Electric Utility Began as Shining Example of Government Success : Troubled TVA Tries to Regain Prestige, Financial Health

It was just about sunset when the man from the Tennessee Valley Authority drove by and spied the farmer sitting on a knoll off to the side of the country road.

The time was the early 1940s, and the farmer was just sitting there, staring at his farm in the hollow--the house, barn and smokehouse, all aglow with light. It was obviously the darndest thing the farmer had ever seen.

A few days later, the TVA man was attending church when the same farmer stood to address the congregation.

“Brothers and sisters, I want to tell you this. The greatest thing on Earth is to have the love of God in your heart,” the farmer declared. “And the next greatest thing is to have electricity in your house.”

Stories like this still bring a smile at TVA offices in Knoxville and Chattanooga and Muscle Shoals. They are a wistful reminder of the good old days.

Once Considered Savior

Once TVA was the savior of the Tennessee Valley, a shining model of how government can develop a region, the agency that switched on lights from Asheville, N.C., to Tupelo, Miss.

In addition to cheap electricity, TVA provided jobs building dams during the Great Depression, lured industry by opening the Tennessee River to navigation and mproved poor farming practices.

“In our household, TVA was just considered wonderful,” the agency’s former chairman, S. David Freeman, who grew up in Chattanooga, reminisced a few years back. “TVA was right up there with religion--and I came from a religious family.”

But the good old days are gone.

Now Franklin D. Roosevelt’s New Deal dream is an agency in transition--some say shambles--struggling to undo decades of bloated bureaucracy, inefficiency and poor leadership.

TVA is the largest electric utility in the country, capable of producing more than 31 million kilowatts from 29 hydroelectric plants, 12 coal-fired steam plants, four combustion turbines and one nuclear plant.

Serves Millions

It serves 8 million people over 80,000 square miles of the South. That’s almost all of Tennessee, a third of Mississippi, a quarter of Alabama and smaller parts of Kentucky, Georgia, North Carolina and Virginia.

But the federal agency, which started with a $100-million government loan in 1933, also faces a debt of $17.9 billion, almost all of it from what was once the nation’s most ambitious nuclear power program.

Of the 17 reactors that TVA planned or started from 1966 to 1978, only one, Unit 2 at Sequoyah Nuclear Plant outside Chattanooga, is generating electricity today.

Eight were scrapped in the early 1980s after TVA realized it had misjudged how much power it needed. Four were delayed by tougher and costly safety regulations after the Three Mile Island accident in 1979.

And the five licensed by the Nuclear Regulatory Commission were shut down in 1985 over concerns they could not be operated safely after accumulating more than $1 million in NRC fines the previous five years.

Sequoyah Unit 2 returned to action only in May, and TVA puts the bill to bring all five reactors back on line at $1.5 billion, and still counting. That does not include lost revenue--about $1 million a day when all five units were down.

None of which helped TVA’s electric rates, which after years of being among the cheapest in the country increased more than 500% from 1967 to 1982. The rates are still well below the nation’s most expensive, but many cities, including Atlanta and Washington, have lower industrial power rates.

“It has been too easy for us,” TVA Chairman Marvin Runyon said of the agency’s past willingness to pass its costs along to customers. “We’re going to stop that.

“We could raise rates and continue to raise rates. But the fact is, TVA used to be the yardstick for the cost of power in the United States . . . and we’ve lost it. We’ve got to get it back.”

TVA’s problems go back at least to 1959, when Congress authorized the agency to begin financing its power operation with electricity sales instead of federal appropriations.

From World War II through the mid-1960s, power use by TVA customers had climbed about 7% a year, but rising coal prices and air pollution problems seemed to warrant against more coal-fired plants.

With the freedom to borrow from the Federal Financing Bank, TVA turned to nuclear power, both cleaner and apparently cheaper than coal, starting construction on seven plants in Alabama, Mississippi and Tennessee.

But by 1983, electricity use was growing just 1% a year, and TVA decided it was building more nuclear plants than it needed. Three of them, after an investment of more than $4 billion, were scrapped.

There were other power problems. The $137-million Tellico Dam in eastern Tennessee was delayed for nearly 10 years by a debate over whether it threatened the existence of a tiny fish called the snail darter.

