figure 5: Tennessee Valley Authority’s Debt and Unfunded Pension Liabilities, 

Fiscal Years 2006 through 2016

Note: TVA reports on debt using a measure of total financing obligations that includes bonds and 

notes, which TVA considers “statutory debt,” and other financing obligations, which include leaseleaseback obligations, energy prepayment obligations, debt related to variable interest entities, and 

membership interests issued in connection with a lease financing transaction. As of September 30, 

2016, TVA’s debt totaled about $26 billion, which included about $24 billion in bonds and notes and 

about $2 billion in other financing obligations.

Unfunded pension liabilities are similar to other kinds of debt because 

they constitute a promise to make a future payment or provide a benefit.37

According to a joint American Academy of Actuaries and Society of 

Actuaries task force, a pension plan needs to be evaluated as part of a 

plan sponsor’s overall enterprise; an analysis that looks at the pension 

plan as a self-standing entity is incomplete and too narrow.38 However, 

 37Financial economic theory informs the premise that a promise to make a future payment 

of benefits is similar to a promise to pay off any other kind of debt (such as a bond) and 

should be valued in a similar way. 

38Joint American Academy of Actuaries and the Society of Actuaries Task Force on 

Financial Economics and the Actuarial Model, Pension Actuary’s Guide to Financial 

Economics (2006).
Page 23 GAO-17-343 Tennessee Valley Authority

TVA officials told us that because TVA uses revenue from the rates it 

charges customers to fund the pension, and not debt in the form of 

bonds, unfunded pension liabilities would not affect TVA’s debt reduction 

plan. In addition, TVA defers pension costs as “regulatory assets”—

incurred costs deferred for recovery through rates in the future—in 

accordance with accounting standards and with TVA board approval.39

However, because TVA will need to recover these costs through rates in 

the future, this affects its financial health and operations. If TVA uses 

revenue from rate increases to close the pension shortfall, this could 

decrease its ability to fund other activities such as capital projects with 

revenue from rates. This could, in turn, require TVA to rely on debt to fund 

certain capital projects and interfere with efforts to meet overall debt 

reduction goals. Alternatively, further rate increases could interfere with 

TVA’s objective of keeping rates as low as feasible. Without the Board of 

Directors ensuring that TVA better document and communicate 

information about its goals to reduce debt and unfunded pension liabilities 

in its performance plan and report, including strategies for achieving its 

goals, congressional and other stakeholders will not have a complete 

picture of TVA’s progress toward managing its debt or its overall financial 

health.

 39As a rate-regulated entity, TVA can defer recognition of certain costs or revenues (by 

capitalizing them as assets or liabilities, respectively) that normally would be charged to 

the statement of operations as costs or revenues, with approval from the TVA board. In 

order to defer recognition of incurred costs, a regulated entity must have the statutory 

authority to establish rates that recover all costs, and those rates must be charged to and 

collected from customers. The TVA Board is authorized by the TVA Act to set rates for 

power sold to customers. Additionally, TVA’s regulated rates are designed to recover its 

costs of providing electricity. In view of demand for electricity and the level of competition, 

TVA has assumed that rates, set at levels that will recover TVA’s costs, can be charged 

and collected. Regulatory assets generally represent incurred costs that have been 

deferred because such costs are probable of future recovery in customer rates. If future 

recovery of regulatory assets ceases to be probable, TVA would be required to write off 

these deferred costs and recognize them as a charge against net income or other 

comprehensive income. Appendix I, table 6 includes historical data on TVA’s regulatory 

assets.
Page 24 GAO-17-343 Tennessee Valley Authority

Several factors could affect TVA’s ability to meet its debt reduction goal, 

including regulatory pressures, changes in demand for electricity, 

technological innovations, or unforeseen events.40 In addition, TVA aims 

to eliminate its $6 billion in unfunded pension liabilities within 20 years, 

according to TVA officials, but no mechanism is in place to ensure TVA 

fully funds the liabilities if, for example, plan assets do not achieve 

expected returns.

Several factors could affect TVA’s ability to meet its debt reduction goals, 

including regulatory pressures that could require additional capital 

investment, changes in demand for electricity, technological innovations, 

or unforeseen events that could affect revenues or require additional 

investments.

TVA’s fossil fuel and nuclear power plants are, or potentially will be, 

affected by existing and proposed environmental and other regulations, 

and the implementation of these regulations may require TVA to make 

additional capital investments. For example, TVA estimates it will spend 

about $2 billion on environmental expenditures and compliance with 

regulations from 2017 through 2023 but, according to a TVA document, 

this estimate could change as additional information becomes available 

and regulations change. TVA spent about $977 million to eliminate the 

wet storage of coal combustion residual, commonly called coal ash, to 

assist in meeting EPA and Tennessee Department of Environment and 

Conservation environmental requirements.41 As part of these efforts, TVA 

prepared a June 2016 environmental impact statement on the approach it 

 40Other factors could affect TVA’s ability to meet its debt reduction goal, but the factors we 

identified include those mentioned in the documents we reviewed and by TVA officials and 

the representatives we interviewed from industry and stakeholder groups. 

