Tennessee Valley Authority: Future Study of Lake Levels Should Involve
Public and Consider Costs and Benefits (Chapter Report, 05/17/99,
GAO/RCED-99-154).

Pursuant to a congressional request, GAO reviewed the Tennessee Valley
Authority's (TVA) management of its multipurpose tributary projects,
focusing on: (1) the purposes served by TVA's multipurpose tributary
projects and how TVA operates these projects within its integrated
system; (2) the operational changes TVA made to these projects as a
result of its December 1990 review of its project operations and the
major factors influencing these changes; (3) the actions TVA has taken
since the 1990 review to address requests for changes in the way it
operates these projects; and (4) TVA's plans for any future changes in
the way it operates these projects. GAO is also providing information on
a selected update by TVA of its analysis performed in the 1990 review.

GAO noted that: (1) the operation of the multipurpose tributary projects
serves several purposes--primarily navigation and flood control, and to
the extent consistent with these purposes, hydroelectric power
production; (2) these three operating priorities are contained in the
TVA Act of 1933; (3) TVA can permit operation of the projects for other
purposes; (4) in operating its integrated system, TVA often finds that
the multiple purposes served by the projects can conflict or compete
with each other; (5) TVA attempts to balance the various purposes served
to provide the greatest public benefits from the waters of the Tennessee
River and its tributaries while adhering to the operating priorities;
(6) a key change resulting from its December 1990 review of project
operations was TVA's delaying the annual lake drawdown at the
multipurpose tributary projects from Memorial Day to August 1; (7) the
major factor influencing this change was that, of the seven alternatives
examined in the 1990 review, this alternative had the least impact on
TVA's systemwide cost of supplying electric power; (8) all of the
alternatives reduced TVA's ability to generate hydroelectric power
during periods of peak power demand; (9) TVA estimated that the selected
alternative would require replacing some hydroelectric power with power
from more expensive generation sources; (10) since the 1990 review,
little has changed in how TVA operates its multipurpose tributary
projects; (11) because it had been receiving an increasing number of
requests to analyze changes in the lake levels for individual lakes, TVA
determined that a piecemeal approach raised questions of fairness in how
each lake would be treated within TVA's system; (12) therefore, in March
1997, TVA established a 4-year moratorium on making any changes in lake
levels; (13) TVA has recognized that any future changes to its policies
impacting lake levels require further study; (14) in July 1998, an
internal TVA task force report recommended that TVA continue its
moratorium and start reevaluating policies impacting lake levels within
the next 2 to 4 years; (15) the task force also noted the complexities
involved in carrying out such a study and identified several areas
requiring further attention; and (16) among these are a proactive
communication plan with the public and better evaluation methodologies
for costs and benefits.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-99-154
     TITLE:  Tennessee Valley Authority: Future Study of Lake Levels
	     Should Involve Public and Consider Costs and Benefits
      DATE:  05/17/99
   SUBJECT:  Environmental policies
	     Hydroelectric powerplants
	     Electric power generation
	     Cost effectiveness analysis
	     Flood control management
	     Water supply management
	     Hydroelectric energy
	     Inland waterways
IDENTIFIER:  Chattanooga (TN)
	     Knoxville (TN)
	     Paducah (KY)
	     Tennessee River (TN)
	     TVA Flood Risk Reduction Program
	     TVA Alternate Operations Evaluation Program

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Cover
================================================================ COVER

Report to the Honorable
Van Hilleary, House of Representatives

May 1999

TENNESSEE VALLEY AUTHORITY -
FUTURE STUDY OF LAKE LEVELS SHOULD
INVOLVE PUBLIC AND CONSIDER COSTS
AND BENEFITS

GAO/RCED-99-154

TVA's Multipurpose Tributary Projects

(141250)

Abbreviations
=============================================================== ABBREV

  CLUA - Cherokee Lake Users Association
  EA - environmental assessment
  EIS - environmental impact statement
  GAO - General Accounting Office
  HLOLE - Hourly Loss of Load Expectation
  LOUD - Lake Owners and Users of Douglas
  MW - megawatt
  NEPA - National Environmental Policy Act
  TVA - Tennessee Valley Authority
  USFS - U.S.  Forest Service
  WSM - Weekly Scheduling Model

Letter
=============================================================== LETTER

B-282488

May 17, 1999

The Honorable Van Hilleary
House of Representatives

Dear Mr.  Hilleary: 

As requested, this report addresses how the Tennessee Valley
Authority (TVA) manages and operates its multipurpose tributary
projects--consisting of dams and lakes on the tributaries of the
Tennessee River--for various purposes, such as flood control,
navigation, hydroelectric power production, and recreation.  Our
report provides information and analyses on the purposes served by
these projects, operational changes made to these projects in 1990,
actions taken by TVA since 1990 to address requests for changes in
project operations, and TVA's plans for any future changes in project
operations.  This report also provides a recommendation to the
Chairman of TVA's Board of Directors. 

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
provide copies of the report to appropriate House and Senate
Committees; interested members of Congress; Craven Crowell, Chairman,
TVA's Board of Directors; The Honorable Jacob Lew, Director, Office
of Management and Budget; and other interested parties.  We will also
make copies available to others on request. 

Please call me at (202) 512-3841 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
VI. 

Sincerely yours,

Susan Kladiva
Associate Director, Energy,
 Resources, and Science Issues

EXECUTIVE SUMMARY
============================================================ Chapter 0

   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Tennessee Valley Authority (TVA), a wholly owned government
corporation, is, by some measures, the nation's largest electric
power producer.  TVA is also responsible for the use, conservation,
and development of the natural resources related to the Tennessee
River.  In carrying out these responsibilities, TVA relies on an
integrated system of 54 dams and associated componentsï¿½referred to as
projectsï¿½to harness the Tennessee River and its tributaries to serve
various purposes, such as navigation and flood control, for the
public's benefit.  Thirteen of these projects, referred to as
multipurpose tributary projects, consist of dams and lakes on the
tributaries to the Tennessee River, such as the Douglas and Cherokee
projects, that provide multiple public benefits.  Concerns have been
raised about TVA's operation of these multipurpose tributary projects
to satisfy the multiple and often competing public benefits. 

Representative Van Hilleary asked GAO to provide information on (1)
the purposes served by TVA's multipurpose tributary projects and how
TVA operates these projects within its integrated system, (2) the
operational changes TVA made to these projects as a result of its
December 1990 review of its project operations and the major factors
influencing these changes, (3) the actions TVA has taken since the
1990 review to address requests for changes in the way it operates
these projects, and (4) TVA's plans for any future changes in the way
it operates these projects.  GAO is also providing information on a
selected update by TVA of its analysis performed in the 1990 review. 

   BACKGROUND
---------------------------------------------------------- Chapter 0:2

TVA was established by the Tennessee Valley Authority Act of 1933 to,
among other things, improve the navigability and control flooding of
the Tennessee River and provide for the Valley's agricultural and
industrial development.  The generation and transmission of
hydroelectric power was established by law as an additional benefit
secondary only to navigation and flood control.  To carry out its
river management responsibilities, TVA constructed or acquired its 54
projects to serve many purposes.  These projects have a dam and can
include several components, such as a lake behind the dam and
hydroelectric power facilities at the dam.  Some of these projects
were constructed for specific purposes, such as producing
hydroelectric power.  Other projects, such as the 13 multipurpose
tributary projects, were constructed for multiple purposes, such as
producing hydroelectric power and helping control flooding. 

TVA has guidelines, which it refers to as lake level policies, that
prescribe the levels that must be maintained at the lakes at various
times during the year.  Under these guidelines, most of the
multipurpose tributary projects are subject to significant lake level
changes during the year as a result of TVA's flood control and
hydroelectric power production efforts.  Annually, TVA lowers the
lake levels at these projects during the late summer and fall in
order to provide space for the rainfall and runoff that occurs in the
winter and early spring.  According to TVA, while large storms can
occur throughout the year, the major regional floods on the Tennessee
River normally occur between December and April.  As TVA lowers the
lake levels, a process referred to as the ï¿½drawdownï¿½ of the lakes,
TVA generates hydroelectric power with the water released from the
dams.  As the flood risk diminishes in the spring, TVA allows the
lake levels to rise from rainfall and runoff flowing into the lake in
order to reach desirable summer levels for recreational purposes. 

TVA has performed studies and reviews in the past examining whether
changes in lake levels could be made to improve recreational uses of
TVA lakes.  The most recent review was published in December 1990,
which resulted in TVA delaying the annual lake-level drawdown at
multipurpose tributary projects from Memorial Day to August 1.  This
delayed drawdown allowed lake levels at these projects to remain
higher during the summer recreation season. 

   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The operation of the multipurpose tributary projects\1 serves several
purposesï¿½primarily navigation and flood control, and to the extent
consistent with these purposes, hydroelectric power production. 
These three operating priorities are contained in the TVA Act.  TVA
can permit operation of the projects for other purposes, such as
recreation and water quality, subject to the three statutory
purposes.  In operating its integrated system, TVA often finds that
the multiple purposes served by the projects can conflict and/or
compete with each other.  As a result, TVA attempts to balance the
various purposes served to provide the greatest public benefits from
the waters of the Tennessee River and its tributaries while adhering
to the operating priorities. 

A key change resulting from its December 1990 review of project
operations was TVA's delaying the annual lake drawdown at the
multipurpose tributary projects from Memorial Day to August 1.  The
major factor influencing this change was that, of the seven
alternatives examined in the 1990 review, this alternative had the
least impact on TVA's systemwide cost of supplying electric power. 
All of the alternatives reduced TVA's ability to generate
hydroelectric power during periods of peak power demand.  TVA
estimated that the selected alternative would require replacing some
hydroelectric power with power from more expensive generation
sources, at an annual average cost of $2 million (in 1990 dollars). 

Since the 1990 review, little has changed in how TVA operates its
multipurpose tributary projects.  Because it had been receiving an
increasing number of requests to analyze changes in the lake levels
for individual lakes, TVA determined that a piecemeal approach raised
questions of fairness in how each lake would be treated within TVA's
system.  TVA officials also believed that there was great uncertainty
surrounding the future of the electric utility industry due to
deregulation and restructuring.  Therefore, in March 1997, TVA
established a 4-year moratorium on making any changes in lake levels. 

TVA has recognized that any future changes to its policies impacting
lake levels require further study.  In July 1998, an internal TVA
task force report recommended that TVA continue its moratorium and
start reevaluating policies impacting lake levels within the next 2
to 4 years.  The task force also noted the complexities involved in
carrying out such a study and identified several areas requiring
further attention.  Among these are a proactive communication plan
with the public and better evaluation methodologies for costs and
benefits.  GAO agrees that further study is warranted and that public
and other stakeholder involvement is critical to the success of TVA's
reexamination efforts.  Equally important, however, is a
comprehensive analysis of the costs and benefits of any alternatives
analyzed.  This report makes a recommendation directed to the
Chairman of TVA's Board of Directors to ensure these actions take
place. 

--------------------
\1 For this report, GAO defines multipurpose tributary projects as
including 14 projects--the 13 projects mentioned (Boone, Chatuge,
Cherokee, Douglas, Fontana, Hiwassee, Melton Hill, Norris, Nottely,
South Holston, Tellico, Tims Ford, and Watauga)--and another project
(Blue Ridge) because this project has an annual drawdown cycle
similar to most of the other 13 projects. 

   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4

      TVA BALANCES VARIOUS
      PURPOSES OF MULTIPURPOSE
      TRIBUTARY PROJECTS
-------------------------------------------------------- Chapter 0:4.1

The multipurpose tributary projects serve various purposes.  These
purposes include maintaining a navigable waterway between Knoxville,
Tennessee, and Paducah, Kentucky; reducing the risk of flooding
throughout the Tennessee Valley, especially at Chattanooga,
Tennessee; and providing hydroelectric power.  In addition to these
primary purposes, these projects can also serve recreational and
water quality purposes. 

In operating these projects, TVA faces a balancing act of how to
maximize the benefits of the available water to meet all of the
purposes.  TVA's ability to lower and raise the lake levels during
the year is a key element in this balancing act.  For example, TVA
lowers the lake level for Douglas--a multipurpose tributary
projectï¿½50 feet from 990 feet on August 1 to 940 feet above sea level
on January 1.  TVA does so to reduce the risk of flooding while also
allowing for hydroelectric power production during periods of peak
power demand.  When the flood risk diminishes, TVA allows the lake
levels to rise so that desirable summer recreation levels are
achieved by Memorial Day. 

      CHANGES RESULTING FROM 1990
      REVIEW AND COST IMPACTS
      ESTIMATED IN 1990 AND 1999
-------------------------------------------------------- Chapter 0:4.2

Resulting from its 1990 review,\2 a key policy change TVA implemented
in 1991 was a 2-month delay in the annual lake drawdown of the
multipurpose tributary projects.  This change meant that the drawdown
of the lake levels could begin on August 1--some 2 months later than
TVA's previous policy of the lake-level drawdown starting on Memorial
Day.  Thus, lake levels were allowed to remain higher during June and
July under this new policy.\3 Although various factors influenced
TVA's decision, the impact on TVA's systemwide cost of supplying
electric power resulting from the 2-month delay in the annual
drawdown was the major factor TVA considered when examining the seven
alternatives.  Other factors TVA considered were minimizing the
impacts on the environment and flood risk in the Valley and
increasing recreational opportunities at the lakes.  TVA selected the
alternative having the lowest impact on its systemwide cost of
supplying electric power. 

TVA used a complex methodology in estimating this impact.  TVA
estimated an annual average increase of $2 million (in 1990 dollars)
in its systemwide cost of supplying electric power for the lake-level
alternative selected.  Other alternatives were not selected,
including maintaining the lake levels higher until Labor Day or
October 31, because the annual average increases in TVA's systemwide
cost of supplying electric power were estimated at $84 million and
$93 million, respectively (in 1990 dollars).  However, TVA's
methodology did not attempt to quantify other types of costs, such as
impacts to flood control and navigation operations.  In addition, TVA
did not attempt to quantify potential benefits that may result from
increased recreation or tourism by maintaining summer lake levels
longer. 

To illustrate what the potential future impacts could be on TVA's
systemwide cost of supplying electric power given the considerable
changes in the electricity industry since 1990, GAO requested that
TVA analyze two alternatives that were similar to those TVA examined
in the 1990 review.  These two alternatives were judgmentally
selected to show the potential impact of an additional 1-month
drawdown delay for all of the projects and an additional 2-month
drawdown delay for three of the projects.  In 1990, TVA adopted a
policy to begin the drawdown of the lake levels on August 1.  It was
this policy against which TVA evaluated the alternatives in 1999.  By
contrast, in 1990 TVA evaluated alternatives against a Memorial Day
drawdown date.  In the 1999 update, as in 1990, TVA identified
systemwide cost increases of supplying electric power. 

TVA's 1999 analysis showed that delaying drawdown of the lake levels
at the multipurpose tributary projects from August 1 until Labor Day
could result in estimated increased systemwide costs of supplying
electric power ranging from $0 to $88 million annually, with an
average annual estimated cost of $47 million (in 1999 dollars).  The
results for the second alternative examinedï¿½three of the lakes having
an October 1 drawdown date with others keeping the August 1
drawdownï¿½showed potential cost impacts ranging from a $2 million
decrease in costs to a $33 million increase in costs annually, with
an average annual estimated cost increase of $14 million (in 1999
dollars).  TVA cautioned, however, that both the 1990 and 1999
estimates were subject to a great deal of uncertainty due to future
hydrological conditions, electricity prices, and other variables. 
While a complete evaluation of the cost-estimation methodologies used
by TVA was beyond the scope of GAO's work, the general approach used
by TVA in 1990 and 1999 appeared to be reasonable. 

--------------------
\2 Tennessee River and Reservoir System Operation and Planning
Review, TVA (Dec.  1990).  This review examined a number of issues,
including potential changes in the lake levels at the multipurpose
tributary projects. 

\3 This policy also allowed TVA to fill the affected lakes above the
August 1 levels.  By doing so, TVA could conduct a limited drawdown,
referred to as a ï¿½restrictedï¿½ drawdown, of the lake levels during
June and July and use this additional water to generate hydroelectric
power during periods of peak power demand in these 2 months, while
still meeting the lake levels on August 1, when ï¿½unrestrictedï¿½
drawdown could begin. 

      LITTLE ACTION TAKEN TO
      CHANGE PROJECT OPERATIONS
      SINCE 1990 DESPITE REQUESTS
      FROM USERS
-------------------------------------------------------- Chapter 0:4.3

Although TVA continued to receive requests from individuals and
organizations during the 1990s to make additional changes to lake
levels, its policies have changed little.  In March 1997, TVA adopted
a 4-year moratorium on making any changes to lake levels because it
believed such action would (1) position TVA better for future
competition in the electric utility industry, (2) minimize the
public's perception of favoritism for any particular lake within the
system, and (3) allow time for TVA to determine how studies of lake
levels should be evaluated in the future. 

Even though TVA had implemented a moratorium, it commented on two
studies conducted by non-TVA organizations on the estimated benefits
to local economies resulting from lake levels being kept higher
during the year.\4 TVA criticized certain aspects of the studies,
such as the scope, methodology, and assumptions.  TVA noted that one
of the studies lacked proper recognition of the multipurpose roles
served by TVA's projects and how changes would impact the entire
system of projects.  GAO also noted that these studies were limited
because they considered only the impacts on TVA's systemwide cost of
supplying electric power that were estimated by TVA and estimated
benefits pertaining to only a few counties adjacent to the lakes in
question.  Neither study performed a comprehensive analysis of
benefits and costs of proposed lake-level changes.  Such
comprehensive analyses must be performed in order to provide a
balanced evaluation. 

--------------------
\4 Economic and Fiscal Consequences of TVA's Draw-Down of Cherokee
and Douglas Lakes, Center for Business and Economic Research,
University of Tennessee (Oct.  1998) and The Economic Impact of
Alternate TVA Lake Management Policies, North American Water
Management Institute, Inc., Athens, GA (Dec.  1997). 

      TVA PLANS FURTHER STUDY OF
      MULTIPURPOSE TRIBUTARY
      PROJECTS
-------------------------------------------------------- Chapter 0:4.4

TVA recognizes that further study of its policies impacting lake
levels is warranted and that it must do more to prepare for an
eventual reexamination.  TVA's internal task force has recommended
that TVA proceed slowly, however, because it needs to develop the
evaluation methods necessary to adequately perform a reexamination. 
The task force reported that TVA needs to (1) better define flood
risk impacts, (2) refine water resource planning and operation models
to better simulate the operation of the integrated system of projects
under various scenarios, and (3) develop economic growth and
development analysis methods to better represent expected impacts
under alternative policies impacting lake levels.  In addition, TVA
does not want to set unrealistic expectations about how quickly any
decisions could be reached about whether changes are or are not
needed to policies impacting lake levels because of the extensive
time that may be required to examine the range of environmental
issues involved. 

GAO agrees that a reexamination of TVA policies impacting lake levels
is warranted.  GAO also agrees that formal and continuing
communication with the public and other stakeholders will be an
extremely important factor in TVA's reexamination.  These
communications are needed to (1) further educate TVA regarding the
concerns and needs of the various stakeholders that must be
considered in the reexamination process, (2) give TVA additional
opportunities to explain the operation of its integrated system and
the complexities involved in evaluating changes to the system, (3)
establish realistic expectations of the time required to reevaluate
changes in policies impacting lake levels, (4) keep the public
informed of TVA's ongoing activities and progress achieved, and (5)
increase the overall credibility of the reexamination process. 

Past evaluations examining changes to lake levels have tended to
emphasize either the costs associated with the potential change as
has been the case with TVA's efforts or localized economic benefits
as has been the case with studies performed by non-TVA organizations. 
When reexamining any potential changes in lake levels, a balanced and
comprehensive decision can only be reached through consideration of
the costs and benefits of the alternatives examined. 

   RECOMMENDATION
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Chairman of TVA's Board of Directors (1)
provide for a formal and continuing communication process for the
public and other stakeholders to actively participate in TVA's
efforts to reexamine its policies impacting lake levels and (2)
ensure that TVA's reexamination efforts consider the costs and
benefits of any potential changes to policies impacting lake levels. 

   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO provided a copy of a draft of this report to TVA for its review
and comment.  TVA's comments and GAO's responses to those comments
are included as appendix I.  TVA also provided some technical
clarifications that have been incorporated in this report where
appropriate.  TVA stated that GAO had conducted a comprehensive
assessment of TVA's tributary lake operating policies and that the
draft report fairly summarized the issues influencing TVA's
operations.  Regarding GAO's recommendation that TVA provide for a
formal and continuing communication process, TVA stated that it is
essential that the public continue to be involved in decisions that
affect how the Valley's water resources are used.  TVA also
recognized that there is an opportunity to improve its communications
with stakeholders.  TVA added that it remains committed to
communicating fully with its stakeholders and others who depend on
the integrated management of the Tennessee River system. 

