Public Policy

Opening
On behalf of the Tennessee Valley Authority, I would like to thank you for the opportunity to be here today to discuss TVA’s nuclear program and the Browns Ferry Unit 1 restart. My name is Glenn L. McCullough, Jr. I have served on the TVA Board of Directors since November 1999, and I was designated Chairman by President George W. Bush on July 19, 2001.

TVA exists to serve the needs of its 158 power distributors and 62 directly served customers and the 8.5 million people of the Tennessee Valley by providing affordable and reliable electric power, environmental stewardship, and leadership in sustainable economic development. A corporation of the federal government, TVA is entirely self-financing and receives no funding from Congress.

TVA is committed to conducting its business in an open and forthright manner that earns the confidence of Congress and the Administration, and in our customers, our investors, and the people of the Tennessee Valley.

History of TVA Nuclear
TVA’s commitment to meeting the region’s electricity needs while protecting the environment and supporting a vibrant economy is consistent with President George W. Bush’s National Energy Policy. TVA maintains a diverse fuel mix and a strong national transmission system. TVA’s strategy of investing in a balanced portfolio of energy sources - nuclear, hydro, coal, natural gas - is similar to the nation’s energy mix, and minimizes the price and availability risks associated with over-dependence on a single energy source

TVA made its commitment to nuclear power in the late 1960s and early 1970s, when power sales were growing at a steady rate. In the Tennessee Valley, the number of electricity customers rose to over 2 million in the 1960s and about 30 percent of all the homes were heated with electricity. At that time, TVA was experiencing an annual growth rate of about 8 percent in demand for electricity, and our forecasts through the mid-1970s were showing continued high growth in demand.

TVA, and others in the utility industry, predicted that new generating capacity was needed to satisfy its forecast demand. To meet that need, TVA embarked on an ambitious nuclear power plant construction program. Beginning in 1966, TVA announced plans to build 17 nuclear units at seven sites in Tennessee, Alabama, and Mississippi. In 1967, TVA began building the nation's largest nuclear power facility-Browns Ferry in north Alabama.

However, instead of increasing, electricity consumption declined in the mid-1970s following the 1973 energy crisis and again in the late 1970s and 1980s as a result of higher energy costs and slower economic growth. Also, after the Three Mile Island nuclear accident in 1979, the Nuclear Regulatory Commission issued extensive new safety regulations that applied to all plants, whether operating or under construction. This decreasing demand for electricity, coupled with the increased costs of regulation, caused the electric utility industry to rethink the role that nuclear power would play in meeting the nation's demand for electricity. By the early 1980s, TVA and many other utilities had chosen to cancel several nuclear plants that were either planned or under construction.
In 1985, TVA voluntarily shut down all of its operational nuclear units to address regulatory and management issues. TVA implemented a strong performance improvement program, and began returning these units to operation in 1988 with the restart of Sequoyah 1 and 2. Browns Ferry Units 2 and 3 returned to service in 1991 and 1995 respectively, and TVA brought the last licensed U. S. nuclear unit online with Watts Bar 1 in 1996. Based on forecasted baseload power needs at that time, TVA elected not to return Browns Ferry Unit 1 to service with the other units.

TVA Nuclear Today
TVA’s nuclear power program now ranks among industry leaders, in both cost and reliability.
 
In fiscal year 2003, nuclear power represented about 20 percent of TVA’s installed capacity, and produced about 29 percent of TVA’s generation.

All three of TVA's nuclear power plants — Browns Ferry, Sequoyah and Watts Bar — rank among the most efficient generators in the country for 2002 and over the past three years, according to Platts Nucleonics Week. TVA is the only utility listed with three plants among the top 15 most efficient generators for 2002 and for the three-year period of 2000-2002.

Sequoyah earned the title of the most efficient generator in the country by producing power at 11.48 mills per kilowatt-hour from 2000-2002. Browns Ferry comes in second at 12.06 mills/kwh, and Watts Bar ranks 12th at 14.39 mill/kwh. In order to achieve these low rates, TVA continues to focus on cost containment through continuous process improvement, standardization, and resource sharing. These efforts resulted in savings of 5.2 million dollars in FY 2003 alone.

