TVA Benefits from Hydro Generation in Fiscal 2013, Continues to Reduce Investments in Coal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Tennessee Valley Authority (NYSE:TVC) (TVA) (Knoxville, Tennessee) reported solid profits for the company's 2013 fiscal year, as record levels of low-cost hydroelectric generation offset the effects of higher fuel costs and a dip in sales. Net income was reported to be $271 million, compared with $60 million in fiscal 2012.

Total revenues stood at $10.96 billion, a 2.35% decrease from last year. The lower revenues followed the implementation of new TVA wholesale rate structures by local power companies; the company also reported weaker fuel cost recovery revenues. The closure of U.S. Enrichment Corporation's uranium enrichment facility near Paducah, Kentucky, also had a detrimental effect on revenues. However, TVA benefited from higher sales to local power companies, as normal weather patterns (compared with those in 2012) favorably affected demand. Record levels of rainfall boosted low-cost hydroelectric generation.

Operating and maintenance expenditures for 2013 stood at $3.43 billion, compared with $3.51 billion in fiscal year 2012. TVA saw lower scheduled maintenance as it retired or idled coal-fired units, and also saw fewer outage costs.

Industrial Info is tracking more than $13 billion in active projects involving TVA, including the $4.2 billion construction of a nuclear unit at the Watts Bar Nuclear Power Station in Spring City, Tennessee. The project involves the completion of construction on a Westinghouse nuclear pressurized water reactor and a 1,220-megawatt Siemens AG (NYSE:SI) steam turbine generator set. The unit is set to go online in late 2015.

"Record rainfall and runoff in the Tennessee Valley this past year generated more electricity from our 29 hydro dams than any year in our organizations' 80-year history," said Bill Johnson, the president and chief executive officer of TVA, in a conference call. "In a typical year, hydroelectric power makes up 8% to 10% of our total power generation--but this year, it contributed about 12%. Our river operations did an commendable job of handling all this rainfall and averting substantial potential flood damage."

TVA is continuing to move away from coal as an energy source. In mid-November, TVA announced that it will close eight coal-fired generating stations in Alabama and Kentucky and spend up to $1.1 billion to build a new natural-gas, combined-cycle plant on one of the coal plant sites. In 1971, coal accounted for 80% of the agency's electricity. Today, it is 38%, and TVA aims to lower that to 20%. Going forward, TVA sees its fuel mix as 40% nuclear, 20% coal, 20% gas and 20% hydro/renewables.

"Balancing our generation fleet by closing older, less efficient coal units, controlling others, and relying more on cleaner energy sources reflects our continued commitment to the environment," Johnson said. "We've made progress on other environmental priorities this year. These include completing ash excavation and placing a liner over the failed cell at Kingston [Fossil Plant]--these were significant milestones in our recovery project there. The construction on emission scrubbers at Gallatin [Fossil Plant] is now well under way, and we retired the first four of 18 coal-fired units that were committed to close by 2018, under our agreement with the U.S. Environmental Protection Agency and other parties.

TVA executives expect to see a low growth in power demand going into the 2020s. They expect to reduce operations and maintenance expenditures a further $500 million by 2015.

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