41Coal combustion residuals are produced from burning coal in coal-fired power plants 

and include a number of by-products, such as boiler slag (molten bottom ash from certain 

furnace types) and scrubber residues. In April 2015, EPA published its final rule on 

disposal of coal combustion residuals, which regulates, among other things, design, 

operations, groundwater monitoring, and closure and postclosure standards.

Several Factors 

Could Affect TVA’s 

Ability to Meet Its 

Debt Reduction Goal, 

and No Mechanism Is 

in Place to Ensure 

TVA Addresses 

Unfunded Pension 

Liabilities

Factors That Could Affect 

TVA’s Ability to Meet Its 

Debt Reduction Goals

Regulatory Pressures Could 

Require Additional Capital 

Investment
Page 25 GAO-17-343 Tennessee Valley Authority

planned to take for closing coal ash impoundments at its coal plants, 

which involved converting all its wet storage to dry storage.42 According to 

a TVA document, the agency anticipates spending about an additional 

$1.2 billion in related coal ash costs through 2022.

While the status of the Clean Power Plan that EPA issued in 2015 is 

unclear, TVA continues to assess the plan and its status.

43 According to 

TVA documentation, TVA is well positioned to meet carbon emission 

guidelines for existing fossil fuel plants under the plan. Specifically, in 

April 2011, TVA agreed to retire 18 of its 59 fossil fuel units by the end of 

2017 for several reasons, including the cost of adding emission control 

equipment and other environmental improvements to the units.44 As of 

September 2016, TVA had retired 14 of the 18 units and reported that it 

would continue to evaluate the appropriate asset mix, given the costs of 

continuing to operate its coal plants, including adhering to environmental 

regulations.45

With regard to TVA’s nuclear power plants, TVA also faces potential costs 

related to proposed regulations. For example, in May 2014, NRC notified 

certain nuclear power plant licensees of the results of seismic hazard 

screening evaluations performed following the Fukushima nuclear 

 42Two lawsuits were filed against TVA in 2015 alleging waste materials were released 

from the Gallatin Fossil Plant’s coal ash facilities into waters around the plant in violation 

of Tennessee state law and the Clean Water Act, respectively. According to TVA 

documents, both lawsuits are scheduled for trial in 2017.

43The U.S. Supreme Court stayed implementation of the Clean Power Plan in February 

2016 pending judicial review. In addition, the plan is subject to review by the new 

presidential administration. 

44TVA entered into two similar agreements in April 2011—one with EPA and one with four 

states (Alabama, Kentucky, North Carolina, and Tennessee) and three environmental 

groups (Sierra Club, National Parks Conservation Association, and Our Children’s Earth 

Foundation). TVA refers to these agreements collectively as the “environmental 

agreements.” Under the agreements, TVA committed, among other things, to retire on a 

phased schedule 18 fossil fuel units, invest $290 million in certain TVA environmental 

projects, and pay civil penalties of $10 million.

45TVA reported in September 2016 that it planned on retiring the remaining four units by 

December 2017. In addition, TVA has also retired 10 additional coal-fired units that were 

not part of the environmental agreements.
Page 26 GAO-17-343 Tennessee Valley Authority

accident.46 Based on the screening results, TVA must conduct additional 

seismic risk evaluations of all three of its nuclear plants—Browns Ferry, 

Sequoyah, and Watts Bar—by 2019.47 According to TVA, NRC is 

developing a rule anticipated in mid-2017 for nuclear plants to mitigate 

the effects of events, such as seismic events, that exceed plant design 

standards that could require TVA to modify one or more of its nuclear 

plants. According to TVA documents, plant modification costs will be 

unknown until the rule is finalized, but they could be substantial.

Reductions in demand for electricity could affect TVA’s revenues; 

alternatively, increases in demand could generate additional revenue but 

require investment in additional capacity or purchased power. The 

expanded use of distributed generation and increased energy efficiency 

and conservation could reduce demand for electricity in TVA’s service 

area and affect its revenues.48 As the amount of distributed generation 

grows and renewable generation and energy efficiency technologies 

improve and become more cost-effective, TVA projects sales of electricity 

will see little, if any, growth in upcoming years. According to several 

representatives from industry and stakeholder groups, distributed 

generation could increase competition from end-use customers—

consumers who typically buy power from the local power companies that 

obtain power from TVA—if they adopt on-site power generation. 