Regarding GAO's recommendation that TVA's reexamination efforts
consider the costs and benefits of potential changes, TVA stated that
in operating the river system for the greatest public benefit, it
continues to look for new methodologies that will provide for a more
objective analysis of the tradeoffs among competing demands.  TVA
stated that certain water uses, such as hydropower and flood control,
lend themselves more readily to quantitative analysis, while other
operating objectives, such as economic development and environmental
impacts, continue to be more difficult to quantify.  TVA added that
it remains committed to providing lake users and other beneficiaries
with the best information it has on the most likely impacts of
changes in lake operations so that such lake users and other
beneficiaries are aware of the tradeoffs and consequences of policy
changes. 

TVA also emphasized in its comments that not all costs are monetary. 
TVA stated that as it works to meet multiple needs with a finite
resource, increased costs can take the form not only of higher
electricity prices but also reduced flood control benefits, lessened
environmental quality, and reductions in other benefits.  TVA added
that costs in any form become costs to some segment of the public. 

INTRODUCTION
============================================================ Chapter 1

The Tennessee Valley Authority (TVA), a wholly owned government
corporation, is, by some measures, the nation's largest electric
power producer.  TVA, as a multipurpose, independent federal
corporation, is responsible for managing both power and nonpower
programs,\1 including the use, conservation, and development of the
natural resources related to the Tennessee River.  In carrying out
these responsibilities, TVA relies on an integrated system of 54 dams
and associated componentsï¿½referred to as projectsï¿½to harness the
Tennessee River and its tributaries to serve various purposes for the
public's benefit.  These purposes include maintaining navigable
waterways, protecting the public from floods, producing hydroelectric
power, and providing recreational opportunities on TVA lakes. 
Concerns have been raised about TVA's operation of a key component of
its integrated systemï¿½the multipurpose tributary projects, consisting
of dams and lakes on the tributaries to the Tennessee River, such as
the Cherokee and Douglas projectsï¿½to satisfy the multiple and often
conflicting public benefits. 

--------------------
\1 See Tennessee Valley Authority:  Information on Nonpower Programs
(GAO/RCED-98-133R, Mar.  31, 1998) for additional information. 

   BACKGROUND
---------------------------------------------------------- Chapter 1:1

TVA was established by the Tennessee Valley Authority Act of 1933 to,
among other things, improve the navigability and to provide for the
flood control of the Tennessee River and provide for the agricultural
and industrial development of the Tennessee Valley.  The generation
and transmission of hydroelectric power was established by law as an
additional benefit resulting from these activities, secondary only to
river operations to support navigation and flood control.  Over time,
other project purposes beyond navigation, flood control, and
hydroelectric power production began to be recognized for various
projects.  Two such purposes were recreation and water quality. 
These purposes, however, are subordinate to the statutory purposes of
navigation, flood control, and hydropower. 

To carry out its river management responsibilities, TVA constructed
or acquired 54 projects primarily along the Tennessee River and its
tributaries as an integrated system to serve many purposes.\2 These
54 projects have a dam and can include several components, such as a
lake behind the dam and hydroelectric power facilities at the dam. 
Some of these projects were constructed for specific purposes, such
as producing hydroelectric power.  Other projects serve multiple
purposes.  For example, 13 of the projects located on the tributaries
of the Tennessee River are classified as multipurpose tributary
projects serving various purposes, such as navigation, flood control,
hydroelectric power production, and/or recreation.  In addition,
there are other multipurpose projects located on the main portion of
the Tennessee River, and these projects serve, among other things,
navigation and power production purposes, but have limited flood
control capabilities. 

TVA has guidelines, which it refers to as lake-level policies, that
prescribe the levels that must be maintained at the lakes at various
times during the year.  For example, TVA has established certain lake
levels--referred to as ï¿½targetï¿½ levelsï¿½that should be met on January
1, March 15, June 1, and August 1.  The January 1 and March 15
targets are maximum levels and the June 1 and August 1 targets are
minimum levels.  Under these guidelines, most of the multipurpose
tributary projects are subject to significant lake-level changes
during the year as a result of TVA's flood control efforts. 
Annually, TVA lowers the lake levels at these projects during the
late summer and fall in order to provide additional storage space so
that the projects can help control flooding.  This storage space,
which TVA refers to as flood control capacity,\3 is designed into the
multipurpose tributary projects\4

so that rainfall and runoff in the winter and early spring can be
held back behind the dams to help ease or potentially avert a
flooding situation downstream from the dam.  According to TVA, while
large storms can occur throughout the year, the major regional floods
on the Tennessee River normally occur between December and April. 
This lowering of water levels for flood control purposes, a process
referred to as the ï¿½drawdownï¿½ of the lakes, occurs between August 1
and January 1, and also allows TVA to generate hydroelectric power
with the water released from the dams during periods of peak power
demand in the summer.  During the winter, the water levels are
allowed to increase slowly through mid-March from rainfall and runoff
flowing into the lakes, and then more rapidly through Memorial Day,
allowing for increased recreational uses of the lakes during the late
spring/early summer period. 

Over the years, TVA has performed studies and reviews examining
whether changes in lake levels could be made to improve recreational
uses of TVA lakes.  The most recent review was published in December
1990.  This 1990 review entitled, Tennessee River and Reservoir
System Operation and Planning Review, resulted in TVA delaying the
annual lake-level drawdown at multipurpose tributary projects from
Memorial Day to August 1.  This delayed lake-level drawdown allowed
lake levels to remain higher during the summer recreation season. 

TVA supplies the energy needs of about 8 million people over a
service area covering 80,000 square miles, including most of
Tennessee and parts of six surrounding states (see fig.  1.1).  In
fiscal year 1998, TVA had about 28,500 megawatts of generating
capacity,\5 which consisted of 11 fossil plants (59 units), 3 nuclear
plants (5 units), 29 hydroelectric plants (with 109 units), 4
combustion turbine plants (48 units), and 1 pumped storage plant\6
(with 4 units).  TVA's hydroelectric power facilities constitute
slightly over 19 percent, or about 5,500 megawatts, of TVA's total
generating capacity.  TVA had total operating revenues of $6.7
billion in fiscal year 1998 and generated about 155 billion
kilowatt-hours of energy, with TVA's hydropower facilities accounting
for about 15.7 billion kilowatt-hours, or about 10 percent, of that
energy. 

   Figure 1.1:  TVA Service Area

   (See figure in printed
   edition.)

Source:  TVA. 

--------------------
\2 One of the 54 projects is located on a tributary of the Cumberland
River. 

\3 For example, three of the multipurpose tributary projects have
over 3.7 million acre-feet of flood control capacity available on
January 1.  An acre-foot is a unit of measurement used to describe
the amount of storage in a reservoir.  One acre-foot equals the
volume of water covering 1 acre (43,560 square feet) to a depth of 1
foot. 

\4 For this report, we define multipurpose tributary projects as
including 14 projectsï¿½the 13 projects mentioned (Boone, Chatuge,
Cherokee, Douglas, Fontana, Hiwassee, Melton Hill, Norris, Nottely,
South Holston, Tellico, Tims Ford, and Watauga) and another project
(Blue Ridge) because this project has an annual drawdown cycle
similar to the other 13 projects. 

\5 TVA's total generating capacity includes 405 megawatts from the
U.S.  Army Corps of Engineers' projects on the Cumberland River
system. 

\6 A pumped storage plant is designed to generate hydroelectric power
during peak periods of demand by releasing water previously pumped
into an elevated storage reservoir, usually during periods of low
power demand. 

   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

Representative Van Hilleary requested that we provide him with
information showing how TVA manages and operates its multipurpose
tributary projects for various purposes, such as flood control,
navigation, hydropower production, and recreation.  Specifically, we
provide information on (1) the purposes served by TVA's multipurpose
tributary projects and how TVA operates these projects within its
integrated system, (2) the operational changes TVA made to these
projects as a result of its December 1990 Tennessee River and
Reservoir System Operation and Planning Review and the major factors
influencing these changes, (3) the actions TVA has taken since the
1990 review to address requests for changes in the way TVA operates
these projects, and (4) TVA's plans for any future changes in the way
it operates these projects.  We also provide information on a
selected update by TVA of its analysis performed in the 1990 review. 

The primary agency included in our work was TVA.  We contacted other
agencies, including the U.S.  Army Corps of Engineers, to obtain
information on the effects of TVA's operations on various project
purposes, such as water quality or navigation.  We also visited
and/or contacted a limited number of stakeholders affected by TVA's
project operations, such as lake user groups, commercial businesses
located on or downstream from the projects, local and state
government officials, and state and federal environmental officials. 
The purpose of these discussions was to gain a sense of some of the
issues concerning TVA stakeholders.  At each entity, we interviewed
officials and obtained pertinent records, as appropriate. 

To determine the purposes served by TVA's multipurpose tributary
projects and how TVA operates its system of projects to satisfy these
purposes, we examined TVA documentation and authorizing legislation
and interviewed TVA officials.  We obtained information describing
TVA's operation of its multipurpose tributary projects and how TVA
balances the various purposes for which these projects were
authorized.  We also held discussions with a limited number of
stakeholders affected by TVA's operations in order to describe the
various issues that TVA faces in the operation of its projects and
how the operation affects such stakeholders.  In addition, we toured
two of the multipurpose tributary lakesï¿½Cherokee and Douglasï¿½in the
fall of 1998 to view the extent of drawdown that had taken place
since August 1, 1998. 

In order to describe the operational changes TVA made in 1991 to its
multipurpose tributary projects as a result of its December 1990
Tennessee River and Reservoir System Operation and Planning Review
and what major factors influenced those changes, we examined TVA's
1990 review and interviewed TVA officials.  We also reviewed
information on the alternative drawdown dates that TVA examined, the
constraints and issues considered in TVA's review, and the
methodologies used to determine the additional energy and capacity
costs associated with delaying the drawdown of the tributary
projects.  In addition, we requested that TVA analyze two
alternatives included in its 1990 review to provide a more current
estimate of the increase in TVA's systemwide cost of supplying
electric power resulting from the implementation of these
alternatives.  One of these alternatives involved extending the
drawdown to start on Labor Day for all of the projects.  The other
alternative involved extending the drawdown to start on October 1 for
three projects, with the other projects maintaining an August 1
drawdown date.  We judgmentally selected these alternatives to show
the potential impact of a 1-month drawdown delay for all of the
projects and an additional 2-month delay for three of the projects. 

For TVA's 1990 estimates of the impacts on TVA's systemwide cost of
supplying electric power resulting from lake-level alternatives, we
reviewed the December 1990 Tennessee River and Reservoir System
Operation and Planning Review.  We also reviewed the available
documentation that TVA officials provided to us on their 1990 cost
estimates and discussed with them the data and methodology they used
for their estimates. 

We also held discussions with TVA officials to determine to what
extent market conditions and evaluation methodologies have changed
since 1990.  Because changes have occurred since 1990, we requested
that TVA analyze two of the alternatives evaluated in 1990 to
illustrate what the potential impacts of these alternatives could be
in the future.  TVA officials provided us with oral presentations of
the methodology used and the results of the 1999 update.  In
addition, the officials provided us with a summary of their
assumptions, methodology, caveats, and results.  In conducting the
1999 analyses, TVA considered its planned and/or ongoing efforts to
purchase peaking power (that is, power needed for the periods of
greatest power demand) and install additional natural gas
combined-cycle combustion turbines. 

We developed a general understanding of TVA's cost-estimation
methodology, including the three computer models used in the cost
estimation.  The three models are:  (1) the Weekly Scheduling Model
(WSM) of TVA's hydrological and hydroelectric system, (2) the PowrSym
power production costing model, and (3) the Hourly Loss of Load
Expectation (HLOLE) capacity planning model.  Some of the data inputs
that TVA used, specifically its forecast of electricity market prices
over the next 25 years, are proprietary TVA data. 

We asked TVA officials whether the data and methodology that it used
to estimate the impact on its systemwide cost of supplying electric
power were reviewed by internal or external reviewers.  We also asked
whether TVA uses the same data and similar methodology for its own
operations and planning.  A contractor tested the HLOLE model and
found it to be accurate for a large power system such as TVA's.  TVA
reported that it tested WSM prior to the 1990 cost analysis and that
it performed well.  TVA also reported that it uses the same data
(including the electricity price forecast) and models for its own
capital budgeting decisions and other internal purposes.  We did not
independently evaluate the reliability of the data and the models
that TVA used. 

To determine what actions TVA has taken since the 1990 review to
address requests for changes in the way the multipurpose tributary
projects are operated, we examined TVA's policies since 1991
regarding how it addresses requests for changes to its operations and
interviewed TVA officials.  We examined information showing why and
when such policies were implemented.  We also reviewed two recent
studies (conducted by groups external to TVA) showing estimates of
economic benefits to local communities due to changes to policies
impacting lake levels associated with TVA lake-level drawdown
activities at certain lakes and TVA's responses to these studies.  We
examined the first study, Economic and Fiscal Consequences of TVA's
Draw-Down of Cherokee and Douglas Lakes,\7 which was issued in
October 1998, and met with the principal authors from the University
of Tennessee's Center for Business and Economic Research.  We also
examined the second study, The Economic Impact of Alternate TVA Lake
Management Policies,\8 which concentrated on economic impacts of
TVA's policies on three north Georgia lakesï¿½Blue Ridge, Chatuge, and
Nottely.  We met with officials from the North American Water
Management Institute, Inc., who prepared the study for interested
stakeholders in north Georgia.  We also discussed the strengths and
weaknesses of both these recent studies with the authors and with TVA
officials.  We also evaluated these studies using water project
evaluation guidelines of the U.S.  Water Resources Council.  While it
is not required for privately commissioned studies to follow these
guidelines, we used them because, in our view, they constitute the
best available guidance on this type of economic analysis. 

To explain TVA's plans for any future changes in the way it operates
the multipurpose tributary projects, we held discussions with TVA
officials and examined TVA documentation to determine TVA's current
efforts and potential plans for any future review of its operations. 
In addition, we reviewed budgetary documentation regarding activities
that TVA has funded for fiscal year 1999 and/or budgeted for future
years for the examination of any new or improved analytical tools
aimed at evaluating how changes in lake levels affect flood risk,
navigation, and economic development. 

We also obtained TVA's views on the necessity of an environmental
impact statement with regards to any future changes to TVA's
operating policies affecting the multipurpose tributary projects.  We
reviewed the requirements of the National Environmental Policy Act of
1969 (NEPA) and pertinent court cases from recent years to determine
how the NEPA requirements might apply to TVA and its policies
impacting lake levels. 

We did not independently verify the data we obtained from TVA or the
other entities we contacted. 

We conducted our review from October 1998 through May 1999 in
accordance with generally accepted government auditing standards. 

--------------------
\7 Prepared for Land Owners and Users of Douglas by the Center for
Business and Economic Research, University of Tennessee, (Oct. 
1998). 

\8 Prepared for the Mountain Lakes Study Committee by the North
American Water Management Institute, Inc., Athens, GA, (Dec.  1997). 

MULTIPURPOSE TRIBUTARY
PROJECTS--WHY DO THEY EXIST AND
HOW ARE THEY OPERATED
============================================================ Chapter 2

TVA's network of projects exists for a variety of reasons and is
operated for many purposes.  In operating these projects, TVA is
guided by the operating priorities contained in the TVA Act.  These
priorities require that TVA operate its system of projects primarily
to promote navigation and flood control and, to the extent consistent
with these purposes, for hydroelectric power production.  While TVA
uses two sets of broadly defined policies or guidelinesï¿½one for lake
levels and the other for reservoir releasesï¿½to guide the operation of
the projects within the integrated system, operational limitations
exist at these projects due to the project design characteristics. 
Although some of the multiple purposes served by these projects
conflict, TVA attempts to maximize the benefits of the Tennessee
River while adhering to the operating priorities of the projects. 

   TVA'S 54 PROJECTS EXIST FOR A
   VARIETY OF REASONS
---------------------------------------------------------- Chapter 2:1

TVA has constructed or acquired 54 projects which differ in age,
size, and authorized purposes.  One type of these projects--the
multipurpose tributary project--consists of dams and lakes on the
tributaries to the Tennessee River and provides multiple public
benefits.  These projects have significant changes in lake levels
during the year to support flood control and hydroelectric power
production efforts. 

TVA defines its projects in four categories:  multipurpose tributary
projects, multipurpose main river projects, single-purpose power
projects,\1 and nonpower tributary projects.  Figure 2.1 shows the
location of the multipurpose tributary projects and the multipurpose
main river projects within the Tennessee Valley.  Figure 2.2
illustrates how these projects are integrated into the Tennessee
River.  These figures were provided to us by TVA. 

--------------------
\1 For this report, we have included one of these projectsï¿½Blue
Ridgeï¿½in our definition of a multipurpose tributary project because
(1) even though it is a single-purpose power project, it has an
annual lake-level drawdown similar to most of the 13 multipurpose
tributary projects and (2) TVA has considered it as being very
similar to the multipurpose projects in past reviews involving such
projects. 

      MULTIPURPOSE TRIBUTARY
      PROJECTS
-------------------------------------------------------- Chapter 2:1.1

TVA has 13 multipurpose tributary projects, located on various
tributaries connecting to the Tennessee River.  These projects were
constructed to serve multiple purposes, including hydroelectric power
production and one or more of the following:  flood control,
navigation, recreation, and water supply.  Most of the projects in
this category have a significant amount of available storage space
for flood control purposes.  As a result, TVA operates these projects
primarily for flood control and hydroelectric power production
purposes and annually draws the lake levels down in the late summer
and fall to help ease or potentially avert flooding in the winter. 
The multipurpose tributary projects are:  Boone, Chatuge, Cherokee,
Douglas, Fontana, Hiwassee, Melton Hill, Norris, Nottely, South
Holston, Tellico,\2 Tims Ford, and Watauga. 

--------------------
\2 This project does not have a power facility; the water from it is
diverted to the Fort Loudoun project, which has a power facility. 

      MULTIPURPOSE MAIN RIVER
      PROJECTS
-------------------------------------------------------- Chapter 2:1.2

Along the main portion of the Tennessee River, TVA operates and
maintains nine multipurpose main river projects, which serve multiple
purposes, including navigation and hydroelectric power production
and, in most cases, flood control.  In comparison to the multipurpose
tributary projects, these projects maintain fairly stable lake
levels.  However, most of the projects in this category have some
available flood storage space for water in the lake, and as a result,
TVA operates these projects for flood control purposes and conducts a
limited drawdown of the lake levels to prepare for potential flooding
events in the winter. 

      SINGLE-PURPOSE TRIBUTARY
      PROJECTS
-------------------------------------------------------- Chapter 2:1.3

TVA maintains and operates 10 single-purpose tributary projects on
tributaries of the Tennessee River that were constructed or acquired
strictly for hydroelectric power production.\3 However, these
projects also benefit other purposes, including recreation, water
supply and, in the instance of the Blue Ridge project, flood control. 
Most of these projects have no storage space available in the lake
for flood control purposes, and the water that flows to the project
is generally sent directly through the hydroelectric power facilities
to generate power. 

--------------------
\3 One project is located on the Caney Fork River, a tributary of the
Cumberland River.  For this report, the project is classified as a
Tennessee River single-purpose tributary project.  In addition,
another project has no hydroelectric facilities, but it provides a
small reservoir for cooling water intake at a fossil plant. 

      NONPOWER TRIBUTARY PROJECTS
-------------------------------------------------------- Chapter 2:1.4

TVA has 22 projects located on tributaries to the Tennessee River
that do not have hydroelectric power facilities and are operated for
a variety of purposes, such as flood control, recreation, and water
supply.  Some of these projects have storage space within the lakes,
and TVA operates these projects for flood control purposes and draws
the lake levels down to prepare for potential flooding events in the
winter.  Some of the projects are essentially overflow structures,
requiring little operator intervention except during special
maintenance operations. 

   Figure 2.1:  Location of TVA's
   Multipurpose Tributary Projects
   and Multipurpose Main River
   Projects

   (See figure in printed
   edition.)

   Figure 2.2:  How TVA's
   Multipurpose Tributary Projects
   and Multipurpose Main River
   Projects Are Integrated Into
   the Tennessee River

   (See figure in printed
   edition.)

      MULTIPURPOSE TRIBUTARY
      PROJECTS HAVE SIGNIFICANT
      LAKE-LEVEL CHANGES
-------------------------------------------------------- Chapter 2:1.5

While all 54 projects were built or acquired as part of TVA's
integrated system of projects and all of the projects contribute to
TVA's attempts to maximize the value of the available water in the
Tennessee River, the multipurpose tributary projects generally have
more significant changes in lake levels during the year.  For
example, the target lake level for Douglasï¿½a multipurpose tributary
projectï¿½decreases 50 feet from 990 feet on August 1 to 940 feet above
sea level on January 1.  On the other hand, the target lake level for
Fort Loudounï¿½a multipurpose main river projectï¿½only decreases 6 feet
from 813 feet on August 1 to 807 feet above sea level on January 1. 
Table 2.1 shows differences between the August 1 and January 1 target
lake levels at the multipurpose tributary projects. 

