oversight

Examination of Financial Statements of the Tennessee Valley Authority for Fiscal Year 1976

Published by the Government Accountability Office on 1977-02-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUSE

00171 - [A0751186]
Examination of Financial Statements of the Tennessee Valley
Authority for Fiscal Year 1976. POD-77-1; B-114850. February 7,
1977. 27 pp. + enclosures (20 pp.).

Report to the Congress; by Elmer B. Staats, Ccmptroller General.
Issue Area. Accounting and Financial Reporting (2800).
Contact: Field Operations Div.
Budget Function: Natural Resources, Environment, and Energy:
    Water Resources and Power (301).
Organization Concerned: Tennessee Valley Authority.
Congressional Relevance: Congress.
Authority: Government Corporation Control Act (31 U.S.C. 850).
    Tennessee Valley Authority Act of 1933 (48 Stat. 58; 16
    U.S.C. 831). Fiscal Year Adjustment Act (P.L. 94-273).
         Financial statements of the Tennessee Valley Authority
(TVA) for fiscal year 1976 were examined and the results of its
operations and the changes in the financial position of its
several programs for the years ending on June 30, 1975 and 1976
were reviewed. Findings/Conclusions: The financial statements
were found to present fairly the Tennessee Valley Authority's
financial position at June 30, 1976 and 1975 and the results of
its operations and the changes in the financial position of its
several programs for the years then ended, in conformity with
generally accepted accounting principles applied on a consistent
basis. TVA's operating revenue from the sale of electric energy
increased 45% in fiscal year 1975 over 1975 and its net income
increased 22%. Fuel and purchased power cost TVA $950 million in
fiscal year 1976 and accounted for 56 cents cf each revenue
dollar, as compared to 33 cents 5 years ago. Coal inventory
shortages increased considerably in the last 3 years. As a
result of energy shortages, rising production and construction
costs, and increasing environmental concerns, TVA is studying
alternatives to its current rate structure. In fiscal year 1975,
TVA began adjusting power rates monthly based on changes in the
actual costs of fuel and purchased power. In fiscal year 1976,
TVA spent $35 miliion on research programs which included
environmental quality projects, advanced coal combustion
techniques, solar ene'rgy, and the Clinch River Breeder Reactor
project. (Author/SC)
     REPORT TO THE CONGRESS

      'BY THE COMPTROLLER GENERAL
L   A OF THE UNITED STATES




     Examination Of Financial Statements
     Of The Ternessee Valley Authority
     For Fiscal Year 1976
     The finar:cial statements of TVA pesent
     fairly its financial position as of June 30,
     1976, the results of it: operations, and the
     source and application of its funds for that
     year.




     FOD-77-1                                       FEB.   7, 1977
;Rm


                    COMPTROLLER GENERAL OF THE UNITED STATES
                               WAbHINGTON, D.C.   23548




      B-'114850




      To the President of the Senate and the
      Speaker of the House of Representatives

           This report provides information on the results of our
      examination of the Tennessee Valley Authority's financial
      statements for fiscal year 1976, including comments on the
      Authority's programs.

           We made our examination pursuant to the Government
      Corporation Control Act (31 U.S.C. 850).

           We are sending copies of this report to the Director,
      Office of Management and Budget; the Secretary of the
      Treasury; and the Chairman, Board of Directors, Tennessee
      Valley Authority.




                                     Comptroller General
                                     of the United States
                          Contents
                                                         Page
DIGEST

CHAPTER

   1       INTRODUCTION                                    1
   2       POWER OPERATIONS                                2
               Operating results                           2
               Proprietary capital and payments to the
                 Treasury                                 3
               Borrowing authority                        5
               Coal inventory shortage                    7
   3       ENERGY PRICINC                                 9
               Current rate structure                     9
               Alternative rate structures               10
               Fuel adjustment clause                    12
   4       CONSTRUCTION                                  15
   5       ENERGY RESEARCH AND DEVELOPMENT               19
               Environmental quality                     19
               Advanced coal combustion                  22
               Conservation with solar energy            22
               Clinch River Breeder Reactor project      23
   6       FERTILIZER ACTIVITIES                         24
               Phosphorous operations                    24
               International Fertilizer Development
                 Center                                  25
               TVA-Army maintenance contract             25
   7       SCOPE OF EXAMINATION AND OPINION ON FINAN-
             CIAL STATEMENTS                             27
FINANCIAL STATEMENTS

EXHIBIT

   I       Balance sheets, June 30, 1976 and 1975        31
  II       Power program, net income and retained
             earnings for the years ended June 30,
             1976 and 1975                               32
 III       Nonpower programs, net expense and accumu-
             lated net expense for the years ended
             June 30, 1976 and 1975                      33
EXHIBIT                                                     Pa e

  IV       Changes in financial position for the years
             ended June 30, 1976 and 1975                    34

           Notes to financial statements                     36

SCHEDULE

   A       Completed plant, June 30, 1976                    41

   S       Construction and investigations in progress,
             June 30, 1976                                   42

   C       Details of power expense for the year ended
             June 30, 1976                                   43

      D    Details of nonpower net expense for the year
             ended June 30, 1976                             44

      E    Operating expenses of multiple-use facil-
             ities for the year ended June 30, 1976          48

      F    Administrative and general expenses for the
             year ended June 30, 1976                        49

                          ABBREVIATIONS

GAO        General Accounting Office

TVA        Tennessee Valley Authority

EPA        Environmental Protection Agency

ERDA       Energy Research and Development Adminiztration

AID        Agency for International Development

IFDC       International Fertilizer Development Center
COMPTROLLER GENERAL'S                        EXAOINAATION OF FINANCIAL
REPORT TO THE CONGRESS                       STATEMENTS OF Th. TENNESSEE
                                             VALLEY AUTHORITY FOR FISCAL
                                             YEAR 1976


               DIGEST

              In GAO's opinion the financial statements
              included in this re'-ort present fairly the
              Tennessee Valley Autnority's (TVA's) finan-
              cial position at June 30, 1976 and 1975, and
              tne results of its operations and the changes
              in the financial position of its several pro-
              grams for the years then ended, in conformity
              with generally accepted accounting principles
              applied on a consistent basis.

              TVA's operating revenue from the sale of
              electric energy increased $515.4 million, or
              45 percent, in fiscal year 1976 over 1975,
              and its net income increased $22.7 million,
              or 22 percent.  (See p. 3.)

               Fuel and purchased power cost TVA $950 mil-
               lion in fiscal year 1976 and accounted for
               56 cents of each revenue dollar, as compared
               to 33 cents 5 years ago.  (See p. 3.)

              At June 30, 1976, TVA owed the Treasury
              $65.1 million as a return o,Q the Government's
              appropriation investment of $995.8 million at
              July 1, 1975, and $20 million as a partial
              repayment of the investment.   TVA made the
              $85.1 million payment to the Treasury on
              September 30, 1976.  On that same date, TVA
              paid the Treasury $16.3 million as a return
              on, and $5 million as a repayment of, the ap-
              propriation investment to cover the fiscal
              year transition quarter ended September 30,
              1976.  (See p. 4.)

              Coal inventory shortages increased consider-
              ably in the last 3 years--$15.3 million
              (813,000 tons) in fiscal year 1976.  TVA set
              up a task force to study the problem, in-
              creased the frequency of taking physical in-
              ventory, and plans to repair or replace scales
              used to weigh coal.  (See p. 7.)



.ar   Shet.   Jpon removal, the report   i                      FOD-77-1
cover date should be noted hereon.
                                         on a
 :VA's electric rate 3tructure is based of
cost-of-service  concept.  As a result     en-
ergy shortages, ris:`ng production and con-
struction costs, and iincreasing environmental
concerns, I'VA is stuaying otner rate struc-
tures.   (See op. 9 and 1l.)

In fiscal year 1975, because of large and
unpredictable changes in fuel costs, TVA
began adjusting power rates monthly based on
cnanges in the actual costs of fuel and pur-
chased power.  Althougn the market price of
coal remained relatively stable throughout
fiscal year 1976, TVA believes it is neces-
sary and desirable to continue having a fuel
adjustment provision as a safeguard against
the uncertainties of power system costs.
(See p. 12.)

crowns rerry nuclear plant's units 1 and 2,
witn 2.3 million kilowatts capacity, remained
out of service for the entire fiscal year as
a result of a fire on Larch 22, 1975. In
August 1976, TVA received licenses to resume
operating the units and expects to operate
them at full power oy the 1976-77 winter
season.   (See p.   15.)

[VA conducts en2rgy research and development
projects to provide adequate, clean, econom-
ical, and reliable electric power and to find
better, less costly ways of protecting the
environment.   In fiscal year 1976, TVA spent
$35 million on research programs which in-
cluded environmental quality projects, ad-
vanced coal combustion techniques, solar
energy, and the Clinch River Breeder Reactor
project.   (See p. 19.)

 TVA ceased operating its phosphorous plant in
 fiscal year 1976 and plans to substitute com-
 mercial, wet-orocess phosphoric acid for the
 acid produced Dy its furnaces. As a result
 of the shutdown, TVA eliminated 350 jobs but,
 it placed most of these employees in other
 jobs.   rVA also recognized a loss of $3.6 mil-
 lion on a phosphate plant and related facili-
 ties.   (See p. 24.)

 In fiscal year 1976, TVA's fertilizer devel-
 opment work, in less developed countries,
                           ii
    snifted from its aational Fertilizer Develop-
    ment Center to a newly formed private Inter-
    national Fertilizer Development Center, adja-
    cent to £VA's national center.  (See p. 25.)




                      iii

·     Z
                          CHAPTER 1

                        INTRODUCTION
     Tne Tennessee Valley Authority (TVA) is an independent
Government corporation created by the Tennessee Valley Author-
ity Act of May 18, 1933 (48 Stat. 58, 16 U.S.C. 831), to
improve the usefulness of the Tennessee River and to help
develop nther resources in the Tennessee Valley and adjoining
areas. TVA generates, transmits, and sells electric power;
nelps control floods; promotes navigation on the Tennessee
River; develops fertilizers and munitions; and participates
in the development of recreational, agricultural, and other
resources in the Tennessee Valley

     TVA activities are directed by its Board of Directors.
The President appoints the Board members, witr the advice and
consent of the Senate, whicn serve 9-year overlapping terms.
The President also designates one member as presiding officer.
As of June 30, 1976, the Board mnembers and the expiration
dates of their terms were:

      Aubrey J. Wagner, Chairman           May 18, 1978
      William L. Jenkins                   May 18, 1981
Mr. Don Mcbride served as a member of the Board until his
term expired on May 18, 1975. The position was still vacant
as of October 31, 1976.

     Mr. Lynn Seeber, TVA's General Manager, is responsible
to the Board for carrying out its programs, policies, and
decisions.

     In accordance witn the Government Corporation Control
Act (31 U.S.C. 851), this report includes information and
comments to keep the Congress informed of TVA's financial
condition ana opera*'ons.

     Additional information on TVA's activities during fiscal
year 1976 can also be found in its annual report to the
President and to the Congress, which is required by the TVA
Act.
                                   CHAPTER 2

                            POWER OPERATIONS

     AS part of its resource development program, TVA
supplies power at wholesale prices to 160 municipal and coop-
erative electric systems which distribute the power to about
2.5 million customers in parts of seven States.  TVA also di-
rectly serves 49 industrial customers with large or unusual
power requirements and several Federal atomic, aerospace, and
military installations.

     Financially, TVA's power program is separate from its
other programs.  The power program is self-supporting, and
part of the net power proceeds earned under the program is
usea to pay a return on appropriated funds invested in TVA's
power facilities and to repay the investment. TVA's power
accounts are kept in accordance with the uniform system the
Federal Power Commission prescribed for electric utilities.
OPERATING RESULTS

     Power program assets increased by $927 million during
fiscal vyar 1976 and totaled $6.804 billion at June 30, 1976,
or about 90 percent of TVA's total assets of $7.596 billion.
A summary of TVA's power operations results for fiscal years
1976 and 1975 follows.

                                                                        Percent
                                                                        increase
                                                                           or
                                             1976            1975      decrease(-)

                                                (000 omitted)
  Operzting revenues:
      Sales of electric energy         $i,670,934      $1,155,567          45
      Rents and miscellaneous reve-
        nues                                               _0,724
                                                             221L53         4

          Total operating revenues         1,692,507       1,176,291       43

  Operating expenses                       !-1t2LZ7        _96t138         47

  Operating income                           278,735         215,153       30
  Other income and deductions                139,723         117,184       19

  Income before interest charges             418,458        332,337       26
  Interest charges                           292,406        228,976       28

  Net income                                 126,052        103,361       22

  Return on appropriation
    Investment                                65,056         71,372       -9

          Increase in retained earn-
            ings reinvested            $      60,996   $     31,989       91



                                       2
      The $516 million increase in operating revenue was due
to higher charges to customers to recover increased costs of
fuel and purcnased power.   Much of the increased cost was due
to the outage ot Browns Ferry nuclear plant units 1 and 2, and
the need to replace less costly nuclear power with power gen-
erated from fossil-fired plants and purchased from other sys-
tems. A general rate adjustment of 1 cent a kilowatt-hour to
cover other power-generating costs also contributed to the in-
crease in power revenue in January 1973.

     Operating expenses increased by $452.6 million, or 47
percent, in fiscal year 1976 over the prior year. Of this in-
crease, 80 percent resulted from higher fuel costs and larger
purchases oi nigh-cost energy from other electric utilities.
The cost of fuel ($731 million) and power purchased from other
utilities ($219 million) accounted for 56 cents of each reve-
nue dollar in fiscal year 1976 as compared to 33 cents
5 years earlier.

     TVA's payment to the Ireasury as a return on the Govern-
ment's appropriation investment decreased by $6.3 million, or
9 percent, because of a lower interest rate.

PROPRIETARY CAPITAL AND
PAIMENTS 10 TH ITREASURY

      the Government's total proprietary capital in TVA was
$2.691 billion at June 30, 1976, and $1.936 sillion, or 71.9
percent, ot this amount was in the power program. Changes in
proprietary capital during fiscal year 1976 are shown in the
followinc taole.
                                                              Change
                                                    Power    NonEower             otaE

                                                 ------ (000 omitted)-------
    Appropriation investment:
        Congressional appropriations            $       54   $ 99,971          $100,025
        Transfers of property from other
          Federal agencies                             260                87        347
    Less repayments to geneLal fund of the
      Treasury                                                -           13         13
           Appropriation investment                    314    100,045           100,359
   Net income of power program                   126,052         -             126,052
   Net expense of nonpower programs                 -         -54,024          -54,024
           Increase in proprietary    capital    126,366       46,021           172,387
   Less:
       Payment of return on appropriation
         investment                                 65,056            -          65,056
       Repayment of appropriation invest-           20,000        -              20,000
         ment

           Net increase in proprietary
             capital                            $ 41,310     $ 46,021          $ 87,331

                                         3
     Section 25d of the TVA Act requires the corporation to
pay to the Treasury each year, beginning with fiscal year
1961, a return on the appropriation investment in power fa-
cilities.   The required payment is based on tho average in-
terest rate  payable to the TreasuLy on its total marketable
public obligations at the beginning of the fiscal year.   The
rate is applied  to the unrepaid appropriation investment on
that date.