According to EIA’s Annual Energy Outlook 2016, annual electricity 

demand for the average household will decline by 11 percent from 2015 

 46In March 2011, a 9.0-magnitude earthquake and subsequent tsunami hit northeast 

Japan. The Fukushima Daiichi nuclear power plant suffered extensive damage when a 

tsunami wave exceeded the plant’s seawall, flooded the site, and caused a prolonged 

power loss. As a result of the power loss, plant operators were unable to keep three of the 

reactors cool, which led to fuel melting, hydrogen explosions, and the release of 

radioactive material into the environment. The disaster displaced tens of thousands of 

residents and contaminated the surrounding area. 

47TVA must complete the seismic risk evaluation for Browns Ferry and Sequoyah by 

December 31, 2019, and complete the evaluation for Watts Bar by June 30, 2017. 

According to TVA, these seismic risk evaluations were required by NRC because TVA’s 

three nuclear plants had increases in seismic parameters beyond the technical information 

available when the plants were designed and licensed.

48Distributed generation refers to a variety of technologies that generate electricity at or 

near where it will be used, such as solar panels and combined heat and power. 

Distributed generation may serve a single consumer, such as a home or business, or it 

may be part of a small grid that is also tied into a larger electricity delivery system, such as 

an industrial facility, military base, or college campus.

Changes in Electricity 

Demand, Technological 

Innovation, or Unforeseen 

Events Could Affect Revenues 

or Require Additional 

Investments
Page 27 GAO-17-343 Tennessee Valley Authority

to 2040.49 EIA reported that factors contributing to a decline in household 

demand include efficient lighting technologies and increased distributed 

generation, particularly rooftop solar. According to TVA documents, the 

agency cannot predict the financial impact from future growth of 

distributed generation but TVA has taken steps to anticipate the changes 

in the electricity market that distributed generation could bring. For 

example, in 2016, TVA announced a new business unit focused on 

distributed energy resources and the energy delivery marketplace, and 

according to a TVA official, it also formed information exchanges to 

provide forums to discuss implementation issues related to distributed 

generation and energy efficiency.

Other technological developments in the electric utility industry could 

change TVA’s operating costs or requirements. For example, several 

representatives we interviewed from industry and stakeholder groups said 

that energy storage technology could become more cost-effective and 

change the way utilities operate.50 While the added capacity provided by 

energy storage could delay or alleviate the need for TVA to build 

additional power plants, TVA officials said that there are still several 

unknowns about the technology though they do not believe integration of 

battery storage into the system would be problematic. Finally, unforeseen 

events could also affect TVA’s ability to meet debt reduction goals. For 

example, the 2008 Kingston coal ash spill cost about $1.2 billion to 

remediate—costs TVA is still recovering.

 49Energy Information Administration, Annual Energy Outlook 2016, DOE/EIA-0383 

(Washington, D.C.: August 2016).

50Energy can be stored for later use in a variety of ways including pumped hydroelectric, 

batteries, and thermal storage. Energy storage can help balance fluctuations in electricity 

supply and demand by storing electricity during periods of relatively high production and 

low demand, then releasing the stored energy back to the electric power grid during 

periods of lower production or higher demand.
Page 28 GAO-17-343 Tennessee Valley Authority

TVA plans to make annual contributions of $300 million to the pension 

plan, or more if required by the TVARS Rules, for up to 20 years. 

According to TVA’s analysis, there is a 50 percent chance that annual 

contributions of $300 million could eliminate the $6 billion funding shortfall 

at the end of 20 years and a 50 percent chance that a funding shortfall 

would remain. TVA’s analysis assumes an annual return of 7 percent on 

pension plan assets, but depending on market conditions, assets could 

yield higher or lower than expected returns.51 According to TVA officials, 

the pension plan asset performance is critical to TVA’s ability to close the 

pension funding shortfall. TVA officials have stated a goal to fully fund the 

pension plan within 20 years. However, if market conditions over the next 

20 years are not favorable enough to fully fund the pension liabilities, 

which TVA’s analysis assigns a 50 percent chance, TVA would need to 

contribute more than $300 million per year to make up the difference if it 

aims to eliminate the funding shortfall. Other factors that could affect 

TVA’s pension liabilities include greater than expected increases in retiree 

lifespans and declining bond yields.52

In a 2010 report, the TVA OIG found that a combination of factors—

including market conditions and TVA actions—resulted in a significant 

shortfall between pension plan assets and projected liabilities.53 These 

factors included: (1) TVA not making contributions to TVARS for 6 years, 

(2) the addition of significant retirement benefits to the plan when the 

funded status was better, (3) the establishment of TVARS Rules that had 

the effect of enticing employees to retire, and (4) the economic downturn 

 51The TVARS board plans to reduce the risk of its asset allocation as the plan’s funded 

status improves but does not plan to begin the reductions until the plan is about 70 to 75 

percent funded. Reducing investment risk could reduce the expected return on 

investments. Changes to the TVARS asset allocation policy that change the assumed rate 

of return on the investment of system assets are subject to TVA review and veto. TVARS 

Rules §§ 1(33), 4(7).