                               Table 2.1
                
                   August 1 and January 1 Target Lake
                Levels for TVA's Multipurpose Tributary
                                Projects

                       (In feet above sea level)

Multipurpose tributary            August 1     January 1
projects                      target level  target level    Difference
----------------------------  ------------  ------------  ------------
Blue Ridge                           1,682         1,668            14
Boone                                1,382         1,358            24
Chatuge                              1,923         1,912            11
Cherokee                             1,060         1,030            30
Douglas                                990           940            50
Fontana                              1,693         1,644            49
Hiwassee                             1,515         1,465            50
Melton Hill                             \a            \a            \b
Norris                               1,010           985            25
Nottely                              1,770         1,745            25
South Holston                        1,721         1,702            19
Tellico                                813           807             6
Tims Ford                               \c         873\c            \b
Watauga                              1,949         1,940             9
----------------------------------------------------------------------
\a These dates do not have a set level due to the small change in
lake levels; the full range is from 790 to 796 feet above sea level,
with a normal operating range of 793 to 795 feet above sea level. 

\b Not applicable. 

\c The Tims Ford project has no August 1 target level.  However, it
does have a minimum elevation requirement of 883 feet above sea level
from May 15 through October 15 and a January 1 target level of 873
feet above sea level. 

Source:  TVA. 

The changes in lake levels resulting from the annual drawdown at most
of these multipurpose tributary projects are significantly greater
than the lake-level changes in the multipurpose main river projects
due to the topography, the design of the projects, and the purposes
for which they were intended.  Figures 2.3 and 2.4 show photographs,
which TVA provided to us, of what two multipurpose tributary projects
look like as a result of the annual lake-level drawdown between the
summer and January 1. 

   Figure 2.3:  Fontana
   Multipurpose Tributary Project
   Prior to and After Drawdown

   (See figure in printed
   edition.)

   Figure 2.4:  Hiwassee
   Multipurpose Tributary Project
   Prior to and After Drawdown

   (See figure in printed
   edition.)

   NAVIGATION, FLOOD CONTROL, AND
   HYDROPOWER ARE PRIORITY
   PURPOSES FOR MULTIPURPOSE
   TRIBUTARY PROJECTS
---------------------------------------------------------- Chapter 2:2

TVA primarily operates its multipurpose tributary projects for
navigation, flood control, and hydroelectric power production, as
specified in the TVA Act.  Over time, however, TVA has recognized a
variety of other purposes that also benefit from TVA's operation of
its projects.  These additional purposes include recreation and water
quality. 

  -- -- Navigation - TVA's system of nine navigation locks at its
     main river projects is part of a 650-mile transportation route
     from Knoxville, Tennessee, to Paducah, Kentucky, which links the
     Tennessee Valley with the Mississippi and Ohio River systems,
     connecting ports in 21 states.  Commerce moved on the Tennessee
     River has increased from about 2 million tons in the 1930s to
     about 49 million tons in 1997.  According to TVA, over $450
     million worth of products are transported annually via barges
     through the river.  As a standard in the U.S.  inland waterway
     industry that dates back to the 1920s, barges are designed for a
     9-foot draft for navigation purposes.\4 In order to provide
     navigability on the Tennessee River, TVA maintains a minimum
     channel depth of 11 feet.  Under normal weather conditions, the
     operation of the multipurpose tributary projects for flood
     control and hydroelectric power production provides enough
     reliable water downstream to maintain navigation depths on the
     river.  However, during dry periods, TVA may have to release
     water from certain main river and/or tributary projects to meet
     required navigation depths.  In addition, during floods and
     low-flow periods, TVA's integrated system affects navigation on
     the Mississippi River and the lower Ohio River.  For example,
     TVA may at times, release water to help maintain navigable
     channels on the Ohio and Mississippi Rivers during low-flow
     periods.  TVA can also reduce water releases from its projects
     to mitigate flooding on these rivers during hazardous, high-flow
     periods. 

  -- -- Flood control - One of the primary purposes for TVA's
     development and maintenance of its integrated system of projects
     is to protect the inhabitants of the Tennessee Valley from loss
     of property and life as a result of flooding.  An area within
     the Tennessee Valley that is very susceptible to flooding is the
     city of Chattanooga, which sits at a point just before the
     Tennessee River passes through the Cumberland Mountains.  Before
     the construction of TVA dams to control the flow of water, major
     storms would force the river to flood its banks.  While TVA's
     system of projects is not sufficient to eliminate all flooding,
     in most cases, it significantly reduces the risk of major
     damages and loss of life.  As of April 1998, TVA estimated that
     the cumulative value of flood damages prevented at Chattanooga
     by the operation of the TVA's integrated system of projects
     since 1936 totaled approximately $4.4 billion. 

  -- -- Hydroelectric Power Production - TVA's hydroelectric power
     facilities serve as its most economical and versatile source of
     electricity.  Electricity generated by TVA's hydroelectric power
     facilities, which are made up of 113 hydropower units at 30
     projects, constitutes approximately 10 percent of TVA's annual
     total electricity production.\5 While the lake levels are
     managed within a specific operating range, TVA attempts to
     produce as much electricity as possible from the available water
     at the times when the power is most valuable, without disrupting
     flood control and navigation requirements.  Hydroelectric power
     production is considered the most economical source of
     electricity because its incremental costs of production are
     cheaper than any other power sources.  In addition, TVA's
     hydroelectric power facilities are more versatile than other
     power sources, due to the ability to turn units on more quickly
     than other units to meet peak power demands, system emergencies,
     and voltage regulation on the transmission system. 

TVA attempts to schedule releases of water through its hydroelectric
power facilities at the tributary projects to avoid releasing more
water into the Tennessee River than the main river hydropower
facilities can handle.  While water can be released downstream
through a project's spillways whenever necessary, TVA tries to
minimize such releases in favor of releasing water through the
hydropower facilities to produce electricity.  To maximize the value
of its hydroelectric power, TVA schedules the production of
hydroelectric power during the periods of greatest power demand to
offset the use of other, more expensive, sources of power.  Due to
power usage in the Valley, daily peak demands in the winter typically
last a few hours in the morning and a few hours in the evening. 
Often, severely cold weather conditions in the winter only last for a
few days at most.  In contrast, the typical daily summer peak demands
last 8 or more continuous hours a day and the extremely hot weather
driving these demands can last multiple days or even weeks.  Based on
TVA's demand forecasts, TVA officials predict that the summer peak
demand for power will consistently exceed the winter peak demand in
the future.  While TVA schedules most of the hydroelectric power
generation to help meet the daily peak power demands, at times
hydroelectric power facilities are operated 24 hours a day while
water is released for other purposes, such as water quality or flood
control. 

In addition to operating its multipurpose tributary projects for the
statutory purposes of navigation, flood control, and hydropower
generation, TVA also manages these projects for other purposes, if
consistent with the three statutory purposes. 

  -- -- Recreation - TVA regulates its lakes to provide recreational
     opportunities consistent with its flood control, navigation, and
     power production responsibilities.  TVA estimates that its lakes
     attract millions of visitors each year for a variety of
     water-related activities, including swimming, fishing, water
     skiing, and boating.  TVA also provides recreational
     opportunities on the Tennessee River downstream from TVA
     projects.  For example, TVA releases water at the Ocoee No.  2
     project for whitewater recreation during certain times of the
     year. 

  -- -- Minimum flows for water quality - Prior to 1991, TVA had
     fewer requirements to provide minimum flows from its projects
     for the benefit of aquatic life downstream from TVA projects. 
     While water quality benefits were often provided as a result of
     TVA operations for flood control, power production, and
     navigation, TVA could shut off water releases, with a few
     exceptions, downstream from its projects.  Shutting down the
     flow of water downstream from TVA projects can have severe
     effects on aquatic life.  In December 1990, TVA recommended that
     increased minimum flows be provided at some of its mainstream
     and tributary projects and dissolved oxygen levels be improved
     in water released downstream from 16 of its projects.  TVA's
     implementation of these recommendations helped recover over 180
     miles of aquatic habitat and improved dissolved oxygen levels in
     over 300 miles of the Tennessee River.  TVA also attempts to
     stabilize lake levels during the spring to support the spawning
     season for a variety of fish species that can be found in the
     Tennessee River and TVA's lakes.  These fish species deposit
     their eggs primarily during the spring, at various times from
     February through June, depending on the species and water
     temperature.  In addition, minimum flow requirements affect
     other issues related to water quality, such as water supply,
     heated discharges from coal and nuclear plants, and wastewater
     discharges from industries. 

Water Supply ï¿½ Water is withdrawn at approximately 330 points along
the Tennessee River and its tributaries to benefit approximately 4
million citizens of the TVA region.  TVA's operation of its
multipurpose tributary and mainstream projects provides the necessary
water flows to allow water supply pumping mechanisms to function
properly.  On average, over 9 billion gallons of water are withdrawn
from the river system each day.  According to TVA, over 75 percent of
the water withdrawn is returned to a river, stream, or lake after
use. 

Heated Discharges from Coal and Nuclear Plants - TVA operates coal
and nuclear plants on or near lakes along the Tennessee River and its
tributaries for power-generation purposes.  TVA provides minimum
flows from its multipurpose projects to supply cooling water for its
coal and nuclear power plants.  In turn, the coal and nuclear plants
discharge the water back into the Tennessee River at a warmer
temperature.  If needed, TVA provides releases from upstream
multipurpose projects to reduce the effects of the upstream flow of
heated discharge water. 

Wastewater Discharges from Industries - Industries operating along
the Tennessee River and its tributaries can apply for and receive
approval for permits from state pollution control agencies for the
release of municipal and industrial effluents into the Tennessee
River and its tributaries.  TVA provides historical flow data to the
state pollution control agencies to help them set appropriate permit
limits, based on TVA's normal operations of its projects.  If an
industry desires additional flow for the assimilation of its effluent
beyond what is provided from normal project operations, the industry
must reimburse TVA for the costs it incurs in providing these flows. 

--------------------
\4 The term ï¿½draftï¿½ refers to the vertical distance that towboats and
barges extend below the water surface. 

\5 TVA's hydroelectric power facilities include the Raccoon Mountain
pumped storage project, which has four hydropower units. 

   SEVERAL FACTORS INFLUENCE HOW
   TVA OPERATES ITS MULTIPURPOSE
   TRIBUTARY PROJECTS
---------------------------------------------------------- Chapter 2:3

In addition to the operating priorities contained in the TVA Act,
there are several factors that influence how TVA operates its
multipurpose tributary projects.  TVA's establishment of two sets of
broadly defined policies or guidelinesï¿½one for lake levels and the
other for reservoir releasesï¿½is one example.  An additional
constraint on operations is the specific design characteristics
associated with each of the projects.  Within the limitations of such
factors, TVA attempts to balance the various purposes served to
provide the greatest public benefits of the Tennessee River within
the parameters of its operating priorities and the individual project
design characteristics. 

TVA follows two sets of broadly defined policies or guidelines in the
operation of its mainstream and tributary projects:  lake-level
policies and reservoir release policies.  Lake-level policies
prescribe a maximum, minimum, or range of lake levels that must be
maintained at a given time of year.  TVA graphically presents the
lake-level requirements on line graphs called ï¿½operating curves,ï¿½
which show the lake-level requirements throughout the year for flood
control purposes, target recreational levels, and the range of water
levels within which hydroelectric power can be generated.  Reservoir
release policies prescribe a maximum or minimum flow that must be
maintained from a project over an hourly, daily, weekly, or biweekly
period for navigation and water quality purposes. 

On the tributary lakes, TVA's policies require that the lake levels
be lowered annually during the summer through early winter to the
projects' January 1 target levels, primarily to help control
potential floods during the winter and early spring.  Figure 2.5
(provided to us by TVA) shows that, based on historical data of the
TVA region, the wettest periods of the year tend to occur between
December and March.  During this period, the days are shorter,
weather is colder, and the vegetation is dormant, which results in a
much greater amount of precipitation running off to the streams and
rivers than occurs in late spring, summer, and early fall.  Thus,
there is a significantly higher risk of flooding during the January
through March period.  The drawdown of the lake levels also provides
for hydropower generation to help meet the peak power demands of the
summer and provides augmented river flows for water quality and
navigation purposes during the summer and fall, historically dry
periods of the year.  As the flood risk diminishes during late winter
and early spring, TVA allows the lakes to accumulate water in order
to reach desirable summer levels by Memorial Day.  Prior to 1991, TVA
began the annual drawdown of the lake levels of its multipurpose
tributary projects anytime after Memorial Day.  Resulting from the
changes implemented in 1991, the lake-level drawdown for these
projects now begins August 1. 

   Figure 2.5:  Monthly Rainfall,
   Runoff and Flood Storage
   Allocation Above Chattanooga

   (See figure in printed
   edition.)

Another factor that TVA must consider in operating its integrated
system of projects is the design characteristics of the projects. 
These characteristics are quite varied for the multipurpose tributary
projects.  For example, all, except one, have hydropower facilities,
with installed generating capacity ranging from a low of 10 megawatts
at Chatuge to a high of 239 megawatts at Fontana.  All, except one,
have the ability to alleviate potential flooding, with capacity at
January 1 ranging from a low of 68,500 acre feet at Blue Ridge to
three projectsï¿½Norris, Cherokee, and Douglasï¿½each having over 1
million acre feet.  The total area of the lakes at normal summer
maximum ranged from 3,290 acres at Blue Ridge and 4,310 acres at
Boone to 34,200 acres at Norris.  In addition, TVA manages shoreline
miles at its projects, ranging from a low of 68 miles at Blue Ridge
and 102 miles at Nottely to 809 miles at Norris.  One project--Melton
Hill--has a navigation lock.  Table 2.2 lists various characteristics
for the multipurpose tributary projects. 

                                    Table 2.2
                     
                         Various Characteristics of TVA's
                           Multipurpose Tributary Lakes

                                  Flood control capacity
                                      (in acre feet)
                                  ----------------------
                                                                    Area  Instal
                                                                      of     led
                                                                    lake  genera
                                                          Length      at    ting
                                                              of  normal  capaci
                                                          shorel  summer  ty (in
                                                             ine  maximu   total
                                  Januar   March             (in   m (in  megawa
Multipurpose tributary lake          y 1      15  June 1  miles)  acres)    tts)
--------------------------------  ------  ------  ------  ------  ------  ------
Blue Ridge                        68,500  40,800  13,100      68   3,290      22
Boone                             92,400  60,400  12,900     127   4,310      81
Chatuge                           93,000  73,300  13,900     128   7,050      10
Cherokee                          1,011,  807,80  146,70     395  30,300     135
                                     800       0       0
Douglas                           1,251,  1,008,  237,50     512  30,400     146
                                     000     600       0
Fontana                           580,00  580,00  73,400     238  10,640     239
                                       0       0
Hiwassee                          270,20  216,10  35,000     165   6,090     166
                                       0       0
Melton Hill                           \a      \a      \a     193   5,690      72
Norris                            1,472,  1,113,  512,00     809  34,200     131
                                     800     000       0
Nottely                           100,00  79,100  12,300     102   4,180      15
                                       0
South Holston                     290,20  220,10  106,10     182   7,580      39
                                       0       0       0
Tellico                           120,00  120,00  32,000     357  15,860    None
                                       0       0
Tims Ford                         219,60  167,20  78,000     309  10,600      45
                                       0       0
Watauga                           223,00  152,80  108,50     105   6,430      58
                                       0       0       0
--------------------------------------------------------------------------------
\a There is no flood storage allocation. 

Source:  TVA. 

   TVA FACES BALANCING ACT BETWEEN
   OPERATING PRIORITIES AND USERS'
   INTERESTS
---------------------------------------------------------- Chapter 2:4

Many people and entities use the water in the Tennessee River and its
tributaries for various purposes and are directly affected by TVA's
operating policies regarding its multipurpose tributary projects. 
However, the needs of these various users often conflict and/or
compete with each other, and TVA must attempt to balance its
operations to best meet the needs of these users while adhering to
its operating priorities of flood control, navigation, and hydropower
generation. 

Lake user groups, such as the Land Owners and Users of Douglas (LOUD)
and the Cherokee Lake Users Association (CLUA), which primarily
include the residents and commercial businesses located on or near
the tributary lakes and those that use the lakes for recreational
purposes, have sought higher lake levels throughout the year.  These
groups argue that higher lake levels result in enhanced recreational
opportunities, which have become a growing percentage of the economy
in the counties encompassing and surrounding the lakes.  The groups
also argue that higher lake levels have a positive affect on property
values.  Marina owners on the Douglas and Cherokee Lakes explained
that their business is significantly reduced starting in late summer
as a result of TVA's lake-level drawdown beginning on August 1. 
According to these individuals, many marina owners have closed down
their businesses in the past because of TVA's policies impacting lake
levels.  Local government officials tended to reiterate the concerns
of the lake users and stressed the importance of recreation and
tourism in their local economies.  While all of these entities and
organizations recognized that changes made as a result of TVA's 1990
review did improve lake levels, they all believe that TVA's policy of
beginning the lake-level drawdown on August 1 has a severe impact on
the tourism and recreational trade in these areas. 

Other users, such as a barge operator and a boat manufacturer, had
very different views on TVA's operation of its integrated system. 
These users cited minimum channel levels on the Tennessee River as
their primary concern.  TVA's policy of maintaining an 11-foot
channel allows the barge operator to move products up and down the
river and gives the boat manufacturer the ability to test its newly
constructed boats.  Any significant changes to TVA's operating
policies that may have a negative effect on downstream flow of water
could have a significant impact on such businesses.  Still other
users, such as TVA's power distributors, who purchase TVA's wholesale
power and then resell the power to the retail consumers, are
primarily concerned with any increase in the cost of power that would
result from changes in TVA's policies impacting lake levels.  TVA's
current policies allow for significant hydroelectric power generation
during the peak periods of power demand, when the power is most
valuable.  Any shift in these policies could result in a higher cost
of power for TVA, which could, in turn, increase the cost of power to
the power distributors and retail customers. 

Emergency management officials near Chattanooga and businesses
located near TVA projects are concerned with potential increased
risks of flooding that may result from changes in TVA's operating
policies.  Officials representing state and federal environmental
agencies expressed concerns with the quality of the water that flows
down the Tennessee River through TVA's projects.  Environmental
concerns include the concentration of wastewater in the river flow
that results from industries located along the river and the change
in temperature and/or the level of oxygen in the water that may
affect aquatic habitats in the river. 

MULTIPURPOSE TRIBUTARY PROJECT
OPERATIONS WERE CHANGED AS A
RESULT OF TVA'S 1990 REVIEW
============================================================ Chapter 3

Over the past 3 decades, TVA has instituted two sets of significant
changes in the way the multipurpose tributary projects are operated. 
The last changeï¿½made in 1990ï¿½resulted in a 2-month delay in the
annual drawdown of the lake levels at the multipurpose tributary
projects during the summer.  TVA rejected a number of other
lake-level alternatives because they would have resulted in higher
systemwide costs of supplying electric power.  Of the seven
alternatives evaluated at that time, TVA adopted the one having the
least cost increaseï¿½estimated at an annual average of $2 million (in
1990 dollars).  TVA used a complex methodology in estimating the
impacts on TVA's systemwide cost of supplying electric power of
lake-level alternatives.  However, this methodology did not quantify
(1) other cost impacts, such as impacts to flood control and
navigation operations, or (2) the economic benefits of the
alternatives evaluated.  Because market conditions and evaluation
methodologies have changed since 1990, we requested that TVA analyze
two of the alternatives evaluated in 1990 to illustrate what the
potential impacts on TVA's systemwide cost of supplying electric
power could be in the future.  This 1999 analysis showed that
delaying the drawdown of tributary lakes from August 1 to Labor Day
could result in potential increased costs ranging from $0 to $88
million annually depending on various assumptions, with an average
estimated increase of $47 million (in 1999 dollars).  TVA cautioned
that both the 1990 and 1999 estimates were subject to a great deal of
uncertainty due to future hydrological conditions,\1 electricity
prices, and other variables. 

--------------------
\1 Hydrological conditions characterize water volumes and flows that
affect TVA's objectives of flood control, navigation, power supply,
etc. 

   1971 STUDY LED TO HIGHER WINTER
   LAKE LEVELS
---------------------------------------------------------- Chapter 3:1

In 1971, TVA conducted a study to modify, if possible, some portions
of its operations to improve recreational uses of TVA's multipurpose
tributary projects within the framework of the statutory requirements
for flood control, navigation, and hydropower generation.  As a
result of this study, TVA concluded that raising the January 1 target
levels and the normal minimum levels\2 of nine of its multipurpose
tributary projects should provide higher lake levels during the
winter in most years.\3 According to TVA's analysis, such changes
would not significantly affect its ability to provide flood control
during the month of January.  TVA also predicted that higher winter
levels would improve the chances of the lakes filling to higher
levels in the spring, thus enhancing recreational opportunities.  For
example, target levels for January 1 were increased as much as 10
feet at Cherokee and Hiwassee.  In addition, the normal minimum level
at Douglas was raised 20 feet while increases in the other lakes
ranged from 30 to 100 feet.  Table 3.1 highlights the changes TVA
implemented in 1971. 

