Savings Efforts Offset Weather Impact On TVA's 2012 Results
The Tennessee Valley Authority continued to make progress in fiscal year 2012 in its vision to be a national leader in low-cost and cleaner energy despite lower sales and revenue impacted by mild weather and a slow economy, TVA said Friday in its annual report to the U.S. Securities and Exchange Commission.
A TVA-wide effort begun in the second quarter to reduce discretionary spending, defer program spending, enhance productivity and eliminate management levels allowed TVA to complete the year ended Sept. 30, 2012, with net income of $60 million on total revenues of $11.2 billion.
“With lower than planned sales and revenues in the first half of 2012 due to the unusually mild winter, TVA took actions that improved cost efficiencies throughout the organization, allowing us to conserve cash and remain financially solid in 2012,” Chief Financial Officer John Thomas said.
A significant portion of these savings, identified through the dedication and support of our employees, are expected to be sustainable and will benefit TVA in future years, he said.
TVA's service region, which covers most of Tennessee and parts of six surrounding states, experienced 22 percent fewer heating degree days than normal last winter during the first half of 2012. Sales increased in the second half of 2012 due to warmer than normal weather, but not enough to offset the decline during the first two quarters.
Electricity sales were down 1 percent in 2012 compared with the previous year. Sales to local power companies, which made up 80 percent of TVA's overall sales, were down 4 percent. The decline in sales was partially offset by a 7 percent increase in direct sales to industrial customers. Weather variations have a more significant impact on electricity usage by municipalities and cooperative utilities because residential and commercial customers are more temperature sensitive than industries.
Total revenue for 2012 declined 5 percent compared with 2011. The decrease was primarily due to a $355 million reduction in fuel cost recovery and a $294 million decrease in base revenue.
“Even with the financial and operational challenges during 2012, TVA moved closer to reaching its vision by remaining focused on delivering cleaner, low-cost power to our customers,” President and CEO Tom Kilgore said.
“Our commitment to these vision goals of low rates, high reliability and responsibility will be met as we continue to build a more balanced energy generation portfolio. In the past we have relied more heavily on coal,” Kilgore said. “Going forward, our generation mix will be more evenly dispatched through natural gas, nuclear and coal, with hydroelectric and other renewable sources making up the balance.”
TVA added more natural gas to its system in 2012 with the newly constructed John Sevier Combined Cycle Gas Plant. TVA also continued construction on Watts Bar Nuclear Plant Unit 2, which is expected to be completed in late 2015, adding more nuclear generation to its portfolio.
Kilgore praised the performance of TVA's generating fleet and transmission system in 2012. “TVA provided another year of superior dependability in 2012 by marking its 13th consecutive year of operating at a 99.999 percent reliability rate,” he said. “We saw improvements in nuclear availability, increased generation in our gas-fired plants and fewer forced outages in our fossil plants. And it was one of our best years ever for safety.”
Operating expenses declined $484 million or 5 percent in 2012 compared with the prior year, driven by lower fuel and purchased power expenses and decreases in operating and maintenance expenses. These declines were partially offset by increases in depreciation and amortization expenses.
TVA's fuel expense decreased $246 million or 8 percent in 2012 compared with 2011. TVA benefited from a balanced mix of generation resources and lower natural gas prices, which accounted for $235 million of the decrease. Natural gas-fired generation was 145 percent higher in 2012 compared with last year, while coal-fired generation decreased 21 percent. Nuclear generation also helped offset the lower coal-fired generation, increasing 11 percent in 2012 compared with last year. The cost of purchased power declined by $238 million in 2012 compared with 2011, primarily due to lower natural gas prices.
Contributing to the $107 million decrease in operating and maintenance expense in 2012 over 2011 was a $53 million decline in nuclear operation expenses due to fewer nuclear refueling outages in 2012, and a $37 million drop in contractor and consultant services primarily due to an emphasis on cost saving initiatives, including project prioritization and an overall reduction in contractors.
“We know we must provide affordable rates for our customers, even during challenging years,” stated Thomas. “Low rates help keep jobs and promote economic growth in the Tennessee Valley, which benefit both TVA and our customers. Our overall rates did improve in 2012, but we still have work to do to attain our goal of being in the top quartile among our peers.”
TVA reported net income of $60 million in 2012, compared with net income of $162 million in 2011, and adopted a fiscal 2013 budget with no rate increase.
TVA executive management will host a year-end financial conference call at 9:30 a.m. EST on Friday, Nov. 16, 2012. The conference call can be accessed on TVA's website via webcast at http://www.tva.com/finance. For quick access to the live conference call, please pre-register now by going to TVA's website before the scheduled start time and follow the instructions provided. Once pre-registered, the dial-in number will be provided via an email. If you are unable to pre-register, you may access the conference call by dialing toll free 877-270-2148 in the United States or in Canada, or 412-902-6510 outside the United States. A replay will be available one hour after the end of the conference call until 5:00 p.m. EST, Nov. 21, 2012, by calling toll free 877-344-7529 in the United States or 412-317-0088 outside the United States and using the conference number 10020139. A webcast replay and transcript will also be available for one year on TVA's website at http://www.tva.com/finance.
TVA's annual report on Form 10-K provides additional financial, operational and descriptive information, including audited financial statements for the fiscal year ended Sept. 30, 2012, and is available to investors and the public. TVA SEC reports are also available without charge on TVA's website at http://www.tva.com/finance or on the SEC's website at http://www.sec.gov or by calling TVA toll free at 888-882-4975.
TVA provides electricity for utility and business customers in most of Tennessee and parts of Alabama, Mississippi, Kentucky, Georgia, North Carolina and Virginia to a population of over 9 million people.
(This release may contain forward-looking statements relating to future events and future performance. Although TVA believes that the assumptions underlying these statements are reasonable, numerous factors could cause actual results to differ materially from those in the forward-looking statements. Please refer to TVA's annual report on Form 10-K for a list of factors that could cause actual results to differ from those in the forward-looking statements.)