52Lower bond yields result in less discounting of future benefits payments, increasing the 

present value of future benefit payments and, therefore, pension liabilities. For example, 

the interest rate used to determine TVA’s pension liability decreased from 4.50 percent as 

of September 30, 2015 to 3.65 percent as of September 30, 2016 which increased TVA’s 

pension liabilities by $1.4 billion. Bond yields may also increase in the future, lowering the 

present value of future benefit payments.

53Tennessee Valley Authority Office of Inspector General, Final Report–Audit 2009-

12326–Review of TVA’s Pension Risk (February 2010).

Market Conditions and 

Other Factors Could Affect 

TVA’s Unfunded Pension 

Liabilities, and No 

Mechanism Is in Place to 

Ensure Full Funding of 

These Liabilities
Page 29 GAO-17-343 Tennessee Valley Authority

in 2008 and 2009.54 The TVARS pension plan’s funded status decreased 

from about 92 percent in 2007 to about 55 percent in 2016 (see fig. 6).

Figure 6: Tennessee Valley Authority Retirement System Pension Plan Assets, Liabilities, and Funded Status, Fiscal Years 

2003 through 2016

Note: Funded status is the ratio of plan assets to liabilities.

In December 2015, TVA proposed changes to the TVARS Rules to 

reduce the obligations of the pension plan and commit to making 

consistent contributions. The TVARS board approved amendments that 

reduced TVA’s pension liabilities by about $960 million, reduced future 

benefit accruals, and added a minimum contribution requirement of $300 

million to the existing requirement for a period of 20 years. However, the 

amended TVARS Rules do not adjust TVA’s annual contribution 

requirement to ensure TVA will fully fund its pension liabilities. The 

TVARS Rules require that for a period of 20 years, or until the plan is 

 54According to the TVA OIG report, TVARS as well as other pension funds invested about 

60 percent of plan assets in stocks during the economic downturn when stock markets 

experienced significant declines that negatively impacted the value of the plan assets. 
Page 30 GAO-17-343 Tennessee Valley Authority

deemed fully funded, TVA’s annual contribution equal the greater of (1) a 

formula-based contribution or (2) $300 million.55 To the extent that a $300 

million contribution proves inadequate because of plan experience, the 

formula-based contribution would determine the amount TVA must 

contribute each year. The formula uses a 30-year “open amortization 

method,” meaning that the amortization period is reset to 30 years each 

fiscal year, so the end of the amortization period (i.e., paying off the 

unfunded liability) may never be achieved. A Blue Ribbon Panel 

commissioned by the Society of Actuaries believes that plans’ risk 

management practices and their ability to respond to changing economic 

and market conditions would be enhanced through the use of 

amortization periods shorter than the 30-year period commonly used 

today.56 The panel recommended amortization periods of no more than 

15 to 20 years for gains and losses. According to the panel’s 2014 report, 

the panel believes that fully funding pension benefits of public employees 

over their average future service reasonably aligns the cost of today’s 

public services with the taxpayers who benefit from those services. In 

addition, according to the American Academy of Actuaries, funding rules 

should include targets based on accumulating the present value of 

benefits for employees by the time they retire, and a plan to make up for 

any variations in actual assets from the funding target within a defined 

and reasonable time period.57 In the private sector, ERISA generally 

requires a 7-year amortization of shortfalls for private sector singleemployer pension plans.

Unlike an open amortization period, a closed, or fixed, amortization period 

is generally maintained until the original unfunded liability amount is fully 

 55TVARS Rules and Regulations, §§ 9(B)(3) - 9(B)(4).The formula contribution equals the 

sum of the “normal contribution” (representing the cost of benefits accrued during the 

current year), plus the “accrued liability contribution” (an amortization of the unfunded 

benefit liability). The liability used to determine TVA’s minimum contribution requirement is 

generally less than the pension liability that TVA reports in its financial statements, to 

which we refer throughout this report. To the extent that the liability used to determine 

TVA’s contribution requirement is less than the pension liability TVA reports in its financial 

statements, TVA’s financial statements could show a shortfall in funding when the TVARS 

Rules would deem the plan to be fully funded.

56In April 2013, the Society of Actuaries chartered the Blue Ribbon Panel on Public 

Pension Plan Funding, which consisted of actuaries, economists, former plan trustees, 

and government and financial experts. Report of the Blue Ribbon Panel on Public Pension 

Plan Funding (February 2014). 