                                        Table 3.1
                         
                           Changes Made in 1971 to Multipurpose
                                  Tributary Lake Levels

                                (In feet above sea level)

               Changes to January 1st target levels    Changes to normal minimum levels
               ------------------------------------  ------------------------------------
Multipurpose
tributary        Pre-1971                                Pre-1971
lakes\a             level    1971 level    Increase         level  1971 level    Increase
-------------  ----------  ------------  ----------  ------------  ----------  ----------
Chatuge             1,910         1,912           2         1,860       1,905          45
Cherokee            1,020         1,030          10           980       1,020          40
Douglas               935           940           5           920         940          20
Fontana             1,615         1,620           5         1,525       1,580          55
Hiwassee            1,455         1,465          10         1,415       1,450          35
Norris                978           985           7           930         960          30
Nottely             1,743         1,745           2         1,690       1,735          45
South Holston       1,702         1,702           0         1,616       1,675          59
Watauga             1,934         1,940           6         1,815       1,915         100
-----------------------------------------------------------------------------------------
\a These lakes are the only multipurpose tributary lakes that were
changed in 1971. 

Source:  TVA. 

--------------------
\2 The normal minimum level refers to the lowest lake elevation that
the project would be operated at under normal conditions.  TVA would
not schedule operations below this elevation without the Board of
Directors' approval. 

\3 As a result of this study, TVA modified lake levels at Chatuge,
Cherokee, Douglas, Fontana, Hiwassee, Norris, Nottely, South Holston,
and Watauga.  No modifications in operations at Boone Lake were
proposed.  According to TVA, the original design of the Boone project
specified operations at prescribed seasonal elevations. 

   1990 REVIEW RESULTED IN LATEST
   CHANGES IN TVA'S POLICIES
   IMPACTING LAKE LEVELS
---------------------------------------------------------- Chapter 3:2

In the late 1980s, TVA undertook an operation and planning review of
its system of projects.  Among the reasons for this review was to
reexamine the trade-offs TVA makes in balancing the various purposes
served by the multipurpose tributary projects.  This review, which
examined seven lake-level alternatives, ultimately resulted in about
a 2-month delay of the annual lake-level drawdown from Memorial Day
until August 1.  Several factors influenced the changes to TVA's
policies impacting lake levels.  These factors included recommended
year-round minimum flows on the Tennessee River that would improve
water quality and support navigation and the effect of operating
changes on TVA's ability to generate hydropower. 

      REASONS WHY THE 1990 REVIEW
      WAS UNDERTAKEN
-------------------------------------------------------- Chapter 3:2.1

In September 1987, TVA's Board of Directors authorized a review to
determine whether the operating priorities for its projects that had
been

set out in the TVA Act over 50 years earlier still made sense given
the changes that had taken place in the Tennessee Valley since the
1930s.  Although the act directed that the system of projects be
managed primarily for navigation and flood control and then for power
generation, there was a recognition in the late 1980s that other
benefits had also become important to residents of the Valley. 
Specifically, concerns had been raised that TVA's policies often
resulted in prolonged periods without releases from the dams.  As a
result, the effects on aquatic life could be severe because areas
downstream from the projects were essentially dry for periods of
time.  In addition, public demand for abundant supplies of clean
water and for recreation on TVA's lakes and streams was competing
with the demand for the benefits associated with the continued
production of low-cost TVA hydropower.  By the time the review was
authorized, growing numbers of lake users had asked TVA to reexamine
the trade-offs it makes in balancing the various purposes when
operating its integrated river system. 

   1990 REVIEW RESULTS IN DELAY OF
   ANNUAL LAKE-LEVEL DRAWDOWN DATE
   UNTIL AUGUST 1
---------------------------------------------------------- Chapter 3:3

In December 1990, TVA released the results of its work examining lake
management policies in a report entitled, Tennessee River and
Reservoir System Operation and Planning Review.  In carrying out the
work for its review, TVA followed the National Environmental Policy
Act by preparing a detailed statement on the environmental impact of
proposed actions that could significantly affect the quality of the
human environment.  By preparing an environmental impact statement,
ï¿½TVA sought to ensure that the environmental effects of reservoir
operating alternatives were thoroughly investigated and that ample
opportunities for pubic review and comment were provided.ï¿½ Referred
to by TVA as its ï¿½Lake Improvement Plan,ï¿½ this review evaluated (1)
three alternatives to provide additional minimum flows from TVA dams
to improve reservoir releases downstream and (2) seven alternatives
to stabilize lake levels by delaying the drawdown of lake levels
until August 1 or later. 

As a result of TVA's analyses, the 1990 review recommended that (1)
TVA increase minimum flow requirements from mainstream and tributary
projects and increase dissolved oxygen levels in the releases from 16
of its dams and (2) maintain summer target levels in 10 multipurpose
tributary projects until August 1\st (Alternative 1).\4 On the basis
of TVA's analyses, these alternatives were preferred because they
provided the most benefits at the least cost to TVA.  Table 3.2 shows
the seven lake-level alternatives TVA evaluated. 

                                        Table 3.2
                         
                         Lake-Level Alternatives Analyzed by TVA
                                    During 1990 Review

                              Drawdown restricted from
Alternative                   Memorial Day to                Projects affected
----------------------------  -----------------------------  ----------------------------
1                             August 1 for 10 projects       Blue Ridge, Chatuge,
                                                             Cherokee, Douglas, Fontana,
                                                             Hiwassee, Norris, Nottely,
                                                             South Holston, and Watauga

1A                            August 1 for 7 projects and    October 1 for the Cherokee,
                              October 1 for 3 Knoxville      Douglas, and Norris projects
                              area projects                  and August 1 for the other 7
                                                             projects

1B                            August 1 for 8 projects and    October 1 for the South
                              October 1 for 2 Tri-Cities     Holston and Watauga projects
                              area projects                  and August 1 for the other 8
                                                             projects

1C                            August 1 for 9 projects and    October 1 for the Fontana
                              October 1 for 1 project        project and August 1 for the
                                                             other 9 projects

1D                            August 1 for 6 projects and    October 1 for the Blue
                              October 1 for 4 Hiwassee       Ridge, Chatuge, Hiwassee,
                              basin projects                 and Nottely projects and
                                                             August 1 for the other 6
                                                             projects

2                             Labor Day for 10 projects      Blue Ridge, Chatuge,
                                                             Cherokee, Douglas, Fontana,
                                                             Hiwassee, Norris, Nottely,
                                                             South Holston, and Watauga

3                             October 31 for 10 projects     Blue Ridge, Chatuge,
                                                             Cherokee, Douglas, Fontana,
                                                             Hiwassee, Norris, Nottely,
                                                             South Holston, and Watauga
-----------------------------------------------------------------------------------------
Source:  TVA. 

In TVA's evaluation of lake-level alternatives, TVA estimated that
changes in the operation of its system of projects would increase
TVA's systemwide cost of supplying electric power.  On the basis of
TVA's assumption of 60 hours of peak generation per week during the
summer, a delay in the drawdown of lake levels would limit TVA's
ability to generate hydropower during those peak hours.  To maximize
the value of its hydropower, TVA attempts to schedule hydropower
generation during the periods of greatest demand to offset the use of
other, more expensive, sources of power generation.  According to
TVA's records, the highest and longest periods of peak demand occur
during the summer.  For example, the daily summer peak demands last 8
or more continuous hours a day.  Given that TVA's power resources are
constant, limiting TVA's ability to generate hydropower during such
peak periods may force TVA to use more expensive sources of
generation to meet the demand.  While much of the water that could
have been used to generate peak power could eventually be shifted to
offpeak times later in the year, the demand for power during these
offpeak periods is lower than the demand for power during peak
periods.  As a result, the net effect of this shift in hydroelectric
power production would generally result in a net increase in TVA's
systemwide cost of supplying electric power. 

TVA made some adjustments to Alternative 1 that made it the most
attractive alternative examined in the 1990 review.  For example, TVA
reduced the effects of lake-level changes on its ability to generate
hydropower during peak periods in the summer by developing ï¿½slopingï¿½
target lake levels for the multipurpose tributary projects.  The
sloping target levels allowed TVA to fill the lakes above the August
1 summer target levels.  By doing so, TVA could conduct a limited
drawdown, referred to as a ï¿½restrictedï¿½ drawdown,\5 of the lake
levels during June and July and use this additional water to generate
hydroelectric power during periods of peak power demand in these 2
months, while still meeting the target lake levels on August 1, when
ï¿½unrestrictedï¿½ drawdown could begin.  However, applying sloping
target levels to other alternatives, such as the Labor Day
alternative, prevented the use of enough water for hydropower
generation during peak demand periods in June, July, and August
because water would have to be reserved to provide minimum flows
throughout the extended summer period.  In addition, TVA recommended
that it provide minimum flows using turbine pulsing, which allows TVA
to produce power while releasing the water.\6 Other options of
providing minimum flows from the projects would result in the total
loss of power generation from the released water. 

Table 3.3 shows the effects of the changes on the August 1 lake
levels of the 10 multipurpose tributary projects considered in the
1990 review.  To illustrate what the current lake levels are, we show
in appendix II the monthly minimum and maximum lake levels that
occurred during calendar year 1998 at the multipurpose tributary
projects, and in table 3.4 we highlight the total elevation change
that occurred during calendar year 1998 at these projects.  In
addition, table 3.5 shows the key target lake levels during the year. 

                               Table 3.3
                
                 Effect of 1990 Changes to Multipurpose
                      Tributary Median Lake Levels

                       (In feet above sea level)

                                   Median lake levels (Aug. 1)\a
                              ----------------------------------------
                                  Prior to
Multipurpose tributary                1990    After 1990
project                           review\b      review\c        Change
----------------------------  ------------  ------------  ------------
Blue Ridge                         1,680.2       1,683.1          +2.9
Boone                                   \d            \d           N/A
Chatuge                            1,920.5         1,924          +3.5
Cherokee                           1,054.1       1,061.5          +7.4
Douglas                              984.4         990.9          +6.5
Fontana                            1,677.9       1,696.6         +18.7
Hiwassee                           1,514.1       1,517.2          +3.1
Melton Hill                             \d            \d           N/A
Norris                               1,005       1,013.2          +8.2
Nottely                            1,767.8       1,771.2          +3.4
South Holston                      1,718.2         1,722          +3.8
Tellico                                 \d            \d           N/A
Tims Ford                               \d            \d           N/A
Watauga                            1,941.9       1,950.7          +8.8
----------------------------------------------------------------------
\a The term ï¿½medianï¿½ refers to the middle number in an ordered series
of numbers.  If the series contains an even number of items, then the
median refers to the number midway between the two middle numbers in
the ordered series of numbers. 

\b Based on data from 1972 through 1990. 

\c Based on data from 1991 through 1998. 

\d The Boone, Melton Hill, Tellico, and Tims Ford projects were not
included in TVA's 1990 study. 

Source:  TVA. 

                                          Table 3.4
                           
                             Multipurpose Tributary Lake Levels--
                            Minimum and Maximum Level in Calendar
                                          Year 1998

                                  (In feet above sea level)

                Minimum elevation in calendar   Maximum elevation in calendar
                          year 1998                       year 1998
                -----------------------------  -------------------------------
                                                                                       Total
Multipurpose                                                                       elevation
tributary lake       Elevation          Month       Elevation            Month        change
--------------  --------------  -------------  --------------  ---------------  ------------
Blue Ridge\a          1,621.38       November        1,689.07            April         67.69
Boone                 1,351.35        January        1,383.80              May         32.45
Chatuge               1,911.08       December        1,926.31             June         15.23
Cherokee              1,026.37       December        1,071.76             June         45.39
Douglas                 940.29       December          995.36            April         55.07
Fontana               1,625.68       December        1,705.34             June         79.66
Hiwassee              1,460.31       December        1,524.30             June         63.99
Melton Hill             790.10          March          796.44            April          6.34
Norris                  977.02        January        1,030.38            April         53.36
Nottely               1,740.84       December        1,778.09             June         37.25
South Holston         1,689.40        January        1,732.29            April         42.89
Tellico                 807.45       February          815.09            April          7.64
Tims Ford\a             856.01        January          890.14             June         34.13
Watauga               1,930.63        January        1,960.69            April         30.06
--------------------------------------------------------------------------------------------
\a TVA said that the elevations for Blue Ridge beginning in September
were abnormally low due to a special drawdown for maintenance
inspection that is conducted once every 5 years.  In addition, TVA
said that the elevations for Tims Ford in January and February were
abnormally low due to a special drawdown for repairs. 

Source:  TVA. 

                               Table 3.5
                
                   Multipurpose Tributary Lake Level
                      Targets Throughout the Year

                       (In feet above sea level)

                                                   Minimum targeted
                         Flood control level        summer levels
                        ----------------------  ----------------------
Multipurpose tributary
lake                     January 1    March 15      June 1    August 1
----------------------  ----------  ----------  ----------  ----------
Blue Ridge                   1,668       1,678       1,685       1,682
Boone                        1,358       1,375       1,382       1,382
Chatuge                      1,912       1,916       1,924       1,923
Cherokee                     1,030       1,042       1,061       1,060
Douglas                        940         958         992         990
Fontana                      1,644       1,644       1,696       1,693
Hiwassee                     1,465       1,482       1,517       1,515
Melton Hill                     \a          \a          \a          \a
Norris                         985       1,000       1,012       1,010
Nottely                      1,745       1,755       1,772       1,770
South Holston                1,702       1,713       1,723       1,721
Tellico                        807         807         813         813
Tims Ford                      873         879         883         883
Watauga                      1,940       1,951       1,950       1,949
----------------------------------------------------------------------
\a These dates have no set level due to the small fluctuation in lake
levels; the full range is from 790 to 796 feet above sea level, with
a normal operating range of 793 to 795 feet above sea level. 

Source:  TVA. 

--------------------
\4 During the review, the 10 TVA projects analyzed for lake-level
changes included 9 multipurpose tributary projects that were subject
to significant summer drawdownï¿½Chatuge, Cherokee, Douglas, Fontana,
Hiwassee, Norris, Nottely, South Holston, and Watauga.  The Blue
Ridge projectï¿½which is a single-purpose power projectï¿½was also
included because it has an annual drawdown cycle similar to
multipurpose tributary projects.  The remaining four multipurpose
projectsï¿½Boone, Melton Hill, Tellico, and Tims Fordï¿½not included in
the review were excluded for various reasons.  Boone was excluded
because its original design included its operation at prescribed
seasonal elevations that result in a constant lake elevation from
Memorial Day through Labor Day.  Melton Hill does not have an annual
drawdown; it is operated in a fixed range of about 793 feet to 795
feet.  Tellico, which is connected by an ungated canal to Fort
Loudoun Lake, has a lake elevation essentially the same as Fort
Loudounï¿½a multipurpose main river project.  Because Fort Loudoun is
targeted to reach its summer lake level by April 15 and its drawdown
does not begin until November 1, Tellico has a flat summer lake level
until November 1.  Tims Ford, by design and original project
allocation, has always been operated with a minimum summer lake
elevation of 883 feet, which extends until October 15. 

\5 TVA officials stated that this ï¿½restrictedï¿½ drawdown in June and
July can total several feet of lake-level elevation.  Examples cited
were 11 feet at Cherokee, 10 feet at Watauga and Fontana, and 8 feet
at South Holston. 

\6 Turbine pulsing refers to a process whereby water is released
through the turbines of a TVA tributary project by operating the
turbines for short periods of time throughout the day.  For example,
TVA recommended that at six projects it would ï¿½pulseï¿½ the turbines
for 30 to 60 minutes every 4 hours when the turbines otherwise would
not be operating.  While operating the turbines in this manner, TVA
also has the ability to generate hydropower. 

      SEVERAL FACTORS INFLUENCED
      THE 1990 CHANGES
-------------------------------------------------------- Chapter 3:3.1

According to TVA's analysis, none of the lake-level alternatives
considered in the 1990 review would have negatively affected flood
control and navigation on the Tennessee River.  All of the
alternatives required TVA to reach flood control target levels by
January 1, in preparation for the winter months, where flood risk is
the greatest in the Tennessee Valley.  Navigation on the Tennessee
River would be supported by recommended year-round minimum flows, and
navigation during the typically dry fall months would benefit from
additional flows from the delayed lake-level drawdown.  Each of the
alternatives that maintained summer target lake levels at the
multipurpose tributary projects would increase recreational
opportunities on these lakes.  However, some of the alternatives,
such as the alternative that delayed the annual lake-level drawdown
at the multipurpose tributary projects until October 31 (Alternative
3), could have increased the risk of flooding of the Ohio and
Mississippi Rivers, which connect with the Tennessee River near
Paducah, Kentucky.  According to TVA, no rigorous flood risk analysis
was performed by TVA as part of the evaluation of Alternatives 2 and
3 because these alternatives were the most expensive and therefore
studied the least.  The increased flooding risk results from TVA's
attempts to draw down its lakes to their January 1 levels in a
2-month period as opposed to starting the lake-level drawdown earlier
in the summer.  TVA's analysis also concluded that the October 31
alternative could have negative effects on navigation on the Ohio and
Mississippi Rivers during dry years. 

Also, according to TVA, Alternative 1 was selected to maintain summer
target lake levels until August 1 because it provided the most
benefits at the least cost and because this alternative did not have
a significant effect on flood control or navigation efforts on either
the Tennessee River or the Ohio and Mississippi Rivers.  The
reservoir release alternative implemented by TVA increased minimum
flows from its mainstream and tributary projects and increased
dissolved oxygen levels in the releases from 16 of its projects.  TVA
said that the following benefits would be realized as a result of the
changes implemented from the 1990 review: 

  -- -- Minimum flows and aeration of releases would recover over 180
     miles of aquatic habitat and improve levels of dissolved oxygen
     in over 300 miles of river. 

  -- -- Higher summer lake levels would increase lake recreation
     visitation by approximately 21 percent. 

  -- -- Scenic views would be improved. 

  -- -- Opportunities for tourism and second home development would
     be increased. 

  -- -- Reservoir fisheries, due to increased survival of young fish,
     would be improved. 

  -- -- Water depth for commercial navigation on the lower Ohio and
     Mississippi Rivers would be increased during September and
     October, the months of lowest flow. 

Another significant factor that TVA considered in its selection of
alternatives impacting lake levels and reservoir releases was the
effect of any operating changes on TVA's ability to generate
hydropower.  TVA attempts to schedule releases of water through its
hydropower facilities at the multipurpose tributary projects during
periods of greatest power demand to offset the use of other, more
expensive, sources of power.  The greatest and longest peak power
demand periods occur during the summer.  Any shift in the
availability of water for hydropower generation due to policies
impacting lake levels could restrict TVA's ability to generate
hydropower during these peak periods.  If a portion of TVA's
hydropower generation is delayed until later in the year, TVA must
meet the peak power needs by using more expensive forms of
generation, which would increase TVA's cost to produce power.  On the
basis of analyses using a complex set of models and methodologies,
TVA estimated that the lake-level alternative that maintained summer
target lake levels until August 1 had the smallest cost increase
impact to the power program. 

   TVA'S 1990 REVIEW AND ITS 1999
   ANALYSIS OF TWO LAKE-LEVEL
   ALTERNATIVES BOTH ESTIMATE
   INCREASES IN TVA'S SYSTEMWIDE
   COST OF SUPPLYING ELECTRIC
   POWER
---------------------------------------------------------- Chapter 3:4

The estimated impact to TVA's systemwide cost of supplying electric
power resulting from delaying the lake-level drawdown of the
multipurpose tributary projects in the summer was a major factor
influencing TVA's selection among the seven lake-level alternatives
considered.  TVA estimated that delaying the lake-level drawdown at
its multipurpose tributary projects from Memorial Day to August 1 or
later would increase its systemwide annual average cost of supplying
electric power by $2 million to $93 million (in 1990 dollars),
depending on the alternative.  TVA's 1990 cost estimation involved a
complex methodology using hydrologic and electric supply and demand
computer models and extensive data.  Our evaluation of TVA's 1990
efforts included a review of the available documentation supporting
the key elements of its calculations of the impacts on its systemwide
cost of supplying electric power.  Because market conditions and
evaluation methodologies have changed since 1990, we requested that
TVA update its estimated systemwide cost impacts of implementing
lake-level alternatives similar to two of the alternatives considered
in 1990ï¿½Alternative 1A (an additional 2-month drawdown delay for
three of the projects) and Alternative 2 (an additional 1-month
drawdown delay for all of the projects). 

TVA's March 1999 analysis showed that the two alternatives would
increase TVA's systemwide cost of supplying electric power by an
estimated annual average cost of $14 million and $47 million,
respectively (in 1999 dollars).  TVA cautioned that both the 1990 and
1999 estimates were subject to a great deal of uncertainty.  Some
elements of uncertainty were built into the 1999 estimates.  For
example, the estimated $14 million increase could be as low as $(-) 2
million (negative $2 millionï¿½that is, benefits, not costs) or as high
as $33 million, depending on hydrological conditions, future
electricity prices, and other factors.  However, TVA said that there
were other important elements of uncertainty that it did not attempt
to, and could not easily, model.  TVA has emphasized that a
comprehensive evaluation of proposed policy changes would go well
beyond estimating the effect of the changes on TVA's systemwide cost
of supplying electric power and would also have to consider important
equity implications of proposed changes.  While a complete evaluation
of the cost-estimation methodologies TVA used was beyond the scope of
our work, the general approach TVA used in 1990 and 1999 appeared to
be reasonable. 