      Tne Fiscal Year Adjustment Act (Public Law 94-273)
changed the date of the annual payments to the Treasury from
June 30 to September 30 beginning with fiscal year 1976.  The
Fiscal Year Transition Act (Public Law 94-274) requires TVA
to make a payment for July 1, 1976, through September 30,
1976.

     For fiscal year 1976, TVA paid $65.1 million as a return
on the unpaid appropriation investment of $995.8 million as of
June 30, 1975. For the transitional quarter, TVA paid
$16.3 million as a return on the unpaid appropriation in-
vestment of $996.1 million as of June 30, 1976. Both pay-
ments, totaling $81.4 million, were made to the Treasrry on
September 30, 1976.

     Section 15d also requires a repayment of the appropria-
tion investment in power facilities beginning in fiscal year
1961. The required payments are:   $10 million annually for
1961-65, $15 million annually for 1966-70, and $20 million
every year thereafter until $1 Dillion has been repaid.  Un-
der specified conditions the Board may defer these payments
and the payments of return on the appropriation investment,
for not more than 2 years, but the Board has not exercised
that option. TVA had repaid the Treasury $225 million
through June 30, 1975; $20 million for fiscal year 1976; and
$5 million for tne transition quarter (June 30, to Septem-
ber 30, 1976).  Under legislation in effect before the 1961
repayment provision, TVA had paid $185 million of power pro-
ceeds to the Treasury.

     Section 26 of the act provides for annual payments to
the Treasury of any power or nonpower proceeds not needed for
the operation of the power program, dams and reservoirs, or
the manufacture and distribution of fertilizers.  In fiscal
year 1976, TVA paid about $13,000 of nonpower proceeds to the
Treasury representing receipts from the Beech River Watershed
Development Authority on its obligation to TVA. TVA had paid
$41.7 million from nonpower proceeds under this provision
through June 30, 1976.




                              4
  BORROWING AUTHORITY

       TVA is authorized, under section
                                          15d of tte act, to issue
 and sell bonds, notes, and other
                                    evidences of indebtedness up
 to $15 oillion, outstanding at
                                 any one time, to help finance
 its power program.   Section 15d states that the time
 ance and the maximum interest rates                     of issu-
                                       to be borne by the obli-
 gations are subject to approval
                                  by the Secretary of the Treas-
 ury, who is authorized to purcnase
                                      TVA interim obligations
 up to $150 million, outstanding
                                  at any one time.    Debt serv-
 ice on tnese obligations is payable
 power proceeds and has precedence     solely from TVA's net
                                     over repayments of the ap-
 propriation investment and payments
                                       of a return on investment
 to the Treasury.   Outstanding bonds and notes totaled
 oillion at June 30, 1976, an increase                    $4.405
                                         of $745 million, or
 20.4 percent, over the June 30,
                                  1975, amount.
      Tne Basic Tennessee Valley Authority
                                            Power Bond Resolu-
 tion, adopted October 6, 1960,
                                and
 forth financial requirements which section  15d of the act set
                                    must be met by TVA's power
 operations before additional bonds
                                    can be issued.

 Rate test

     Section 15d of the act and section
require TVA's rates to be sufficient     3.2 of the resolution
                                     to cover (1) annual
costs associated with operating
                                the power system, including
debt service and payments to State
                                   and local governments in-
stead of taxes, (2) payments to
                                the Treasury as return on and
repayment of, the appropriation
                                investment, and (3) a margin
for reinvestment in the power
                              system and other purposes.
     TVA met the rate test for fiscal
                                       year 1976.  Gross power
revenue of $1,692.5 million exceeded
                                      the costs and payments
specified and provided a $24.5
                               million margin.
bondnolders   investment test

     A second requirement of both section
section 3.3 of the resolution              15d of the act and
                               measures the adequacy of cor-
porate earnings and protects holders'
                                       investments in secu-
rities. The test is made for successive
ning with fiscal year 1961.               5-year periods begin-
                              It requires the corporation to
apply net power proceeds to reduce its
to reinvest                             capital obligations or
              the proceeds in power assets. ac the end of each
5 years, the reinvestments must
                                equal or exceed depreciation
and amortization of capital expenditures
plus the net proceeds from disposal      for power properties
                                    of power facilities.

     October 1, 1976, marked the beginning
period.                                     of a new 5-year
         TVA determines the status of the
                                           bondholders

                                5
                                                        large
investment test at the end of each fiscal year to avoid
deficiencies or excesses n the latter part of a 5-year pe-
riod. The status at June 30, 1976, is shown below.
      Net power proceeds used to:
          Reduce appropriation investment    $ 20,000,000
          Reinvest in power assets            166,786,419

                                             $186,786,419

      Depreciation, amortization, and
        proceeds from sales of power
        facilities                            125 790 040

      Margin                                 $_60&L9_   379

Additional bonds test

     Section 3.4 was added to the resolution to insure    that
the equity investment in the power system would  be  maintained
or increased if additional debt is incurred.   Section 3.4
prohibit; any increase in outstanding bonds  unless  a power
income test specified in the resolution is met.   To  meet the
test, net power income for the last 5 fiscal  years  must  have
aggregated at least:
                           $200 million
                              plus

               $15 million for each one-quarter of
               1 percent (or major fraction thereof)
               by which the interest on Treasury
               borrowings has averaged more than
               3.25 percent during the 5 years.

     TVA met the minimum net income requirement for the
5 years ended June 30, 1975, and sold $800 million in bonds
in three issues during fiscal year 1976 resulting in a net in-
crease of $700 million in outstanding long-term debts. TVA's
net power income for these 5 years aggregated $547 million,
and tne minimum net income requirement for that period was
$365 million.

      TVA also met the minimum net income requirement for the
                                                        parity
 5 years ended June 30, 1976, and additional bonds on 1977.
 with those outstanding   can be issued in fiscal year
 TVA's net power inco..me for these 5 years aggregated $554
 million, diud the minimum net income requirement for that
 period was $365 million.

                                 6
     Short-term notes payable to tne Federal Financing Bank
totaled $580 million at June 30, 1976, as compared to $635
million payable to the public at June 30, 1975. Short-term
notes payable to the Treasury at June 30, 1976, totaled $150
million, the same amount outstanding at June 30, 1975. In
addition, TVA bonds amounting to $100 million became due and
payable July 1, 1976; and, on that date, TVA issued $235 mil-
lion of short-term notes to the Federal Fin ncing Bank.

     All bonds and notes issued by TVA duriig the year are
payable to the Federal Financing Bank or the Treasury.
COAL INVENTORY SHORTAGE

     Coal inventory shortages at TVA increased considerably
over the last 3 years, as shown in the following table.

        Fiscal             Coal inventory shortage
         year              Tonfis              riT
                                            M----
                                               ons
         1974             192,252           $ 1.5
         1975             450,907             5.4
         1976             812,135            15.3
TVA, recognizing the magnitude of the fiscal year 1976
shortage, analyzed for the first time the systemwide coal
shortage. In the past, TVA investigated coal shortages only
at individual steamplants.

      After identifying the magnitude of the fiscal year 1976
coal shortage, TVA formed a coal task force, consisting of
representatives of the four divisions of power production,
power resource planning, purchasing, and finance. The task
force was created to identify the cause of the shortage and
to develop recommendations and procedures to better account
for coal received, burned, and stored. The task force's final
report, dated November 5, 1976, identified a number of factors
contributing to the inventory shortages and stated that in-
accurate measurements of coal burned was the most significant
cause. The task force reported that, at some plants, scales
used for measuring the coal burned were inadequate and out-
moded and tnat administrative procedures should be improved
to insure accurate measurements of the coal burned at plants.
Tne task force did not identify any major differences between
the quantity of coal purchased and received.

     In addition to initiating the task force study, TVA
temporarily modified its physical inventory procedures to
better account for inventory shortages as they occur. In
July 1976, TVA began taking physical inventory of coal stock-
piles at 3 of its 12 steamplants each month. Under this

                              7
procedure, eaLh steamplant's coal stockpile will be
inventoried and inventory records adjusted three times a
year, instead of once a year.  TVA plans to continue monthly
physical inventories until its records of coal received,
Ljrned, and stored are accurate.

     The task force recommended that coal weighing facilities
at most of TVA's steamplants be repaired or replaced to as-
sure more accurate measurements of coal received and burned.
     TVA's internal auditors have reported deficiencies in
coal-weighing facilities and procedures at individual steam-
plants each year since fiscal year 1973. TVA has made few
modifications or additions to its coal-weighing facilities.
New scales were installed at the Cumberland steamplant in
fiscal year 1975, out the task force reported 12 other belt
scales were obsolete as of September 1976. TVA plans tJ re-
pair or replace the scales at other plants and provide for
more frequent calibrations of the scales.




                               8
                          CHAPTER 3

                         ENERGY PRICING

     The TVA Act requires TVA to sell power at rates as low
as feasible but high enough to maintain the financial sound-
ness of the power program. TVA sets the rates to be charged
on the basis of the cost of providing electric service
to various classes of customers. This approach to setting
power rates is characterized by decreasing unit prices for
electricity with increasing usage.  In fiscal year 1976,
TVA studied alternative ways of pricing electricity, includ-
ing time-of-day pricing and lifeline rates.

     TVA has maintained a fuel adjustment clause in its rate
structure which provides for adjusting power rites each month
to offset the increases and decreases in the actual costs of
the fuel TVA burns in its generating plants and the power it
purchases from other utilities.

CURRENT RATE STRUCTURE

      TVA's rate structure follows a cost-of-service approach.
Under the cost-of-service concept, each class of consumers
4.s charged a rate that will recover all of the costs of
serving that class, and no one is entitled to service below
their costs.

     Some classes of consumers are more economical to serve
than others and are charged less a kilowatt-hour. Among the
factors causing one customer class to be more economical to
serve than another are (1) purchasing power at a steady level
rather than in varying amounts and (2) the need for less
equipment to get the power from the TVA system to the cus-
tomer.

     In fiscal year 1976, TVA and its distributors used
multi-step declining block rate schedules.      Under the
residential schedules, the  average  price  of  power usually
declines with an increase  in energy  use.    This is because
the fixed investment and  consumer  costs  of  the distributor
for each kilowatt-hour of electricity decreases as these
costs are spread over a larger number of units.

     The Board establishes the rates which TVA charges for
electricity. The Board also determines whether a rate
adjustment is needed based on a quarterly review of prospec-
tive power revenues and expenses by TVA and a committee
representing its distributors. The last quarterly rate in-
crease occurred in January 1975.


                              9
                                                           1977.
     TVA plans to revise its rate structure in January
                                        rates  will  be  in-
As part of the rate charge, TVA's base
                                                fuel and
creased to include a portion of the increased
                                                  its monthly
purchased power costs previously billed through
                         As a result of  the  change,   TVA
fuel adjustment clause.
                                             through  base
expects the gross power revenues collected
                                                         power
rates charged to wholesale, general, and residential
                                          percent,   respec-
customers to increase by 0.5, 2, and 0Q6
tively.

                                                      will be
     For residential customers, the rate structure
        to add a minimum customer  charge  and  reduce the num-
revised
                                                   On TVA's
ber of price tiers for additional power usage.
                                                       charge
most frequently applied rate schedule, the minimum
is $2.30, notwithstanding power usage.    In addition, a
                                                  by a two-
four-tier energy charge structure was replaced
                                                   These
tier structure divided at 500 killowatt-hours.
                                            for  every  1,000
changes will result in a $1  rate increase
killowatt-hours used over 1,160 each month.
                                                       below
     The effects of these two changes are illustrated
                                               based  on TVA's
for various levels of electricity consumption,
                                               schedule RS-8.
old rate schedule R-2 and its replacement rate

       Monthly use       Cost to consumers under
                         Niew       rates             Changef
     (kilowatt-hours)

                          $13.76        $14.42        -$0.66
             500
                           23.27         23.43          -. 16
           1,000
                           32.78         32.44            .34
           1,500
                           80.33         77.49          2.84
           4,000

 ALTERNATIVE RATE STRUCTURES
                                                         and
      As a result of energy shortages, rising production
              costs, and increasing environmental concerns,
 construction
                                                concepts and
 there is a growing interest in utility pricing
 rate structures.  This interest has led to a number of rate
 restructuring and load management proposals.
                                                             rate
      In October 1976, TVA reported on several proposed
                   environmental  statement on  electric   power
 structures in an
 rate policies.   Basically TVA concluded, at that time, that
                                                its needs as
 none of the alternative rate structures met     TVA recognizes,
 well as its cost-of-service  rate  structure.
                                power program  objectives   and
 however, that changes in its
                            may  require changes  in  its  rate
 operating characteristics
                                                              of
 structure.   Therefore, TVA is investigating the effects
                             both  power customers   and  electric
 various rate structures on
 utility operation.


                                   10
      'TVA and tne Chattanooga ,lectric Power board
                                                      are
 investigating patterns of electrical consumption
                                                     for
major consumer categories.    In the first phase of the study,
TVA has selected a scientific sample of 585
                                               residential,
commercial, and industrial customers. Each
interviewed to provide information on things,customer was
                                                 such as con-
struction characteristics, appliance or equipment
and differences in lifestyles or production           mix,
                                              hours. This
information is needed to help explain why energy
                                                    consumption
varies between consumers.    Special metering devices are
recording the energy used by these consumers
                                                every 15 minutes.
This will enable TVA to analyze energy consumption
                                                       by time
of day and during weather extremes.    TVA plans to gatner
data for 1 year (calendar year 1976) but may
                                               gather data
for up to 3 years to determine the effect of
                                                normal customer
growtn in electrical use.

