Tennessee Valley Authority — FY2022 Second-Quarter Form 10-Q
Business context and reporting period. TVA is a U.S. government-created corporate agency operating a public power system serving about 10 million people. This unaudited filing covers the quarter and six months ended March 31, 2022, in TVA’s fiscal year ending September 30. Unless otherwise noted, financial amounts are in millions of dollars.
Financial performance and position
| Metric | Three months ended March 31, 2022 | Six months ended March 31, 2022 | Prior-year comparable |
|---|---|---|---|
| Operating revenue | $2,884 | $5,467 | $2,572 / $4,876 |
| Operating income | $535 | $860 | $785 / $1,300 |
| Net income | $209 | $220 | $456 / $640 |
| Operating margin | 18.6% | 15.7% | 30.5% / 26.7% |
| Net margin | 7.2% | 4.0% | 17.7% / 13.1% |
- Revenue and volume: Six-month revenue rose 12.1%; electricity sales volume increased about 2% to 77,935 million kWh. Fuel-cost recovery revenue increased $544 million, mainly reflecting higher natural gas and coal prices, with economic growth also contributing to higher sales.
- Costs and profitability: Six-month operating expenses rose 28.8% to $4,607 million. Fuel and purchased-power costs increased by a combined $554 million; depreciation and amortization rose $263 million; and operations and maintenance increased $188 million. Operating income fell 33.8% and net income fell 65.6% year over year.
- Cash flow: Six-month operating cash flow was $1,459 million, versus $1,570 million. Investing cash outflow was $1,290 million, versus $1,092 million, including $1,140 million of construction expenditures. Financing cash outflow was $166 million, versus $480 million. Cash, cash equivalents, and restricted cash totaled $521 million at period-end.
- Debt and liquidity: Total debt outstanding was $20,188 million, down from $20,314 million at September 30, 2021. TVA had $684 million of short-term debt and $18,432 million of long-term debt. Of roughly $2.65 billion in revolving credit facilities, $1.633 billion was available; no facility borrowings were outstanding. A separate $150 million U.S. Treasury facility was unused. TVA’s next significant power-bond maturity was $1.0 billion in August 2022. The TVA Act limits outstanding bonds to $30 billion; power bonds outstanding were $19.3 billion. TVA bonds are not obligations or guaranteed debt of the U.S.
- Balance sheet: Total assets were $52,156 million and proprietary capital was $14,689 million. Regulatory assets totaled $7,705 million. These include deferred costs TVA considers probable of recovery through future customer rates.
Material changes and unusual items
- The new depreciation study, effective October 1, 2021, shortened estimated service lives for coal plants based on planning assumptions that the remaining coal fleet could retire by 2035. It added an estimated $197 million to six-month depreciation and amortization compared with the prior year. Bull Run remains approved for retirement by December 2023; broader coal-retirement plans remain under evaluation.
- Revisions to non-nuclear asset retirement estimates increased the ARO by $204 million during the six months, including higher estimates for coal-fines closure and changed timing assumptions. Total AROs were $7,195 million at March 31.
- TVA reinstated its Financial Hedging Program in December 2021; natural-gas hedging began in the second quarter. At March 31, related contracts had $52 million of fair-value gains, deferred under regulatory accounting.
- TVA’s $4.2 billion of investment funds declined in market value during the quarter; most NDT and ART investment gains or losses are reflected through regulatory assets or liabilities rather than current earnings.
Outlook, management commentary, and risks
- TVA said economic growth and migration into the Valley supported load growth. Management reported more than $7.3 billion in announced business investment and over 40,900 jobs created or retained through the second quarter. The filing does not provide formal earnings guidance.
- TVA expects the 2022 Pandemic Recovery Credit to total about $220 million and has approved a similar 1.5% rate credit for 2023, estimated at $133 million. Management’s strategic financial plan emphasizes flat rates, stabilizing debt, and continued investment in the power system.
- Management cited higher fuel and purchased-power prices, constrained coal supply and rail transport, inflation, global supply-chain disruption, and generation outages as operating pressures. Solar supply-chain constraints may delay projects and raise costs.
- Planned environmental expenditures through 2026 include $651 million for the coal-combustion-residuals program, $148 million for Clean Air Act projects, and $140 million for Clean Water Act requirements. Estimates may change; costs after 2026 and certain groundwater remedies are not yet predictable.
- Major investment plans include up to $3.5 billion for potential Cumberland and Kingston replacement projects, subject to environmental review and final decisions; gas turbine projects; and other grid, nuclear, and renewable initiatives. The Watts Bar Unit 2 steam-generator replacement was expected to return the unit to service by summer 2022.
- Legal proceedings include challenges involving long-term power agreements, transmission access, environmental permits, and the Kingston ash-spill cleanup. TVA accrued $12 million for legal proceedings and said it could face additional claims; it did not expect potential liability from the contractor-worker CCR litigation to materially affect results or financial condition.
- Other risks include evolving environmental rules, nuclear and dam safety, cyber and physical security, weather, counterparty and supplier performance, and potential limits on borrowing capacity. TVA reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether fuel and purchased-power cost increases continue to be recovered through rates, and how commodity prices affect margins and cash flows.
- The timing, final cost, and earnings impact of coal retirements, revised depreciation lives, and ARO estimates.
- Progress and cost updates for environmental compliance, CCR closures, and any groundwater remedies not yet estimable.
- Upcoming debt maturities, borrowing capacity under the statutory bond limit, and continued access to credit facilities.
- Developments in material litigation and environmental permitting, as well as coal, rail, and broader supply-chain constraints.