Tennessee Valley Authority — Form 10-Q Summary
Business context and reporting period
TVA is a federally created, self-supporting public power provider serving more than nine million people, alongside river-management and stewardship responsibilities. This unaudited filing covers the fiscal quarter and six months ended March 31, 2018; TVA’s fiscal year ends September 30. Amounts below are in millions of dollars unless stated otherwise.
Financial results and position
| Metric | Three months ended March 31, 2018 | Three months ended March 31, 2017 | Six months ended March 31, 2018 | Six months ended March 31, 2017 |
|---|---|---|---|---|
| Operating revenue | $2,792 | $2,547 | $5,341 | $5,093 |
| Operating income | $765 | $534 | $1,363 | $963 |
| Net income | $462 | $211 | $750 | $313 |
| Interest expense | $314 | $338 | $636 | $677 |
- Operating margin was approximately 27.4% for the quarter and 25.5% for the six-month period, versus 21.0% and 18.9%, respectively, a year earlier.
- Quarterly revenue rose 9.6% and six-month revenue rose 4.9%. Electricity sales volume increased about 9% and 6%, respectively. Base revenue increased, while six-month fuel-cost recovery revenue declined.
- Six-month operating cash flow was $1,842, compared with $1,516 in 2017. Investing cash outflow was $1,141, versus $1,302; financing provided $192, compared with $214 used in the prior-year period. Cash and cash equivalents ended March at $1,193, up from $300 at September 30, 2017.
- At March 31, total assets were $50,507 and total liabilities were $40,575. Total debt outstanding was $25,546, including $4,112 of current debt. Cash was $1,193; current liabilities of $6,475 exceeded current assets of $4,143.
- TVA had $1,729 available under its $2.65 billion revolving credit facilities, with $921 of letters of credit outstanding and no cash borrowings. A separate $150 million U.S. Treasury facility was undrawn.
- Capital and nuclear-fuel expenditures were $1,135 for the six months. TVA issued $998 of power bonds and redeemed $700 of power bonds in the period.
Changes versus the prior comparable period
- Net income increased 119% for the quarter and 140% for the six months. The filing attributes the improvement principally to higher electricity sales from colder January weather and the base-rate adjustment effective October 1, 2017.
- TVA recorded a 24-hour energy-demand record in January and three of its top-12 winter peak-demand records. The base-rate adjustment was expected to contribute about $195 million to fiscal 2018 revenue.
- For six months, fuel expense fell $101 million, primarily due to lower effective fuel rates and a generation mix with more hydroelectric and natural gas power. Operating and maintenance expense fell $34 million, mainly due to fewer nuclear outage days and operating efficiencies.
- Coal-fired generation’s share of six-month power supply decreased from 25% to 19%; natural gas/oil-fired generation rose from 15% to 18%, and hydroelectric generation from 6% to 9%.
Outlook, risks, contingencies and unusual items
- TVA states it believes it can fund ongoing operations and planned capital investments over the next decade through a mix of debt, power revenues, rate increases, cost reductions, or other financing. No specific earnings guidance is provided.
- The elevated March cash balance was partly related to short-term borrowing in March to fund a long-term bond maturity due April 1; TVA said cash returned to normal target levels in April. Debt capacity is limited by the statutory $30 billion cap on bonds, notes, and other indebtedness.
- The Gallatin coal-combustion-residuals litigation is a major uncertainty. TVA recorded related liabilities of $897 million ($871 million long-term and $26 million current) based on an estimated on-site project cost of about $900 million. If on-site permits cannot be obtained and removal must occur off-site, TVA estimates costs could reach $2.0 billion and take about 40 years. Additional penalties or orders in a separate state case were not reasonably estimable.
- TVA estimated environmental expenditures of $1.2 billion for its CCR conversion program through 2022, $165 million for clean-air projects from 2018–2022, and $500 million for Clean Water Act requirements from 2018–2024. These estimates exclude new Gallatin litigation-related requirements.
- Other project exposures include estimated additional spending of $334 million for Boone Dam remediation, $84 million for Pickwick embankment work, and $28 million for remaining nuclear flood-preparedness modifications. Costs and schedules may change.
- TVA reported $18 million accrued for legal proceedings and approximately $10 million for certain environmental cleanup sites. It also disclosed nuclear insurance arrangements that may require retrospective premiums, and asset-retirement obligations totaling $4,389 million.
- Operational and regulatory risks include evolving environmental rules, CCR groundwater investigations, potential additional costs at Allen, nuclear safety and supplier performance, weather, fuel and purchased-power prices, cyber and physical security, and flat long-term electricity demand. TVA’s financial trading program remained suspended.
- The President’s FY2019 budget proposed selling TVA transmission assets; the filing describes this as a proposal, not an enacted transaction. TVA reported no material change in market-risk disclosures, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether the Gallatin appeal, permitting decisions, or regulatory developments change the recorded $897 million liability or the potential $2.0 billion off-site exposure.
- Whether TVA achieves forecast revenue and cash generation after the weather-driven sales increase and the fiscal 2018 rate adjustment.
- Near-term refinancing needs, debt-limit headroom, revolving-credit availability, and cash levels after the April bond maturity.
- Actual timing and costs of the CCR conversion program and other environmental, dam-safety, and nuclear projects relative to estimates.
- Whether flat demand, distributed generation, changing customer preferences, and future regulation affect TVA’s resource plan, rates, and long-term capital requirements.