Mild Winter Continues to Drag Down Tennessee Valley Authority's Earnings, but Capex Remains Strong

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Researched by Industrial Info Resources (Sugar Land, Texas)--Tennessee Valley Authority (NYSE:TVE) (TVA) (Knoxville, Tennessee) on Tuesday reported quarterly earnings results and gave project guidance for 2016. A mild winter has affected the power company's earnings. It reported net income of $572 million for the first nine months of the fiscal year ended June 30, which was $37 million lower than the same period last year. "Even though we've had a very warm spring," said President and Chief Executive Officer Bill Johnson in a conference call regarding the earnings, "it was not enough to offset a very mild winter and our sales and revenue through the third quarter are still down versus last year.

Despite the lower earnings, TVA continues onward with major capital projects, which have made major progress during the past quarter. "This is an especially important time for TVA to make progress on several large projects that will better diversify [the company's] portfolio," said Johnson. "Our key asset-related activities are focused on reducing emissions and making our system cleaner, while keeping rates low, adding more nuclear, modernizing our hydro fleet and supporting other non-emitting resources." Industrial Info is tracking more than 100 projects owned by TVA with a combined total investment value of $12.5 billion.

Among the largest highlighted by TVA was the approaching completion of the Watts Bar Nuclear Unit 2 in Tennessee. Construction of the 1,120-megawatt (MW) reactor began in 1972, but was stopped in the 1980s when the reactor was about 80% complete due to employee safety concerns and a slowdown in power demand. Work on the $4.2 billion project recommenced in 2007. "We remain focused on bringing Watts Bar Unit 2 into commercial operation. We achieved criticality in May and we've been doing a battery of startup, shutdown and power ascension tests over the past few months." we expect to achieve 100% power soon," said Johnson. "We expect to achieve 100% power soon." The plant is expected to begin commercial operation later this summer.

The company also spending more than $2 billion on the construction of natural gas-fired, combined-cycle units at the Paradise Fossil Plant in Kentucky and the Thomas H. Allen Power Station in Tennessee. "The Paradise project is well along," said Johnson. "The new units there are slated to be online next year and will replace two coal-fired units that are being retired." At the existing 2,558-MW coal-fired Paradise plant, the combined-cycle units will add 1,000 MW of cleaner fuel to plant to replace the retiring coal units.

Johnson continued: "Our biggest clean air project is at Gallatin Fossil Plant near Nashville, where we're investing a billion dollars on clean air controls. Dry scrubber construction at the site is now completed and work continues on selective catalytic reduction systems [SCRs]. The first two SCRs are scheduled to become operational in the spring of 2017 and the final two are scheduled for completion later that fall." The Gallatin project kicked off in 2013 and will help reduce the coal-fired station's SO2, NOx and mercury emissions. Alstom Power Incorporated (Knoxville, Tennessee) is acting as contractor for scrubber installation, while Babcock Power Environmental Incorporated is handling the SCRs.

Johnson also added that TVA is spending hundreds in new transmission equipment as well as in the maintenance for existing equipment. While the company's profit has been lowered this year, TVA still continues with several capital and maintenance projects to make sure that it remains a strong and efficient power generator both now and in the future.

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