Tennessee Valley Authority — Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2023 (TVA fiscal year ends September 30). TVA is a federally created public power system serving approximately 10 million people. Its power program is self-supporting, with rates set by the TVA Board.
Financial performance
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 | Prior-year comparison |
|---|---|---|---|
| Operating revenue | $2.698 billion | $8.672 billion | Down 9.2% for the quarter; up 2.8% year to date |
| Operating income | $237 million | $981 million | Down $353 million and $469 million, respectively |
| Net income (loss) | $(58) million | $91 million | Prior year: $256 million profit and $476 million profit, respectively |
| Operating margin | 8.8% | 11.3% | Calculated as operating income divided by operating revenue; prior-year periods were 19.9% and 17.2% |
| Operating cash flow | Not separately presented for the quarter | $1.776 billion | Down $58 million from $1.834 billion |
Quarterly electricity-sales revenue was $2.664 billion, down from $2.932 billion. For the nine months, electricity-sales revenue rose to $8.551 billion from $8.318 billion, principally because higher fuel-cost recovery revenue more than offset lower sales volume. Electricity sales volume fell approximately 7% for the quarter and 4% year to date, largely reflecting milder weather.
Year-to-date operating expenses increased $704 million to $7.691 billion. Fuel and purchased-power expense rose a combined $308 million, while operating and maintenance expense increased $277 million, reflecting higher labor and benefit costs, New Nuclear Program spending, outages, and contract labor. Depreciation and amortization rose $96 million, including accelerated depreciation associated with planned coal-unit retirements.
Cash, debt, and liquidity
- At June 30, 2023, cash and cash equivalents were $500 million; cash, cash equivalents, and restricted cash totaled $520 million.
- Nine-month investing cash outflow was $2.233 billion, including $1.825 billion of construction expenditures and $267 million of nuclear-fuel expenditures. Financing provided $457 million; cash, cash equivalents, and restricted cash were unchanged from the start of the fiscal year.
- Total debt outstanding was $20.591 billion, compared with $20.034 billion at September 30, 2022. TVA issued $1.0 billion of power bonds in March 2023. Its next significant power-bond maturity is $1.0 billion in September 2024.
- TVA had $722 million of short-term debt on the balance sheet and $19.812 billion of long-term debt. Its statutory limit for outstanding Bonds is $30 billion; power bonds outstanding, before specified accounting adjustments, were $19.8 billion.
- Four revolving credit facilities totaled $2.650 billion, with $2.055 billion available after letters of credit. No cash borrowings were outstanding under them. A separate $150 million U.S. Treasury facility was also undrawn.
- Average blended interest rate on debt was 4.93% for the nine-month period, versus 4.96% in the prior year.
Changes, outlook, and risks
- Generation and investment: TVA documented plans to retire the two Cumberland coal units by the end of calendar 2026 and 2028. A 1,450 MW combined-cycle replacement for the first unit is expected by the end of 2026. TVA had spent $157 million on the project at June 30 and expects a further $1.4 billion through 2026. Colbert combustion turbine units became operational July 25, 2023.
- Winter Storm Elliott: The December 2022 storm caused generation outages, constrained power imports, and rolling outages after TVA directed load reductions. TVA deferred $149 million of fuel and purchased-power costs; it began recognizing those costs in expense in February 2023. TVA reports operational-resilience improvements and a review of response measures.
- Customer credits: TVA expected 2023 pandemic recovery credits to total approximately $230 million. Future credits are uncertain and depend on TVA’s performance.
- Environmental exposure: TVA estimates 2023–2027 spending of $231 million for specified existing Clean Air Act requirements, approximately $711 million for its CCR program, and approximately $48 million for Clean Water Act requirements. Proposed federal rules on greenhouse gases, coal ash, and wastewater could add material costs; impacts are not yet clear.
- Contingencies and litigation: Accrued probable legal losses were $28 million at June 30. Environmental groups’ NEPA challenges to the Johnsonville turbine project and Cumberland combined-cycle project remained unresolved; TVA said it could not predict the outcomes. TVA also noted potential additional coal-ash compliance or remediation costs.
- Funding and execution: TVA expects to use a combination of Bonds, power revenues, potential federal funding, third-party resources, and other financing to fund operations and planned capital investments. The filing identifies debt-limit constraints, interest rates, commodity prices, supply-chain delays, extreme weather, generation reliability, and regulatory changes as risks. Fitch placed the U.S. government and TVA ratings on Rating Watch Negative in May 2023; TVA reported senior unsecured ratings of Aaa, AAA, and AA+ from Moody’s, Fitch, and S&P, respectively.
- Other developments: TVA’s up-to-$88 million collaboration on a small modular reactor design had generated $24 million of expense through June 30; up to $13 million more was expected for the remainder of 2023. A solar-and-storage PPA was terminated after counterparty default. TVA said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating costs, particularly fuel, purchased power, labor, outages, and nuclear-program spending, continue to pressure earnings and margins.
- How electricity demand, weather, fuel-cost recovery, and customer credits affect future revenue and cash generation.
- Progress, total cost, timing, and regulatory status of the Cumberland replacement project and other capital plans.
- Available borrowing capacity relative to TVA’s statutory debt limit, upcoming maturities, and continued access to credit markets.
- Final requirements and financial effects of environmental rules, CCR obligations, and the pending NEPA litigation.
- Whether TVA’s reliability measures address the operational vulnerabilities exposed by Winter Storm Elliott.