57American Academy of Actuaries, Issue Brief: Objectives and Principles for Funding 

Public Sector Pension Plans (Washington, D.C.: February 2014).
Page 31 GAO-17-343 Tennessee Valley Authority

repaid. Thus, a closed amortization period would be a better practice if 

the goal is to fully fund pension liabilities. Table 2 compares the 

amortization of $6 billion in unfunded liabilities using open and closed 

amortization methods, assuming assets return 7 percent, as TVA 

expects. The closed amortization method would extinguish the unfunded 

liability in 30 years, whereas more than $4 billion in unfunded liability 

would remain under the open amortization method (see table 2).

Table 2: Comparison of Open and Closed Amortization Methods Applied to a 

Balance of $6 Billion in Unfunded Liabilities over 30 Years

Dollars in millions

Open amortization Closed amortization

Year Balance Payment Interest Balance Payment Interest

1 6,000 (452) 388 6,000 (452) 388

2 5,936 (447) 384 5,936 (452) 384

3 5,874 (442) 380 5,869 (452) 379

4 5,811 (438) 376 5,796 (452) 374

5 5,750 (433) 372 5,718 (452) 369

6 5,689 (428) 368 5,635 (452) 363

7 5,629 (424) 364 5,546 (452) 357

8 5,569 (419) 360 5,450 (452) 350

9 5,510 (415) 357 5,348 (452) 343

10 5,452 (411) 353 5,239 (452) 335

11 5,394 (406) 349 5,122 (452) 327

12 5,337 (402) 345 4,997 (452) 318

13 5,281 (398) 342 4,864 (452) 309

14 5,225 (393) 338 4,721 (452) 299

15 5,169 (389) 335 4,568 (452) 288

16 5,115 (385) 331 4,404 (452) 277

17 5,061 (381) 328 4,229 (452) 264

18 5,007 (377) 324 4,041 (452) 251

19 4,954 (373) 321 3,840 (452) 237

20 4,902 (369) 317 3,626 (452) 222

21 4,850 (365) 314 3,396 (452) 206

22 4,798 (361) 311 3,150 (452) 189

23 4,747 (358) 307 2,887 (452) 170

24 4,697 (354) 304 2,606 (452) 151

25 4,648 (350) 301 2,305 (452) 130
Page 32 GAO-17-343 Tennessee Valley Authority

Open amortization Closed amortization

Year Balance Payment Interest Balance Payment Interest

26 4,598 (346) 298 1,983 (452) 107

27 4,550 (343) 294 1,638 (452) 83

28 4,501 (339) 291 1,269 (452) 57

29 4,454 (335) 288 874 (452) 30

30 4,407 (332) 285 452 (452) 0

31 4,360 0

Source: GAO analysis. | GAO-17-343

Note(s): The balance in each year is reduced by the payment (an amount calculated to pay off the 

balance with interest over the specified period of time, 30 years in this case) and increased by 

interest on the balance (assumed to be 7 percent each year). The open amortization method 

recalculates the payment each year, based on the balance at the beginning of that year. The closed 

amortization calculates the payment once, at the beginning of the 30-year period, and holds the 

payment constant thereafter. The figures in the table are rounded.

As we mentioned earlier, TVA assumes an annual return of 7 percent on 

pension plan assets, but depending on market conditions, assets could 

yield higher or lower than expected returns. If the return on investment 

was lower than expected, the unfunded liabilities would be greater, and 

TVA would need to contribute more than $300 million per year to make up 

the difference. The open amortization period utilized by the TVARS 

formula-based contribution requirement does not ensure TVA’s 

contributions will adequately adjust for plan experience and does not 

ensure full funding of the pension liabilities. Without a mechanism that 

ensures TVA’s contributions will adequately adjust for actual plan 

experience, unfunded liabilities could remain, and future ratepayers may 

have to fund the pension plan even further to pay for services provided to 

prior generations of ratepayers.

TVA officials told us that the agency does not plan to contribute more 

than the TVARS Rules require and that it plans to continue to treat its 

unfunded pension liabilities as regulatory assets, deferring pension costs 

for recovery through rates in the future. However, the TVARS Rules do 

not provide for fully funding pension benefits over the service of TVA 

employees covered by the plan, which would align the cost of services 

provided by covered employees with the rates paid by customers who 

benefit from the services of covered employees. The deferral of 

contributions necessary to close the funding shortfall reduces future 

financial flexibility and may result in the need for rate increases during a 

period of declining demand for electricity. If TVA needs to use revenue 

originally targeted for debt reduction to pay for greater than estimated 

pension expenses, this could interfere with TVA’s debt reduction goal and 
Page 33 GAO-17-343 Tennessee Valley Authority

additional rate increases may be required which could interfere with 

TVA’s ability to keep rates low. Alternatively, less flexibility could lead to 

pressure to reduce the pay or benefits of future TVA employees.

