Five Year Capacity Action Plan

1. TVA Restricted Information – Deliberative and Pre-Decisional Privileged Five Year Capacity Action Plan v12 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

2. Interim Project Decisions • Project decisions made before TVA’s IRP update is complete will be accounted for in the IRP final product • These incremental decisions will define a path or maintain flexibility that is critical due to future requirements or uncertainty • Interim project recommendations will be based on: • Existing IRP (circa 1995) • TVA Strategic Plan • TVA Environmental Policy • TVA’s directional Vision framework • Sound financial principles • All actions will be consistent with the Board’s strategic direction to reduce the environmental footprint of the TVA system TVA Restricted Information – Deliberative and Pre-Decisional Attorney-Client Privileged and Confidential

3. Decisions Needed • Near Term Project Decisions – required before IRP is finalized: • Definitive: “do” or “not do” - result is a formal decision and path forward • Positioning: buys time, maintains flexibility, and/or captures economic opportunities – consistent with TVA’s mission to provide reliable, low-cost power • In many situations, not considering the issue in a timely fashion may result in a decision evolving by default – no decision becomes a decision TVA Restricted Information – Deliberative and Pre-Decisional Attorney-Client Privileged and Confidential

4. Actions and Drivers TVA Restricted Information – Deliberative and Pre-Decisional Attorney-Client Privileged and Confidential 4

5. Objectives • Identify near term market-related actions over the next 18-24 months to help fill the capacity gap over the next 5 years • Make incremental decisions to maintain flexibility due to future requirements or uncertainty • Identify potential constraints or other issues prior to execution TVA Restricted Information – Deliberative and Pre-Decisional Privileged

6. Current Situation/Assumptions • USEC drops to 1,650 MW after 2015 • Hemlock adds 150MW in FY13; Wacker adds 130MW in FY12 Load Forecast Recession bottoms out Q1 FY10, full recovery in FY11 Peak grows at 2% for 5 years from 32k MW to 35k MW Energy grows at 2.3% for 5 years from 164k GWh to 184k GWh Power Supply Plan (Cleaner & Greener w/o CC acquisition) Supply Assumptions (Board approved projects): 2010: Repower Lagoon Creek CC (560 MW) 2012: John Sevier CC online (860 MW) 2013: Watts Bar 2 Nuclear online (1,150 MW) Mothball/Retire/Repower Assumptions: 2012: JSF 1-4 (700 MW) 2014: WCF 1-6 (640 MW) 2015: COF 5 (440 MW) 2022: JOF 1-10 (1,100 MW) Likely to move to 2015/2016 timeframe Other supply (Renewables/EE&DR): ~1,300 MW Renewables contracted by 2012 (12% count towards capacity) EE&DR target of ~500 MW by 2012; ~900 MW by 2015 • PPA’s/Acquisitions: • 3,300 MW under contract in 2010 • Red Hills (exp. 2031) • Caledonia (exp. 2021) • DEC (exp. 2012) • 1,200 MW under contract in 2015 (Red Hills & Caledonia) • Transmission assumptions: • Upgrade required to support WCF capacity loss by 2014 • Other critical assumptions: • Natural Gas prices ~$5-$9/mmbtu through 2014 • RES standards 3% in 2012 (similar to Bingaman) • CO2 prices $15/ton beginning in 2013 • MEC (exp. 2011) • Suez (exp. 2012) • Union Power (exp. 2010) TVA Restricted Information – Deliberative and Pre-Decisional Privileged

7. Capacity Gap Capacity Gap based on Cleaner & Greener Type of Approach (MW) Lagoon Creek CC John Sevier CC WBN2 & BFN1 EPU JSF 1-4 retire WCF 1-6 retire COF 5 retire 7 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

8. Key Factors Affecting Gap • Faster economic recovery • Schedule delays around approved projects • Retirement/mothball decisions • EE&DR programs build up slower than anticipated • Renewal potential of existing PPAs TVA Restricted Information – Deliberative and Pre-Decisional Privileged