     TVA will conduct tests to evaluate various
                                                 rate restruc-
turing and load management proposals in the
study.                                       second phase of the
        Peak load or time-of-day pricing--a concept
                                                     of charg-
ing nigner rates during the intervals when
                                            a utility's loads,
and presumably costs are highest--will be the
                                               first alterna-
tive rate concept evalual -;

      I'VA is also Participating with seven other
                                                  electric
utilities in an electric utility rate design
                                               study conducted
jointly Dy the Electric Power Research Institute
Edison Electric Institute.                         and 'hne
                              The main purpose of the study is
to evaluate time-of-day pricing and load management
means to deal equitably with the higher cost          as a
                                               of utility serv-
ice.   These techniques may also encourage
use patterns so power customer load can be shifts in power
                                             served at less
cost.

     Another rate restructuring proposal i'VA evaluated
the concept of lifeline rates.                           is
                                These rates are intended to
lower the electric bill of the poor and the
                                             elderly by charg-
ing lower rates to those customers consuming
                                              some minimum
amount of electricity.  According to IVA, the basic assump-
tion underlying most lifeline rate proposals
                                              is that cus-
tomers with low electricity consumption are
                                             poor and elderly
and that customers with high electricity consumption
                                                      are
affluent.

     Preliminary results from iVA's study of lifeline
posals show, however, that the poor (family            pro-
                                            income of less
than $4,000) and elderly (head of household
                                            65 or older)
cannot be segregated on the basis of electricity
                                                 consumed.




                              11
TVA's study snowed that

        -- an average of 55 percent of the poor used more than
           725 kilowatt-hours a month, and 20 percenr of high-
           income faimilies averaged less than 725 kii3wl.tt-
           hours a month anu

        -- 6 percent of the poor and elderly in the TVA area
           are renters who pay for electricity in their rent,
           and residential lifeline rates would not benefit
          them.

     According to cVA, tht-'    is no easy, or administratively
inexpensive, way to desiWqr       ifeline rate for the TVA serv-
ice area tnat will aid a 5.    .uantial proportion of the poor
ana elderly without suosiaiing the electric bill of a num-
oer of otner households.  TVA believes that any lifeline
rate proposal would need to include income and age restric-
tions    to effectively redistiioute   income to the poor and
elderly.

FUEL ACJUST.IE.lTL   CLAUSE

     in fiscal year 1975 Decause of large and unpredictable
variations in fuel costs, TVA adopted a policy of adjusting
power rates monthly to Leflect the cranges in the actual cost
of tuel and purchased power.
     i-VA's fuel adjustment clause is intended to keep rates
as low as reasiole and also cover changes in fuel and pur-
chased power costs. According to TVA, the clause provides
the best way to insure fair treatment of consumers and also
insure tnat TVA receives the revenues necessary to meet the
financial requirements of the TVA Act and the Basic Bond
Resolution.    -he clause causes power rates to increase or
decrease  as  the actual cost of fuel and purchased power in-
creases  or  decreases eacn month.

     Although the market price of coal remained relatively
stable tnroughout fiscal year 1976, TVA Delieves it is
necessary and desiraole to continue having a fuel adjust-
ment clause. According to TVA, the fuel adjustment clause
enables it t- maintain power rates at minimum levels while
also guarding against the uncertainties of power supply
costs. Changes in the cost of the fuel burned are based
on tne average cost of fuel used, ratner than on its cur-
rent marKet price. Therefore, in times of relatively
staole coal prices, tne average cost of coal used will in-
crease as older, lower priced coal contracts are replaced
oy new contracts for coal at current, out higher, market
prices.

                                12
     In addition, the provision helps to assure that revenues
will be adequate to cover the cost of power purcha'3s  from
other systems.  These costs can vary significantly aepending
on the amount of power purchased and the price charged.    OVA
believes that actions taken by other oil-producing nations
with respect to the supply or price of crude oil are Inpre-
dictable, and that these actions could quickly affect the
demand for and price of coal.  Unforeseen environmental re-
quirements and unplanned system outages could also greatly
affect fuel and purchased power costs.  In addition., TVA
notes that the continued ability to reflect monthly changes
in fuel costs enables TVA not only to recognize increased
coal costs but also the lower fuel costs associated with
operating its nuclear powerplants.

     In deciding on a method of having monthly power charges
show increases or decreases in fuel and purchased power costs,
TVA considered several approaches varying in complexity.
TVA selected a less complicated approach of adjusting rates
based on actual costs incurred.  In selecting the method to
be used, TVA recognized that there would be a 2-month lag
between the time costs for fuel and purchased power are in-
curred and the time monthly billings would show the increases
or decreases in those costs.  Because of the lag, increases
in the cost of fuel and purchased power totaling $88.8 mil-
lion, recorded in fiscal year 1975, provided the basis for
adjustments in power billings for July and August 1975.   In-
creases in the cost of fuel and purchased power totaling
$112.7 million, recorded in fiscal year 1976, were not in-
cluded in power billings until July and August 1976.

     During fiscal year 1976, TVA's base electric rates were
increased each month under the fuel adjustment clause.   For
example, a residential customer using 1,000 kilowatt-hours
of electricity was billed fuel adjustment charges ranging
from $7.82 in September 1975 to $5.10 in May 1976.  In July
and August 1976, the fuel adjustment charge for this same
residential customer was $7.43 and $7.89, respectively.

     because fuel and purchased power costs are not expected
to return to pre-1975 levels, a portion of the increased
cost previously billed under the fuel adjustment clause
will be included in TVA's base rates in January 1977.   As
part of this change, the fuel adjustment formula was revised
to correspondingly reduce the monthly fuel adjustment
cnarge.

     In fiscal year 1975, TVA included its annual inventory
adjustment as a cost of fuel in computing the monthly fuel
adjustment cnarge.  In fiscal year 1976, because of large


                              13
invantory snortages, TVA excluded the annual inventory
adjustment from the fuel adjustment charge computation.
R cognizing tnat the annual inventory adjustment is a cumu-
  .tive effect of the entire year's operations, TVA decided
that tne adjustment was not properly classified as fuel cost
-f  a given month for the purpose of computing the fuel ad-
justment cnarge and that a large adjustment would distort 1
month's fuel adjustment charge.   Beginning in July 1976,
TVA will take inventory at 3 of its 12 coal stockpiles each
month.   TVA will include the adjustments resulting from the
monthly pnysical inventories in computing monthly fuel ad-
justment charges.

     If the fiscal year 1976 inventory adjustment had been
passea througn the fuel adjustment clause as in the prior
year, the August 1976 fuel adjustment charge would have
seen increased from $7.89 to $9.28 per 1,000 kilowatt-hours
of electricity used.  TVA's change in treatment of annual
inventory adjustments does not affect the fiscal year 1976
financial statements.  However, power revenue and net in-
come for the transition period ended September 30, 1976,
were $12.5 million less than if the inventory adjustment
had oeen included in determining charges under the adjust-
ment addendum.




                             14
                           ChAAP 'Li. 4

                         CO) STRUC TI O3

     At June 30, 1976, the book value of TVA's property,
plant, and equipment was $6,980 billion, an increase of
$985 million from June 30, 1975.  The balances at June 30,
1976, and the increases from the end of the prior fiscal year
follow.

                                           balance
                                    June 30, 2976      Increase

                                             (000 omitted)
     Completed plant, net            $4,164,471        $174,461
     Construction and investi-
       yations in progress             2,588,257        752,507
     iuclear fuel, net                   227,289         58,212

          'otal                      $6,980,018        $985,180

Ninety percent of the nearly $7 billion of fixed property
represents the book value of MVA's power program facilities.
Niinety-five percent of the cost of construction and investi-
gations underway at June 30, 1976, represents future power fa-
cilities.

       TVA's installed power generating capacity totaled 27.1
million Kilowatts at June 30, 1976, an increase of 345,000
Kilowatts, or about 1.3 percent, over the ?une 30, 1975,
capacity.    ihe increase resulted primarily from TVA's accept-
ance of four gas turbine units at the Jallatin steamplant in
July 1975.    drowns Ferry units 1 and 2, 2.3 million kilowatts
capacity, were out of service for tne entire fiscal year as a
result of a fire on March 22, 1975.    Following hearings held
oy its   Atomic Safety and Licensing board, tie :Nuclear Regula-
tory Commission issued a license to resume operation of units
1 and 2 on August 20, 1976.    TVA expects these units to be
operating at full power by the 1976-1977 winter season--a
period of heavy power demands.

     io meet projected increases in power demands, iVA plans
to expand its power supply from 27.1 to 48 million kilowatts
Dy March 1986.  Of tne increase in capacity, 19.3 million
kilowatts, or 92 percent, will be additional nuclear generat-
ing capacity. By 1986, 40 percent of TVA's generating capac-
ity will be nuclear-powered generating plants, compared to
8.5 percent at June 30, 1976.



                              15
      About 1.5 million kilowatts of peaking capacity--units
normally used only duLing periods of highest power demands--
is being added through a pumped-storage hydroelectric plant
near Chattanooga, Tennessee.     (See photograph on p. 18.)     Wa-
ter will be pumped  from the  Tennessee   River  into  a mountain-
top reservoir during offpeak periods and released to gener-
ate electric energy during peak periods.      The units will be
able to go from  a standstill  to  full  capacity  in just 4 min-
utes.   Commercial operation  of  the  first of  the  plant's
four units  is scheduled to  begin  in  February  1978.

     Scheduled commercial operation of Browns Ferry unit 3,
Sequoyah unit 1, and Watts Bar unit 1 was delayed from 7 to
10 months during fiscal year 1976.         The major reasons for the
delay were late delivery      of equipment   and materials.    TVA re-
ceived a  license   for  unit  3 of the   Browns  Ferry nuclear
plant from the Nuclear Regulatory Commission on August 18.
TVA expects to complete startup procedures and testing of
this unit by about February 1977.         Commercial operation dates
for units of   the  Hartsville,   Phipps   Bend, and Yellow Creek
nuclear plants have     been  extended  9  months  to bring TVA's
estimates  in  line  with  nationwide   average   construction  time
for nuclear   powerplants.

     A table summarizing capacity, schedule, and cost data
for the major additions to TVA's power system is shown on
page 17.

     In fiscal year 1976, TVA's construction expenditures
unaer the power program totaled $1.065 billion.  The esti-
mated cost to complete power projects is $10.395 billion.




                                  16
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                                       Lu
                          CHAPTER 5

               ENERGY RESEARCH AND DEVELOPMENT

     TVA performs and participates in energy and energy-
related research and development efforts, including environ-
mental technology and effects studies.  TVA's effort is di-
rected toward assessing new energy technologies with the goal
of providing adequate, clean, economical, and reliable elec-
tric power.  A major purpose of this research effort is to
find better, less costly methods to protect the environment.

     A power research staff in TVA's Office of Power coordi-
nates energy and energy-related research and development
projects.   Research and development is administered and fi-
nanced in several ways:   in-house research conducted and fi-
nanced by TVA, cooperative research conducted primarily by
TVA, but financed either completely or partially by other or-
ganizations, and major national programs to which TVA and its
distributors make financial contributions and participate in
varying degrees in management and guidance.   TVA's power-
related research and development activities totaled about
$35 million in fiscal year 1976, of which power proceeds pro-
vided about $27 million and other organizations provided about
$8 million.

     Research programs conducted or participated in by TVA in-
cluded environmental quality projects, advanced coal combus-
tion techniques, and solar energy.  TVA also continued its
participation in the Clinch River Breeder Reactor project.

ENVIRONMENTAL QUALITY

     TVA's research, monitoring, and surveillance of the en-
vironmental quality of the Tennessee Valley are coordinated
with related programs of Federal and State pollution control
agencies.  TVA's program, however, is concentrated on prob-
lems directly associated witn its power operations, such as
the emission pollutants from steamplant stacks and warm water
discharges from steamplant cooling systems.  Research proj-
ects in progress during fiscal year 1976 included sulfur
dioxide emissions control and a biothermal research project.

Sulfur dioxide emissions control

     Sulfur emissions have been recognized as a major bottle-
neck in the clean energy program.  Believing there was no
commercially demonstrated process for removing sulfur dioxide
from stack gases of large coal-burning powerplants, TVA began
work on the design and construction of a full-scale wet lime-
stone scrubber in March 1973.  The scrubber is scheduled to

                             19
be installed and in operation by March 1977, on a 550,000
kilowatt unit at TVA's Widows Creek steamplant.  Estimated
cost of the facility through March 1977 is $54 million, or
$98 per kilowatt; however, additional capital expenditures
will De needed by 1983 to expand settlement ponds needed to
deposit sludge produced by the scrubber.

     The successful demonstration of the wet limestone scrub-
ber has become increasingly important to TVA and the utility
industry as a whole.  Federal regulations limit the emission
of sulfur dioxide into the ambient air.  The Environmental
Protection Agency (EPA) has held that the Clean Air Act re-
quires constant emission limitation measures, such as scrub-
bers, low-sulfur coal, and coal washing, to meet ambient air
standards.  TVA has argued, however, that harmful levels of
sulfur dioxide concentrations can be avoided at ground level
by dispersing the gas from very tall stacks and by cutting
back on generation at a plant when local meteorological con-
ditions interfere with proper dispersal.

      On April 19, 1976, the United States Supreme Court de-
   -d IVA's petition for a review of lower court decisions up-
rA ding EPA's position.   TVA estimates that meeting current
sulfur dioxide emission standards with constant control meas-
ures will require a capital investment of over $500 million
and result in increased annual costs of $250 million.

Biothermalresearcsr   project

     TVA and EPA are cooperating in a study of how the
aquatic community is affected by elevated water temperatures.
According to TVA, previous research has centered on the upper
and lower lethal temperature limits for aquatic life, but
little is known about the long-term effects of elevated water
temperatures.  This project will study the long-term effects
of various temperatures on the growth, reproduction, and mor-
tality of warmwater fish, aquatic plants, and invertebrates
common to the southern region of the United States.

     A biothermal research facility constructed at TVA's
Browns Ferry nuclear plant will provide a semi-natural en-
vironment for the study.   (See photograph on p. 21.)  The fa-
cility has 12 cnannels, called "fish ditches," which are 360
feet long, 14 feet wide and almost 7 feet deep.   Water in
tnree of tne channels is maintained at normal reservoir tem-
perature.  The remaining nine channels are heated to various
lev.ls for the experiments.   The facility can maintain tem-
peratures ur to 36.7" C, or about 98" F. Experiments on each
aquatic species will last about 1 year.



                                20
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21                             O
     A vital part of the Browns Ferry nuclear plant's
operation (ana all nuclear plants) is using water drawn from
a reservoir to cool the condenser.  Coal-fired electric
plants also use water in their cooling systems.  i-low warm wa-
ter can be wnen returned to a reservoir is regulated by
States and EPA.  TVA nopes its biothermal research will pro-
vide a better basis for establishing water temperature stand-
ards which have a strong effect on the electric power _ndds-
try.

