Tennessee Valley Authority — FY2019 Form 10-K
Business context and reporting period
TVA is a U.S. government-owned corporate agency operating a large public power system and managing the Tennessee River system. It primarily sells wholesale electricity to local power companies (LPCs), serving nearly 10 million people. The filing covers the fiscal year ended September 30, 2019; it is an annual report, not a standalone fourth-quarter filing. TVA has no equity securities, and its debt is not guaranteed by the U.S. government.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Operating revenues | $11.318 billion | $11.233 billion |
| Operating income | $2.811 billion | $2.568 billion |
| Net income | $1.417 billion | $1.119 billion |
| Operating cash flow | $3.720 billion | $3.938 billion |
| Total debt, net | $22.197 billion | $23.639 billion |
- Calculated operating margin was approximately 24.8% (22.9% in FY2018); net margin was approximately 12.5% (10.0%).
- Electricity sales revenue was $11.159 billion; energy sales volume declined about 1% year over year. Higher base rates more than offset lower sales volume, while fuel recovery revenue declined.
- Fuel expense fell $153 million, while operating and maintenance expense rose $492 million. FY2019 results included $566 million of accelerated depreciation and $170 million of write-offs and inventory reserves related to planned coal-plant retirements. O&M also included $266 million of accelerated recovery of Kingston ash-spill cleanup costs.
- Operating cash flow declined $218 million, mainly due to payment timing and higher cash use for fuel inventory and outages. Investing cash outflow was $2.243 billion; financing cash outflow was $1.477 billion, including net debt redemptions.
- At September 30, 2019, cash and cash equivalents were $299 million ($322 million including restricted cash); current assets were $3.278 billion and current liabilities $4.312 billion. Revolving credit facilities totaled $2.65 billion, with $1.308 billion available after letters of credit.
- TVA’s statutory bond ceiling is $30 billion. Bonds outstanding were approximately $21.4 billion; total debt including VIE debt and short-term borrowing was $22.197 billion. The filing says TVA expects adequate funding capacity for planned operations and investment.
Material changes versus prior comparable periods
- Net income increased 27% and operating income 9% year over year; revenues rose less than 1%. These comparisons reflect different unusual regulatory amortization and plant-retirement charges across years, not solely underlying operating changes.
- FY2018 included $857 million of accelerated amortization of certain regulatory assets; FY2019 included $266 million of accelerated Kingston cleanup recovery. FY2019 also recognized the coal-retirement depreciation and write-offs noted above.
- Debt declined about $1.4 billion. TVA issued no power bonds in FY2019 and redeemed $1.1 billion; short-term debt at year-end also declined.
- Nuclear generation supplied 39% of total power supply in both years; coal’s share declined from 19% to 17%, while hydro increased from 9% to 10% and renewable purchased power rose from 4% to 5%.
- Fourth-quarter FY2019 results were revenue of $3.239 billion, operating income of $938 million, and net income of $588 million, versus $3.185 billion, $440 million, and a $101 million net loss, respectively, in fourth-quarter FY2018.
Outlook, management commentary, risks and unusual items
- TVA provided no specific earnings or revenue guidance. Planned capital expenditures were $2.362 billion for FY2020, $2.733 billion for FY2021, and $2.903 billion for FY2022; these are estimates subject to change.
- The 2019 Integrated Resource Plan anticipates solar expansion across scenarios, with gas, storage, and demand response supporting reliability and flexibility. It identifies new capacity needs but no new baseload additions in the scenarios; some scenarios include further coal retirements.
- The Board approved retirement of Paradise Unit 3 by December 2020 and Bull Run by December 2023. TVA subsequently determined Paradise would not restart after January 2020 because of its condition.
- TVA signed four solar power purchase agreements totaling 674 MW, expected to begin delivery in 2021. It also approved a 20-year LPC partnership option; 131 LPCs had signed, representing 56% of FY2019 operating revenues.
- Environmental compliance and coal ash closure are major cost uncertainties. TVA estimated $1.2 billion of additional CCR conversion spending through 2024; estimated Clean Water Act expenditures were $278 million through 2024. Costs and schedules may change with regulatory decisions, closure methods, and litigation.
- Recorded asset retirement obligations totaled $5.616 billion, including $3.136 billion nuclear and $2.480 billion non-nuclear. The qualified pension plan had $7.980 billion in assets against a $13.312 billion benefit obligation; TVA expects to contribute at least $300 million annually through 2036 or until specified funding conditions are met.
- Other significant exposures include nuclear operating and decommissioning risk, dam safety projects, weather and water availability, fuel and power-market prices, cyber and physical security, customer concentration, and the $30 billion statutory debt limit. TVA reported $14 million accrued for legal proceedings; actual outcomes could exceed reserves.
- Auditors issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported effective controls at year-end.
Important facts for investors to verify
- Reconcile reported earnings growth with regulatory-asset amortization, Kingston cleanup recovery, Paradise and Bull Run retirement charges, and other nonrecurring items.
- Review cash generation against planned capital spending, required pension contributions, debt maturities, and remaining borrowing capacity under the statutory debt ceiling.
- Track actual CCR closure, groundwater remediation, environmental compliance costs, and the impact of changing federal and state rules or litigation.
- Assess the pension funding gap, assumptions for discount rates and investment returns, and the adequacy of nuclear and non-nuclear decommissioning funding.
- Monitor Paradise and Bull Run retirement execution, solar procurement and integration, LPC contract commitments, and demand and weather trends.