Mild winter drops TVA power demand

TVA Q2 2011 Results detail lower power demand, higher fuel costs, nuclear refueling expenses, coal and gas outages, storm recovery, and progress on a clean air agreement and Integrated Resource Plan for cleaner, low-cost energy.

TVA is reporting that mild winter temperatures led to lower electricity demand in the second quarter as the public utility's revenues increased $346 million, or 13 percent, to $3 billion and earnings declined by $177 million compared to the same year-ago period.

In its quarterly financial filing with the Securities and Exchange Commission, TVA said power demand, which was mainly affected by sales to residential customers of its power distributors, declined 6 percent to 42.9 billion kilowatt-hours for the three-month period ending March 31, with power production diverging in some areas, compared with the second quarter of 2010. Demand so far in fiscal year 2011 is about 2 percent less than a year ago.

The second-quarter results also were affected by increases in pension and post-retirement benefit expenses higher operating and maintenance expenses from refueling nuclear plants and outages at coal-fired and gas-fired plants and higher fuel and purchased power costs, including potential supplemental power needs during peak periods, which were partially offset by an increase in fuel-related revenue through the monthly fuel cost adjustment.

"Our balance sheet remains strong, and that positions us well for the financial challenges ahead," TVA Chief Financial Officer John Thomas said in a statement, noting that TVA receives no tax money and makes no profit. "Most immediately, that will help support our recovery from the tornadoes that disrupted power to hundreds of thousands of people across our service area last week."

TVA also reported that it is making progress in restoring service to areas in Alabama, Mississippi and Tennessee that lost electricity in severe storms swept across the region April 27 and 28. The storms damaged or destroyed numerous power lines, disrupting electric service across wide areas. Repairs to the power system are still under way, and Thomas said TVA will calculate the financial impact of the storms over the coming weeks.

Also during the storms, the Browns Ferry Nuclear Plant entered safe shutdown status and activated backup power supplies while power lines in the region underwent repairs.

"The Browns Ferry Plant and its safety systems performed as designed, shutting down safely when the severe weather affected its external electricity service," Thomas said. "Browns Ferry was designed to withstand conditions far more severe than last week's storms. The plant, its safety systems and its staff performed well."

In discussing TVA's quarterly financial results, Thomas said demand from commercial and industrial customers of the local power companies served by TVA remained relatively flat compared with the same period a year ago. Power demand by TVA's directly served industrial customers was down about 4 percent, reflecting industrial power usage declines during the recession across key sectors. Electricity demand from federal agencies served by TVA was up 10.5 percent.

TVA revenues increased $346 million, or 13 percent, to $3 billion in the second quarter of 2011, compared with the same period a year ago when consumers benefited from lower fuel costs even as pressure for higher rates persisted in the region.

Operating expenses for the quarter increased $526 million, or 28 percent, to $2.4 billion, over the same period last year. Key factors included a $338 million increase in fuel expenses, an $85 million increase in purchased power costs and a $44 million increase in tax equivalent payments to state and local governments, which are based on sales revenue.

TVA ended the second quarter of fiscal 2011 with $253 million in net income for reinvestment in the power system, down $177 million from the same period a year ago. Because TVA does not make a profit, its net income is reinvested in its operations and infrastructure, which helps keep prices lower for consumers.

The quarterly report also discussed potential lessons to be learned by the nuclear industry from events in Japan and two key developments at TVA since the quarter ended March 31: A landmark clean air agreement, adopted by the TVA board of directors April 14, with the U.S. Environment Protection Agency, four states and three environmental advocacy groups to resolve litigation to retire, idle or environmentally control more than two dozen coal-fired power generation units by 2020, and to invest $350 million in energy efficiency and renewable energy projects to be funded through power revenues.

A new Integrated Resource Plan, accepted by the TVA board on April 14, that outlines power supply options for TVA over the next 20 years and follows recent rate and borrowing increases to support long-term investments.

"The clean air agreement and the Integrated Resource Plan are significant accomplishments," Thomas said. "They also are important steps towards achieving our vision to be a national leader in low-cost and cleaner energy."

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