Tennessee Valley Authority — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021; filed May 3, 2021. TVA is a U.S. government corporate agency operating a large public power system and related river-management programs. Financial figures below are in millions unless noted.
Financial performance and position
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Operating revenue | 2021: $2,572; 2020: $2,521 | 2021: $4,876; 2020: $5,099 |
| Operating income | 2021: $785; 2020: $607 | 2021: $1,300; 2020: $1,139 |
| Net income | 2021: $456; 2020: $255 | 2021: $640; 2020: $447 |
| Operating margin | Approximately 30.5% in 2021 versus 24.1% in 2020 | Approximately 26.7% in 2021 versus 22.3% in 2020 |
- Revenue drivers: Six-month operating revenue fell 4.4%, primarily because of lower effective rates, lower fuel-cost recovery, and $104 million of Pandemic Relief Credits. Second-quarter revenue rose 2.0%, reflecting higher sales volume and demand, partly offset by credits and lower fuel-cost recovery.
- Expenses: Six-month operating expenses declined 9.7% to $3,576. Depreciation and amortization fell $282 million, mainly because accelerated depreciation for Paradise and Bull Run retirements was lower than in the prior-year period. Fuel and purchased-power expenses together decreased $110 million.
- Electricity sales: Sales were 76,431 million kWh for the six months, up 3% year over year; second-quarter sales rose 6%. Weather and the timing of industrial maintenance outages contributed to the increases.
- Cash flow: Six-month operating cash flow was $1,570, down from $1,870. Investing cash outflow was $1,092 versus $1,010, including higher capacity-expansion spending. Financing cash outflow was $480 versus $324. Cash, cash equivalents, and restricted cash ended the period at $519.
- Debt and liquidity: Total debt outstanding was $20,610 at March 31, compared with $20,889 at September 30, 2020. Short-term debt rose to $1,241 from $57, partly as TVA funded a portion of bonds maturing in February. TVA had $1,497 available under revolving facilities, no borrowings under those facilities, and a separate $150 Treasury credit facility with no outstanding borrowing. Bonds outstanding for purposes of the statutory limit were $19.8 billion against a $30 billion ceiling.
- Balance sheet: Total assets were $52,482 and total liabilities were $38,843. Investment funds were $3,723, including nuclear and asset-retirement trust assets.
Material changes and management commentary
- Six-month net income increased 43.2%, despite lower revenue, as lower operating costs—particularly depreciation—more than offset the revenue decline. Operating income rose 14.1%.
- The 2.5% monthly Pandemic Relief Credit began in October 2020 and was expected to total approximately $200 million in 2021. TVA had provided $104 million through March 31.
- TVA reported 99.999% reliability and stated that COVID-19 had not materially affected power operations or delivery to customers. Management said the pandemic’s effects on future revenue remained uncertain and maintained a higher cash target amid market volatility.
- TVA expects adequate capacity to meet operating liquidity needs and planned capital investment over the next decade. No formal earnings guidance was provided in the supplied filing text.
- Capital and environmental commitments include an estimated $860 million of additional CCR conversion spending through 2025; $144 million for existing Clean Air Act projects and $160 million for Clean Water Act requirements from 2021–2025. Estimates may change with regulations, closure methods, or remediation findings.
- TVA continued plans for gas capacity additions, renewable power purchases, and system investments. A Watts Bar Unit 2 steam-generator issue restricted the unit to 90% output pending assessment and inspection; permanent replacement was projected for March 2022.
Risks, contingencies, and unusual items
- Environmental and asset-retirement exposure: Asset retirement obligations totaled $6,918, up $133 million since September 30, 2020. Revised estimates for coal ash closure liabilities contributed to the increase. CCR groundwater monitoring found some constituents above protection standards at certain units; final remedies and related costs were not yet determined.
- Legal matters: TVA accrued $14 million for probable legal losses and estimated reasonably possible additional losses of up to $30 million. Material proceedings include Kingston ash-related claims, a Bellefonte nuclear-plant sale dispute, an appeal concerning TVA rate changes, and a FERC petition by four local power companies seeking transmission and interconnection service.
- Customer and contract concentration: Local power companies accounted for about 91% of electricity-sales revenue in the six-month period. Two largest customers each represented 8% of operating revenue. Some customers are evaluating alternative energy choices.
- Other risks: TVA highlighted COVID-19, changing environmental and climate rules, fuel and purchased-power prices and availability, nuclear and dam safety, cybersecurity, severe weather, and the statutory debt limit. Derivative liabilities totaled $1.6 billion, with approximately $1.1 billion of collateral obligations supported by about $1.2 billion of letters of credit.
- Unusual accounting/operating items: TVA adopted the expected-credit-loss standard, recording a $4 million transition adjustment to retained earnings; management said adoption was not material. TVA also revised performance targets after Watts Bar Unit 2 degradation and Browns Ferry aquatic-vegetation impacts.
Important facts for investors to verify
- Whether revenue, operating cash flow, and customer demand recover after the Pandemic Relief Credit and other rate credits.
- Actual timing and costs of CCR closures, groundwater remediation, and other environmental compliance obligations.
- Progress and cost control for gas capacity, renewable procurement, and other capital projects, including Watts Bar Unit 2 repairs.
- Outcomes of the FERC transmission petition and material litigation, including the Bellefonte and Kingston matters.
- Liquidity and borrowing capacity relative to the $30 billion statutory bond limit, including the use of short-term debt and credit facilities.
- Whether the reported high reliability and limited COVID-19 operating impact persist, and whether pandemic or supplier disruptions affect future results.