The analyses of lake-level alternatives conducted by TVA in 1990 and
1999 concentrated on developing estimated costs of various
alternatives.  TVA's 1990 study recognized and discussed various
benefits and costs--in addition to the systemwide costs of supplying
electric power--of changes to lake levels, such as the impacts to
flood control and navigation efforts.  However, TVA's estimates
related only to the systemwide costs of supplying electric power. 
TVA officials explained that TVA does not currently possess adequate
tools and methodologies to develop such quantitative assessments. 
Similarly, TVA's analyses did not attempt to quantify, in monetary
terms, the potential benefits that may occur as a result of the
lake-level alternatives.  For example, TVA explained that it does not
have adequate mechanisms to capture visitation statistics at its
lakes or to estimate the monetary effects of recreation and tourism
on local economies.  In its 1990 review, TVA based its analyses of
recreation visits at TVA lakes on an inventory of access facilities,
staff judgment, and interviews with facility operators.  While TVA
concluded that lake-level Alternative 1 would increase recreation
visits by 21 percent, TVA did not attempt to quantify this estimated
visitor increase into monetary terms.\7

We provide additional information in appendix III about the
methodologies used and the results of TVA's 1990 review and its 1999
analysis. 

--------------------
\7 TVA officials explained that a panel of nine external reviewers
for the 1990 study advised TVA to fully describe the benefits and
costs of each alternative, including estimated power costs, and focus
public participation during the NEPA review of the draft
environmental impact statement on which alternative was best rather
than on how monetary estimates were calculated for benefits for which
no market value exists. 

   CONCLUSIONS
---------------------------------------------------------- Chapter 3:5

The key changes resulting from TVA's 1990 review were to improve
water quality and aquatic habitat and to extend the recreation season
on TVA lakes by delaying the annual drawdown of the multipurpose
tributary project lake levels for an additional 2 months during the
summer.  The impact on TVA's systemwide cost of supplying electric
power resulting from the delay in the annual lake-level drawdown was
the major factor influencing these changes.  TVA's analyses show that
even when only looking at these cost impacts, there is still a level
of uncertainty associated with the results because of the assumptions
being made.  In addition, TVA did not attempt to quantify potential
benefits that may result from increased recreation or tourism by
maintaining summer lake levels longer.  Furthermore, neither TVA's
1990 review nor the 1999 analysis TVA performed at our request
attempted to quantify the potential cost effects on other aspects of
TVA's operations, such as flood control and navigation.  Therefore,
decisions about how to regulate the levels of the lakes have not been
based on a complete evaluation of the overall costs and benefits of
such actions. 

LITTLE HAS CHANGED IN MULTIPURPOSE
TRIBUTARY PROJECT OPERATIONS SINCE
THE 1990 REVIEW DESPITE REQUESTS
FROM USERS
============================================================ Chapter 4

Although TVA continued to receive requests from individuals and
organizations for changes to the multipurpose tributary projects
after the 1990 review, little has changed in how TVA operates these
projects.  TVA raised concerns about the growing number of requests
from lake users asking TVA to analyze multiple lake-level
alternatives for individual lakes.  TVA decided that a ï¿½piecemealï¿½
approach to analyzing the issues involved raised questions of
fairness in how each of the multipurpose tributary projects would be
treated within the TVA system.  As a result of the numerous requests,
in March 1997, TVA decided to establish a 4-year moratorium on
changes to policies impacting lake levels.  TVA cited several reasons
for taking this action, including allowing TVA time to evaluate how
studies on policies impacting lake levels should be evaluated in the
future.  Since the moratorium's implementation, one group of lake
users has submitted a request to TVA for changes to policies
impacting lake levels.  In addition, TVA has commented on two studies
discussing the potential economic benefits resulting from maintaining
higher lake levels later in the year at Cherokee and Douglas Lakes in
Tennessee, and Blue Ridge, Chatuge, and Nottely Lakes located in
northern Georgia.  TVA's comments on these two studies were critical
of several aspects of the studies, including the scope, methodology,
assumptions, and data used to estimate the economic benefits.  TVA
also said that the two studies lacked a proper recognition of the
multipurpose roles served by TVA's system of projects and how changes
in lake levels may impact its operations and management of the entire
Tennessee River system.  Our examination of the two studies
identified limitations in the studies' methodologies and scope.  For
example, both studies are limited in their scope because the benefits
they estimated are only those associated with increased lake
visitation pertaining to a few counties adjacent to the lakes. 

   IN 1997 TVA DECIDED TO
   ESTABLISH 4-YEAR MORATORIUM ON
   CHANGES TO PROJECT OPERATIONS
---------------------------------------------------------- Chapter 4:1

Despite the changes made to its policies impacting lake levels
earlier this decade, TVA has continued to receive a number of
requests to make further changes.  TVA ultimately decided in March
1997 to implement a 4-year moratorium on making any further changes
to these policies.  There were a number of factors influencing TVA's
decision, including a belief that the moratorium would minimize the
public's perception of favoritism for any particular lake and would
also allow time for TVA to evaluate how studies on policies impacting
lake levels should be evaluated in the future. 

      REQUESTS FOR CHANGES MADE
      FROM 1990 THROUGH 1997
-------------------------------------------------------- Chapter 4:1.1

After the 1991 Lake Improvement Plan was implemented, requests for
changes to TVA's lake-level policies slowed for a year or two but
began again in 1993.  According to TVA, constituents were no longer
satisfied with the changes made in 1991, or new constituents were not
aware of the changes that had been made.  In these instances, when
TVA received requests for changes, TVA's staff would acknowledge
these requests and meet with interested individuals and/or
organizations.  Requests from individuals, although acknowledged,
were seldom evaluated in detail.  Requests from organizations which,
after a limited review, would tend to have a low or negligible cost
with few negative impacts, were further evaluated by an internal
inter-disciplinary team.  A few of these were implemented, either on
a permanent or trial basis.  TVA staff would decide which requests
deserved further attention and then perform some level of study to be
able to answer questions about potential impacts of the changes.  In
at least two instances, TVA made offers to ï¿½sellï¿½ higher lake levels
to two groups (the state of North Carolina for Fontana Lake and a
group of concerned citizens at Blue Ridge Lake).  Other studies were
underway for Boone Lake and the North Georgia lakes when the
moratorium was implemented. 

By March of 1997, several requests for changes to policies impacting
lake levels had been submitted to TVA.  For example, (1) TVA had
completed a preliminary study that examined the power and flood
control impacts of extending Boone Lake's level later into the fall;
(2) TVA had met with the Mountain Lakes Study Committee, which was
performing an economic analysis of 17 alternative drawdown scenarios
for the Blue Ridge, Chatuge, and Nottely Lakes; (3) the Cherokee Lake
Users Association had met with TVA and proposed changes to the annual
drawdown policy at Cherokee Lake; (4) individual users at South
Holston and Watauga Lakes were requesting changes in policy at those
lakes; and (5) there were miscellaneous requests for changes in
operation at other TVA tributary and main river projects. 

TVA staff had performed analyses for Boone Lake, which indicated that
the impacts on TVA's systemwide cost of supplying electric power
associated with the requested changes were relatively small, with a
net present value of less than $1 million.  TVA estimated that
increased systemwide cost of supplying electric power associated with
the requested changes at Boone Lake was much less than for other TVA
lakes analyzed in the past, primarily because the changes in the lake
levels during the year at Boone Lake were smaller in comparison to
other lakes, and TVA already extended the summer target lake level at
Boone Lake until Labor Day.\1 As a result, TVA would not need to
shift power production at Boone Lake from the peak summer months to
the fall.  In addition, the flood impact analyses indicated that
based on historic data, flood control at Boone Lake would not be
impacted.  However, TVA indicated that potential storms would have an
impact on the frequency of floods downstream from Boone Lake. 

--------------------
\1 The original design of the Boone project included its operation at
prescribed seasonal elevations.  For example, the lake is operated at
a constant elevation of about 1,382 feet above sea level from
Memorial Day through Labor Day. 

      FACTORS INFLUENCING TVA'S
      MARCH 1997 MORATORIUM
-------------------------------------------------------- Chapter 4:1.2

TVA became concerned that more and more users were requesting studies
for the lakes they used, resulting in an analysis of the system on a
piecemeal basis.  To TVA, this raised a ï¿½fairnessï¿½ issue of treating
these lakes differently in the TVA system.  Of particular concern to
TVA was the relatively low impact that the requested changes at Boone
Lake would have on TVA's systemwide cost of supplying electric power. 
TVA believed that the implementation of these changes would give even
more favoritism to a lake that already had high lake levels envied by
users at other tributary lakes, while also promoting a ï¿½first
come/first servedï¿½ attitude to the lake users.  For example, if the
earliest request for lake-level changes were granted for an
individual lake, it may make changes to other lakes more expensive
when implemented later.  Additional concerns cited by TVA included: 
(1) difficulties with the current methodology to systematically and
objectively address possible flood concerns; (2) the great
uncertainty surrounding the future of the electric utility industry
due to deregulation and restructuring; (3) implementing changes at
any lake would raise the expectation for changes at all lakes; and
(4) although the cost of Boone Lake changes were relatively small,
the lake users were not prepared to reimburse TVA for the increased
systemwide cost of supplying electric power, and TVA was not prepared
to pass this cost to the ratepayer. 

In March 1997, TVA's Board of Directors agreed with the Executive
Committee's determination that a moratorium on changes to policies
impacting lake levels was the proper course of action.\2 According to
TVA, the 4-year moratorium would position it better for future
competition in the electric utility industry, by retaining the
current operating flexibility afforded by its hydroelectric power
facilities.  TVA also believed that the moratorium would minimize the
public's perception of favoritism for any particular lake on the
system and would allow time for TVA staff to evaluate how studies on
policies impacting lake levels should be evaluated in the future. 

--------------------
\2 The Board of Directors appointed TVA's nine senior officers to the
Executive Committee.  This committee meets regularly to coordinate
TVA's activities across organizational lines and to ensure that
matters requiring Board approval are appropriately referred. 

   DECEMBER 1997 REQUEST FOR
   CHANGES TO POLICIES IMPACTING
   LAKE LEVELS FROM USERS OF
   DOUGLAS LAKE
---------------------------------------------------------- Chapter 4:2

On December 9, 1997, the President of LOUD, requested that TVA review
and consider the organization's alternative policy to the annual
drawdown at Douglas Lake.  The LOUD proposal, compared with TVA's
existing policy, would permit a slower summer drawdown period and a
higher January 1 target lake level.  LOUD believes that TVA's
existing policy requiring a elevation of 940 feet above sea level at
January 1 (the lowest target level during the year) is too
restrictive.  According to LOUD, a proposed level of 956 feet above
sea level at March 1 (the proposed lowest target level during the
year) is more realistic.  LOUD also believes that its proposal would
(1) provide higher lake levels for the late summer, fall, and winter
seasons; (2) present a more scenic view of the lake in the winter;
and (3) increase the probability of filling the lake in the spring. 
Table 4.1 captures the differences in lake levels on the first day of
each month between LOUD's proposal and TVA's median lake levels for
the past 8 years. 

                               Table 4.1
                
                   Comparison of Douglas Lake Monthly
                     Elevation Differences--LOUD's
                Alternative vs. TVA's Median Lake Levels

                       (In feet above sea level)

                                            TVA's median
                                      LOUD          lake
1st day of month               alternative      levels\a    Difference
----------------------------  ------------  ------------  ------------
January                                970           944          + 26
February                               963           947          + 16
March                                  956           957            -1
April                                  972           974            -2
May                                    985           990            -5
June                                   994           994             0
July                                   993           994            -1
August                                 991           991             0
September                              989           985           + 4
October                                985           972          + 13
November                               981           959          + 22
December                               976           951          + 25
----------------------------------------------------------------------
\a Based on data from 1991 through 1998 for the first day of each
month. 

Source:  LOUD and TVA. 

   STUDY OF THE ECONOMIC AND
   FISCAL CONSEQUENCES OF TVA'S
   DRAW-DOWN OF THE CHEROKEE AND
   DOUGLAS LAKES
---------------------------------------------------------- Chapter 4:3

Prior to LOUD's formal December 9, 1997, request to TVA, another
groupï¿½the Cherokee Lake Users Associationï¿½had been making requests
for TVA to increase the lake levels at Cherokee Lake.  After the LOUD
proposal had been formally made to TVA, the LOUD and CLUA groups
sought to develop additional information that would show the
potential economic benefits resulting from higher lake levels at both
the Cherokee and Douglas Lakes.  Towards this end, both organizations
were instrumental in ensuring that the state of Tennessee and local
governments within a six-county region surrounding both lakes would
fund a study exploring ï¿½the benefits which might accrue to residents
of and visitors to a six-county region surrounding Douglas and
Cherokee Lakes, should TVA alter its lake level policy.ï¿½\3

The study, Economic and Fiscal Consequences of TVA's Draw-Down of
Cherokee and Douglas Lakes (henceforth, the Cherokee and Douglas
Study), was completed in October 1998 and was conducted by the
University of Tennessee's Center for Business and Economic Research. 
TVA received copies of the report and met with the authors of the
report, as well as LOUD and CLUA representatives in January 1999. 
The meeting was scheduled by TVA at the request of LOUD for the
purpose of sharing comments and answering questions about the report. 

The study used several methodologies to estimate the economic impacts
of changes to lake levels on areas bordering the two lakes.  The
study concludes that positive economic and fiscal impacts would
result from proposed changes to policies impacting lake levels.  LOUD
representatives and TVA identified weaknesses in the study.  In
addition, in our review of the Cherokee and Douglas Study, we have
noted some limitations in the study's scope.  We provide additional
information in appendix IV about this study, including both TVA's and
our comments on the study. 

--------------------
\3 The six counties are:  Cocke, Grainger, Hamblen, Hawkins,
Jefferson, and Sevier. 

   MOUNTAIN LAKES STUDY COMMITTEE
   REPORT ON GEORGIA LAKES
---------------------------------------------------------- Chapter 4:4

About the same time that LOUD was making its formal proposal
requesting TVA to change its operating policy at Douglas Lake,
another group, the Mountain Lakes Study Committee published a report
entitled, The Economic Impact of Alternate TVA Lake Management
Policies (henceforth, the Georgia Mountain Lakes Study).  This report
focuses on the areas surrounding the three TVA lakes in northern
Georgiaï¿½Blue Ridge, Chatuge, and Nottely.  The Georgia Mountain Lakes
Study estimated very favorable benefit-cost ratios for delaying the
drawdown of lake levels at Blue Ridge, Nottely, and Chatuge Lakes in
northern Georgia from August 1 to October 1.  In addition to
benefit-cost estimates, the study focuses on options for funding
TVA's increased cost to its power program due to changes to policies
impacting lake levels. 

TVA criticized the Georgia Mountain Lakes Study on methodological
grounds.  In our view, the study's estimates of costs and benefits of
lake-level alternatives does not conform with recommended federal
guidelines for the evaluation of major actions on federal water
projects.  We provide additional information in appendix V about this
study, as well as TVA's comments and our comments on the study. 

   CONCLUSIONS
---------------------------------------------------------- Chapter 4:5

TVA implemented the March 1997 moratorium on making any changes to
policies impacting individual lake levels because of concerns about
fairness in how each project would be treated within TVA's integrated
system.  The moratorium, however, has not stopped groups of lake
users from submitting studies to TVA showing what they perceive as
the economic benefits that would accrue to the local areas
surrounding the lakes.  Although the results of the studies can be
questioned in a number of areas, the studies do show that lake users
are becoming more concerned about identifying and documenting
benefits from maintaining higher lake levels at certain TVA lakes. 
We found that the (1) benefit estimations used in the studies are not
directly comparable with TVA's estimates of its systemwide costs of
supplying electric power due to differences in the scope of the
analyses and (2) studies did not include any detailed evaluation of
the costs of changes to policies impacting lake levels; the studies
concentrated on economic benefits to the regions surrounding the
affected lakes.  According to federal guidelines, a comprehensive
examination of both costs and benefits is recommended when conducting
analyses of actions related to federal water projects. 

FORMAL AND CONTINUING
COMMUNICATION PROCESS WITH THE
PUBLIC AND OTHER STAKEHOLDERS
NEEDED IN FUTURE LAKE-LEVEL STUDY
============================================================ Chapter 5

While keeping the 4-year moratorium in place, TVA has recognized that
further study of the multipurpose tributary projects is warranted. 
To pursue this issue, TVA created an internal lake-level policy task
force.  In July 1998, the task force reported that a reevaluation of
policies impacting lake levels should be initiated within the next 2
to 4 years.  TVA has budgeted funds to address specific needs that
would be required to support future reevaluation efforts.  TVA also
needs to decide what evaluation option should be pursued under the
National Environmental Policy Act guidelines when assessing the
environmental effects of any proposed changes to TVA's policies
impacting lake levels. 

   TVA RECOGNIZES THAT VARIOUS
   LAKE-LEVEL ISSUES NEED TO BE
   ADDRESSED
---------------------------------------------------------- Chapter 5:1

Despite the implementation of its March 1997 moratorium, TVA has
continued to face ever increasing public concerns about its
lake-level management policies.  According to TVA, concerns have been
received from organized user groups and individual constituents and
have been expressed in many ways, including calls and letters,
referrals through political staffs, and also through public forums
such as newspaper editorials.  In reacting to these concerns, TVA's
Resource Group made a February 1998 briefing to the Executive
Committee.\1 The Resource Group cited four reasons for the briefing: 
(1) it had been a year since the moratorium was put in place, and a
briefing could describe the types of requests and concerns still
being directed toward TVA; (2) the membership on the Executive
Committee is dynamic, and it was important that all TVA offices and
organizations be aware of these continuing concerns; (3) it was
important that staff reiterate to the Board what the 1991 Lake
Improvement Plan did and did not address in terms of operating
policy; and (4) to request that the Executive Committee consider
whether it was in TVA's and its customers' and constituents' best
interest to consider launching a new comprehensive evaluation of its
policies impacting lake levels at that time. 

Resulting from this briefing, the Lake Level Policy Task Force was
created and charged with the responsibility to determine the
advisability and necessity of conducting a reevaluation of TVA's
policies impacting lake levels.  Representatives from many TVA
internal organizations participated on the task force to ensure that
all TVA constituents were represented.  The task force included no
organizations external to TVA.  The task force investigated the pros
and cons of implementing a new study at that time, as well as
estimating the time and expense of such a study.  The task force's
results, including recommendations, were summarized in an internal
July 1998 report, which was the basis for additional briefings for
the Executive Committee in September 1998 and January 1999. 

--------------------
\1 On February 8, 1999, the Resource Group was merged with two other
TVA officesï¿½Hydro Operations and Hydro Engineering Servicesï¿½to form a
new organization called River System Operations and Environment. 
According to TVA, this organizational change was made to strengthen
the integration of river system management with all operations. 

      THE TASK FORCE RECOMMENDED
      THAT TVA BEGIN PREPARATION
      FOR FUTURE REEVALUATION
-------------------------------------------------------- Chapter 5:1.1

The Lake Level Policy Task Force report recommended that while TVA
should continue its moratorium on any changes impacting lake levels,
a reevaluation of such changes should be initiated within the next 2
to 4 years.  According to TVA officials, this was a recognition that
demands for changes would continue to increase from lake user
constituents, and eventually these changes would likely have to be
addressed in a comprehensive study.  The task force estimated that
the cost to conduct a comprehensive review of TVA's current policies
impacting lake levels would total approximately $8 million and would
require 3 to 5 years to complete and five full-time employees with
additional support staff from various organizations.  The report also
concluded that, in order to conduct such a review, TVA needed to (1)
refine/develop and apply analytical tools aimed at reevaluating flood
risk, the impact of policy changes to its systemwide cost of
supplying electric power, and economic benefits related to lake-level
changes, and (2) develop and implement a proactive communication plan
to increase public understanding of TVA's integrated river system
operations. 

Through its task force's efforts, TVA has recognized that it needs to
improve its evaluation techniques, given the tools and advanced
methodologies currently available.  According to TVA, preparatory
work in this area includes several items, such as (1) refining power
evaluation techniques and tracking the evolving market aspects under
deregulation guidelines; (2) refining water resource planning and
operation models, such as the Weekly Scheduling Model and RiverWare\2
to better simulate operation of the integrated system of projects
under postulated alternative operation scenarios; and (3) developing
objective economic growth and development analysis methods that
better represent impacts that could be expected under alternative
lake-level scenarios. 