ADVA3iCED COAL COMBlUS7i{     ,

     iVA's energy research staff believes that fluidized-Ded
combustion, an advanced combustion technique, offers greater
potential for tne iVA system than any current or proposed re-
1'_-arcn project. because they produce more compl(te burning
of fuel, fluidized-.ed combustion boilers can use lower grade
coals that nave no other market values. By mixing lime or
limestone with coal during combustion, environmental stand-
ards for fly asn and sultur dioxide emissions can be met
witnout using pollution control equipment, such as electro-
static precipitators and scrubbers.

     During fiscal year 1976 TVA completed a study for EPA
comparing the cost of f.uidized-oed combustion with tnat of a
conventional powerplant with a scrubber. Preliminary results
indicate a fluidized-bed combustion powerplant would produce
electricity for about 15 perc nt less tnan a conventional
plant using the same fuels and a scrubber.

     irVA plans to build a 200 megawatt demonstration fluidized-
oea powerplant. IVA plans to allocate $4 million to prepare
site studies, cost estimates and preliminary designs. TVA
will make its final decision on building a full-scale plant
following completion of these efforts. TVA estimates that the
demonstration plant would be completed by 1984 and will cost
about $200 million.

CO.SERVAI'iOh   ,vIIrl   SOLAR ENERGY

     TVA's solar energy research concentrates on analyzing the
fuel conservation potential of solar heating systems and the
potential effect solar heating would have on the power system.
because of extended periods of cloudy weather that often occur
in tne winter season in the Tennessee Valley region, solar-
heated nomes will need consiaeraDle storage capacity or backup
neating systems. If electric backup systems are used, TVA's
requirements for peaking capacity could be significantly in-
creased.  water and space heating of both commercial and
residential buildings is liKely to De the first major use of
solar energy in the i'Vh region and, TVA is studying the poten-
tial of solar energy tor this purpose.

                                   22
     TVA is purchasing solar water heating units for several
TVA-owned or occupied buildings to gain experience with sev-
erol types of solar water heating systems. The volume and
temperature of hot water used will be measured, and a
kilowatt-hour meter will record the amount of supplemental
heat used during the course of the program. The program will
determine whether solar water heating can be accomplished
economically in the TVA area with units purchased "off the
shelt."

      TVA is also providing funds for the construction and
demonstration of a solar-heated house.   The solar house is
one of tnree energy conservation systems being evaluated
under a cooperative arrangement with the Oak Ridge National
Laboratory, University of Tennessee, and TVA. The project
will evaluate the operation of the systems and provide infor-
mration of their effect on the peak loads of an electric sys-
-em.
CLINCH RIVER BREEDER REACTOR PROJECT

     TVA helps finance, and participates in the guidance of,
the Clinch River Breeder Reactor project. TVA believes the
breeder reactor is one of the most promising options to help
thn Nation meet its future needs for electric energy.

     The proposed breeder reactor plant, with a generating
capacity of about 40U,000 kilowatts, will be built on the TVA
system near Oak Ridge, Tennessee.  The demonstration project
was undertaken in 1972 by TVA, Commonwealth Edison Company
of Chicago, and Energy Research and Development Administra-
tion (ERDA), with the participation of all segments of the
electric utility industry. Industry funding for the project
is set at-about $250 million.

     Estimated cost of the project has grown to $1.95 billion
from $700 million in 1972. As a result, in May 1976, ERDA
assumed management control of tne project, previously held
by the Project Management Corporation, to recognize the Gov-
ernment's larger financial commitment.

     Initial site clearance for construction of the breeder
reactor is scheduled for late 1976. Current construction
scnedules anticipate initial operation of the plant in 1983.




                             23
                          CHAPTER 6

                    FERTILIZER ACTIVITIES

     TVA's National Fertilizer Development Center at Muscle
Shoals, Alabama, administers a nationwide program consisting
primarily of (1) basic and applied research and development
and (2) introduction of new and improved fertilizers to the
farming and fertilizer manufacturing industries.

     In fiscal year 1976, TVA conducted fertilizer programs
in 44 States and Puerto Rico. Cooperating with land-grant
universities, TVA conducted farm test-demonstrations in
Puerto Rico and 30 States outside the Tennessee Valley. Fer-
tilizer industry demonstrations were also made by 212 dis-
tributors in 40 States and Puerto Rico.
PHOSPHOROUS OPERATIONS

      TVA ceased its pnospho!:ous operations in fiscal year
1976.   TVA closed two phosphorous furnaces in March 1976, and
the final one in May 1976.     TVA decided in fiscal year 1972 to
close the plant because it was no longer economical to oper-
ate. Furnace acid produced by the plant was costing consider-
ably more than its substitute, wet-process phosphoric acid,
and TVA expected this cost relationship to continue.     How-
ever,  commercial supplies  of  wet-process acid were unreliable
and tnis delayed the transition. Shifts in the fertilizer
program have reduced TVA's need for phosphoric acid and TVA
believes an adequate supply of wet-process phosphoric acid
can be obtained on the open market at favorable prices.
     The shutdown of the phosphorus plant eliminated 350 jobs
consisting of 32 salaried positions, 80 trades and labor main-
tenance employees, and 238 operators. TVA was successful in
placing a large number of these employees in other jobs or in
training programs. Two hundred and forty-five employees
sought job placement counseling and ;25 were placed in other
positions or elected to ret.ae.  Fifty-three employees were
placed in TVA apprenticeship programs, 8 in a TVA student
generating plant operator program, and over 100 in other jobs,
mostly within TVA.

     As a result of the shutdown, TVA recognized a loss of
$3.6 million, $3 million on the phosphate plant and $0.6 mil-
lion on recated mines and inventories. TVA anticipates leas-
ing or selling the phosphorous furnaces and related equip-
ment during fiscal year 1977.



                              24
INTERNATIONAL FERTILIZER
DEVELOPMENT CENTER

     Over the past several years, TVA through its National
Fertilizer Development Center has increasingly assisted in
upgrading food and fertilizer production in less developed
countries.  TVA has provided this assistance on a reimburs-
able basis at the request of the Agency for International
Development (AID) and other organizations.  For example, in
fiscal year 1975 TVA scientists and engineers worked in 13
countries helping to solve local fertilizer production prob-
lems, assess markets, evaluate nutrient needs, and find fea-
siole ways of expanding the fertilizer industry.  TVA's in-
ternational fertilizer development staff provided about 49
staff-months of technical assistance to AID, totaling about
$195,000, in fiscal year 1975.

     addressinq the United Nations General Assembly in April
1974 regarding tre   world food shortage and the energy crisis,
tne Secretary of State proposed the establishment of an inter-
national fertilizer institute and stated the United States
would contribute facilities, technology, and expertise to such
an undertaking.    In furtherance of that interest. in October
1974, the International Fertilizer Development Center (IFDC)
was created as a nonprofit organization with its headquarters
and facilities located at Muscle Shoals, Alabama.    IFDC's
goal is to improve fertilizers and fertilizer know-how in de-
veloping countries through resea.ch and development, techni-
cal assistance, and training and communications.    Major em-
phasis will be on fertilizers for tropical and subtropical
agriculture.  IFDC will be financed by contributions from in-
ternational sources, and its staff will be multinational.

      IFDC's facilities--office, laboratories, greenhouse,
and pilot plants--will be built on 30 acres of TVA property
close to its National Fertilizer Development Center.   Con-
struction began in April 1976; the facility is scheduled to
be completed by January 1978.   TVA will work closely with the
new organization and provide on a reimbursable basis facil-
ities to IFDC, including library, computers, specialized lab-
oratories, and pilot plants.   TVA will also provide IFDC with
access to TVA staff experience and expertise in fertilizer
technology.   IFDC estimates that the availability of TVA fa-
cilities and personnel will save $100 million and permit
IFDC programs to proceed at an accelerated pace.

TVA-ARNY MAINTENANCE   CONTRACT

     Among tne transactions we reviewed as part of our fiscal
year 1976 auait was a maintenance contract between the Army
Armament Command and TVA's Office of Agricultural and Chemical

                                  25
Development.  The contract provides for TVA to maintain in
standby status a phosphate development works plant for the
Army at Muscle Shoals, Alabama.  The plant once produced an
intermediate agent required in producing nerve gas, but has
not been operated in 19 years.  The Army had paid TVA over
$2 million--about $90,000 in fiscal year 1976--for mainte-
nance services which consisted mainly of security and upkeep
of the roads, grounds, and fences.  However, the level of
maintenance TVA provided had not been sufficient to prevent
the plant from seriously deteriorating.  TVA officials in
charge of the plant's maintenance optimistically estimated
that from 1 to 2 years would be required to mobilize the
plant.  They stated that some of the equipment is antiquated
and obtaining repair parts may be difficult.  We were further
advised tnat the estimated cost to make the plant operational
would be about $20 million.

     By letter of August 9, 1976, to the Commanding General
of the Army Armament Command, we described the plant's poor
physical condition and inquired about the Army's need and
plans for it.  We also inquired about the possibility of
leasing all or part of the plant's idle equipment to third
parties who had expressed interest in it.  On October 12,
1976, the Army replied that representatives of TVA, the
Army's District Engineer in Mobile, Aiabama, and the Army
Armament Command were preparing a report of availability for
lease of the entire facility.  According to the Army, a pro-
spective lessee was awaiting completion of the report and sub-
sequent advertising for bid, so at least one response was an-
ticipated.  The Army expects advertising for bid to begin
about 3 months following completion of the report.




                             26
                          CHAPTER 7

                  SCOPE OF EXAMINATtON

                           AND

            OPINION ON FINANCIAL STATEMENTS

     Our examination of TVA's balance sheet as of
1976 and 1975, and the related statements of power June 30,
                                                    and non-
power programs and of changes in financial position for
                                                         the
years then ended (exhibits I through IV) was made in ac-
cordance with generally accepted auditing standards and
                                                         in-
cluded such tests of the accounting records and such other
auditing procedures as we considered necessary in the
circumstances.

     As provided by section 15d(c) of the TVA Act, TVA
employs a firm of certified public accountants to audit
its accounts and financial statements for each fiscal
year, to facilitate its issuance and sale of revenue
bonds.   This audit does not take the place of the audit
required by us under the Government Corporation Control
Act.   As a part of the examination, we observed and
tested the firm's audit work, and our satisfaction with
its quality and scope enable a substantial reduction
in the extent of our own examination.

     In our opinion the. financial statements (exhibits I
through IV) present fairly TVA's financial position at
June 30, 1976 and 1975, and the results of its operations
and the changes in the financial position of its programs
for tne years tnen ended, in conformity with generally
                                                        ac-
cepted accounting principles applied on a consistent basis.

     The supplemental information appearing in schedules A
to F which has been subjected to audit procedures applied
in the examination of the basic financial statements is,
in our opinion, fairly stated in relation to the basic
financial statements taken as a whole.




                             27
FINANCIAL STATEMENTS




         29
 EXHIBIT        I                                                                            EXHIBIT I

TENNESSEE      VALLEY AUTHORITY
I A CORPORATION WHOLLY OWNED BY THE UNITED ST/,TES OF AMERICA)
BALANCE SHEETS JUNE 30,     I974 AND 175S




                                                   ASSETS

                                                             Power program              All programs
                                                           1976         1975          1976        1975
                                                                            (Thousands)
PROPERTY, PLANT, AND EQUIPMENT,
 substantially all at original cost
  Completed plant; schedule A
    Multipurpose dams; note 1                          $ 492,413     $ 491,054     $1,070,469 $1,017,155
    Single-purpose dams                                    72,628       66,115         72,628     66,115
    Steam production plants                             2,229,552     2,158,152     2,229,552  2,158,152
    Nuclear production plants                             552,357       512,653       552,357    512,653
    Other electric plant                                1,670,031     1,550,672     1,670,031. 1,550,672
     Other plant                                                 -                    185,061         175.338
                                                        5,016,981     4,778,g       5,780,098       5,480,085
   Less accumulated depreciation and
    depletion; note 2                                   1,458,872     1,344,468     1,615,627       1,490,074
         Completed plant, net                           3,558,109     3,434,178     4,164,471       3,990,011
 Construction and investigations in
  progress; schedule B and note 3                       2,470,896     1,714,179     2,588,257       1,835,750
 Nuclear fuel; schedule B                                 242,047       183,835       242,047         13,835
   Less accumulated amortization;
    note 2                                                 14,758        14,758           14,758       14.758
        Nuclear fuel, net                                 227,289       169,77                9       169,77
           Total property, plant, and
            equipment                                   6,256,294     5,317,434     6,980,017       5,994,838



CURRENT ASSETS
  Cash                                                     13,915       153,601        59,600         194,933
  Accounts receivable                                     146,398       129,519       157,324         137,662
  Inventories, principally at
   average cost                                           377,465       273,239       389,818         289,077


           Total current assets                           537,778       556,359       606,742         621,672



DEFERRED CHARGES
  Unamortized debt expense; note c                             784          833             784           833
  Mine development costs; schedule 3                         8,909        2,198           8,909        2,198


           Total deferred charges                            9,693        3,031           9,693         3,031


           T tal assets                               -p6,803,765    .$5,876,824   $7,596,452      $6,619,541

Notes 1 through 9 following the exhibits are an integral part of the financial statements.

 ededuct
 EXHIBIT      I                                                                   EXHIBIT I




                                   LIABILITIES

                                                   Power rogram               All programs
                                                 1976        1975           1976        1975
                                                                  (Thousands)
PROPRIETARY CAPITAL
  Appropriation investment; note 4
    Congressional appropriations           $1,383,644      $1,383,590    32,860,925      $2,760,900
    Transfers of property from other
     Federal agencies                          22,529          22,269       55214             54 86
                                            1,406,173       1,405 ,859   2,916,139        2,815,76
    Less repayments to General Fund of
     the U.S. Treasury; note 5                 41059          410,59       451,726          451,'13
       Appropriation investment                996,114        995,800    2,464,413        2,364,054
  Requirement fcr repayment of
   appropriation investment; note 5              20,000x            -       20,000*
  Retained earnings reinvested in the
   power program; exhibit II                   959,403        898,407      959,403          898,407
  Accumulated net expense of nonpower
   programs; exhibit III                              -             -      713,257m         659,233x

       Total proprietary capital           1,935,517        1,894,207    2,690,559        2,603,2.i'


