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TENNESSEE VALLEY AUTHORITY EXECUTIVE ANNUAL INCENTIVE PLAN
 Note About This Exhibit 10.16




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TENNESSEE VALLEY AUTHORITY
EXECUTIVE ANNUAL INCENTIVE PLAN
 PURPOSE
  plus
 EFFECTIVE DATE
  PARTICIPATION
  PERFORMANCE PERIOD
  AWARD OPPORTUNITY
  plus




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Target Award Opportunity Guideline
 Award Opportunity TargetsPosition
    
    (Percentage of Base Compensation)President & COO
    
    
    50
    %Chief Officers / General Counsel
    
    
    40
    %Executive Vice President
    
    
    30%  40
    %Senior Vice President / Vice President
    
    
    10%  30
    %Other Positions
    
    
    5%  20
    %
  PERFORMANCE GOALS AND MEASURES
  
    
    Financial
    
    Operating
    
    Individual Performance
    AWARD DETERMINATION
  AWARD ELIGIBILITY
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PAYMENT OF AWARDS
  DEFERRED OPTION
  
    
    Deferral election must be made prior to the beginning of the Plan year.
    
    The Plan award may be deferred in 25% increments of the
actual award and is irrevocable.
 PLAN ADMINISTRATION
      
    
    Establishing the process for goal setting, performance measurement, reporting
progress performance achievement, and award determination.
    
    Developing additional procedures as necessary to implement the Executive
Annual Incentive Plan.
  TERMINATION OR AMENDMENT OF THE PLAN
  DEFINITION OF TERMS
 Annual Incentive Award
    
    Actual dollar amount paid to a participant
under the EAIP (Awards may be
deferred).Award Opportunity Target
    
    Award opportunity expressed as a percent of
the participants base compensation.
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Base Compensation
    
    Salary plusDeferred Compensation (i.e. annual
MISRIP excluding any contributions received as part of a
deferred option and /or Long-Term Deferred, if
applicable).Deferred Compensation
    
    Compensation that is deferred and paid at a future date.Executives
    
    Officers or other high level Managers and
Specialists responsible for establishing business vision,
strategic direction and policy, or whose decisions have major
impact on TVA or operations of business units. Incumbents
report to the Board of Directors, head of an organization (CAO,
COO, CFO, GC) or head of a major organizational unit (CNO,
TPS, CS&M, etc). Positions of like size in the relevant
labor market are generally titled President, Chief Officer,
Vice President, Senior Executive (or similar titles), or
receive total compensation at a level that makes participation
in the Executive Compensation Plan appropriate. Employees in
the Officer / Executive pay band are executives. Designation
of Executives is approved by the Board of Directors.Executive Compensation Review Committee
    
    A Committee established by the Board of Directors of TVA
to provide additional oversight of executive compensation.Long-Term Deferred
    
    Compensation that is deferred and paid at a future date if
the employee remains employed by TVA for a specific period
of time.MISRIP
    
    Merit Incentive Supplemental
Retirement Income Plan  Deferred compensation plan.Participant
    
    An officer or other Manager/Specialist employee
designated by the Board of Directors to be eligible to receive
an award under the new Executive Annual Incentive Plan.Performance Goals
    
    The goals against which performance is measured.Performance Measures
    
    The specific business indicators where performance will
be measured against the performance goals.Prorated Award
    
    Method used to determine the award amount for an employee
not eligible to receive a full award. Pro-ration is generally
based on the number of months employed divided by 12. Any
partial month is considered a full month.Total Annual Compensation
    
    Term used by TVA that includes Base Compensation
plus Annual Incentive.Variable Annual Compensation
    
    Compensation that varies from year to year based on level
of achievement (performance).
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