Because of the lead time necessary to define these analysis
techniques, develop the software, and acquire meaningful data, TVA
has determined that some consistent effort was warranted to begin
making these improvements so as not to unduly delay analyses in the
future if and when they are undertaken.  The task force estimated
that such an effort would cost approximately $2 million and would
require between 2 to 3 years to complete.  TVA has budgeted
additional funds to support several actions in preparation for an
eventual reevaluation of its policies impacting lake levels.  TVA has
allocated $1.5 million for fiscal years 1999 through 2001 for various
activities, including the preliminary evaluation of proposed changes
impacting lake levels and the development of flood risk tools.  As
shown in table 5.1, TVA has divided this additional funding under two
ongoing programs:  Alternate Operations Evaluation and Flood Risk
Reduction.  The funds allocated for fiscal year 1999 have been
approved; however, TVA has not approved the planned budgets for
succeeding years. 

                               Table 5.1
                
                  Funding Budgeted for TVA Activities
                 Related to the Lake Level Policy Task
                        Force's Recommendations

                                   Fiscal year
                        ----------------------------------
                              1999        2000        2001
Funding category        (approved)  (budgeted)  (budgeted)       Total
----------------------  ----------  ----------  ----------  ----------
Alternate operations      $100,000    $200,000    $200,000   $ 500,000
 evaluations
Flood risk reduction       200,000     400,000     400,000   1,000,000
======================================================================
Total                     $300,000    $600,000    $600,000  $1,500,000
----------------------------------------------------------------------
Source:  TVA. 

The additional funding for the Alternate Operations Evaluation
Program is designated for improvements in economic evaluation
procedures and/or data collection support.  TVA envisions a 3-year
effort to better define economic analysis techniques and to acquire
data that would support these analyses.  As part of this effort, TVA
is planning to examine recreational use at several TVA lakes to begin
establishing a database for future lake visitation evaluations. 
These improvements were estimated to cost $500,000 and require about
3 years.  Under the Flood Risk Reduction Program, TVA has budgeted an
additional $1 million over the next 3 years to improve the
methodology used to establish flood frequencies and to objectively
determine the impact that changes in operations would have. 

In addition to the $1.5 million, TVA provides annual funding to both
of these programs for various activities related to improving their
tools and methodologies for evaluating policies impacting lake
levels.  Under the Alternate Operations Evaluation Program, TVA spent
$364,000 during fiscal

year 1998 for continuing annual program activities, such as (1)
preliminary evaluations of proposed changes impacting lake levels;
(2) staff support for TVA's land and water management divisions to
promote working together to increase internal knowledge on how land
and water issues are related; (3) support for staff to maintain
expertise in system evaluation tools, such as the Weekly Scheduling
Model, and to improve the reliability and accuracy of such tools
through minor modifications; and (4) the development of new
evaluation tools to complement or eventually replace existing tools
for planning river operations.  TVA has allocated $380,000 for fiscal
year 1999 and $393,000 for fiscal year 2000 for the same activities. 

TVA has also indicated that monitoring of impacts of the possible
utility deregulation scenarios has been a continuing process for the
past several years, and new aspects present themselves each year. 
TVA also said that it had invested more than $1 million in the
development of a new integrated river system-modeling tool, called
RiverWare, currently in use for daily operations scheduling.  TVA has
been examining the possibilities of using this model in a planning
mode for future studies, as a complementary tool to the Weekly
Scheduling Model, or possibly as a replacement.  TVA's annual efforts
under the Flood Risk Reduction Program in recent years have focused
on the development of flood damage curves for various communities
within the Tennessee Valley.  These curves depict the flood damage
that would occur at these sites as a function of the flood level on
the river.  TVA has also developed flood distribution diagrams for 19
sites throughout the Valley.  These diagrams present a chart of the
historical flood events that occurred at these sites over the period
of record.  Flood profiles have also been established for several
lakes, which estimate the elevations along the lakes and the
statistical frequency at which these elevations occur.  TVA spent
$551,000 during fiscal year 1996 and $849,000 during fiscal year 1997
on flood risk reduction activities.  TVA's budget allocations for
fiscal years 1998 and 1999 provide $500,000 each year to continue the
development of flood risk indicators and profiles and flood damage
curves.  TVA has increased its budget allocation for these activities
to $520,000 for fiscal year 2000.  In addition, TVA has cosponsored
an effort conducted by the National Weather Service to update and
improve its rainfall frequency analysis for the Tennessee Valley. 
TVA's portion of the funding totaled $250,000 during fiscal years
1997 and 1998. 

TVA has stated the overall reasons why the 4-year moratorium should
continue.  However, TVA has not informed the public and other
stakeholders of its recent and planned activities regarding a future
reevaluation of its policies impacting lake levels.  By conducting
internal studies and developing the necessary tools and methodologies
before announcing a comprehensive reevaluation of TVA's policies
impacting lake levels, the task force believes TVA would reduce the
risk of raising public expectations of ï¿½immediateï¿½ changes in
operating policies and would help ensure that the significant
resources required for a NEPA study would be well spent.  The task
force recognized that TVA needed to develop and implement a
ï¿½proactive communication plan to increase public understanding of the
operation of its system of projects, reduce conflict, and build
rapport with stakeholders.ï¿½ The task force recommended that TVA
incorporate public participation in its studies, where appropriate,
to ensure the credibility of the studies. 

The July 1998 report recognized that the purpose of the communication
plan is to ï¿½better explain lake operating policies and tradeoffs to
Members of Congress, their staffs, distributors, lake users, and
other stakeholder groupsï¿½ and to demonstrate TVA's ï¿½continued
willingness to listen to and better understand stakeholder concerns.ï¿½
The report also noted that two of the key messages that TVA needed to
communicate were (1) any lake-level changes will shift benefits with
impacts on flood risk, power, navigation, and conditions for aquatic
life and that evaluating these impacts is a complex task requiring
time, money, and broad input, and (2) TVA's commitment to improving
communication with stakeholder groups.  In addition, the report
indicated that several new mechanisms to increase public involvement
in river system operations would be evaluated.  One example was
annual or semiannual workshops for lake user groups.  These workshops
would include presentations on operations of its system of projects
and associated tradeoffs, opportunities for stakeholders to bring
concerns to the attention of TVA management, and interaction among
specific interest groups, such as recreation, flood reduction, and
navigation beneficiaries.  Implementing the communication plans
outlined in TVA's task force report would help to ensure that the
public and other stakeholders are kept informed of TVA's activities
and future plans as TVA prepares for a reexamination of its policies
impacting lake levels. 

--------------------
\2 RiverWare, according to TVA, is a river basin modeling tool with
features for simulating or optimizing operation of the system for
multiple purposes over varying time horizons with time steps ranging
from hourly to monthly.  RiverWare is currently used for daily
operations scheduling, and TVA anticipates that the planning aspect
of this model will eventually supplement or possibly replace the
Weekly Scheduling Model. 

   TVA HAS SEVERAL OPTIONS
   AVAILABLE WHEN ASSESSING THE
   ENVIRONMENTAL EFFECTS OF
   ALTERNATIVE POLICIES IMPACTING
   LAKE LEVELS
---------------------------------------------------------- Chapter 5:2

When TVA conducts its reevaluation of its policies impacting lake
levels, one of the more significant concerns it must consider is the
effect of any policy changes on the environment of the Tennessee
Valley.  The National Environmental Policy Act of 1969 requires
federal agencies to prepare a detailed statement on the environmental
impact of proposed major federal actions that could significantly
affect the quality of the human environment.  In conducting its 1990
study, TVA developed an environmental impact statement (EIS) to
ensure that the environmental effects of the operating alternatives
were thoroughly investigated and that ample opportunities for public
review and comment were provided.  However, under NEPA, there are
several different levels of review that can be used to analyze the
environmental effects of policy changes. 

Under the NEPA regulations, there are three levels of NEPA review: 
environmental assessments (EA), EISs, and categorical exclusions. 
EAs are supposed to be and typically are brief documents that still
provide some level of detail about proposed actions and alternatives,
may have some public involvement, and typically take several weeks to
a number of months to complete.  At the end of an EA process, the
agency either issues a Finding of No Significant Impact or initiates
an EIS process.  EISs provide the most detailed analyses of a
proposed action and alternatives, have the most formal public
involvement process, and typically take the longest to complete. 
Categorical exclusions are basically categories of actions that an
agency predetermines would normally not result in significant
environmental impacts.  Under NEPA regulations, agencies can proceed
with an action that qualifies as a categorical exclusion without
conducting any further environmental review. 

On the other hand, courts have recognized that NEPA is not applicable
to the continued operation of projects when operations conform to
statutory directives or when operations do not deviate from existing
design capacities and constraints.  In addition, decisions about
water flow through federally operated dams and related matters have
consistently been held not to constitute major federal actions. 
Instead, courts have considered such activity as ï¿½routine managerial
actionsï¿½ not subject to NEPA. 

In the final analysis, however, if TVA believes it to be necessary or
advisable to prepare an EIS or perform any other type of
environmental review under NEPA, that decision would likely be
respected by the courts.  Our review found no federal court decisions
in which preparing an EIS was found to have been unreasonable.  NEPA
was intended to facilitate reasoned and informed decision-making, in
which the environmental impacts of federal actions would be given due
weight. 

According to TVA officials, TVA approaches NEPA from both a policy
and a legal perspective.  TVA recognizes that a wide range of
operational changes can be made without evoking the NEPA process. 
However, TVA believes that there can be proposed changes in
operations that could result in environmental changes that should be
understood before decisions are made.  By adopting the three levels
of review created by NEPA, TVA does conduct a limited environmental
review of most of the actions that are proposed to be categorically
excluded and documents this review in writing.  TVA believes that
because it operates its projects as an integrated system and balances
multiple purposes, any changes to its operating policies should be
examined to determine the effects on the environment.  However, a
complete EIS is not necessary in all instances.  Assuming the
proposed change is not categorically excluded, TVA officials said
that it is likely that TVA's actions would involve at least the
preparation of an EA or, if substantial enough of a change, a
supplement to the existing EIS or another EIS.  According to these
officials, TVA anticipates that considerable updating of the material
in the 1990 review would be required to more fully explain and
document all environmental changes that might result from the
implementation of any other alternatives. 

   CONCLUSIONS
---------------------------------------------------------- Chapter 5:3

It has been nearly a decade since the last significant changes to
TVA's policies on lake levels.  During the current moratorium, TVA
has initiated various internal actions through its lake level policy
task force in preparation for a future reexamination of existing
policies.  TVA has been hesitant to make a formal announcement that a
reexamination is needed because (1) it does not have all of the
needed evaluation methodologies in place to perform a reexamination
and (2) such an announcement would, in TVA's view, set unrealistic
expectations about how quickly any decisions could be reached about
whether changes are or are not needed, given the time needed to
conduct the reevaluation under the NEPA process. 

We agree with TVA that a reexamination of its policies impacting lake
levels is warranted.  An important aspect for TVA to consider in its
reexamination efforts is formal and continuing communication with the
public and other stakeholders.  These communications are needed to
(1) further educate TVA regarding the concerns and needs of the
various stakeholders that must be considered in the reexamination
process, (2) give TVA additional opportunities to explain the
operation of its integrated system and the complexities involved in
evaluating changes to the system, (3) establish realistic
expectations of the time required to reevaluate changes in policies
impacting lake levels, (4) keep the public informed of TVA's ongoing
activities and progress achieved, and (5) increase the overall
credibility of the reexamination process. 

Past evaluations examining changes to policies impacting lake levels
have tended to emphasize either the costs associated with the
potential change as has been the case with TVA's efforts or the
localized benefits as has been the case with studies performed for
users of the lakes.  When reexamining any potential changes to
policies impacting lake levels, a balanced and comprehensive decision
can only be reached through consideration of the costs and benefits
of the alternatives examined. 

   RECOMMENDATION
---------------------------------------------------------- Chapter 5:4

We recommend that the Chairman of TVA's Board of Directors (1)
provide for a formal and continuing communication process for the
public and other stakeholders to actively participate in TVA's
efforts to reexamine its policies impacting lake levels and (2)
ensure that TVA's reexamination efforts include consideration of both
the costs and benefits of any potential changes to policies impacting
lake levels. 

   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 5:5

TVA stated that we had conducted a comprehensive assessment of TVA's
tributary lake operating policies and that the draft report fairly
summarized the issues influencing TVA's operations.  Regarding our
recommendation that TVA provide for a formal and continuing
communication process, TVA stated that it is essential that the
public continue to be involved in decisions that affect how the
Valley's water resources are used.  TVA also recognized that there is
an opportunity to improve its communications with stakeholders.  TVA
added that it remains committed to communicating fully with its
stakeholders and others who depend on the integrated management of
the Tennessee River system. 

Regarding our recommendation that TVA's reexamination efforts
consider the costs and benefits of potential changes, TVA stated that
in operating the river system for the greatest public benefit, it
continues to look for new methodologies that will provide for a more
objective analysis of the tradeoffs among competing demands.  TVA
stated that certain water uses, such as hydropower and flood control,
lend themselves more readily to quantitative analysis, while other
operating objectives, such as economic development and environmental
impacts, continue to be more difficult to quantify.  TVA added that
it remains committed to providing lake users and other beneficiaries
with the best information it has on the most likely impacts of
changes in lake operations so that such lake users and other
beneficiaries are aware of the tradeoffs and consequences of policy
changes. 

TVA also emphasized in its comments that not all costs are monetary. 
TVA stated that as it works to meet multiple needs with a finite
resource, increased costs can take the form not only of higher
electricity prices but also reduced flood control benefits, lessened
environmental quality, and reductions in other benefits.  TVA added
that costs in any form become costs to some segment of the public. 

(See figure in printed edition.)APPENDIX I
COMMENTS FROM THE TENNESSEE VALLEY
AUTHORITY
============================================================ Chapter 5

(See figure in printed edition.)

MULTIPURPOSE TRIBUTARY LAKE-LEVEL
CHANGES--MINIMUM AND MAXIMUM
MONTHLY LEVELS DURING CALENDAR
YEAR 1998
========================================================== Appendix II

                                                                              (In feet above sea level)

Months             Blue                                                                                                                  South                      Tims
during 1998     Ridge\a       Boone     Chatuge    Cherokee   Douglas   Fontana  Hiwassee  Melton Hill        Norris     Nottely       Holston       Tellico      Ford\a     Watauga
-----------  ----------  ----------  ----------  ----------  --------  --------  --------  -------------  ----------  ----------  ------------  ------------  ----------  ----------
January
Minimum 1       ,651.18    1,351.35    1,912.19    1,027.04    940.51  1,627.98  1,462.78  791.46             977.02    1,742.39      1,689.40        807.51      856.01    1,930.63
Maximum        1,664.27    1,359.19    1,916.05    1,033.25    961.37  1,655.43  1,485.81  794.88             986.00    1,749.67      1,699.26        810.60      866.16    1,940.20
February
Minimum        1,664.10    1,353.59    1,913.42    1,033.06    950.66  1,651.42  1,475.43  791.17             986.00    1,748.28      1,699.26        807.45      865.01    1,940.01
Maximum        1,678.13    1,361.90    1,915.60    1,036.82    960.99  1,656.09  1,481.55  794.98             992.63    1,754.07      1,712.01        810.50      874.00    1,948.68
March
Minimum        1,678.11    1,359.27    1,915.26    1,036.79    955.25  1,653.65  1,478.79  790.10             992.63    1,753.82      1,712.01        807.51      874.00    1,948.02
Maximum        1,684.30    1,365.55    1,919.59    1,051.83    971.45  1,660.21  1,491.88  794.99           1,006.52    1,761.98      1,723.05        810.60      881.94    1,956.42
April
Minimum        1,682.30    1,364.29    1,919.40    1,051.41    971.45  1,659.34  1,491.88  790.79           1,006.43    1,761.98      1,721.65        808.25      881.69    1,954.13
Maximum        1,689.07    1,379.38    1,924.55    1,069.27    995.36  1,693.52  1,515.95  796.44           1,030.38    1,772.47      1,732.29        815.09      886.25    1,960.69
May
Minimum        1,683.77    1,376.69    1,924.26    1,066.91    991.84  1,693.52  1,515.83  792.05           1,020.15    1,772.34      1,728.43        811.72      884.60    1,956.83
Maximum        1,687.18    1,383.80    1,925.35    1,070.99    993.98  1,702.75  1,524.25  794.97           1,024.25    1,775.98      1,731.84        813.11      885.98    1,959.42
June
Minimum        1,685.90    1,380.69    1,925.00    1,069.02    993.05  1,700.59  1,520.80  792.30           1,019.15    1,775.39      1,728.46        811.88      885.84    1,957.24
Maximum        1,687.95    1,383.24    1,926.31    1,071.76    995.20  1,705.34  1,524.30  795.05           1,021.23    1,778.09      1,730.64        814.42      890.14    1,959.85
July
Minimum        1,682.63    1,381.51    1,923.12    1,060.53    991.06  1,693.64  1,516.89  790.40           1,015.00    1,770.29      1,721.30        812.07      886.92    1,949.22
Maximum        1,686.09    1,383.72    1,925.15    1,069.31    993.23  1,700.65  1,521.08  794.88           1,019.15    1,775.53      1,728.90        813.30      887.68    1,957.88
August
Minimum        1,673.89    1,380.92    1,919.16    1,052.02    976.90  1,679.02  1,506.15  792.45           1,006.96    1,762.82      1,713.28        812.17      886.18    1,942.60
Maximum        1,682.68    1,383.04    1,923.12    1,060.75    991.06  1,693.69  1,517.40  795.10           1,015.03    1,770.41      1,721.32        813.48      888.06    1,949.30
September
Minimum        1,654.10    1,378.90    1,915.63    1,042.61    965.81  1,655.21  1,491.17  792.58             996.87    1,755.19      1,703.21        812.37      883.68    1,935.52
Maximum        1,673.96    1,382.50    1,919.16    1,052.09    976.91  1,679.02  1,506.38  794.71           1,006.99    1,762.85      1,713.28        813.30      886.19    1,942.62
October
Minimum        1,630.60    1,372.91    1,913.69    1,036.16    954.22  1,639.47  1,472.30  790.27             987.52    1,747.59      1,697.18        812.05      880.66    1,934.03
Maximum        1,654.10    1,379.00    1,915.80    1,042.67    966.04  1,655.25  1,491.25  794.89             996.88    1,755.28      1,703.26        813.13      883.93    1,935.68
November
Minimum        1,621.38    1,361.33    1,911.95    1,029.17    946.72  1,633.45  1,464.85  792.68             980.95    1,744.95      1,696.31        808.94      875.61    1,933.80
Maximum        1,630.65    1,373.12    1,913.69    1,036.76    954.33  1,639.60  1,472.59  794.63             987.55    1,747.64      1,697.25        812.69      880.68    1,934.11
December
Minimum        1,624.72    1,355.28    1,911.08    1,026.37    940.29  1,625.68  1,460.31  792.48             977.39    1,740.84      1,693.65        807.78      870.88    1,932.17
Maximum        1,636.16    1,361.63    1,912.05    1,030.07    946.78  1,633.45  1,465.42  794.98             981.18    1,745.01      1,696.34        809.61      875.61    1,934.04
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a TVA said that the elevations for Blue Ridge beginning in September
were abnormally low due to a special drawdown for maintenance
inspection that is conducted once every 5 years.  TVA also said that
the elevations for Tims Ford Lake in January and February were
abnormally low due to a special drawdown for repairs. 

Source:  TVA. 

TVA'S 1990 REVIEW AND ITS 1999
ANALYSIS
========================================================= Appendix III

This appendix provides information from TVA's 1990 review, entitled
Tennessee River and Reservoir System Operation and Planning Review,
about the increased systemwide costs of supplying electric power that
TVA estimated for a range of lake-level alternatives and a
description of the methodologies used in TVA's analysis.  In
addition, this appendix summarizes the results of an analysis TVA
performed in 1999 at our request that updated its estimated
systemwide cost impacts of implementing lake-level alternatives
similar to two of the alternatives considered in the 1990 review. 

   TVA'S 1990 REVIEW
------------------------------------------------------- Appendix III:1

      TVA ESTIMATED SYSTEMWIDE
      COSTS OF SUPPLYING ELECTRIC
      POWER FOR A WIDE RANGE OF
      LAKE-LEVEL ALTERNATIVES IN
      1990
----------------------------------------------------- Appendix III:1.1

In 1990, TVA estimated that various alternative policies for managing
lake levels at some of its multipurpose tributary projects would
result in increasing its annual average systemwide costs of supplying
electric power by $2 million to $93 million (in 1990 dollars),
depending on the alternative (see table III.1).  TVA used a complex
methodology to estimate the cost impacts of the seven lake-level
alternatives, each of which involved a delay of the starting date for
the drawdown of lake levels from Memorial Day to later dates in the
summer or fall. 

TVA's methodology focused on characterizing the electricity supply
resources (commonly referred to as capacity) it would need and how it
would deploy these resources in order to meet demand from its
customers under the different lake-level alternatives.  TVA computed
differences in resource needs between each alternative and the ï¿½base
caseï¿½ scenario.  The base case refers to a ï¿½no-changeï¿½ scenario that
maintains the existing policy of starting the lake-level drawdown
anytime after Memorial Day.  Differences in capacity needs and in the
utilization and scheduling of different sources of generation were
then translated into cost differences. 