LONG-TERM DEBT
  Principal; note 6                        3,575,000        2,875,000    3,575,000        2,875,000
  Unamortized discount* and premium,
   net; note 2                                    7,620*        8,130*          7,620*        8,130'
       Total long-term debt                3,567,380        2,866,870    3,567,380        2,866,$37o


CURRENT LIABILITTES
  Short-term debt, note 6
    U.S. Treasury                              150,000        150,000      150,000          150,000
    Federal Financing Bank                     580,000        635,000      580,00o          60,5,ooo
    Long-term debt due July 1, 1976            100 000              -      100,000               _
       Shoct-term debt                         830,000        '785,000     830,000          785,000
  Accounts payable                             388,455        268,202      409,489          286,880
  Emplo)ees' accrued leave                      15,923         14,189       28,691           26,317
  Payrolls accrued                               8,166          6,960       12,009            9,850
  Interest accrued                              58,324         41,396       58,324           41,3r96
       Total current liabilities           1,300,868        1,115,74,    1,338,513       1,149,443


.r.(..ITMENTS; note 3


       Total liabilities                  4.6,803,765      $5,876,824    7,596,452       .6,619,541




                                          31
  EXtIBIT II                                                                                EXHIBIT II

TENNESSEE VALLEY AUTHORITY
POWER PROGRAM
NET INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30, 1976 AND 1975


                                                                  1976                            1975
                                                     _      kWh          Amount             kWh          Am~Aaf-
                                                                                 (Thousands)

OPERATING REVENUES
  Sales of electric energy                                                               64,468,095    $ 737,203
                   and cooperatives                      66,536,938   $1,057,392         64,468,095    $ 737,203
    Municipalities
                                                         21,609,793          300,057     19,389,244      182,523
    Federal agencies
                                                         19,941,736          303,551     21,822,437      227,637
     Industries                                                                                               1,41
     Electric utilities                                           1            1.921        115.803
                                                           ,15,598        ,662,921       105,795,579     1,148,904
        Total outside sales
     Interdivisional                                              1          8.013           637.607          6,663
       Total sales of electric energy                                    1,670,934       106433,186      1,155,567
                                                                              20,819                         20,200
  Rents                                                                                                        293
  Discounts and penalties                                                         53
  Other miscellaneous revenues                                                   701                           2 1
                                                                         1,692,507                       1,176,291
        Total operating revenues
OPERATING EXPENSES; schedule C
  Production
                                                                             731,304                         455,384
     Fuel                                                                                                    135,320
     Power purchased and interchanged, net                                   219,198
                                                                             211,01                          160,047
     Other
                                                                              24,634                          22,216
   Transmission                                                                                                  534
   Customer accounts                                                             600
   Demonstration of power use                                                1,373                             1,277
   Administrative and general                                               48,620                            34,004
                                                                            48,370                            36,847
   Payments in lieu of taxes
                                                                             6,719                             5,187
   Social security taxes                                                                                     11,322
   Provision for depreciation                                              121,942
        Total operating expenses                                         1,413,771                               38
         Operating income                                                    278,736                         215,153

 OTHER INCOME AND DEDUCTIONS
                                                                                   65                              63
   Interest income
   Allowance for funds used (construction
                                                                              139,997                        117,353
    and nuclear fuel); note 2                                                                                    232w
   Other, net                                                                     340*
         Total other income and deductions                                    139,722                    _   117,184

          Income before interest charges                                      418,458                        332,337
 INTEREST CHARGES
                                                                              259,735                        183 626
    Interest on long-term debt
                                                                               32,096                         44,802
    Other interest expense; note 2
    Amortization of long-term debt discount,
                                                                                  575                             48
     expense, and premium, net; note 2                                                                       228,976
         Total interest charges                                               292,406
                                                                              126,052                         103,361
          NET INCOME
                                                                               65,056                          71,372
  Return on appropriation investment; note 5
                                                                               60,996                          31,989
         Increase in retained earnings reinvested
  Retained earnings reinvested at beginning of period                         88,407                          866418
                                                                         $    959,403                    $    898,407
            Retained earnings reinvested at end of period

  Notes 1 th ough 9 following the exhibits are an integral part of the financial statements.

  *Deduct

                                                     32
EXHIBIT III                                                                        EXHIBIT III

TENNESSEE VALLEY AUTHORITY
NONPOWER PROGRAMS
NET EXPENSE AND ACCUMULATED NET EXPENSE
FOR THE YEARS ENDED JUNE 30, 1976 AND 1975


                                                                                       1976         1975
                                                                                         (Thousands)
WATER RESOURCES DEVELOPMENT
  Navigation operations                                                              $ 6,616      $ 6,441
  Flood control operations                                                              6,338       5,891
  Recreation development                                                                2,864        2,535
  Regional water quality management                                                     1,824        1,329
  Fisheries and waterfowl resources development                                           661          629
  Preliminary surveys and engineering                                                     183           187
           Total expense of water resources development                                18,486       17,012
FERTILIZER DEVELOPMENT
  Research and developrent                                                              7   165      6,409
  Fertilizer introductionl; note 2
    Fertilizer industry demonstrations                                                  2,134        1,994
    Farm test demonstrations outside the Valley                                           856          782
            Net expense of fertilizer introduction                                      2,990        2,776
  Developmental production
    Cost of products distributed                                                       40,810       37,241
    General expenses
      Loss or gain* on retirements of manufacturing plant
       and equipment, net                                                               4,065           115*
      Gain on sale of phosphate reserves, net                                             366*          317*
      Administrative and general                                                            605         560
      Other                                                                             ;,27            392
            Total general expenses                                                                      520
            Total production expense                                                   4690         37,761
    Less transfers and sales of products
      Transfers to other TVA programs, at market prices                                34,320       38,998
      Direct sales                                                                      1.314
           Total transfe-:s and sales                                                                   31
            Expense or income*, net, of developmental
             productiun                                                                10,756        2,550*
           Net expense of fertilizer development                                       20,911        6,635
CENERAL RESOURCES DEVELOPMENT
  Agricultural proJects                                                                 1,612        1,566
  Waste heat utilization                                                                  265          235
  Forest and wild land resources development                                            1,669        1,514
  Strip mine reclamation demonstrations                                                   473          313
  Tributary area development                                                            3,125        1,991
  interagency health services demonstrations                                                168        160
  Regional economic studies                                                                 710        601
  Townlift community improvement                                                            706        788
  Human resources development                                                               786        771
  Minerals resources projects                                                               302        287
  Environmental quality projects                                                            461         19
           Net expense of general resources development                                10,277        8,54
LAND BETWEEN THE LAKES OPERATIONS                                                       2,839        2,t50
VALLEY MA'PING AND REMOTE SENSING                                                           547        45
OTHER EXPENSE, NET                                                                          964         62

           NET EXPENSE; schedule D                                                     54,024       35,208
Accumulated net expense at beginning of period                                        659,233     624,025

           Accumulated net expense at end of period                                  $713,257     $659,233
Notes 1 through 9 following the exhibits are an integral part of the financi.al statements.
*Deduct

                                                   33
 EXhIBIT          IV                                                                          EXHIBIT                 IV

TENNESSEE VALLEY AUTHORITY
CHANGER IN FINANCIAL POSITION
FOR THE YEARS ENDED JUNE 30, 1976 AND 1975



                                                                 Power promram                        All programs
                                                               1976         1975                   1976         1975
                                                                                     (Thousands)
SOURCE OF FUNDS
  Program sources
    Net power income; exhibit II                             $ 126,052        $ 103,361      $ 126,052           $ 103,361
    Add items not requiring funds; note a                       16.404*           1,059             16404*       -- 1.05
      Funds from power operations                                               104,420               ,48            14,42
                                                                 2                                                         1.375
    Sale of power facilities                                         ,197         1.375              21
      Funds from power program; note b                         111, 45          105,795            111105,'795

    Net expense of nonpower programs; exhibit III                                                   54,024*            35,208*
    Add items not requiring funds; note a                                                           11                    24[
      Funds used in nonpower operations                                                             42,124*            27,961*
    Sale of nonpower facilities                                                                        89               1,167
      Funds used rn nonpower programs                                                               41,229*            26,794*

  Debt sources
    Long-term bonds
      Issues                                                   800,000          800,OO             800,000            800,000
      Redemptions                                                       -         50,000*                   -          50,000*
    Short-term notes
      Issues                                                 2,495,000         2,070,000      2,495,000           2,070,000
      Redemptions                                            2.50ooo           1,955,    *    2.50,00oo*          1,955,000*
         Total debt sources                                    745,000           865,000         745,000            865,000

  Other sources
    Congressional appropriations                                      298            139           100,025             77,400
    Property transfers                                                260                                 347                  76
            Total other sources                                       558                          100,372             7817

            Total source of funds                            $ 857,403        $ 971,363      $ 915,988           $1,022,168

DISPOSITION OF FUNDS
  Expended for plant and equipment, excluding
   allowance for funds used                                  $ 925,500        $ 826,831      $ 986,285           $ 869,681
    Less:
      Depreciation and amortization of nuclear fuel
       charged to construction and clearing accounts              2,447            6,202              4,516                8,312
      Cost of removing retired facilities ane
       salvage from retained materialsa64*                                        2 64                                     2, 404
                                                                     923,17      817,5             92,7               858;965
   Payments to U.S. Treasury; note 5
     Return on appropriation investment                                  -        71,372                     -          71,372
     Repayment of appropriation investment                               -        20 000                    13          20 027
                                                                         -        91,372 '                 13          91,399
   Requirement for payments to U.S. Treasury; note 5
     Return on appropriation investment                          65,056                  -          6 056
     Repayment of appropriation investment                       20 000                             20 00
                                                             Un rtizeddebtdiscuntandexpenseand 8,0other
   Unemortized debt discount and expense and other
    deferred charges
     Mine and mill development cost                                  7,216         1,693              7,216                1,693
     Short-term debt discount                                             -       1'3,)0*                    -          13,901*
     Debt expense                                                       16            16                 16                 16
                                                                     7,232        12,192'             7,232             12,192*
   Changes in working capital (increase or decrease*)
     Cash                                                       139,686*          70,878           135,333*             83,746
     Accounts receivable                                         16,879           35,082            19,662              33,304
     Inventories                                                1041226          144,5             100 741             152959
                                                                                 18,581
                                                                                 250,518            14,930*            270,009
     Less other current liabilities (excluding
      short-term debt)                                          140.121          176,00             144,070                6
                                                                158,702*          74,318            159,000*      -            ,996

            Total disposition of fWlds                       $ 657,403         $ 971,363      $ 915,988           $1,022,168
 *D'educt

                                                        34
  EXHIBIT        IV                                                                      EXHIBIT       IV

TENNESSEE VALLEY AUTHORITY
CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED JUNE 30, 1976 AND 1975



NOTES:

  a.     Items not requiring funds:


                                                              Power                  Nonpower
                                                       1976           1975         1976     1975
                                                                        (Thousands)
            Provisicns for depreciation               $121,942      $110,322      $ 8,194    $7,669
            Provisions for depletion                       231           210             7       10
            Amortization of nuclear fuel
             charged to operations                            -        7,053             -         -
            Loss or gain* on retirements and
             disposals of property, plant,
             and equipment, net                           340               232     3,699       432*
            Amortization of long-term debt
             discount, premium, and expense;
             and deferred charges                       1,O80               595
            Allowance for funds used
             (construction and nuclear fuel)          139,997*       117,353*            -         -

                                                      $ 16,404* $ 1,059           $11,900    $7,247




  b. Net power proceeds (see note 6) may be derived as follows:


                                                              Year ended June 30
                                                                1976    _1975
                                                                    (Thousands)
                          Funds frcm power prorram            t111,845        $105,795
                          Add btck interest charges               291,831      228,428

                                 Net power proceeds           v403,676        $334,223




Notes 1 through 9 following the exhibits are an integral part of the financial statements.



*Dedllct

                                                 35
TENNESSEE VALLEY AUTHORITY
NOTES TO FINANCIAL STATEMENTS


1. Allocation of cost of multipurpose projects--Section 14 of the TVAAct requires TVA's Board of Directors to allocate the
cost of completed multipurpose projects, subject to the approval of the President of the United States. The cost of facilities
installed exclusively for a single purpose is assigned directly to that purpose; the cost of multiple-use facilities is
allocated among the various purposes served.
    The total investment of $1,070,469,000 in completed multipurpose dams at June 30, 1976, is classified as follows:




                                                                         Investment
                                                           Direct      Multiple-use          Total
                                                                        (Thousands)

                          Power                           $315,115       $177, 98        $   492,413

                          Navigation                       151,803         137,284           289,087

                          Flood control                     61,846         144,542           206,388

                          Recreation                           824          40,516            41,400

                          Tributary area
                           development                           20         41,16.            41,181


                                  Total                   $529,608        $540,861       51,070,469




2. Summary of significant accounting policies--Power accounts are kept in accordance with the uniform system prescribed for
electric utilities by the Federal Power Commission.
     Plant additions and retiremcnts--Additions to plant are recorded at cost, which includes material, labor, overhead, and
allowance for funds used. The costs of generation including amortization of nuclear fuel, less credit for the fair value of
energy generated during preliminary operations prior to ccomercial acceptance, are also included in the recorded cost of steam
and nuclear generating plants. Except for chemical plant, plant retirements (including original cost and removal cost less
salvage) are charged against appropriate accumulated depreciation accounts.     Because of the experimental nature of fertilizer
development. losses on early retirement of chemical plant are included in current year operations. Also see note 9.
     Depreciation and depletion--Straight--line C preciation is provided for substantially on a composite basis. Rates of
depreciation are derived from engineering studies c     .eful life and are reviewed each year. Depletion of coal land and land
rights and phosphate land and mineral rights is prov. d on a unit of production basis.
     Allowance for funds used--The practice of capitalizing an allowance for funds used during construction and during the
 fabrication of nuclear fuels is followed in the power program. The rate is established at the beginning of each six-month
 period on the basis of +he cost of borrowings during the preceding 12 months. Rates used were 8.0 percent and 7.5 percent,
 respectively, for the two six-month periods during 1976 and 8.5 percent for each of the two six-month periods during 1975.
     Repairs and maintenance--The cost of current repairs and minor replacements is charged to appropriate operating expense
 and clearing accounts, and the cost of renewals and betterments is capitalized.
     Nuclear fuel amortization--The amortization of nuclear fuel is provided on a unit of production basis. Rates are estab-
 lished to amortize the costs over the useful life.
     Operating revenuc .-  nd energy costs--Revenues from the sale of electric energy, including amounts resulting from the
 application of an adjustmern' addendum providing for monthly billing charges to reflect increases or decreases in fuel and
 purchased power costs, are r,corded only when billed. Costs of fuel consumed and Of purchased power are reflected in oper-
 ating expenses as incurred. About $88.8 million of these costs recorded in fiscal year 1975 were used in calculating the
 adjustment to power billings .'orJuly and August 1975; and about $112.7 million of these costs recorded in fiscal year 1976
 were used in calculating the adjustment to power billings for July and August 1976.
     Borrowing expenses--Expenses, discounts, and premiums on power borrowings are amortized on a straight-line basis over the
 term of the related securities. Amortization of discount on short-term notes is charged to other interest expense.
      Research and development--Research and development costs are expensed as incurred (approximately $18,738,000 in 1976 and
 $16,475,000 in 1975) except for those costs which relate to specific power program capital projects.
      Sales of fertilizer--Sales of fertilizer materials are not made on a camercial basis, but are made to organizations col-
 laborating in an experimental and educational program aimed at improving the manufacture, distribution, and use of fertilizers.
 3. Construction projects commitments and rental expenses--The construction budgets for the transition quarter (July 1-
 September C, 176) and fiscal year 1977 are $264,642,000 and $1,211,835,000, respectively, for power projects and $18,853,000
 and $68,944,OOC, respectively, for multipurpose and nonpower projects. Substantial coamitments have been incurred for these
 prc jects.