Since fiscal year 2013, TVA reduced its O&M costs by about 18 percent 

while completing construction of the first nuclear unit to enter commercial 

operation in 20 years. However, since the late 1970s, TVA’s financial 

condition worsened largely as a result of delays, cost overruns, and 

operational shutdowns in its nuclear program, and the agency continues 

to invest in nuclear projects while deferring full recognition and funding of 

pension liabilities. TVA generally aims to reduce its debt to increase its 

financial flexibility over the long term to ensure sufficient room under its 

debt ceiling so it can access capital for future investments to meet its 

mission. However, retirement benefit and labor costs and cost overruns or 

delays on nuclear capital projects could put pressure on TVA’s plan, 

along with other factors including future demand for electricity or 

unforeseen events.

GPRAMA requires agencies to report major management challenges that 

they face and report performance information—including performance 

goals, measures, milestones, and planned actions needed to resolve 

them. However, TVA is not fully meeting this requirement, thereby 

reducing transparency and raising questions about how it will meet its 

goals of managing debt and reducing its unfunded pension liabilities. 

TVA’s unfunded pension liabilities affect TVA’s financial health and 

operations especially if TVA will need to fund them through rate increases 

in the future. Without better documentation and communication of TVA’s 

goals to reduce debt and unfunded pension liabilities in its performance 

plan and report, including the strategies for achieving these goals, 

congressional and other stakeholders will not have a complete picture of 

TVA’s progress toward managing its debt or its overall financial health.

TVA aims to eliminate $6 billion in unfunded pension liabilities within 20 

years, according to TVA officials, but factors such as market conditions 

could affect TVA’s progress and no mechanism is in place to ensure the 

pension plan is fully funded. The TVARS Rules do not adjust TVA’s 

required contributions to ensure pension liabilities will be fully funded and 

TVA plans to contribute no more than the rules require and to defer the 

remaining pension liability. Without a mechanism that ensures TVA’s 

contributions will adequately adjust for actual plan experience, unfunded 

liabilities could remain, and future ratepayers may have to fund the 

Conclusions
Page 34 GAO-17-343 Tennessee Valley Authority

pension plan even further to pay for services provided to prior generations 

of ratepayers.

We recommend that the Board of Directors ensure that TVA take the 

following two actions:

• better document and communicate its goals to reduce its debt and 

unfunded pension liabilities in its performance plans and reports, 

including detailed strategies for achieving these goals.

• propose, and work with the TVARS board to adopt, funding rules 

designed to ensure the plan’s full funding.

We provided a draft of this product to TVA for comment. In its comments, 

reproduced in appendix II, TVA agreed with our first recommendation and 

stated that it will incorporate additional details in the next iteration of its 

performance plan and report to enhance transparency. TVA neither 

agreed nor disagreed with our second recommendation. However, TVA 

said that it is committed to working with the TVARS Board to ensure a 

fully funded system. It did not specifically state whether it would consider 

proposing, and working with the TVARS Board to adopt, funding rules 

designed to ensure the pension plan’s full funding. As TVA states in its 

comments, it worked with the TVARS Board to implement plan 

amendments that were effective October 1, 2016. TVA states that those 

amendments have placed the retirement system on a path toward 

achieving full funding in 20 years. We continue to believe that the action 

we recommended is needed and, as discussed in the report, that the 

open amortization period used in the TVARS Rules to determine TVA’s 

minimum contribution requirement does not ensure TVA’s contributions 

will adequately adjust for plan experience and, therefore, does not ensure 

full funding of the pension liabilities. In addition, we received technical 

comments, which we have incorporated as appropriate.

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 35 GAO-17-343 Tennessee Valley Authority

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, TVA’s board of directors, and other interested 

parties. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov.

If you or your staff members have any questions about this report, please 

contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff members who made major 

contributions to this report are listed in appendix III.

Frank Rusco

Director, Natural Resources and Environment
Appendix I: Tennessee Valley Authority’s Debt 

and Other Selected Financial Data, Fiscal 

Years 2006 through 2016

Page 36 GAO-17-343 Tennessee Valley Authority

The Tennessee Valley Authority (TVA) reports on debt using a measure 

of total financing obligations that includes bonds and notes, which TVA 

considers “statutory debt,” and other financing obligations which include 

lease-leaseback obligations, energy prepayment obligations, debt related 

to variable interest entities, and membership interests issued in 

connection with a lease financing transaction. As table 3 shows, in fiscal 

year 2016, TVA’s $26 billion in debt included about $24 billion in bonds 

and notes and $2 billion in other financing obligations. Table 4 shows 

selected data from TVA’s financial statements including revenues, 

expenses, and other data. Table 5 shows TVA’s pension liabilities, assets 

and funded status. Table 6 shows TVA’s regulatory assets—incurred 

costs deferred for recovery through rates in the future—by major 

category.