For example, delaying the drawdown of the lake levels until Labor Day
(Alternative 2) was more expensive than the base case because less
water would be available for hydroelectric generation during the
period of peak electricity demand in late summer.  The cost impact
can be broken into two components, ï¿½energy costsï¿½ and "capacity
costs."\1 For example, under Alternative 2: 

  -- Delaying the drawdown of the lake levels from Memorial Day to
     Labor Day meant that there would be less hydroelectric
     generation during a period of peak summer demand.  The shortfall
     would be compensated by incremental production of electricity
     from other sources, such as coal-fired plants or combustion
     turbine units.  However, the energy costs of fossil-fuel sources
     (coal, petroleum based, and gas) are higher than the energy
     costs of hydroelectric power generation.  This pattern would be
     reversed in the fall and early winter, when more hydroelectric
     generation is available.  However, because more electricity is
     demanded and produced in late summer than in early winter, the
     net effect would be higher energy costs. 

  -- The reduction of hydroelectric generation capacity due to
     delaying the drawdown of the lake levels to Labor Day was
     significant enough that TVA would have to acquire incremental
     fossil-fueled electric generation capacity to replace it.  In
     effect, this meant that TVA could not rely on increasing the
     utilization of its existing plants, but it would have to build
     new capacity.  This cost is over and above the higher energy
     costs. 

Table III.1 displays TVA's estimated energy and capacity costs
associated with each of the alternatives considered in the 1990
review. 

                                   Table III.1
                     
                          Estimated Impact of Lake-Level
                     Alternatives Evaluated by TVA in 1990 on
                        TVA's Systemwide Cost of Supplying
                                  Electric Power

                          (In millions of 1990 dollars)

      Annual energy cost
    ----------------------
Al
te
rn                               Required
at                               capacity                                   Total
iv                           addition (in       Initial        Annual      annual
e      Average       Range     megawatts)  capital cost  capital cost        cost
--  ----------  ----------  -------------  ------------  ------------  ----------
1          $ 2     $ -9 to              0             0             0         $ 2
                       $20
1A         $ 6   $ -7 to $            100          $ 74           $ 9        $ 15
                        30
1B         $ 9   $ -9 to $             10           $ 7           $ 1        $ 10
                        20
1C         $ 3   $ -9 to $             30          $ 22           $ 3         $ 6
                        20
1D         $ 3   $ -9 to $              0             0             0         $ 3
                        20
2         $ 16   $ -4 to $            750         $ 560          $ 68        $ 84
                        60
3         $ 25   $ -4 to $            750         $ 560          $ 68        $ 93
                        56
---------------------------------------------------------------------------------
Source:  TVA, Tennessee River and Reservoir System Operation and
Planning Review, Table 28, p.  116, (Dec.  1990). 

--------------------
\1 Energy represents the volume of electricity delivered over a
period of time and is measured in kilowatt-hours.  Capacity, on the
other hand, is measured in kilowatts and represents the rate at which
energy can be delivered at a moment in time.  For example, 20
100-watt light bulbs burning for one-half hour would use 1,000
watt-hours (or 1 kilowatt-hour).  In this case, the capacity demanded
would be 2 kilowatts and the energy used would be 1 kilowatt-hour. 
Energy costs include fuel and other costs that depend on operating
levels, but exclude capital costs.  Capacity costs are the fixed
costs of an electric power system (such as the capital cost of a
generation plant) that do not vary with the level of operation. 

      TVA'S 1990 COST ESTIMATES
      ARE BASED ON COMPLEX
      MODELING AND EXTENSIVE DATA
----------------------------------------------------- Appendix III:1.2

TVA's 1990 cost-estimation methodology involved the use of three
computer models and extensive data inputs to simulate its
hydroelectric generation capabilities and operations, and its overall
costs of supplying electric power using all its electricity
generation assets under the different alternatives.  The modeling
effort accounted for considerable uncertainty in hydrologic
conditions, which leads, in turn, to uncertainties in cost estimates. 

To determine differences in the cost of electric supplies between
alternative lake policy scenarios and the base case (no-change)
scenario, TVA used three models.  TVA also used extensive data on
hydrological conditions; its own electricity supply capabilities,
operations and costs; and its customers' electricity demand.  On the
basis of the data, the models, and standard analytical techniques,
TVA determined (1) its hydro and nonhydro electricity generation
capabilities under each lake-level alternative, (2) the most
efficient way it could schedule its power plants to meet demand, and
(3) its costs of meeting demand under each alternative.  TVA
conducted this analysis for 1 year, 1993, when electric supplies from
its own sources were expected to equal demand.\2 TVA examined
hydrological uncertainty by applying the one year of incremental
power supply costs for 1993 to each of the previous 87 years
(1903-1989) for which it had hydrological data.  Briefly, TVA's
modeling procedure was as follows: 

The Weekly Scheduling Model (WSM):  This is a TVA-developed model
that is used to simulate weekly hydroelectric power capabilities and
production based on hydrologic conditions.  WSM considers various
constraints on water releases imposed to meet navigation, flood
control, environmental, and recreational objectives.  TVA used WSM to
determine weekly hydroelectric production under each lake-level
scenario. 

PowrSym Dispatch Model:  This is a power production costing model
that is used to determine the most efficient combination of electric
generation assets to meet a given level of demand.  This model uses
data on TVA's hydro and nonhydro power generation to determine which
plants should generate the needed electricity to meet demand at any
given time, and it calculates associated energy costs.  For the
lake-level scenario analysis, TVA fed the weekly hydroelectric power
production data into the PowrSym model to calculate its energy costs
under each lake-level scenario.  PowrSym scheduled the weekly
hydropower production on an hourly basis together with all of TVA's
other power resources to minimize overall production costs. 

The Hourly Loss of Load Expectation (HLOLE) Model:  This model is
used to determine electric generation capacity needed to maintain the
reliability of the power system.  TVA input the power supply data
resulting from the previous steps into the HLOLE model in order to
determine the different electric generation capacity needs under each
alternative and to compare them to the capacity needs of the base
case.  On the basis of assumptions on the construction costs of
certain types of power plants, TVA then converted the resulting
differences to capacity cost differences among scenarios.\3

The hydrologic uncertainties as depicted in 87 years of highly
variable weather-related data, resulted in wide ranges of cost
estimates.\4 For example, the annual average estimate of the energy
cost of Alternative 2, as reported in table III.1, was $16 million
(in 1990 dollars).  However, TVA reported a wide range of uncertainty
around this average.\5 When required capacity additions were
included, the total average annual cost was estimated at $84 million
(in 1990 dollars). 

--------------------
\2 According to TVA, it chose a balanced year, 1993 (in which its
self-generated supply of electricity was expected to equal demand),
to avoid overestimating or underestimating the cost of delaying the
drawdown of lake levels. 

\3 In 1990, TVA assumed that any expansion of its power generation
capacity would be in the form of new coal-fired and combustion
turbine power plants.  A combustion turbine is an electricity
generating unit that is similar in design to a jet engine.  The
combustion turbine uses natural gas or other light hydrocarbon fuel
to fire a turbine engine that is connected to an electric generator. 

\4 In addition to considering an average-year for 87 years of
hydrology, TVA considered hydrologic scenarios based on an extremely
dry year and an extremely wet year among the 87 years. 

\5 TVA reported a range between $(ï¿½)4 million (negative $4 million,
that is, benefits instead of costs) annually, and up to $60 million
annual energy costs (in 1990 dollars). 

   TVA'S 1999 ANALYSIS
------------------------------------------------------- Appendix III:2

      TVA UPDATED SYSTEMWIDE COSTS
      OF SUPPLYING ELECTRIC POWER
      FOR TWO LAKE-LEVEL
      ALTERNATIVES IN 1999
----------------------------------------------------- Appendix III:2.1

We asked TVA to update its cost estimates of two lake-level
alternatives because market conditions and evaluation methodologies
have changed considerably since 1990.  One key difference in the 1999
update was that the 1990 base case was no longer the base case in
1999.  In 1991, TVA decided to adopt Alternative 1 as a permanent
policy.  This decision meant delaying the start of the lake-level
drawdown at TVA's multipurpose tributary projects from Memorial Day
to August 1.  As a result, Alternative 1 became the new base case. 
Furthermore, the electricity supply industry had changed
considerably, due to deregulation and the introduction of
competition;\6 technological progress; and environmental factors.  We
and TVA agreed on the broad issues to be considered in TVA's cost
updates.  Due to the difficulty of trying to update all of the
alternatives considered in the 1990 analysis, we requested that TVA
update only two alternativesï¿½Alternative 1A (an additional 2-month
drawdown delay for three of the projects) and Alternative 2 (an
additional 1-month drawdown delay for all of the projects).  The
results of TVA's March 1999 analysis, as detailed in table III.2,
indicate average annual cost increases of $14 million and $47 million
(in 1999 dollars) in its systemwide cost of supplying electric power
for Alternative 1A and Alternative 2, respectively, but with very
wide ranges of uncertainty for each. 

                              Table III.2
                
                     Estimated Impact of Lake-Level
                Alternatives Evaluated by TVA in 1999 on
                   TVA's Systemwide Cost of Supplying
                  Electric Power--Differences Between
                       Alternatives and Base Case

                     (In millions of 1999 dollars)

                                    Annual        Annual        Annual
Alternative                   average cost      costï¿½low     costï¿½high
----------------------------  ------------  ------------  ------------
1A                                     $14        $(-) 2           $33
2                                      $47             0           $88
----------------------------------------------------------------------
Source:  TVA. 

TVA's procedures for updating cost estimates in 1999 differ in
several significant ways from its 1990 estimation procedure, largely
because conditions have changed.  The differences include the
following: 

  -- The 1999 base case is different, as mentioned earlier. 

  -- Whereas the 1990 procedure estimated annual costs for a single
     year, 1993, the 1999 procedure estimated average annual costs
     for the entire future period, 1999 through 2023.  TVA broke this
     25-year period into 2 sub-periods, 1999 through 2001, and 2002
     through 2023. 

  -- The 1999 methodology uses the WSM model in a similar fashion to
     determine different hydroelectric capacities and production for
     each of the scenarios.  However, the 1999 methodology uses a
     25-year future time horizon for the analysis and breaks the 25
     years into two periods.  During the first 3 years, TVA would
     purchase forward contracts from electric power suppliers outside
     its territory in order to replace lost hydropower, while
     additional generating capacity would be built to compensate for
     its reduced hydro generation capacity.\7 The transmission costs
     associated with importing this power into the TVA power system
     were included in the cost estimates for these 3 years.\8 TVA
     assumes that, starting in 2002, the newly built capacity will
     supply any shortages due to changes in policies impacting lake
     levels.  However, in contrast with its 1990 approach, TVA did
     not calculate the cost of lake-level alternatives based on its
     own costs of the energy and capacity needed to compensate for
     reduced hydroelectric power generation.  Instead, TVA used its
     forecast market prices in the cost calculations.\9 This change
     in approach reflects the trend away from regulated cost-based
     prices and towards competitive market-based prices in the
     electric industry.  The main difference between the two
     approaches is that the 1990 cost-based approach assigns all the
     costs of the additional capacity to each lake-level alternative. 
     In contrast, the use of market prices in the 1999 analysis means
     that only a portion of the cost of additional capacity is
     assigned to each lake-level alternative.\10

  -- The use of TVA's models in 1999 was different from 1990.  The
     key difference is that PowrSym was used in 1990 to model only
     TVA's power system in order to estimate energy cost differences
     among scenarios.  In 1999, however, the PowrSym Multi-Area model
     (which is different from the PowrSym production costing model)
     was used to forecast electricity market prices for power in 23
     southern, midwestern, and some eastern states. 

  -- During the 3-year period, 1999-2001, TVA's analysis does
     indicate the need for additional generation capacity to
     compensate for lower hydroelectric capacity under Alternatives
     1A and 2.  However, TVA's analysis of delays in the drawdown of
     lake levels yielded smaller impacts on hydroelectric generation
     capacity in 1999 than in 1990.  For example, in 1990 TVA
     estimated that Alternative 2 would require TVA to build 750
     megawatts (MW) of additional electric generation capacity.  In
     contrast, in 1999, TVA estimated that Alternative 2 would
     require TVA to build 250 MW of additional capacity.  This
     difference is due to the different base case (August 1\st start
     date of the lake-level drawdown instead of Memorial Day),
     technological advances resulting in lower construction costs and
     higher power plant efficiencies for new capacity, improved
     reliability of TVA's nuclear and fossil-fueled plants, and
     improved availability of power for purchase from other
     suppliers.  For the 1999 analysis, the type and cost of electric
     generation capacity that TVA acquires during the first 3 years
     differ considerably from its assumed capacity additions in the
     1990 methodology.  This reflects technological progress,
     increased efficiency, and lower costs.\11

  -- The 1990 analysis did not consider the impacts of lake-level
     alternatives on cooling requirements for some of its fossil-fuel
     generating plants.  The 1999 analysis added some costs
     associated with such impacts.\12

  -- The 1999 analysis also assigns a value for the ï¿½ancillary
     servicesï¿½ associated with the flexibility of hydroelectric
     generation.\13 This value raised TVA's estimates of the impacts
     on its systemwide cost of supplying electric power of the
     lake-level alternatives by 10 to 15 percentï¿½a range of 0 to $4
     million for Alternative 1A and from 0 to $11 million for
     Alternative 2 (in 1999 dollars).  This change in the 1999
     methodology is due to the assumption that market-like
     transactions for ancillary services have emerged and are likely
     to grow.\14

  -- TVA handled hydrologic and electricity price uncertainties a
     different way for the 1999 analysis, reflecting the fact that
     the 1999 analysis had a 25-year future time horizon, while the
     1990 analysis focused on a single year, 1993.\15

  -- TVA's 1999 analysis also considered the effect of more stringent
     future air pollution regulations to take effect in 2010, which
     would essentially make hydropower more valuable.  TVA's 1999
     analysis, using the more stringent regulations, would result in
     somewhat higher estimated impacts.\16 This was not a factor in
     the 1990 analysis. 

  -- TVA's 1990 analysis relied on a discount rate of 7 percent.  In
     the 1999 analysis, TVA used both a 6- and an 8-percent discount
     rate.  The 6-percent rate resulted in marginally higher costs
     than the 8-percent rate in the 1999 analysis. 

  -- TVA's 1999 analysis also recognized that a change in TVA's
     policy impacting lake levels would also impact a class of direct
     industrial customers.\17

TVA officials told us that the 1999 estimates of cost impacts of the
lake-level alternatives were lower than the respective 1990 estimates
for a number of reasons.  As mentioned earlier, one reason is that
the base case in 1999 (August 1\st lake-level drawdown) is different
from the 1990 base case (Memorial Day lake-level drawdown).  In the
1990 analysis, for example, Alternative 2 required TVA to acquire 750
MW of additional electric generation capacity, as compared to an
estimated 250 MW for Alternative 2 in the 1999 analysis. 
Furthermore, whereas the entire capital cost of the 750 MW was
counted in the cost estimate of delaying the lake-level drawdown in
1990, the same was not true for the cost of the 250 MW in 1999. 
Electricity deregulation and the increasing trend to competitive
market pricing contribute to lowering costs and improving the
utilization of resources.  Technological advances have lowered the
cost of electricity and improved operating efficiencies. 

--------------------
\6 In the past, electricity was supplied by regulated entities
(utilities) that acted as monopolies within their franchise areas. 
Monopolistic utilities generated their own electricity supplies and
sold them through their distribution systems and were allowed to
charge rates based on their costs plus a regulated rate of return. 
As deregulation progresses, electricity supplies are being
increasingly produced by independent companies operating in
unregulated, competitive markets.  The current trend is for the
monopolistic function of utilities to be increasingly limited to
their transmission and distribution systems.  Less and less of the
electricity is self-generated by utilities and more by unregulated
suppliers.  The utilities purchase the electricity from the
unregulated suppliers at competitive rates and use its transmission
and distribution system to transport it to customers in the franchise
area. 

\7 A forward contract is an agreement between two parties for the
purchase/sale of electric supplies at some future time under such
conditions as the two agree on.  The forward contracts that TVA
purchases are for firm power, that is, power that the seller
guarantees will be delivered to the buyer.  Firm power is priced in a
way that reflects both energy and capacity costs. 

\8 Transmission is the process of conducting the flow of electricity
at high voltages from the points of generation to the location of
groups of electricity users.  TVA assumed that it would obtain
transmission at a price of $1.80/kilowatt-month for the 3-month
summer period (July-September). 

\9 TVA actually used three sets of forecast market prices
representing a low-, medium-, and high-price scenarios. 

\10 It should be noted that the additional capacity may or may not be
built by TVA.  It may be built by another power producer that sells
the power to TVA at market rates.  Whether it is built by TVA or by
another producer, the additional capacity will supply power to TVA's
customers only during the peak hours affected by the change to
policies impacting lake levels.  Outside these peak hours, the power
from the additional capacity can be sold elsewhere at market rates. 
Since market rates effectively reflect both energy and capacity
(capital) costs, not all the capital costs of the replacement
capacity are counted towards the cost of the lake-level alternative. 
The remaining capital costs are paid by other users of this capacity
who purchase power outside of these peak hours. 

\11 TVA assumes the expansions of its electric generating capacity
during the 3-year construction period will be in the form of a
combined cycle plant.  Combined-cycle power plants are generating
units that combine a combustion turbine and a heat recovery steam
generator.  The steam generator uses the exhaust from the combustion
turbine to generate steam that, in turn, drives a steam turbine. 

\12 TVA told us that changes to policies impacting lake levels have
implications on water use to cool some of its nuclear and
fossil-fired electric plants.  Given water temperature requirements
in National Pollution Discharge Elimination System permits, changes
in policies impacting lake levels could effectively reduce the output
of some plants.  TVA estimated the costs related to cooling
requirements as ranging from 0 for Alternative 1A to $1 million to $4
million for Alternative 2 (in 1999 dollars). 

\13 Ancillary services are defined as those services that are
necessary to support the transportation of power from power plants to
customers while maintaining reliable operation of the transportation
system in accordance with good utility practice.  Hydroelectricity
commands a premium for its ï¿½ancillaryï¿½ value, associated with its
operational versatility that is particularly valuable for regulating
the transportation of electricity on power lines.  The versatility of
hydroelectric power plants lies in the fact that they can be brought
into service quickly and cheaply.  In contrast, bringing a large
coal-fired power plant into service and taking it off-line is both
time-consuming and costly. 

\14 TVA told us that there is considerable uncertainty regarding how
ancillary services will be valued in future electricity markets.  TVA
believes that the use of a 10-percent to 15-percent cost escalation
factor was conservative, based on recent evidence of the valuation of
hydroelectric power's versatility. 

\15 For the 1999 analysis, TVA used 96 years of hydrologic data
(1903-1998) and a 25-year forecast of hourly electricity prices.  For
each lake-level alternative, WSM processed the 96 years of hydrology
into 72 sets of simulations, each consisting of 25 years of
hydropower system performance data, which were multiplied by the
25-years of forecasted hourly electricity prices to estimate costs. 
The first set started with 1903 and ended with 1927; the second set
started with 1904 and ended with 1928; etc., until the 72nd set,
started with 1974 and ended with 1998.  The 72 sets differed in terms
of hydroelectric generation, depending on the hydrologic data of each
of them.  TVA reported its cost estimates to reflect a range from
particularly dry, to medium, to very ï¿½wetï¿½ sets of 25 years.  As
mentioned, the price uncertainty was addressed by using three sets of
forecast market prices. 

\16 For example, TVA estimated that these more stringent regulations
would increase the average systemwide cost to supply electric power
for Alternative 1A by $1.2 million and for Alternative 2 by $2.3
million (in 1999 dollars and based on a medium price forecast). 

\17 These customers have Economy Surplus Power contracts with TVA,
which allow them to buy a portion of their electricity needs at low
rates (TVA's hourly marginal costs) because TVA has the option to
turn off their power supplies during periods of peak demand when it
needs more supplies to serve its firm customers.  Firm customers pay
higher rates because they have a higher priority.  Hourly marginal
costs (and hence Economy Surplus Power rates) will increase during
the summer because more expensive generation sources will be used to
replace hydropower losses due to delays in the drawdown of lake
levels. 

      TVA EMPHASIZED THAT
      UNCERTAINTIES EXIST IN ITS
      COST ANALYSES
----------------------------------------------------- Appendix III:2.2

TVA officials told us that great uncertainties in today's electricity
supply industry go well beyond the uncertainty that its 1999 modeling
exercise attempted to depict.  Electricity deregulation has started
in some states and is being considered in other states and possibly
at the federal level.  TVA assumes that electricity deregulation will
result in the development of an electricity spot market.  TVA assumes
that, starting in the year 2002, it can rely on such a market for
power purchases to make up for any shortfalls that will result from
alternative policies impacting lake levels.  However, how quickly
such a market will develop and how reliable it will be remains to be
seen.\18

Environmental regulation may also have significant consequences on
the industry, possibly causing major shifts from coal-fired
electricity generation to less polluting sources of generation. 
International agreements on global warming, resulting in even more
stringent environmental regulations, are an added source of
uncertainty.  All of these factors may have profound impacts on
electricity costs and prices in the future. 

