Tennessee Valley Authority — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022; comparisons are with the three months ended December 31, 2021, unless otherwise noted. TVA is a federally created public power system serving approximately 10 million people. Financial figures are in millions of dollars unless indicated otherwise.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Operating revenue | $3,015 | $2,583 | +16.7% |
| Operating expenses | $2,617 | $2,258 | +15.9% |
| Operating income | $398 | $325 | +22.5% |
| Net income | $101 | $11 | +$90 |
| Operating cash flow | $439 | $493 | -$54 |
| Investing cash flow | -$876 | -$734 | -$142 |
| Financing cash flow | $437 | $249 | +$188 |
- Electricity sales revenue was $2,963, up $425, while other revenue was $52. Sales volume rose about 3% to 38,006 million kWh.
- Fuel cost recovery revenue increased $280, mainly reflecting higher fuel rates and purchased-power market prices. Base revenue increased $142, largely from higher sales volume.
- Fuel expense rose $149 and purchased-power expense rose $122. Operating and maintenance expense increased $47, including higher New Nuclear Program, payroll, and benefit costs.
- Operating margin was approximately 13.2% versus 12.6% in the prior-year quarter; net margin was approximately 3.3% versus 0.4%.
- At December 31, cash and cash equivalents were $500; including restricted cash, cash totaled $520. Total assets were $51,310 and total liabilities were $35,668.
- Total debt outstanding was $20,519, compared with $20,034 at September 30, 2022. Short-term debt was $1,618 on the balance sheet. The average blended interest rate was 4.99%, versus 4.92% a year earlier.
- TVA had $2,064 of availability under revolving credit facilities totaling $2,650, after $586 of letters of credit; there were no cash borrowings under those facilities. A separate $150 Treasury facility had no outstanding borrowings and is described as a secondary liquidity source.
Material changes and notable events
- Winter Storm Elliott drove record demand: peak winter demand reached 33,427 MW and single-day energy demand exceeded 740 million kWh. Generation problems and constrained regional power purchases led to load-reduction directives and rolling outages for some customers.
- TVA deferred approximately $149 of storm-related fuel and purchased-power costs through its fuel cost adjustment; these costs are expected to be expensed in a future period. Management said it is reviewing its preparation and response.
- Operating cash flow declined despite higher revenue, reflecting higher fuel and purchased-power payments, increased fuel inventory and collateral, asset-retirement settlements, and New Nuclear Program spending.
- TVA paid $78 to acquire one combustion-turbine leasehold interest and expects the other acquisition to close in May 2023.
- In January 2023, TVA decided to retire Cumberland’s two coal units by the end of calendar 2026 and 2028. A 1,450 MW combined-cycle plant is planned to replace part of the first unit’s generation, with operation expected by the end of 2026. Bull Run’s retirement remains planned by December 2023.
Outlook, risks, and contingencies
- The filing provides no specific consolidated revenue or earnings guidance. TVA expects its 2023 Pandemic Recovery Credit to approximate $230; future credits depend on TVA’s performance. The credit reduced revenue by $53 in the quarter.
- TVA expects to contribute the remaining $225 of its $300 minimum required pension contribution by September 30, 2023. It recorded $16 of research and development expense under a new collaborative arrangement and expects up to an additional $21 in the remainder of 2023.
- Management estimates environmental compliance spending for 2023–2027 of $284 for Clean Air Act requirements, approximately $835 for the CCR program, and approximately $96 for Clean Water Act requirements. Actual costs may differ, and some potential costs cannot currently be estimated.
- Key risks include generation reliability and extreme weather, fuel and purchased-power price volatility, supply-chain and project delays, environmental and permitting requirements, aging assets, nuclear and coal-ash liabilities, and access to borrowing capacity under TVA’s $30 billion statutory debt limit. TVA said it expects adequate capacity for operational liquidity and planned capital investments over the next decade.
- A lawsuit challenges TVA’s NEPA review for the Johnsonville combustion-turbine project and seeks, among other relief, to halt further construction and operation pending an environmental impact statement; TVA cannot predict the outcome. TVA reported $11 accrued for legal proceedings and said no material changes occurred in other previously reported proceedings.
- As of January 30, 2023, TVA estimated that interest-rate-swap liabilities and related regulatory assets would increase approximately $90, and FHP commodity-derivative liabilities and related regulatory assets approximately $175, from December 31 levels. These estimated fair-value changes are not, by themselves, equivalent to current-period cash costs.
Important facts for investors to verify
- How much of the $149 storm-cost deferral will be recovered through future fuel adjustments, and over what period.
- Whether TVA’s post-storm review leads to material reliability investments, operating changes, or further costs.
- Updated schedules and costs for Cumberland replacement generation, coal retirements, the New Nuclear Program, and delayed solar PPAs.
- Environmental compliance and CCR remediation cost estimates, including whether investigations or final remedies change expected spending.
- Debt levels, interest costs, short-term borrowing needs, and remaining capacity under the statutory debt limit and credit facilities.
- Developments in the Johnsonville litigation and any other proceedings or contingencies that could materially affect TVA.