                                                              36
 TENNESSEE VALLEY AUTHORITY
 NOTES -CONTINUED


     The total rentals charged to power operating expenses and other operating clearing accounts for the years ending
                                                                                                                      June 30,
 1976 and 1975, amounted to approximately $13,843,000 and $11,986,000, respectively. At June 30, 1976, the aggregate
                                                                                                                       minimum
 gross rental coemitments of TVAunder all noncancelable leases for the periods shown are as follows:



                              Year            Amount                                    Years               Amount
                                           (Thousands)                                                    (Thousands)
                              1977            $12,443                                1982-86                $39,722
                              1978             12,180                                1987-91                 16,142
                              1979             12,121                                1992-96                 14,236
                              1980             12,026                                Thereafter                 318
                              1981             10,985


      Minimum gross rental commitments include rentals paid under agreements with the City of Memphis, Tennessee, which
                                                                                                                         provide
 that (1) TVA sells to the City all the power and energy requirements of its electric distribution system,
 leases to TVA the Thomas H. Allen steam-electric generating plant with an installed capacity of 990,000 and (2) the City
                                                                                                               kilowatts. Each
 agreement is for a term of 20 years, beginning January 1, 1965. The lease agreement provides for annual rental
                                                                                                                    payments of
 $6,900,000 and grants TVA an option to buy the plant for $2,000,000 at the end of the lease term.
 4. Appropriation investment--Changes in appropriation investment during the years ended June 30, 1976
                                                                                                              and 1975, were as
 follows:



                                                                       Power program                        All programs
                                                                     197-            1975                 1976             1975

                                                                                            (Thousands)
                    Congressional appropriations, net            $          54   $          123     $     100,025      $   77,400
                    Transfers of property from other
                     Federal agencies                                   26(                 429                  347              767
                                                                        314                 552           100,372          78,167
                    Less repayments to General Fund
                     of the U.S. Treasury                                   -        20,000                      13        20,027
                    Increase or decrease* for the
                     period                                             314           19,448*             100,339          58,140
                    Balance, beginning of period                  995,800        1,015,248           2,364,054          2,305,914
                    Balance, end of period                       $996,114        $ 995,800          $2,464,413         $2,364,054

                    *Deduct



    Beginning July 1, 1976, there will be a thr -month transition quarter to effect the cnange in the U.S. Government
year from a twelve-month period ending June 30 to one ending September 30. An appropriation for the transition            fiscal
                                                                                                                 quarter (July-
September 1976) of $30,550,000 was made as of July 1, 1976, by Public Law 94-180, approved December 26,
                                                                                                        1975. An appropriation
of $125,930,000 was made by Public Law 94-355, approved July 12, 1976, for the fiscal year beginning
                                                                                                         October 1, 1976.
5. Payments to the U.S. Treasur--Section 15d of the TVA Act requires the payment from net power proceeds of
                                                                                                                a return on the
net appropriation    investment   in   power facilities   plus repayments of such investment, beginning with fiscal year 1961.          The
amount of return payable during each year is based on the appropriation investment as of the beginning of that
                                                                                                                    year and the
computed average interest rate payable by the U.S. Trn usury on its total marketable pu!.lic obligations
                                                                                                           as of the same date.
The repayment schedule calls for payment of not less than $10 million for each of the first five years (1961-1965),
for each of the next five years (1966-1970), and $20 million for each year thereafter until a total                  $15 million
                                                                                                       of $1 billion shall have
been repaid. The payments required by Section 15d may be deferred under certain circumstances for
                                                                                                       not more than two years.
     Required payments have been made to June 30, 1975, amounting to $757,782,000 as a return on the appropriation
                                                                                                                      investment
and $225,000,000 as a repayment, a total of $982,782,000.
     Section 15d of the TVA Act was amended in April 1976 by Public Law 94-273, Fiscal Year Adjustment Act,
date for payments to the U.S. Treasury from June 30 to September 30 each fiscal year. At June 30, 1976,        which changed the
return on the appropriation investment and $20,000,000 for the repayment was recorded in accounts payable. $65,o56,000 for the
Law 94-274, Fiscal Year Transition Act, requires that TVA make payments for the period July 1, 1976, throughIn  addition, Public
                                                                                                                   September 30,
1976. For this period the amounts to be paid will be $16,333,000 as a return on the appropriation investment
average interest rate of 6.559 percent and $5,000,000 as a repayment. The total payments due September           at the computed
                                                                                                               30, 1976, will be
$106,389,oo00.
     In addition to the payments from net power proceeds, $13,000 of nonpower proceeds was paid to the U.S.
under the provisions of Section 26 of the TVA Act. This brought the total payments from nonpower proceedsTreasury in 1976
                                                                                                              to $41,667,000.
    Prior to 1961, under then existing legislation, TVA paid to the Treasury $185,059,000 of power
the repayments indicated in Exhibit I, $65,072,000 of bonds sold to the Treasury and Reconstruction proceeds.  In addition to
fiscal years 1939-1941 have been fully repaid from power proceeds. Section 26 of the TVA Act provides Finance Corporation in
the Treasury of any power or nonpower proceeds not needed for the operation of dams and reservoirs,    for annual payments to
                                                                                                     the conduct of the power
program, and the manufacture and distribution of fertilizers.


                                                                     37
TENNESSEE VALLEY AUTHORITY
NOTES - CONTINUED


6.      r      utbmitr--Section
                  r             15d of the TVAAct authorizes TVAto issu bods, notes, and other *vidences of indebtednels up to a totel
of $15 bIl     caftn i     at ny one time to assist in fina i its power progr.     Debt service on thee obligations, which is payable
 olely from TWA' net power proceeds, has precedence over the payment to the U.S. Treasury described in note 5. lsuesn outstanding an
June 30, 1976, oaesist of the follovring
                                                                                                (Tousands)
                            Long-ters debt
                                 4l.0" 1960        Series   A,   Sue   November 15, 1985                        $    50,000
                                  4-5/81961        Series   A,   due   July 1, 1986                                  501000
                                   -Vl/2%
                                       1962        Series   A.   due   February 1, 1987                              45,000
                                 5.70o 19S7        Series   A,   due   May 15, 192                                   70,000
                                 6- 3/'1967        aeries   B,   due   November 1, 1992                              60,000
                                 8-1/b 1969        Series   B,   due   October 15, 1994                             10C,000
                                 9%    1970        Series   A,   due   March15, 1995                                100,000
                                 9-1/141970        Series   B,   due   June 15, 1995                                 50,000
                                 7.30% 1971        Series   B,   due   October 1, 1996                              150,000
                                 7%    1972        Series   A,   due   January 1, 1997                              150,000
                                 7.35% 1972        Series   S,   due   may 1, 1997                                  150,000
                                 7.35% 1972        Series   C,   due   Juy 1, 1997                                  150,000
                                 7.40% 1972        Series   D,   due   October 1, 1997                              150,000
                                 7.35% 1973        Series   A,   due   Janu·ry 1, 1998                              100,000
                                 7.35% 1973        Series   B,   due   April 1, 1998                                150,000
                                 7-3/4      1973   Series   C,   due July 1,    1998                                150,000
                                 7.70S      1973   Series   D,   due October    1, 1998                             100,000
                                 8.05%      1974   Series   A,   due January    1, 1999                              lO0,000
                                 8 10       1974   Series    ,   due April 1,    19l9                               100,000
                                 8.50%      1974   Series   C,   due October    31, 1979 (M11)                      300,000
                                 8.05%      1975   Series   A,   -lu January    31, 1990 (1M)                       200,000
                                 8.70% 1975 Series          S,   due   March 31, 2000 (FTB)                         100,000
                                 8.35% 1975 Serier          C,   due   May 31, 1988 (imr)                           200,000
                                 8.47% 195 Series           D,   due   July 31, 2000 ("m1)                          200,000
                                 8.485 1975 Serias          r,   due   October 31, 2000 (FFM)                       300,000              ·
                                 8.175% 1976 Series         A,   due   eebruary 28, 2001 (M);                       300,n0o
                                      Total lon-tern iebt                                                        3,575,X   0   [See      GAO note.
                              Sbt-tera debt
                               U.S. 'rea a.ry                                                                       150,000O
                               Federal Financing pank (Pm)                                                          5W0,000
                               Leg-term debt ,Lue July 1, i976                                                      100,000
                                      Total short-tern debt                                                         830,000
                                                                                                                $411.5,000
 7. Btir                 A         has a cntributory ret!relmt ;plen iich covers *ubstaniaiy a;ll of its salaried eployees. The cost ofr currently
   ecrulnb          ts       fed       currently. The cost or the pla to TVA was $24,892,000 in 197iand $20,782,000 in 1975, includin amortization
 of unfded prior e,-vice coats over a period of 30 and 31 years, respectively. The total pension rund uset a of June 3C, 1975, the
 latest actuarial vaiuation date, exceeded the actuaritl               computed value of vested benefits of the plan, -ihch wesie calculated on the talis
 or an eit'percent interet factor which is conidered representative or current market condition.                        The rate     changed rom that uces
  in the prior yar (five percnt) in order to aore properly relate the calculation of vested beamfits +o te mrket value f fund assets.
 8. LSt.J.OP-A aelna cticn suit, filed in state -ourt on April 4, 1975, and removed to the United States District Ccurt fro the Middle
 Disetrict f,                                as Illgal
                                                 leechollenged
                                                            mdancctztitatitonl TVA's metbod of iLplemontin that portion of its Jemuary 1, 195, adJust-
 meLt adenkM coverinf changes in TVA's costs of 'uel nd purchased powr. Plaintiff contended that proraticn of the onthly amounts I
 r       d.     Oa Auguet 13, 1976, the cue. entered               ary judment on defendants' motion dissolving an njumct'Lon previously issued by the
 state crt si diesina                the action. The court's opinion upholds the constitutionality of and the statutory authority ror the adJustment
 addenum procedure nd finds it te be "a pragmatic, lori :l,                      nd economically Justified method" or complying with the mandates of the
 TVA;,ct.
       Suit _ filed an February 18, 19766,in thr ;:niLto States LLtric:             -ourt fur the Eastern District or Tennessee by three ldividuals an4
 twa oaristiao to enJoin furthb r ccnstructicn of the Tellio                   Dan project on the grounds that the reservoir clearing msd ipuandat of
 the l         Little
                &r     Timesee River were illegal mt in riolaton cf the rendmered Species Act of 1973, in that thee activities would dify
 or destroy the habitat of the snal darter or ott.,rvise eopl ize the             th otinued existeace of this fish, whih was listed           an endanered
   ple       effective November 9, 1975. A preliminary inunction vwasdenied, and, after the trial oa the merits, the action w dinassod,
 The Dietit C t uptld TVA's position tha te ZndaJgered Species Act did not prevent cmpletion of the Tlico project, whicah e                            hbout
 '7 perot erleted at the time the fish u listed as endaered. PLeatiffrs a                              alef to the United States Court orf Appeals fr the
 Sit      Ciroit a moed for an order ajoining LI construction pnding ppeal. That otioa grnted on ,'ly 26, 1976, and the cae was
 eesi.d for oral argu t in the October 1l'76 session. On TVA' motion for reconsiderntion, the injuAtion was temprarily stayed on
 July 28, 1976, _ewmoditifd on August 2. 197L1, o allow coatinuation of eonstruction of the proect sad only enJoin closure of the de
 p-n         apel.       an the optoici ofr TVA's counse tr.e decision of the district court is correct and that the Indaered Species Act dosr not
 prevet oemltica of the Tellico project or uloeure of tohe da.
       Cm      rI 20, 1915. TA filed uit aglnst WutiSbe lEleetric Corp. in the Usited States District Court for the lestern District of
 Tmeseee. Th et                ariees fr rr   weitiehouse' repudiating in major pt eevtei coatreets for the sale of nuclear hul to TA ror tOh
 leyuoyok md Vatts pr Nuclear Plate. Mstingouse base its repudition oa the doctrin of 'eorcoill                                  ilpreticability" found in
Uniform Cejrcilt             Code 5 2-615. TVA brought the action esking, in addition to injunctive reller, a declaratory judnt                   Ma to the
 catimnal        validity, effectiveness, ad enforceability of these contracts; in the alternative the action requests the cart to edopt an
   llocti pl           fr the nu clear ful presently under Westinwouse's control wieh ist fair id reasonable to all Westinghouse cuso                 re a
 of SeImber 8, 1975. the date of the repudiation. The e                     was transferred and conolidated for discovery with similar cames brought by
 ot       utilities to ttb       atern District of Virginia under 28 U.S .C. t lOT?. Discovery is underway with productia of documat havig been
   early cleted rd depositions just begun.
       On April 20, 196,           m atwas filed in the United State District Court for    d the Middle District
                                                                                                                    of Tennessee easAain to enjoin TVArrom
 carrying ot,       at the site of itts Nartsville Nuclear Plant co the Caerln River, activities dich have been authorised by the Nuclear
   egaltoy C ie.sia and seeking a declaratory judwant that conotrwtion                       of  the pilot  outside  the Temresee River Vlly is illegal.
The plaintiffs have ebNms_                  a challengd to the validity of tbhe Ieclor eulaory Cmmission' order athoriing limited site                  per
 retin, leLa the                eiie of        ther A has the utharity to construct powe rratg               acilities outside the Tenessee lirver Valley.
The ce        is set for trial on December 9, 1976. In the opiniom of                's cmansel plOnntiffs' position h      noa rit.
9.                S -s Mor    r 1976,
                                  ln    certain cm l facilities (having a net b           valeb of e,607 ,000 at Junea , 1976) ceaed being utills         in
 t     frtir        dvelop t pogrem. WhilX naetiations for the disposition of mc               ue'a   I itllts re preently underway, no deterinatio       of
then t reisable valas of theo Fcilities Id the assoeited Lose, if Ny, thic IL: bhe astalned c" be ns at this ti*.


