Tennessee Valley Authority — FY2020 Form 10-K
Business context and reporting period. TVA is a federally created, self-funded public power system serving about 10 million people through 153 local power company customers (LPCs), as well as directly served industrial and federal customers. This annual report covers the fiscal year ended September 30, 2020. The filing also reports unaudited fourth-quarter results for July–September 2020; it is not a standalone quarterly filing.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenues | $10.249 billion | $11.318 billion |
| Operating income | $2.711 billion | $2.811 billion |
| Net income | $1.352 billion | $1.417 billion |
| Operating margin | 26.5% | 24.8% |
| Net margin | 13.2% | 12.5% |
| Net cash from operating activities | $3.636 billion | $3.720 billion |
| Net cash used in investing activities | $2.015 billion | $2.243 billion |
| Cash and cash equivalents at year-end | $500 million | $299 million |
| Total debt, as presented in selected financial data | $20.889 billion | $22.197 billion |
Electricity sales were 151.251 billion kWh, down about 5% year over year. Sales of electricity were $10.104 billion; total operating revenues also include $145 million of other revenue. LPCs generated approximately 92% of total operating revenues. Lower sales volume and fuel recovery revenue drove the revenue decline, while lower fuel, purchased-power, O&M, depreciation, and interest expenses partly offset it. Operating expenses fell 11.4%, faster than revenue, lifting reported operating and net margins.
FY2020 fourth-quarter revenue was $2.899 billion and net income was $700 million, compared with $3.239 billion and $588 million, respectively, in FY2019’s fourth quarter.
Material changes and financial position
- Revenue declined $1.069 billion (9.4%); electricity sales volume fell about 5%. TVA attributed roughly 60% of the sales-volume decline to milder weather and most of the remainder to COVID-19-related customer curtailments.
- COVID-19 reduced estimated base revenue by approximately $185 million in FY2020. Fuel and purchased-power expenses together decreased $439 million, reflecting lower demand and lower fuel prices.
- TVA reported $6.785 billion in asset retirement obligations, up $1.169 billion. Revisions to non-nuclear obligations, principally coal ash closure and post-closure estimates, accounted for most of the increase.
- Total assets were $52.825 billion and total liabilities were $39.893 billion at year-end. Current assets of $3.246 billion were below current liabilities of $4.711 billion.
- TVA had $20.1 billion of Bonds outstanding against its $30 billion statutory debt limit. Four revolving facilities totaled $2.65 billion; $1.457 billion was committed to letters of credit, leaving $1.193 billion available. A separate $150 million U.S. Treasury credit facility had no borrowings outstanding.
Outlook, management commentary, and significant risks
- TVA planned for FY2021 operating revenues of $10.0 billion and expected COVID-19 to continue affecting revenue in 2021; impacts beyond 2021 were uncertain. Cost controls included deferring or prioritizing capital projects and reducing discretionary spending.
- A $200 million Pandemic Relief Credit was approved for 2021, providing a 2.5% base-rate credit. TVA also offered up to $1 billion in LPC payment deferrals; $1 million had been approved as of November 16, 2020. Management said power delivery had not been materially disrupted by the pandemic.
- Planned capital expenditures were $2.594 billion for 2021, $2.781 billion for 2022, and $2.510 billion for 2023. Estimates are subject to changes in demand, regulation, project costs, and financing conditions.
- Environmental spending estimates through 2025 included $949 million for the coal combustion residuals conversion program, $156 million for Clean Air Act projects, and $190 million for Clean Water Act requirements. These estimates may change with regulatory developments and closure decisions.
- Other material exposures include a $5.716 billion underfunded qualified pension plan; potential cost increases or schedule delays on major infrastructure projects; nuclear operating, waste, and decommissioning obligations; fuel and counterparty risks; weather and water-supply risks; and cybersecurity and physical-security threats.
- TVA disclosed NRC violations and proposed civil penalties of less than $1 million in two matters; further responses or proceedings were pending. Litigation includes claims related to the Kingston ash spill, the Bellefonte plant sale, TVA rate changes, and long-term LPC agreements. TVA had accrued approximately $14 million for legal proceedings, but stated actual liabilities could exceed estimates.
- Paradise Unit 3 was retired in February 2020; Bull Run was scheduled for retirement by December 2023. TVA continued evaluating its generation mix, environmental compliance costs, and renewable procurement. One 150 MW solar PPA was terminated after counterparty default.
Most important facts for investors to verify
- Whether FY2021 revenue and demand track TVA’s $10.0 billion planning assumption, and how much of the decline reflects weather versus continuing pandemic effects.
- Whether the $200 million relief credit, LPC payment deferrals, and long-term partnership credits affect revenue, cash collections, and future rates as expected.
- Progress and revised cost estimates for coal ash closures, the $6.785 billion asset retirement obligations, and the pension funding shortfall.
- TVA’s debt issuance and refinancing needs, remaining capacity under the $30 billion statutory limit, and liquidity available after letters of credit.
- Developments in the NRC matters and material litigation, including the potential financial or operational effect of outcomes not covered by current accruals.
- Execution of planned capital projects and environmental upgrades, and whether regulatory changes or generation retirements materially alter their cost or timing.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of September 30, 2020.