Table 3: Tennessee Valley Authority Debt, Fiscal Years 2006 through 2016

Dollars in millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bond and notes, grossa 22,899 22,506 22,68 22,834 23,627 24,660 24,103 24,821 23,620 23,878 24,175

Other financing obligations

Energy prepayments 1,244 1,138 1,033 927 822 717 611 510 410 310 210

Lease-leasebacks 1,108 1,072 1,354 1,404 1,354 1,282 1,204 761 691 616 537

Membership interests of 

variable interest entities subject 

to mandatory redemption

- - - - - - - 40 39 37 35

Debt of variable interest entities - - - - - - 994 1,341 1,311 1,279 1,245

Total other financing 

obligations

2,352 2,210 2,386 2,332 2,176 1,999 2,809 2,652 2,451 2,242 2,027

Total financing obligationsb 25,251 24,716 25,066 25,166 25,803 26,659 26,912 27,473 26,071 26,120 26,202

Source: GAO analysis of TVA data. | GAO-17-343

Note: Totals may not add due to rounding. Dollar values are not adjusted for inflation. Energy 

prepayments allow customers to prepay for power in exchange for discounted rates in advance of the 

period in which it is provided. Lease-leasebacks involve long-term leasing of power generators to 

private investors, and TVA retains legal title to the assets. Debt related to variable interest entities 

includes certain leasing transactions TVA has entered into with special purpose entities to obtain 

third-party financing for its facilities.

a

Bonds and notes, gross do not include unamortized discounts, premiums and issue costs, and net 

exchange losses from foreign currency transactions.

b

According to TVA, it reports on total financing obligations using a financial measure that, although 

commonly used, is not calculated and presented in accordance with generally accepted accounting 

principles.

Appendix I: Tennessee Valley Authority’s 

Debt and Other Selected Financial Data, 

Fiscal Years 2006 through 2016
Appendix I: Tennessee Valley Authority’s Debt 

and Other Selected Financial Data, Fiscal 

Years 2006 through 2016

Page 37 GAO-17-343 Tennessee Valley Authority

Table 4: Tennessee Valley Authority Selected Financial Data, Fiscal Years 2006 through 2016

Dollars in millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Operating revenues 8,983 9,326 10,382 11,255 10,874 11,841 11,220 10,956 11,137 11,003 10,616

Operating expenses

Fuel and purchased 

power

3,342 3,449 4,176 4,745 3,219 4,353 3,869 3,847 3,824 3,394 3,090

Operating and 

maintenance

2,328 2,353 2,307 2,395 3,232 3,617 3,510 3,428 3,341 2,838 2,842

Depreciation and 

amortization

1,500 1,473 1,224 1,598 1,724 1,772 1,919 1,680 1,843 2,031 1,836

Tax equivalents 376 451 491 544 457 662 622 548 540 525 522

Total operating 

expenses

7,560a 7,726 8,198 9,282 8,632 10,404 9,920 9,503 9,548 8,788 8,290

Net interest expense 1,264 1,232 1,376 1,272 1,294 1,305 1,273 1,226 1,169 1,133 1,136

Net incomeb 113 423 817 726 972 162 60 271 469 1,111 1,233

Construction 

expenditures

1,370 1,379 1,984 1,793 2,015 2,417 2,119 2,051 2,384 2,850 2,710

Total assets 34,308 33,732 37,137 40,017 42,753 46,393 47,257 46,105 45,514 48,745 50,494

Source: GAO analysis of TVA financial statements. | GAO-17-343

Note: Dollar values are not adjusted for inflation. 

a

In fiscal year 2006, operating expenses do not add to total because $14 million in loss on asset 

impairment is not included in the other operating expense categories.

b

Net income includes revenues from activities unrelated to TVA’s overall mission that are not 

recorded as operating revenue; this income is recorded as other income and totaled about $43 million 

in fiscal year 2016. 
Appendix I: Tennessee Valley Authority’s Debt 

and Other Selected Financial Data, Fiscal 

Years 2006 through 2016

Page 38 GAO-17-343 Tennessee Valley Authority

Table 5: Tennessee Valley Authority Pension Liabilities, Assets, and Funded Status, Fiscal Years 2006 through 2016

Dollars in millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Liabilities 8,600 8,642 8,080 9,266 10,394 11,255 11,995 11,471 12,265 12,824 13,083

Assets 7,328 7,977 6,188 6,643 6,792 6,546 7,029 7,221 7,507 6,797 7,145

Funded status 85% 92% 77% 72% 65% 58% 59% 63% 61% 53% 55%

Source: GAO analysis of TVA financial statements. | GAO-17-343

Note: Dollar values are not adjusted for inflation. Funded status is the ratio of plan assets to liabilities.