GAO note:               The long-term debt issues outstanding at June 30, 1976,
                        included issues with the Federal Financing Bank of
                        $1.6 billion.
                                                                                     38
SCHEDULES




    39
SCHEDULE A                                                        SCHEDULE A

TENNESSEE VALLEY AUTHORITY
COMPLETED PLANT
JUNE 30, 1976


                                                               Accumulated
                                                              depreciation
                                                Assets        and depletion
Power
  Multipurpose dams
    System allocation                        $ 432,358,740    $    171,199,164
    ProJect allocations                         60,054,241           8,364,005
  Single-purpose dams                           72,627,832        26,126,108
  Steam production plants                    2,229,551,748       814,216,157
  Nuclear production plants                    552,356,901        24,513,843
  Other electric plant                       1,670,031,529       414,453,263
       Total power                           5,016,980,991     1,458,872,540
Navigation
  Multipurpose dams
    System allocation                          228,666,824          54,360,805
    Project allocations                         60,420,002           5,370,165
  Single-purpose navigation plant                7,063,240             362,292
       Total navigation                        296,150,066          60,093,262
Flood control
  Multipurpose dams
    System allocation                          180,236,747          38,199,597
    Project allocations                         26,151,462             735,155
  Single-purpose flood control plant             2,065,742             146,713
         Total flood control                   208,453,951          39,081,465
Tributary area development
  Multipurpose dams
     ProJect allocations                         41,180,842            668,649
Recreation and conservation education
  Multipurpose dams
    ProJect allocations                          41,400,426            730,179
  Land Between The Lakes                         55,069,864          3,214,463
  Other recreation plant                          1,985,387            173,634
          Total recreation and
           conservation education                98,455,677          4,118,226
Chemical                                         72,999,375         30,796,563
General                                          45,877,085         21,995,634
          Total                              $5,780,097,987   $1,615,626,339

Total completed plant
  Multipurpose dams
      System allocation                      $ 841,262,311    $ 263,759,566
      Project allocations                       229,206,973      15868103
                                              1,070,469,284     279,627,6 6
   Single-purpose dams                           72,627,832      26,126,108
   Steam production plants                    2,229,551,748     814,216,157
   Nuclear production plants                    552,356,901      24,513,843
   Other electric plant                       1,670,031,529     414,453,263
   Other plant                                  185,060,693      56,689,299
        Total                                $5,780,097,987   $1,615,626,339


                                        41
                              ~~~~~~SCHEDULE               ~SCHEDULE
                                                            B                                                           B
SCHEDULE              B

TENNESSEE VALLEY AUTHORITY
CONSTRUCTION AND INVESTIGATIONS IN PROGRESS,
NUCLEAR FUEL, AND MINE DEVELOPMENT COSTS
JUNE 30, 1976
                                                                       Power program                 All programs
CONSTRUCTION AND INVESTIGATIONS IN PROGRESS
  Construction in progress
    Generating facilities                                                             311382         $    310311382
      Browns Ferry Nuclear Plant                                       $ 310,311,382                 $ 310,311,382
                   NuclearPlant                                                 678,821,930      678,821,930
      SeqBrownserryoyah
                                                                                516,055,041      516,055,041
      Watts Bar Nuclear Plant
                                                                                293,371,116      293,371,116
      Bellefonte Nuclear Plant                                                                    80,873,262
                                                                                 80,873,262
      Proposed Hartsville Nuclear Plant
                                                                                 13,788,850       13,788,850
      Proposed Phipps Bend Nuclear Plant
                                                                                 10,839,566       10,839,566
      Proposed Yellow Creek Nuclear Plant
                                                                                 10,376,666       10,376,666
      Cumberland Steam Plant
                                                                                    963,517           963,517
       JohnsonviXle gas turbine units 1-16                                                            150,201
                                                                                    150,201
      Gallatin gas turbine units 1-4
                                                                                230,352.738      230,352,738
       Raccoon Mountain pumped storage project                                                2,_,269
                                                                                -,145,904,269
                Total generating facilities
     Transmission lines, substations, and other additions to
                                                                                318,614,901                  318,614,901
      power facilities
                                                                                                               1,079,835
     Navigation facilities
                                                                                                                 559,402
     Flood control facilities
                                                                                                                 337,150
     lh-wer Elk rural village
     Multipurpose facilities
                                                                                                              83,949,330
       Tellico Dam and Reservoir
                                                                                                              13,291,723
       Columbia Dam and Reservoir
                                                                                                 -             1,204,632
       Normandy Dam and Reservoir
                                                                                                               5,589,738
       Bear Creek water control system                                                344.585        _           826,516
       Other
             total multipurpose facilities                                            344,585                i,61,939
                                                                                                               2,873,892
     Chemical plant
      Recreation and conservation education facilities
        Land Between The Lakes                                                                                 2,445,421
                                                                                                                 593,876
        oither recreation facilities
                                                                                                               3,039,297
              Total recreation and conservation education facilities
      General plant
                                                                                                              1,203,981
        General construction equipment and materials                                                          5,3
                                                                                                                  2
                                                                                                                    9
                                                                                   1,801,793
        Other additions to general plant
             Total general plant                                                       1,9                  _ 6, 3,91
             Total construction in progress                             2,466,665,54                     2,583,834,599

    Investigations for future projects
                                                                                   4,230,618                    4,230,618
      Power facilities
                                                                                           -                      117,903
      Navigation facilities
      Flood control facilities
             Total investigat  nrls for future projects                                      8                  4,422,013

                                                         in progress    $2,470,896,166                $2,588,256,612
                 Total construction and investigations

  NUC LEAh FUEL1
    Nuclear fuel in process
       Browns PFerry                                                    $         67,617,198             $     67,617,198
                                                                                  30,092,814                   30,092,814
       Sequoyah
                                                                                   6,470,966                    6,470,966
        equ]efyahte                                                               40 700 884                   40 700 884
       Enrichmefnt
       i:nriciment
                                                                                 14                  -- 1
                                                                                                 24,81,86                   -8tg
                 Total nuclear fuel in process
                                                                                  19,015,554                   19,015,554
    Nuclear fuel in stock
    Nuclear fuel in reactor
                                                                                  78,149589                    78149589
      Browns Ferry
                                                                        $ 242,047,005                    $    242,047,005
                 Total nuclear fuel

   Acml !M-TLATF2 AMORTIZATION
                                                                        i          14,757,782            $     14,757,782
     5'r.~wn5s Ferry

   MINE !.F'FYiifPMT     cOsTs
                                                                            *         5,935,845          *      5,935,845
     ':al mirne development and leases
                                                                                      2,97,722                  2,972,722
     Trsniun-     L-ne development and preoperations
                                                                            t          ,908,567          !        ,90,56!
                     tai   !nire development costs


                                                                42
    SCt!EDULE C                                                                                                                                      SCHEDULE C

 TENNESSEE VALLEY AUTHORITY
 DETAILS OF POWER EXPENSE
 FOR THE YEAR ENDED JUNE 30, 1g75


                                                                  Prc';isicn           Tctal te're
                                                                     for                epre       cnit                 C     raticn                                         Cther
                    SURJARY                          Total       depreciaticn           ecr,lbit II.             Fuel                     Other      Maintenaince         production
 Production
   Multipurpcse dar:-
     Direct                                    $     12,%41,32e8 $    ,415,548 $      -ZS,,,c $                       t
                                                                                                          -$     4,C ,252 $ 2,97',5' $-
     Multiple-use; schedule E                         5,o01,895     1,239,544         3,7c,,tl            -      2,91.,C190      822,261
   Single-purpose lama                                2,726,488        9C9,99         1,816,5(9
   Cua.berlandBasin projects; note a                                                                             1,73c,l         7,31-
                                                      7,156,272               -      7,156,272                             -
   Steam plants                                                                                                4   4                       7,!5o.272
                                                   906,e54,108     61,c37,726      845,21c,3-2 t99,t78,9g7,      , 7¢,037     98,767,367
   Nuclear plants                                                                                     .                                            -
                                                    30,933,953     14,732,077       16,221,7        1 ,02        8,22,-75      7,281,C49
   Gas turbine plants
        Total generation
                                                    4            -       0 4I    -     .lt     i7                    ,; Lc                                       e
                                                                       mi~ i    -',5~7
                                                                                    lkl l,                                   l .i          7,l.272
   Iurchased power                                  79,080,227                      79.ccC,227            -79,002
   Interchange power received                      154,400,207                     15,4tCC,2C7                                         - 154-400,207
   Interchange power delivered                      14.281,793'                     14,261,79'-
         Power purchased and                                                                                                              14,281,793
          interchanged, net                        219,198,641              -               219,-2191Q8                                                                                  641
   System control and load dispatching               I               3725
                                                                       1 227                          b ...... .....
                                                                                                      6Int57
   Cther                                            24_4_
                Total production
        Total production                       ~~~~~~~1.252,06
                                                    20 9-0755r2
                                                                               -
                                                              5-16 1,161,513,73!4                            731,303,83
                                                                                                                             _    -----
                                                                                                                                     b03
                                                                                                                                            -----
                                                                                                                                       ,5-76,I7
                                                                                                                                             7 8-14-
                                                                                                                                                   ,~lI 4h
                                                                                                                                                                     -    2   .-
                                                                                                                                                                               I' 7 9,
                                                                                                                                                                         252,3187,727?
Transmission                                                                                    I 3~7o6,eI
                                                    53,518,609    28,84,171                  214,4,                          -         4,23,359        10,396,79                           -
'ustomer accounts                                      600,339                 -                 60,339                      -           600,339
Demonstration of power use                           1,372,896                 -              l,72,6'.c                      -         1,372,89o
Pavments in lieu cf taxes; note b                   48,369,691                 -             4,69,9j                                                                 -    k
                                                                                                                                                                          48,369,691
Social security taxes                                6,718,926                 -              6,718,.26
Administrative and general
                                                                                                                             --                                            6,718,926
  birect                                           51,019,185      2,5C'5,21                 48I,513,9I7                               c4,170,470            343,497                       -
  Multiple-uae                                        105,985                                    l I                                      105,3
          Total cperating expense              $1,413,T7t,879 $121.)1.95
                                                                    1$7i,3($,9
                                                                          $1,291,29,g74                                3      .$1,Oc66,825 $125,O052,COP $3c7,r7, 44
                                                                                                                                                                 3




                                                                                                     Product.In =%penes                     Installed          Ratio of average
                                                                       kWh lei.rated               incladinq :oe:-ciation
                                                                                                                      '                     apact.,;at         gross eenerati-n
                                                                    lesa station use                              Per kWn                 June 30,'1976          to installed
                   SYSTEM STATISTICS                                    (thousands)                     Total     (mills)                  (kilowatts         capacity (percent)
Generation
  Multipurpose lams
     Direct                                                             lj3,259,,C2               $     12,441.32             .93e           2 ,95,(                     50.89
     Multiple-ise; schedule E                                                               -             "C1l-5
                                                                                        Z                                     .37                        -
         Total multipurpose ls.s                                        13,59,o                         I,:-'223             ..3t'             ,-r--                     5,.e9
  Single-purpose lars                                                    1_L7,2''                         ,7,'r.L24
   ..mterlanw                                                                                                                                   24, .2r.                 ,2-4
               Lasin proeerts; oct. a                                                                                             15            5    Ccu
  Alcoa Jams; note                                                                                                                                                       34.1o
                                                                         2 (4     2L-                                                            2,-i,'5                 55.15
         Total hydro generation                                           19,.517,95
  Steam plants                                                                                                                                                 ,          8.7,,
                                                                         1,7'4.
                                                                              4      7                   .'.     10         11/91           17,74Y9,55                   55.50
  Nucleuar plants                                                           1Cl'-:                      .,0c                                       ,,0O
  Gas turbine plants                                                     I 1.                                    2                               1,4                     5    4
          Total comercial      eration, note
                              ...                                       i          :                                        .4.     1'
Purchased power                                                           4.,          335         To 027
Interchange power re:el                                                 1    7          8[11.:73,'ic ,.4i.2£ 7
S3ste.m ontrol and load aispatching
                                                                                                     iI    2'
 .tcr
        "otal system input
                                                                       ic
Dell.ered under Alcoa as'reement                                         1,81,.
Interchange power deiierei                                                  .666        v,* t             .?-I  .
        Net energy supply                                                               Z             .....
                                                                                                         2,.*'2.            Is C.
Shop and internal uses                                                                 ,&-1*
Tranamiiasion and trans'ormation losses
          Total KWh sales and production expense                                                  t     2,



Noictes:
   a. TVA purchases s'.,stantially a.l c! the -tr.' '             'rc plants in the .- ter anl 5 i',erPasi.
                                                          ei,-n? ..                                              II a'cordance with memorandums
         o:' understanding wi-'. the 'orps       *:
                                                 n.inr.eers.Departrent .:f tIe Arm.    :.te?umter!and Pesin prc·es are operated for ¢ptLsum
         productn c£ powecrin ?onf.nction with T/A's p,.c.rs.s'e-. sti e,- ', *.'1 contrci, na.'ia-icn,
                                                                                                              and other ;peratini reuirem-ents
         of the Army.,.
   b. Payments made to states and counties in whi:, power operations are "acrie out.
                                                                                               The tasic amount is 5 percent of Arosa ;evenues
         from the sale cP power to other than Federal agen-ies urlrv     spment$
                                                                            the pre-edlng_ jeer,minimum
                                                                                                  with the provision o'                   under
         certain circmtantnces.   p
         Cperation of twelve hyrc plants of the A1smir[Amcmcpany    America is coordinated with the operation of TVA's power plants under an
         arrangecent whereby the storage and release .:fwater :'romthe Alcoa plants are carrtec
                                                                                                     out by the company under TVA's direction.
   1.    Installed capacity increased 34,,850 .ilcwatts      isrinl :iscal year 197t.                              2
                                                                                         Additions -cnsisted cf ] 5,2'(C -ilcwatts in four gas
         turbine units st the lalatinl Steam Plant and i'-.t~ ·ilusarts 'rcm modifications to
                                                                                                   tnree generators.
eDeduct