--------------------
\18 As mentioned, TVA's 1999 analysis assumed that, during the period
1999-2001, it would rely on forward contracts from electric power
suppliers outside its region for power losses due to lake-level
alternatives.  TVA officials, however, also said that this assumes
that there will be sufficient transmission capacity to import the
needed power.  TVA officials, however, think that transmission
capacity is another source of uncertainty that they did not model
explicitly.  Transmission capacity may indeed constrain TVA's ability
to rely on power purchases from suppliers outside of its region. 

STUDY EXAMINING CHEROKEE AND
DOUGLAS LAKES
========================================================== Appendix IV

This appendix gives a brief description of the study entitled,
Economic and Fiscal Consequences of TVA's Draw-Down of Cherokee and
Douglas Lakes (henceforth, the Cherokee and Douglas Study), which was
prepared by the University of Tennessee's Center for Business and
Economic Research.  As mentioned in chapter 4, this study used
different approaches to estimate the positive economic impacts of
lake-level changes on areas bordering the two lakes.  This appendix
also summarizes views of the study expressed by representatives of
the LOUD and TVA, and our comments on the study. 

   STUDY ESTIMATES LOCAL BENEFITS
   RESULTING FROM PROPOSED TVA
   CHANGES TO POLICIES IMPACTING
   LAKE LEVELS
-------------------------------------------------------- Appendix IV:1

LOUD and CLUA representatives believe that their proposed TVA changes
to policies impacting lake levels will have positive economic and
fiscal impacts on the six counties bordering the two TVA lakes. 
According to the study, LOUD's and CLUA's proposals for changes to
policies impacting lake levels are closest to a set of lake draw-down
delays that TVA considered in its 1990 review as Alternative 1A.\1
The Cherokee and Douglas Study commissioned by these groups estimated
that delaying the drawdown of the lakes would increase regional
income by $0.6 million to $5.7 million. 

The study used different approaches to estimate the impact of
lake-level changes on income, employment, and local sales tax
revenues of the six counties surrounding the two lakes.  One approach
started with an estimate of the impact of delayed drawdown on
expenditures in the six-county region due to increased visitation to
the two lakes by non-county residents.  The researchers interviewed
about 75 visitors who came to Douglas and Cherokee from outside the
six-county region.\2 The survey asked respondents about their
expenditures within the six-county region during their visits to the
two lakes.  Each respondent was shown a picture of Douglas Lake at an
elevation of about 20 feet below normal summer recreational season
level.  Respondents were then asked if a delay in drawdown would
result in him or her making more or less visits to the Douglas or
Cherokee lakes and to other area lakes.  On the basis of data
gathered from the survey, the study estimated increases in retail
expenditures in the six counties due to increased visitation by
nonresidents of about $1 million to $1.8 million per year.  (See
table IV.1.)

Two other approaches in the study started by estimating the impact of
changes to policies impacting lake levels on total retail sales in
the six-county region.\3 The first approach used statistical
techniques to analyze whether there was a significant relationship
between monthly lake levels and the region's monthly retail sales. 
The analysis confirmed such a relationship and estimated that
drawdown delays from August 1 to October 1 would add about $1.6
million to annual total retail sales in the six-county region.  The
second approach based on retail sales impact was based on 200
responses to a survey of commercial establishments in the six-county
region.  The survey asked businesses to estimate how much their
retail sales were likely to increase if drawdown of the two lakes
were delayed.  While a total of 1,088 surveys were sent to selected
commercial establishments in the six-county region, the response rate
to the survey was only about 18 percent.  The results of this survey
were reported in the study as an estimated increase in annual retail
sales of about $7.1 million due to the drawdown delays. 

The study used these estimates of expenditures and retail sales
increases to derive measures of impacts of changing lake levels on
income, employment, and sales tax revenues in the six-county region. 
The annual impacts due to lake drawdown delays were estimated as
follows:  increases in income of about $0.6 million to $5.7 million;
increases in employment of between 205 and 2,106 full-time job
equivalents; and increases in local sales tax revenues of about
$39,000 to $239,000.\4 (See table IV.1.)

                               Table IV.1
                
                   Comparison of Measures of Economic
                   Impacts Resulting From Higher Lake
                 Levels in August and September for the
                       Douglas and Cherokee Lakes

                                                            Commercial
                                 Survey of   Statistical  establishmen
                                      lake        retail     ts retail
Economic measure                  visitors      analysis        survey
----------------------------  ------------  ------------  ------------
Increased expenditures/       $1 million -  $1.6 million  $7.1 million
 retail sales                 $1.8 million
Income impact                 $0.6 million  $0.7 million  $5.7 million
                                         -
                                $1 million
Employment impact\a              205 ï¿½ 357           259         2,106
                                 full-time     full-time     full-time
                                      jobs          jobs          jobs
Local sales tax revenue          $48,117 -       $38,868      $239,187
                                   $84,185
----------------------------------------------------------------------
\a Full-time equivalent jobs; assumes all employment gains accrue in
August and September. 

Source:  Center for Business and Economic Research, The University of
Tennessee, Economic and Fiscal Consequences of TVA's Draw-Down of
Cherokee and Douglas Lakes, Knoxville, TN, p.  xii, (Oct.  1998). 

In addition to estimates of impacts on the six-county income,
employment, and sales tax revenues, the study pointed out that delays
in the drawdown of lake levels would likely have significant impacts
on the values of properties that are adjacent to the two lakes.  The
study did not attempt to produce independent estimates of such
impacts but reported the results of research done elsewhere on
related issues.  Two of the cited studies suggest significant
negative effects of the drawdown of lake levels on the value of
adjacent properties. 

--------------------
\1 This alternative calls for delaying drawdown at Douglas and
Cherokee, and a third lake, Norris, from Memorial Day to October 1,
in addition to delaying lake-level drawdown at seven other tributary
projects in eastern Tennessee to August 1.  According to TVA, the
LOUD and CLUA proposals are different from Alternative 1A as defined
in the 1990 EIS.  The LOUD and CLUA proposals request significant
changes in the January 1 target lake levels, but Alternative 1A does
not consider such changes.  The study did not independently estimate
any costs resulting from the proposed changes.  The study reported
TVA's 1990 estimated impacts of the proposed changes on the
systemwide cost of supplying electric power, adjusted for inflation
to reflect 1998 values. 

\2 The researchers conducted 161 in-person interviews of visitors to
Douglas and Cherokee, with roughly an equal number of visitors (80)
being interviewed at each of the lakes.  Of those interviewed, the
percentages of nonresidents were 59 percent at Douglas and 36 percent
at Cherokee. 

\3 The study did not attempt to isolate the impact on retail
purchases by nonresidents of the six-county region.  Instead, the
impact of changes to policies impacting lake levels on total retail
sales was estimated. 

\4 The study reported the results of two other approaches that the
researchers used to estimate drawdown delay benefits; namely, a
ï¿½benefits transfer approachï¿½ and another approach based on ï¿½angler's
choices of reservoirs.ï¿½ The former yielded relatively low benefit
estimates, while the latter yielded a ï¿½conservative estimate of
losses to anglersï¿½ of $11 million annually.  These results, however,
were not reported in the study's summary table entitled ï¿½Comparison
of Economic Impacts Resulting from Higher Lake Levels in August and
September for Douglas and Cherokee Lakes.ï¿½

   LOUD AND TVA POINTED TO A
   NUMBER OF WEAKNESSES IN THE
   CHEROKEE AND DOUGLAS STUDY
-------------------------------------------------------- Appendix IV:2

Both LOUD and TVA representatives told us that the study had several
weaknesses.  LOUD representatives stressed that the benefits reported
in the study were ï¿½lowï¿½ estimates of potential benefits.  The authors
of the study agreed, citing that due to limited funding, the study
suffered from limitations that probably resulted in underestimating
benefits.  LOUD representatives pointed out, for example, that one
estimate of the impact of delays in the drawdown of lake levels in
the study is based entirely on the respondents to the commercial
establishment survey.  The response rate to the survey was quite low
(about 18 percent), and the study assumed that only the respondents'
retail sales would increase due to delaying the drawdown of the lakes
and that that nonrespondents would not experience increases in retail
sales.  The study's authors agreed that this approach could have
under-estimated retail sales impacts.  On the other hand, the authors
pointed out that respondents would also have an incentive to inflate
their estimates of retail sales increases due to delays in the
drawdown of lake levels in the hopes of influencing a decision to
maintain higher lake levels. 

LOUD representatives emphasized that the most important benefit to
the local economy would not be the increased visitation to the lakes,
but rather to an increase in the re-location of retirees and others
from outside the region.  The representatives believe that the
economic implications of this migration to the region are likely to
far exceed the estimates reported in the study. 

TVA had a number of concerns regarding the Cherokee and Douglas
Study, including, but not limited to, the fact that

  -- the study estimates the impacts of delayed drawdown only on a
     six-county region as opposed to impacts on the entire TVA region
     and the United States as a whole.  However, TVA noted that
     delays in the drawdown of lake levels could affect flood control
     and navigation on the Tennessee, Ohio, and Mississippi Rivers. 
     In addition, TVA must consider impacts on hydroelectric power
     generation, flood control, water quality, and water supply as
     they affect the nation, the broader TVA region, as well as the
     six-county region.  For example, TVA's 1990 review quantified
     potential impacts on hydroelectric power generation revenue and
     considered potential flood control and navigation impacts on the
     lower Ohio and Mississippi Rivers;

  -- the results of the study's survey of lake visitors suggest that
     the benefits claimed for the six-county region could be shifted
     from the immediate surrounding areas.  In other words, benefits
     to the six-county region could be partly at the expense of
     neighboring counties;

  -- the study does not deal with possible increases in costs
     associated with expanding the six-county region's infrastructure
     to accommodate increased visitation and economic growth; and

  -- increased employment may be in the form of temporary importation
     of laborers into the area, with little effect on local
     unemployment. 

TVA also raised some methodological concerns about the study, such as
the accuracy of some of the survey results and the rigor of the
statistical analysis of the effect of lake levels on retail sales. 

   THE CHEROKEE AND DOUGLAS STUDY
   IS LIMITED TO THE EVALUATION OF
   ECONOMIC BENEFITS OF THE
   SIX-COUNTY REGION
-------------------------------------------------------- Appendix IV:3

The authors of the Cherokee and Douglas Study intended to evaluate
only economic benefits to the six-county region of proposed changes
to policies impacting lake levels.  In contrast, federal guidelines
for economic evaluation of federal water projects recommend a more
comprehensive evaluation of costs and benefits of actions related to
water projects.\5 Both TVA and the authors of the study have
recognized these guidelines as relevant for evaluating the changes to
policies impacting lake levels under consideration. 

According to the guidelines, an evaluation of plans related to water
resources requires the estimation of expected changes in the economic
value of national output of goods and services from a plan.  Although
the guidelines recommend consideration of other costs and benefits,
such as environmental costs and benefits, its only required
estimation is changes in the economic value of national goods and
services produced. 

Expansion of the study's analysis to areas beyond the six-county
region in accordance to these guidelines could result in
substantially different estimates of benefits.  This difference would
be especially true if the major portion of the study's estimated
gains in the six-county region is due to transfer of economic
activities into these counties from outside the region.  At the
national level, inter-regional transfers of economic activities, in
general, result in no net change in the value of output of goods and
services produced and result in no national benefit. 

Consistent with its stated scope, the study does not attempt to
independently quantify any other costs and benefits resulting from
the proposed delay of the drawdown of lake levels.\6 It should be
noted, however, that the study's estimates of economic benefits
pertain only to the six-county region surrounding the lake.  Because
of their limited geographical scope, such benefit estimates are not
comparable to TVA's estimate of its systemwide cost of supplying
electric power. 

--------------------
\5 U.  S.  Water Resource Council, Economic and Environmental
Principles and Guidelines for Water and Related Land Resources
Implementation Studies, (Mar.  10, 1983).  These guidelines establish
standards and procedures for use by federal agencies in the
formulation and evaluation of alternative plans for water related
studies. 

\6 The Cherokee and Douglas Study reports TVA's 1990 estimate of the
annual impact on TVA's systemwide cost of supplying electric power at
$18.6 million (adjusted from the 1990 figure of $15 million for
inflation to reflect 1998 values). 

STUDY EXAMINING GEORGIA MOUNTAIN
LAKES
=========================================================== Appendix V

This appendix gives a brief description of the study entitled, The
Economic Impact of Alternate TVA Lake Management Policies
(henceforth, the Georgia Mountain Lakes Study), which was prepared
for the Mountain Lakes Study Committee by the North American Water
Management Institute, Inc.  As mentioned in chapter 4, this study
focused on estimating economic benefits to areas bordering three TVA
lakesï¿½Blue Ridge, Chatuge, and Nottely.  The study also analyzed
options for funding TVA's increased cost to its power program due to
changes to lake level policies.  This appendix also summarizes views
of the study expressed by TVA and our comments on the study. 

   THE GEORGIA MOUNTAIN LAKES
   STUDY ESTIMATED FAVORABLE
   BENEFIT-COST RATIOS FOR
   DELAYING LAKE-LEVEL DRAWDOWN AT
   THREE TVA LAKES IN GEORGIA
--------------------------------------------------------- Appendix V:1

The Georgia Mountain Lakes Study estimated very favorable
benefit-cost ratios for delaying the drawdown of lake levels at Blue
Ridge, Chatuge, and Nottely Lakes in northern Georgia from August 1
to October 1.  In addition to benefit-cost estimates, the study
focuses on options for funding TVA's increased cost to its power
program due to changes to policies impacting lake levels. 

Similar to the Douglas and Cherokee Study, the Georgia Mountain Lakes
Study did not estimate the impact on TVA's systemwide cost of
supplying electric power resulting from the drawdown of lake levels. 
Instead, the study applied simple modifications to cost estimates
reported in TVA's 1990 review, obtaining an estimated increase in
TVA's systemwide cost of supplying electric power of $750,000.  The
study's benefit estimates relied on 1990 TVA and U.S.  Forest Service
(USFS) visitation statistics for the three lakes and a 1990 USFS lake
visitors' expenditures survey for the Blue Ridge and Hiwassee Lakes. 
The study extrapolated the visitation data to 1995, and applying the
expenditures data, computed ï¿½incremental impacts of lake visitationï¿½
due to delaying the drawdown of the lakes.  The benefits to Fannin,
Union, and Towns counties were reported as ranging from $3.7 million
to $24.3 million for delaying drawdown to October 1, and from $4.6
million to $30.2 million for delaying drawdown to October 31.  The
study combined its benefit and cost figures to compute highly
favorable benefit-cost ratios as indicated in table V.1.\1

                                    Table V.1
                     
                      Incremental Impacts of Lake Visitation
                         for Three Georgia Mountain Lakes

         Based on figures   Based on figures  Based on figures  Based on figures
         extrapolated from    extrapolated      extrapolated      extrapolated
Economi    1990 TVA lake     from 1990 USFS    from 1990 TVA     from 1990 USFS
   c        visitation      lake visitation   lake visitation   lake visitation
measure     statistics         statistics        statistics        statistics
-------  -----------------  ----------------  ----------------  ----------------
               Delay until       Delay until       Delay until       Delay until
                 October 1         October 1        October 31        October 31
-------  -----------------  ----------------  ----------------  ----------------
Benefit         $3,681,646       $24,278,817        $4,611,715       $30,176,781
 s
Costs             $750,000          $750,000          $750,000          $750,000
Benefit                4.9              32.4               6.2              40.2
 -cost
 ratio
--------------------------------------------------------------------------------
Source:  The Economic Impact Of Alternate TVA Lake Management
Policies, North American Water Management Institute, Inc., (Dec. 
1997). 

The study also focused on different methods of funding the increased
costs of TVA power supplies associated with this change to policies
impacting lake levels.  Ten funding mechanisms were identified and
discussed.  All 10 funding mechanisms are of a local nature, in the
sense that those who pay are either county residents or users of
services offered within the counties.  These options include
surcharges on county customers of electric supply companies, local
boating fees and fishing licenses, hotel-motel taxes, and a special
assessment tax for lakefront properties.  The study computed various
measures of impacts of the funding alternatives, such as increases in
individual electric customers' monthly charges; increases in boat
licenses and fees; increases in hotel-motel tax rates; and increases
in lakefront property tax rates.  The Georgia Mountain Lakes Study
discussed the various options with respect to impacts on payees and
political feasibility. 

--------------------
\1 The benefit-cost ratio is a measure of the proportion of benefits
to costs and is derived simply by dividing the former by the latter. 
For example, a benefit-cost ratio of 40.0 suggests that benefits
exceed costs 40 times. 

   TVA CRITICIZED THE GEORGIA
   MOUNTAIN LAKES STUDY ON SEVERAL
   COUNTS
--------------------------------------------------------- Appendix V:2

TVA had a number of concerns regarding the Georgia Mountain Lakes
Study.  According to TVA: 

  -- The study did not present sufficient information on its data,
     assumptions, and methodology to permit a professional review. 

  -- The study used ï¿½very oldï¿½ data.  TVA also suggested that data
     projections were done in a way that inflated benefits estimates. 

  -- The study failed to address other benefits and costs adequately. 
     The study focused only on benefits to the three Georgia counties
     and only on the impact on TVA's systemwide cost of supplying
     electric power.  For example, the study did not consider
     possible adverse effects of drawdown delays on navigation and
     flood protection.\2 The study failed to account for
     infrastructure and land development costs that would have to be
     made to accompany the projected increase in lake visitation. 
     TVA also criticized the study for failing to properly recognize
     the multipurpose role of TVA's system of projects and the
     interdependencies among the purposes of the projects. 

  -- The study did not take into consideration that some of the
     increased visitation and estimated benefits might be transfers
     from other activities that visitors would otherwise have chosen. 

  -- In discussing options for local funding of TVA's increased
     electricity production costs, the study fails to recognize that
     some local residents would not benefit from lake drawdown
     delays.  According to TVA, the study fails to address the
     ability of the local population to compensate TVA for the
     increased electricity production costs. 

--------------------
\2 It should be noted that, according to TVA's 1990 cost impact
analysis, there does not appear to be significant navigation and
flood control impacts for Alternative 1D.  This alternative delays
the beginning of summer drawdown from Memorial Day to October 1\st
for Hiwassee, Blue Ridge, Nottely, and Chatuge Lakes, and to August
1\st for six other tributary lakes.  Because the study evaluates
impacts of drawdown delays from an August 1\st base, as opposed to a
Memorial Day base, the navigation and flood control implications, if
any, should be even less significant. 

   THE GEORGIA MOUNTAIN LAKES
   STUDY USES SIMPLISTIC ESTIMATES
   OF COSTS AND BENEFITS OF LAKE
   DRAWDOWN DELAYS
--------------------------------------------------------- Appendix V:3

The cost and benefits estimation methodology used in the Georgia
Mountain Lakes Study does not conform to recommended federal
guidelines for evaluation of major actions at federal water projects. 
The study's benefit estimates are simply measures of increased
expenditures, which are not acceptable measures of economic benefits
under federal guidelines.  In addition, the cost estimates used in
the study are based on very simple extrapolations from TVA's 1990
cost estimates. 

On the cost side, the study relied on TVA's 1990 estimates of the
systemwide cost of supplying electric power of Alternative 1D.  In
the 1990 study, Alternative 1D called for delaying drawdown at Blue
Ridge, Nottely, and Chatuge, as well as Hiwassee (not included in
this study) from Memorial Day to October 1, and for delaying drawdown
at six other multipurpose tributary projects from Memorial Day to
August 1.  TVA estimated that this alternative would increase its
annual systemwide cost of supplying electric power by $3 million in
1990 dollars.  The study then reduced this amount by $2 million
because TVA's 1990 estimate of delaying drawdown from Memorial Day to
August 1 (for all 10 tributary lakes) was estimated to cost $2
million annually.  The study's authors then prorated the remaining $1
million over the four lakes, assigning $250,000 to each.  Because the
Hiwassee project was not considered in the study, the cost of the
drawdown delay for the three remaining lakes was reported as
$750,000.  This cost calculation is over-simplistic because it
ignores changed conditions between 1990 and 1997, when the study was
conducted.  Furthermore, the $750,000 was not adjusted for inflation. 

The study's estimated benefits to the three counties also do not
conform with federal guidelines.  They are estimates of increased
expenditures in the three counties due to increased visitations by
lake users.  Not all expenditure increases, however, can legitimately
be counted as net economic benefits to the three counties.  The study
fails to translate the increased expenditure to net economic
benefits.  Similar to the Cherokee and Douglas Study, the Georgia
Mountain Lakes Study falls short of being a comprehensive study of
the costs and benefits of lake-level alternatives. 

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

RESOURCES, COMMUNITY AND ECONOMIC
DEVELOPMENT DIVISION

Phil Amon
Margie Armen
Philip Farah
John P.  Hunt, Jr.
Mehrzad Nadji

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