Table 6: Tennessee Valley Authority’s Regulatory Assets by Major Category, Fiscal Years 2006 through 2016

Dollars in millions

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Deferred nuclear 

generating unitsa 3,521 3,130 2,738 2,347 1,956 945 710 1,675 1,492 1,279 1,087

Deferred pension costs and 

other postretirement benefit 

costs

914 973 2,277 4,063 4,711 5,807 5,517 4,076 4,297 5,565 5,385

Unrealized losses on 

interest rate derivativesb - - - - 797 1,164 1,332 808 957 1,236 1,547

Nuclear decommissioning 

costsc 474 419 764 909 898 1,012 914 893 931 1,003 938

Non-nuclear 

decommissioning costs

- - 349 351 410 519 550 571 645 828 819

Otherd 421 530 800 2,008 1,775 2,601 2,878 1,669 1,153 1,013 924

Total regulatory assets 5,330 5,052 6,928 9,678 10,547 12,048 11,901 9,692 9,475 10,924 10,700

Source: GAO analysis of TVA financial statements. | GAO-17-343

Note: Dollar values are not adjusted for inflation.

a

Deferred costs related to the Bellefonte nuclear plant totaled about $1.1 billion as of September 30, 

2016. In November 2013, the TVA board approved the treatment of all amounts at the time included 

in the “construction in progress” category that were related to the Bellefonte nuclear plant (Bellefonte) 

as a regulatory asset. Additionally, the TVA board approved combining (1) the amounts related to 

Bellefonte previously included in “construction in progress,” (2) the $619 million in “regulatory assetconstruction costs,” and (3) the remaining amounts included in “regulatory asset-deferred nuclear 

generating units” into a single regulatory asset titled “deferred nuclear generating units.” In August 

2016, the TVA Board approved the recognition of a regulatory asset for (1) all costs attributable to (a) 

the expected disposition of Bellefonte assets, including preparing or preserving the Bellefonte site, 

and (b) associated liabilities directly related to those assets; (2) any related future operating and 

project costs until the assets are sold; (3) the amount by which the book value of Bellefonte exceeds 

its fair market value less cost to sell, if any; (4) any subsequent gains and losses resulting from the 

disposition or impairment of Bellefonte; and (5) any costs attributable to the steam generators for 

Bellefonte until TVA disposes of the generators.

b

Unrealized losses on interest rate derivative contracts reflect losses on TVA’s interest rate swaps 

which TVA uses to fix variable short-term debt to a fixed rate.
Appendix I: Tennessee Valley Authority’s Debt 

and Other Selected Financial Data, Fiscal 

Years 2006 through 2016

Page 39 GAO-17-343 Tennessee Valley Authority

c

TVA maintains trusts for the purpose of providing funds to decommission its nuclear and other 

facilities. TVA’s nuclear decommissioning trust holds funds for the decommissioning of TVA’s nuclear 

power plants and its asset retirement trust holds funds primarily for the costs related to the future 

closure and retirement of TVA’s other long-lived assets. The balances in these trusts were $1.6 billion 

and $519 million, respectively, as of September 30, 2016.

d

Other includes costs for environmental cleanup of the Kingston coal ash spill, environmental 

agreements, unrealized losses on commodity derivatives, and fuel cost adjustment receivable.
Appendix II: Comments from the Tennessee

Valley Authority

Page 40 GAO-17-343 Tennessee Valley Authority

Appendix II: Comments from the Tennessee 

Valley Authority
Appendix II: Comments from the Tennessee 

Valley Authority

Page 41 GAO-17-343 Tennessee Valley Authority
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 42 GAO-17-343 Tennessee Valley Authority

Frank Rusco, (202) 512-3841 or ruscof@gao.gov.

In addition to the contact named above, Michael Hix (Assistant Director), 

Janice Ceperich, Philip Farah, Kirk Menard, and Joseph Silvestri made 

key contributions to this report. Also contributing to this report were 

Antoinette Capaccio, Cindy Gilbert, Steve Lowrey, Alison O’Neill, Karissa 

Robie, Dan C. Royer, Barbara Timmerman, and Jacqueline Wade.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100286)
Appendix III: GAO Contact and Staff 

Acknowledgments

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Congressional 

Relations

Public Affairs

Strategic Planning and 

External Liaison

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