                                                                         43
                   D                                                                                 SCHEDULE D
SCHEDULE

TENNESSEE VALLEY AUTHORITY
DETAILS OF NONPOWER NET EXPENSE
FOR THE YEAR ENDED JUNE 30. 1976

                                                                                             Multiple-use
                                                                       Direct                (schedule E)        Total

WATER RESOURCES DEVELOPMENT
  Navigation operations
    Studies and investigations                                                                $          -    $ 1,105,977
                                                                      $1,105,977
      Navigation engineering and investigations                                                          -         42 822
                                                                         142822
      Administrative and general expenses; schedule F                                                            1,148,795,
                                                                       i1,148,799
    Operation and maintenance of facilities                                70,3                1,758,131         1,828,459
      Operation                                                            70,328              1,758131             ,828,459
                                                                           84,954                536,790           621,744
      Maintenance                                                                                 67,443            67,443
                                                                                -
      Administrative and general expenses
      Pr- vision for depreciation                                      ,o04                        6 7            ,781
                                                                                                                 29X994
                                                                          -;.'   3       ,     3,306,931          ,1_66994
                                                                      .3,308,862              $3,306,931         6,615,793
              Total expense of navigation operations

  Flood control operations
    Studies and investigations                                                                                     300,975
                                                                      $ 300,975
      System studies and investigations                                                                            476,340
                                                                        476,340
      Local flood damage prevention studies                                                                         17 396
                                                                         17,396
      Administrative and se:.eral expenses; schedule F                                                             71,711
                                                                      -79",

                                                                           30,563                 2,125,425      2,155,988
     Operation                     of facilities
                                                                                                   643,641         643,641
       Operation ce
                                                                                                    80,290          80,290
       Adr.lnistrative and general expenses                                                                      1.464.375
                                                                           472,2                    92073
       Provision for depreciation
                                                                                 8198,884
     Local flood control improvements
                                                                      $2,496,460              $3,841,429         6,337,889
                 Total expense of flood control operations

   Recreation development
                                                                      $ 754,351                $                    754,351
     Recreation development                                                                                          45.49-
                                                                          5.7
     Administrative and general expenses; schedule F

     Operation and maintenance of facilities
                                                                                     -            1,636,278       1,636,278
       Operation                                                            55,643                   314,572         90,215
       Maintenance                                                                                                  27,232
                                                                                                    208,2321
       Administrative and general expenses                                                                 1
                                                                                                        ,2086,     273,191
                                                                            64,50
       Provision for depreciation                                                                 1,943,733       2,063,916
                                                                           120,183
                                                                       $   920,031             $1,943,733         2,863,764
                 Total expense of recreation development

   Regional water quality management
                                                                                                                  1,702,2t7
     Regional water quality management                                                                               63,811
     Provision for depreciation                                                                                      57,54.
     Administrative and general expenses; schedule F
                  'otal expense of regionc' water quali                                                           1,823,565
                                                                                                                  1,823,565
                  management

    Fisheries and waterfowl resources development                                                                   102,736
      Fisheries resource assessment                                                                                 307,349
      Fisheries resource management and use                                                                         206,310
      W'terfowl management and use                                                                                   16,570
      Provisicn f-r depreciation                                                                                     28,101
      AdministratLve and general expenses; schedule F
               Total expense of fisheries and waterfowl
                                                                                                                     661,066
                resrurces development

    Preliminary surveys and engineering
                                                                                                                     179,407
      Preliminary surveys and engineering                                                                              4,015
      Administrative and general expenses; schedule F
                                                                                                                     183,422
               Total expense of preliminary surveys and engineering
                                                                                                                 $18,485,499
                  Total expense of water resources development



                                                             44
  SCHEDULE D                                                   SCHEDULE D

TENNESSEE VALLEY AUTHORITY
DETAILS OF NONPOWER NET EXPENSE
FOR THE YEAR ENDED JUNE 30, 1976


FERTILIZER DEVELOPMENT
  Research and development
    Chemical fertilizer research and development
      Fundamental research                                             $ 1,242,831
      Applied research                                                   1,200,585
      Process engineering                                                1,485,235
      Ammonia from coal project                                            107,065
      Genera) expenses                                                   1,651,378
                                                                        5,687,094
   Soils and fertilizer research                                        1,230,899
   Provision for depreciation                                             103,732
   Administrative and general expenses; schedule F                        143,428
            Total expense of research and development                   7,165,153

 Fertilizer introduction
   Fertilizer industry demonstrations
     Fertilizers used                                                   33,260,171
     Educational distribution expense                                    1,624,059
     Administrative and general expenses; schedule F                        80,427
                                                                        34,964,657
      Less industry payments for fertilizer                             32,830,438
                                                                         2,134,219
   Farm test demonstrations outside the Valley
     Fertilizers used                                                      502,458
     Planning and supervision                                              718,200
     Administrative and general expenses; schedule F                        29,490
                                                                         1,250,148
      Less farmer payments for fertilizer                                  394,652
             Net expense of fertilizer introduction                      2,989,715

 Developmental production
   Cost of products distributed
     Materials used                                                     12,827,267
     Direct manufacturing and shipping expense                          20,672,912
     Indirect manufacturing and shipping expense                         3,754,936
     Provision for depreciation and depletion                            2,556,768
     Byproduct recoveries                                                  269,618*
     In-process inventory changed                                          316,998
     Finished inventory changes                                            950937
             Total cost of products distributed                         4',81O.200
    General expenses
      Loss on retirements of manufacturing plant and
       equipment, net                                                    4,065,281
      Gain on sale of phosphate reserves, net                              366,320*
      Other general expenses
        Administrative and general expenses; schedule F     $604,542
        Shipping order and field inventory expense           284,826
        Provision for depreciation of idle manufacturing
         plant and equipment                                168,494
        Other, including depreciation of $19,738*           822,834      1,880696
              Total general expenses                                         79,657
              Total production expense                                   6 389,857
    Less transfers and sales of products
      Transfers to TVA programs, at market prices
        Fertilizer industry demonstrations                              33,260,171
        Farm test demonstrations                                           502,458
        Agricultural development                                           324,108
        Other                                                              232.629
              Total transfers                                           34,319,366
      Direct sales                                                       1,314,233
              Total transfers and sales                                 35,633,599
             Net expense of developmental production                    10,756,258

             Net expense of fertilizer development                      120,911,l26
'Deduct


                                                       45
 SCHEDULE        D                                                       SCHEDULE         D

TENNESSEE VALLEY AUTHORITY
DETAILS OF NONPOWER NET EXPENSE
FOR THE YEAR ENDED JUNE 30, 1976


GENERAL RESOURCES DEV       O)PMENT
  Agricultural projects
    Valley agricultural resources development
      Fertilizers used                                                         $    324,100
      Planning and supervision                                                 1.039430
                                                                               1,353,538
       Less farmer payments for fertilizer                                          291,194
                                                                               1,072,3
     Program planning and analysis                                                69,175
     Special agricultural investigations and technical assistance                127,982
     High-income agricultural enterprises, including fertilizers
      used of $539                                                                  161,809
     Agribusiness development                                                       105,151
     Administrative and general expenses; schedule F                                 75,065
             Net expense of agricultural projects                               1,611,526

  Waste heat utilization
    Greenhouse environmental control                                                147,243
    Soil heating to extend crop growing season                                       11,976
    Biological recycling of nutrients from livestock waste                          100,793
    Administrative and general expenses; schedule F                                   5,362
             Total expense of waste heat utilization                                265,374

  Forest and wild land resources development
    Forest industry development                                                     458,715
    Forest and wildlife management and wildlife use                                 333,561
    Forest and wild land investigations                                             448,076
    Improvement and establishment of wild land vegetation                           338,697
    Provision for depreciation                                                        12,910
    Administrative and general expenses; schedule F                                  77,614
             Total expense of forest and wild land resources
              development                                                          1,669,573

   Strip minc reclamation demonstrations
     Strip mine rec' mation demonstrations                                          459,631
     Administrative and general expenses; schedule F                                 13,382
              Total expense of strip mine reclamation
               demonstrations                                                       473,013

   Tributary area development
     Basic investigations                                                           493,076
     Development assistance in specific tributary areas                            1,860,967
     Local government assistance                                                     313,218
     Administrative anregeneral expenses; schedule F                                 119,097
     Multiple-use operating expenses; schedule E
       Operation and maintenance                                    $155,278
       Provision for depreciation, including $194 direct            179,946
        Administrative and general expenses                           3,212          338,4;36
              Total expense of tributary area development                          3,124,794

   Interagency health services demonstrations
     Interagency health services demonstrations                                      158,544
     Administrative and general expenses; schedule F                                   9,367
              Total expense of interagency health services
               demonstrations                                                        167,911


                                                46
SCHEDULE D                                                        SCHEDULE D

TENNESSEE VALLEY AUTHORITY
DETAILS OF NONPOWER NET EXPENSE
FOR THE YEAR ENDED JUWIE 30. 1976


GENERAL RESOURCES DEVELOPMENT - continued
  Regional economic studies
    Regional economic studies                                        $   677,544
    Administrative and general expenses; schedule F                       32,116
             Total expense of regional economic studies                  709,660

  Townlift community improvement
    Townlift community improvement                                       677,801
    Administrative and general expenses; schedule F                       28,101
             Total expense of townlift community improvement             705,902

  Human resources development
    Human resources development                                          727,191
    Administrative and general expenses; schedule F                       58,879
             Total expense of human resources development                786,070

  Minerals resources projects
    Minerals resources projects                                          293,048
    Administrative and general expenses; schedule F                        9,367
             Total expense of minerals resources projects                302,415

  Environmental quality projects
    Regional air quality management                                      162,722
    Research on disposal of solid wastes                                 274,272
    Administrative and general expenses; schedule F                       24,087
             Total expense of environmental quality projects             461,081

             Net expense of general resources development            $10,277,319

LAND BETWEEN THE LAKES OPERATIONS
  Conservation and education operations                              $   773,109
  Recreation operations                                                  703,993
  Operation and maintenance of support facilities                        875,636
  Provision for depreciation                                             416,723
  Administrative and general expenses; schedule F                         69,585
             Total expense of Land Between The Lakes operations      $ 2,839,046

VALLEY MAPPING AND RE3OTE .-NSIN,
  Valley mapping and remote sensing                                  $   519,705
  Provision for depreciation                                              15,124
  Administrative and general expenses; schedule    r                      12,061

             Total expense of valley mapping and remote sensing      $   546,890
OTHER EXPENSE OR INCOME*
  Scientific and technical cooperation                               $     6,282
  Joint bicentemnial demonstration caravan                               736,871
  Emergency preparedness                                                   9,218
  PMintenance of bridges financed by others on TVA dame                  225,794
  Interest income from receivables                                        14,077*

              Other expense, net                                     $   964,088

             NET EXPENSE                                             $54,023,968


                                              47
  SCnEDUL£ E                                                                         SCHEDULE      E

TENNESSEE VALLEY AUTHORITY
OPERATING EXPENSES OF MULTIPLE-USE FACILIlIES
FOR THE YEAR ENDED JUNE 30, 1976



Expenses

  Operation

     Water control operations                                                               $ 1,388,105

     Water control investigations                                                               144,981

     Investigations and control of reservoir ecology                                          1,075,179

     Plant protection and services to visitors                                                1,794,476

     Operation and upkeep of dam reservations                                                 1,580,663

     Reservoir land management                                                               2,197,989
     Development of water resource management methods                                           400,383

           Total operation                                                                   8,581,776

  Administrative and general expenses; schedule F                                               321,160

  Maintenance                                                                                2,070,690

  Provision for depreciation                                                                 3,564,587

           Total                                                                            T14,538,213




                                                Administrative
                                   Operation      and general  Maintenance Depreciation       Total
Distributed to

  Power operations                 $2,940,090      $105,983     $ 822,261    :!11,239,544   t 5,107,878
  Navigation
   operations                      1,758,131         67,443        536,790      944,567      3,306,931

  Flood control
   operations                      2,125,425        80,290         643,641      992,073      3,841,429
  Recreation
   development                     1,636,278         64,232         34,572      208,651      1,943,733
  Tributary area
   development                       121,852          3,212         33,426      179,752        338,242

           Total               $8,581,776          $321,160     $2,070,690   $3,564,587     $14,538,213

                                                      48
  SCHEDULE F                                                    SCHEDULE F

TENNESSEE VALLEY AUTHORITY
ADMINISTRATIVE AND GENERAL EXPENSES
FOR THE YEAR ENDED JUNE 30, 1976



Expenses
  Board of directors                                                   $    196,422
  Office of the general manager                                             420,738
  Planning and budget staffs                                                608,289
  Washington office                                                          147,856
  Information office, including technical library service                  1,566,916
  Equal employment opportunity staff                                         515,134
  Division of personnel                                                    1,023,458
  Division of finance                                                      2,962,321
  Division of law                                                          2,556,569
  Division of property and services                                        1,379,007
  Medical and safety services                                              2,111,403
  Other administrative and general                                          239,874
           Total                                                       $13,727,987

                                                                             Percent
                                                              Amount        of total
Distributed to
  Construction and investigations in progress               . 5,892,990       42.93
  Recovered through services billed to others at cost           252,671        1.84
  Expense of programs
     Power                                                   5,673,824        41.33
     Water resources development
       Navigation                                                42,822         .31
       Flood control                                             17,396         .13
       Regional water quality management                         57,541         .42
        Fisheries and waterfowl resources development            28,101         .20
        Preliminary surveys and engineering                       4,015         .03
       Recreation development                                    45,497         .33
     Multiple-use facilities operations                         321,160        2.34
     Fertilizer development
        Developmental production                                604,542        4.40
        Fertilizer introduction
          Fertilizer industry demonstrations                     80,427         .58
          Farm test demonstrations                               29,490         .21
        Research and development                                143,428        1.04
     General resources development
        Agricultural prcjects                                    75,065         .55
        Waste heat utilization                                    5,362         .0o4
        Forest and wild land resources development               77,614         .57
        Strip mine reclamation demonstrations                    13,382         .10
        Tributary area development                              119,097         .87
        Interagency health services demonstrations                9,367         .07
        Regional economic studies                                32,116         .23
        Townlift community improvement                           28,101         .20
        Human resources development                              58,879          .43
        Minerals resources projects                               9,367          .07
        Environmental quality projects                           24,087          .18
      -and Between The Lakes operations                          69,585          .51
     Valley mapping and remote sensing                           12,061          .09

             Total                                          $13,727,987      100.00

                                            49