In middle Tennessee, TVA spent $80 million on the Columbia Dam, then halted construction midway through the project, saying it would be too costly to operate.

Those were nothing compared to the nuclear woes, however. In 1975, a 12-hour fire knocked out controls used to cool fuel rods in the Unit 2 reactor at TVA’s Browns Ferry Nuclear Plant near Athens, Ala. Until Three Mile Island, it was the nation’s worst nuclear accident.

The low point came in 1985. In March, TVA shut down all three Browns Ferry reactors because they did not comply with NRC’s tougher safety regulations. In August, both Sequoyah reactors were shut down.

Initially, TVA thought it was a paper work problem, simply a matter of checking the plants and providing required--but missing--documentation to the NRC.

But as the checks went on, actual safety defects were uncovered, eventually leading to a major management shake-up and the January, 1986, hiring of retired Navy Adm. Steven A. White to head the nuclear overhaul.

White found an agency marked by low morale, typified by thousands of employee complaints of harassment and intimidation for raising concerns about safety.

Most of TVA’s problems, though, came from not spending enough money to maintain and operate the nuclear plants, White said.

“When I looked at the average amount that utilities were spending from 1978 to 1984 and then I looked at what TVA was spending, we were underspending everyone else,” he said.

“That meant we were either a lot more efficient--and I didn’t see any signs of that--or we were underfunded. I think we were underfunded.”

As White prepares to leave TVA, saying he wants to devote more time to his family in Virginia, Sequoyah Unit 2 is back on line, Unit 1 is on the verge of returning to operation and Browns Ferry Unit 2 is scheduled to be producing power again next spring.

But none of this was accomplished without controversy. First, there was his $355,200 annual salary, paid under a personal services contract that allowed TVA to bypass the federal employee salary cap, then $72,300 a year. It costs money to get good nuclear talent, White has said, commenting on his pay and that of contractors he has hired.

Still unresolved is his statement to the NRC in March, 1986, that TVA’s unlicensed Watts Bar Nuclear Plant near Spring City, Tenn., had no major safety problems.

That was not the case, and the NRC recently concluded that White lied, although the agency decided against any fine. TVA has said it still believes White did not mean to mislead the NRC.

White, insisting he did nothing wrong, contends the charges were part of an orchestrated effort by TVA opponents to discredit its nuclear power program.

The other major figure in TVA’s comeback effort has been Runyon, the former president of Nissan Motor Manufacturing Corp. USA who was appointed TVA chairman in January after 44 years in the auto business.

He took one look at the utility’s rising rates and promptly launched a huge reorganization designed to keep them steady for at least three years.

Included was the much-criticized layoff of 7,400 of TVA’s 34,000 employees, but Runyon said the cheaper electricity would ultimately lure more jobs to the Tennessee Valley.

“Our mission is still to improve the quality of life in the valley,” said Runyon. “But to do that today what we have to do is supply power at a competitive rate.”

TVA’s layers of management, which had ballooned to 12 in some departments, were slashed to six, creating more streamlined communication between employees and bosses.

Runyon also launched a program of bonuses for managers like White’s successor, Oliver D. Kingsley Jr., in an effort to hire and keep nuclear experts who otherwise might go to better-paying private utilities.

Can TVA turn itself around? Observers are not sure.

Faces Difficult Job

“Runyon has a very difficult job,” said Mark Siegel, director of an often critical watchdog group, the Tennessee Valley Coalition. “He has done some things that are praiseworthy in trying to cut back on duplication and waste.”

But there is still no clear idea how TVA will pay off its huge debt, much of it in plant write-offs that have not yet been passed along to the ratepayers.

There are also concerns that Runyon’s interest in stable electric rates may come at the expense of conservation and anti-pollution efforts, Siegel said.

White, meanwhile, says TVA should be careful not to repeat the pinch-penny mistakes that he blames for the nuclear problems.

“You can’t just talk money and income without talking about safety and reliability,” White said.

Runyon insists the federal agency can adopt efficient operating methods from private utilities as it seeks to recover its prestige and financial health.

“Business is a good word,” he said. “I think too often, well, (people say) ‘It’s going to run like a business,’ and they put that down like it’s not nice. But business is what made the United States what it is today.”