9. Commercial Landscape Summary • What we know… • The stock market is eager for recovery • Price levels for capacity agreements and capacity acquisitions significantly below new build price levels with eagerness to transact • What we do not know… • Economic and financial recovery, or if they will recover at all • The rate Timing of RPS and Carbon rules • Impact of intermittent resources on reliability standards • The weather • The level of permanent demand destruction • The degree and/or longevity of gas-coal-oil correlation (or lack thereof) • Assumed outcome • TVA anticipates a gradual recovery in capacity prices over the next two years as commodity prices recover, load growth returns, and utilities continue with plans to retire coal units. Capacity price recovery will be difficult to predict and will push prices rapidly to new build costs • What are the implications? • Given a slow economic recovery, capacity prices expected to rise slowly over next 12-24 months with improvements in energy value; with little merchant activity outside renewable arena, recovery to new build price levels will occur rapidly with little notice 9 9 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

10. Key Market Alternatives Primary Business Drivers • Cash Flow • Market Conditions • Supply/Demand Fundamentals • Transmission Network Impacts • Generation Portfolio Flexibility • Risk • Cost • Fuel • Timing • Capital The current five year outlook projects a deficit of more than 2000 MWs in 2013 and there are approximately 4500 MW’s of capacity which fits our portfolio that has been actively shopped by project company principals and various brokers. 10 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

11. Decision Criteria • Consistent with Clean and Green Vision • Meets timing needs • Economic against alternatives • Acquisitions < $600/kw • PPA tolling deals < $6/kw-mo TVA Restricted Information – Deliberative and Pre-Decisional Privileged

12. Recommendations Narrow the options What deals do we want to do now (within next 6 – 9 months) to start when? What deals do we want to continue to position, but not strike? Do we want to buy, lease, or rent combined cycle machines going forward? What construction plans (cc and other) do we want to consider locked and loaded? What do we not want to consider – machines or deals – so we can quit talking to them? 12 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

13. Appendix 13 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

14. Current Market Assessment • Overall, the regional economy appears to have turned a corner, although returning growth is slow. As regional industrial production has improved month-to-month, the Philadelphia Fed index of economic activity is showing the region as becoming less negative. This compares with the index for the U.S. which has just flattened. • In terms of population weighted Cooling Degree Days (CDD’s), the nation had its coolest summer in more than five years. As a result, gas fired power generation was down this summer. Additionally, a more “wet” year has begun to return hydro levels to normal. • In 2008 and the beginning of 2009, natural gas production rose 2-4 Bcf per day thanks mostly to shale development. However, in response to lower prices, the natural gas rig count fell from 1,600 to 665. Since reaching the 665 rig count low, rigs counts have recovered to just over 700. Decreased drilling activity has led to flatter production levels and production should fall by the end of the year. • As anticipated, LNG imports increased this spring due to lower global demand and increased LNG production. However, over the summer the amount of LNG entering the US leveled off and has yet to meet expectations. More LNG may be on its way as additional LNG production projects are completed and international LNG tank storage levels become full. • In the past year, the contraction of the economy reduced demand and freed up gas for storage. This coupled with a mild summer and lower gas prices produced record storage levels. • Since early September, injection amounts have been smaller than what would have been expected given the mild weather. This indicates that either production is leaving the market or that injections are being reduced by the lack of available storage. • Since hitting a low of $1.85 on 09/05/09, Henry Hub spot natural gas prices have rebounded to just below $5. The market has responded to lower than expected injections along with some extra buying activity from traders covering their short positions. • It is worth noting that in the decline from $8 to under $3, there were several sharp rallies that ultimately failed to turn around the market. The current environment has provided the impetus for increased storage injections resulting in record high inventory levels and the low natural gas prices have forced some producers to begin curtailing their drilling activity. Source: Gelber & Associates and TVA 14 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

15. Primary Drivers – Capacity (5-year View) - Upward pressure - Downward pressure - Neutral 15 15 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

16. Annual Expansion Summary • New CT every 3 years • New CC every 3 years • New Nuclear every 5 years CT – 220MW 725 MW CC – 285MW Nuclear – 220MW 16 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

17. 5-Year System Capacity (Cleaner & Greener MW) GAP Total Requirement (Based on Summer Peak) Total Firm Supply 17 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