Last year TVA received the Nuclear Energy Institute’s Top Industry Practice “Best of the Best” Award for strategic planning programs and processes at TVA nuclear plants.

Browns Ferry 1 Restart
Browns Ferry is a three-unit nuclear power facility located just west of Huntsville, Alabama. The plant is owned and operated by TVA to produce electricity for our service area.

As TVA entered the 21st century, forecasts indicated that additional baseload generation would be needed to meet the growing energy demands of our 8.5 million customers. To meet this need, TVA studied several potential options, including combined-cycle gas turbines, coal gasification, startup of one of the deferred Bellefonte nuclear units, and the recovery of Browns Ferry Unit 1.

Each option was studied in terms of fuel price stability; long-term production costs; environmental impact; potential impact to TVA’s long-term ability to reduce debt; capital cost; and estimated capacity factor for meeting baseload needs.
After completing these studies, it became clear that Browns Ferry Unit 1 would be able to produce the needed energy at very competitive rates as compared to the other available options, while optimizing the value of an existing asset.

To ensure that a fully informed decision could be made, the TVA Board requested in September 2001, that a detailed scoping study be performed to determine the cost and schedule for recovering and restarting Browns Ferry Unit 1.

TVA also conducted an 18 month environmental impact study under the National Environmental Policy Act to assess not only the restart of Browns Ferry 1, but also the power uprate and potential license renewal for all three units.

The detailed scoping study was nearly unprecedented in the level of detail reviewed to identify not only the remaining work to be done, but also to identify any risk to cost or schedule. Along with the completed environmental study, it provided the TVA Board with comprehensive information to make future base load generation decisions.

Financial analyses also indicated that the operation of all three units at Browns Ferry, over an extended license period, could reduce TVA’s delivered cost of power relative to the market, giving TVA more financial flexibility for the future.

Accordingly, the Board issued a record of decision in May 2002, authorizing work to begin to return Browns Ferry Unit 1 to service.

It is anticipated that the Browns Ferry Unit 1 recovery project will cost approximately $1.8 billion, excluding allowance for funds used during construction. TVA will fund the restart of Browns Ferry Unit 1 through existing cash from operations.

The Browns Ferry Unit 1 restart project continues to perform to plan and is more than 40-percent complete in meeting its 60-month baseline schedule. The project remains on budget, with expenses of 381 million dollars last year and about 365 million dollars planned for FY 2004. Planned spending for fiscal year 2005 is 419 million dollars, with spending declining to 381 million in fiscal year 2006, and 129 million in 2007.

When Unit 1 returns to service, its cost-effective and clean, emission-free generating capacity of 1,280 megawatts will help TVA responsibly meet growing power demands while maintaining a strong reserve margin. Our current resource-planning analysis shows that this nuclear unit will help us meet our growing energy needs at a very competitive cost by reducing our delivered cost of power by about .09 cents per kilowatt-hour in its first year of operation.

Clean Air Benefits
In addition to the positive financial benefits that the Browns Ferry Unit 1 restart will provide, nuclear plants also support TVA’s clean air strategy. The reason is simple – nuclear power plants do not burn fossil fuel so they don’t emit combustion products such as sulfur dioxide and nitrogen oxides into the atmosphere.

TVA will continue to participate in industry studies of environmentally sound and cost effective power generation technologies for our customers’ future energy needs, because it is the right thing to do. Nuclear power remains a vital part of TVA’s and the nation’s energy portfolio not only because of its clean air benefits, but also because of its strong operational performance.

Conclusion
TVA is committed to providing low-cost, reliable power by operating and maintaining safe and efficient plants, standardizing processes across the organization, and continuously improving all aspects of performance. Restarting Browns Ferry Unit 1 is a wise business investment for TVA and our customers. It will provide clean, affordable, and reliable power, enabling TVA to meet the future power demands of the Tennessee Valley.