Tennessee Valley Authority — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; this is an annual filing, not a standalone fourth-quarter report. TVA is a federally created, self-funded public power system serving about 10 million people in seven southeastern states. It sells nearly all of its power through 153 local power companies (LPCs) and has no common equity.
Financial results and condition
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Operating revenue | $10.503 billion | $10.249 billion | +2.5% |
| Operating income | $2.845 billion | $2.711 billion | +4.9% |
| Net income | $1.512 billion | $1.352 billion | +11.8% |
| Operating margin (calculated) | 27.1% | 26.5% | Higher |
| Net margin (calculated) | 14.4% | 13.2% | Higher |
| Net cash from operations | $3.256 billion | $3.636 billion | Down $380 million |
| Cash and cash equivalents | $499 million | $500 million | Nearly unchanged |
| Power bonds outstanding | $19.4 billion | $20.1 billion | Down $0.7 billion |
Electricity sales were 157.353 billion kWh, up about 4% from FY2020. Fuel and purchased-power expenses rose to $2.721 billion combined, reflecting higher natural-gas and market power prices and increased demand. Operating and maintenance expense rose $170 million to $2.890 billion. Depreciation and amortization fell $293 million to $1.533 billion, largely because Paradise was fully depreciated and planned coal-plant retirements reduced depreciation.
Net investing cash outflow was $2.338 billion, including $1.963 billion of construction expenditures and $354 million for nuclear fuel. Net financing cash outflow was $921 million. Total assets were $52.456 billion, total liabilities $37.991 billion, and proprietary capital $14.465 billion. Current assets of $3.498 billion were below current liabilities of $4.979 billion; TVA relies on operating cash flows and debt-market access for liquidity. Its statutory bond ceiling is $30 billion. Four revolving facilities totaled about $2.65 billion, with $1.483 billion available after letters of credit; no cash borrowings were outstanding under them.
Material changes and notable items
- Revenue increased as sales recovered from the pandemic-related weakness in FY2020 and fuel-cost recovery rose. The 2021 Pandemic Relief Credit reduced revenue by $221 million.
- Operating expenses increased $120 million overall, as higher fuel, purchased power, and operating costs were partly offset by lower depreciation. Interest expense decreased $54 million to $1.088 billion, mainly from lower average debt.
- Operating cash flow declined $380 million, primarily due to higher fuel and purchased-power payments, increased demand, and higher asset-retirement settlements.
- TVA paid approximately $28 million following the Bellefonte sale litigation judgment. The court found TVA had not breached its obligations, but required return of the buyer’s down payment and related amounts.
- Coal-fired generation supplied 15% of total power supply, compared with 13% in FY2020; nuclear supplied 41%, versus 42%. Coal inventory fell to 21 days at full burn from 30 days, amid supply and transportation constraints.
Outlook, management commentary, and risks
- TVA expects capital expenditures of $3.189 billion in FY2022, including capacity expansion, environmental, nuclear-fuel, and transmission spending. Management says planned liquidity is adequate, while noting financing needs may rise with capital spending.
- Management expects the new depreciation study to increase FY2022 depreciation and amortization expense by about $369 million, primarily reflecting shorter assumed coal-plant service lives. TVA is evaluating retirement of the remaining coal fleet by 2035; individual retirements require environmental review and Board approval.
- In November 2021, the Board authorized evaluation of possible Cumberland and Kingston retirements and replacement generation, with a budget of up to $3.5 billion, subject to required reviews. This is a post-year-end development.
- TVA approved a 2.5% base-rate credit for FY2022, expected to reduce revenue by about $220 million, and a 1.5% credit for FY2023, expected at about $133 million. These credits support customers but weigh on revenue.
- Environmental expenditures are estimated at $789 million for the CCR program, $159 million for Clean Air Act projects, and $148 million for Clean Water Act requirements over the periods specified in the filing. Actual costs may change with regulatory requirements, remediation decisions, and project estimates.
- Key risks include environmental and coal-ash liabilities, nuclear operations and decommissioning, aging infrastructure and dam safety, fuel and supply-chain disruption, extreme weather, cybersecurity, pension funding, interest-rate and commodity volatility, and dependence on continued access to debt markets. TVA securities are not guaranteed by the U.S. government.
- COVID-19 had little estimated impact on FY2021 sales volume and did not materially disrupt power delivery, though TVA reported supplier delays and price fluctuations. Management cautions that future pandemic and economic effects remain uncertain.
Most important facts for investors to verify
- Confirm the revenue recovery and improved net income against the detailed statements, particularly the effects of fuel-cost recovery and pandemic bill credits.
- Track operating cash flow, cash reserves, capital spending, debt issuance, and remaining statutory borrowing capacity as investment needs rise.
- Assess the FY2022 depreciation increase and the timing, cost, and replacement plans for potential coal-plant retirements.
- Review CCR remediation estimates, groundwater findings, environmental rule changes, and the outcome of material litigation or regulatory proceedings.
- Monitor fuel availability and cost, including coal inventory and transportation constraints, and TVA’s exposure to large LPC customers and service-territory challenges.
The financial statements received an unqualified audit opinion from Ernst & Young LLP; the auditor also reported effective internal control over financial reporting as of September 30, 2021.