18. 5-Year System Capacity (Cleaner & Greener MW) GAP Total Requirement (Based on Summer Peak) Total Firm Supply 18 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

19. Capacity Expansion Cleaner & Greener Capacity Expansion Units Draft Capacity Expansion MW Draft • Cost of Alternatives: • CT Costs ~$700/kW • CC Costs ~$1,100/kW • Acquisition range $600-$700/kW • ST PPA’s ~$5-$8/kW-mo • EE&DR ~$200/kW from 2010-2017 19 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

20. 5-Year Capacity Gap Expansion PlanCleaner & Greener (374) Cleaner & Greener Expansion Plan Supports 560MW Fleet Capacity Reduction Supports 640MW Fleet Capacity Reduction Supports 700MW Fleet Capacity Reduction * * Renewables = ~1,200 MW gross 20 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

21. Net Portfolio Position & Risk Capacity Capacity gap growing to over 5,500 MW by 2015 Opportunity to meet gap with acquisitions, purchases and EE&DR, along with adding equivalent of four CT’s by 2015 Risk Counted - projects not yet built/bought 21 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

22. Commercial Landscape/Opportunity Commodity/Market Opportunities Rent, Lease, Buy 7 States Acquisitions EE & DR Renewables 22 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

23. Review Supply Side Decisions/ Alternatives • Q3 FY10 – SHF 1-9 SCR • Q1 FY11 – ALF Scrubbers • Q1 FY11 – COF 1-4 Scrubbers • Q3 FY11 – COF 5 Scrubber/Retirement • Q3 FY11 – GAF Scrubbers, Baghouses, • and SCRS • Clean Air /Retirement Decisions • Q2 FY10 – WC1-6 Retirement • Q2 FY10 – JOF retirement • Q2 FY10 – JSF 1-2 Retirement • Q2 FY10 – JSF 3-4 Controls/Retirement • Q3 FY10 – COF 1-4 SCR • Construction Assets • Q2 FY10 – New nuclear Bellefonte decision (isd : 2018) • _______ - East Mississippi CT plant (isd: 2014) • _______ - Rorex Creek Pumped Hydro (isd: 2022) • _______ - Gleason CT refurbishment (isd: 2013/2014) 23 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

24. Review Commercial Alternatives • Potential Asset Purchase • _____ - Magnolia 922 MW ($580 M) • _____ - Decatur Energy Center (DEC) 720 MW ($450 M) • Or other competitive acquisitions • PPA Renewals / Lease/ New Contracts • ____ - Magnolia 20 year tolling agreement (1/10-12/29) 922 MW • ____ - DEC 15 year tolling extension (9/12-8/27) 720 MW • ____ - Suez 650 MW 8 year tolling extension (1/13 -12/20) 650MW • Additional Renewable Purchases • Deal 1 ___MW ($___M) • Deal 2 ___MW ($___M) • Deal 3 ___MW ($___M)And/or other competitive deals 24 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

25. Other Decisions • Additional Renewable Purchases • _____ - approval for levels >2000 Mw or > $0 REC cost over competitive pricing • Expanded Level of Support for EE&DR • ______ - EnerNoc contract extension • ______ - funding for additional energy efficiency programs 25 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

26. Decision Criteria Strategic Transition Timing Network location needs NPV of projects/alternatives Alignment with TVA Vision 26 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

27. Price Forecast – Henry Hub ($/mmBtu) • TVA anticipates a gradual increase in natural gas prices over the next two years (seasonally adjusted), driven primarily by a slow economic recovery, lack-luster supply initiatives, a return to “normal” weather patterns, and substantial regulatory uncertainty. 27 TVA Restricted Information – Deliberative and Pre-Decisional Privileged

28. Price History & Forecast – Henry Hub ($/mmBtu) History Forecast • TVA anticipates a gradual increase in natural gas prices over the next two years (seasonally adjusted), driven primarily by a slow economic recovery, lack-luster supply initiatives, a return to “normal” weather patterns, and substantial regulatory uncertainty. 28 TVA Restricted Information – Deliberative and Pre-Decisional Privileged