As federal debt rises, TVA cuts borrowings
Utility may avoid rate increase after paring debt
While Congress this week raised the federal debt ceiling to avoid a default on the growing federal debt, the government’s biggest utility said Friday it is cutting its debt more rapidly than planned under its longterm debt reduction strategy and may be able to avoid any increase in power rates next year as a result.
The Tennessee Valley Authority said Friday its long-term borrowings in the first nine months of the fiscal year dropped by more than $900 million and it is on pace to meet its 10-year debt reduction goal earlier than originally expected. Since 2013 when TVA launched plans to cut its debt to below $21.8 billion by 2023, the utility has pared its borrowings by more than 15% to only $23.4 billion in debt as of June 30.
TVA President Jeff Lyash, who joined the utility in April and will present his first budget to the TVA board Aug. 22, said he plans to outline a new 10-year plan for TVA rates and debt that could hold the line on rates for next year.
“I’m optimistic as we look at TVA’s rates for the next decade that TVA rates will remain very stable and we will get progressively more competitive over that period of time,” Lyash said Friday during a conference call with analysts to discuss TVA’s quarterly earnings. “Maintaining power costs as low as reasonable is core to TVA’s mission and our team is focused is by becoming more efficient by lowering our operating and maintenance costs, leveraging our diverse fleet to keep fuel costs down and making our faclities perform as well as possible.”
TVA has been raising its wholesale rates about 2% a year every year since 2013 to pay down its debt after boosting rates at an even faster pace over the previous decade when the costs of new nuclear power plants kept pushing up TVA costs. Most of those base rate increases over the past five years, however, have been offset by cheaper fuel costs from lower-priced natural gas and more hydro and nuclear generation.
TVA is forecasting stable, or potentially even declining, power demand over the next decade so it is not building any new base-load power plants for the first time in its 86-year history. With lower capital costs, TVA is using its cash flow to lower its debt, which is capped by the U.S. Congress at $30 billion.
TVA’s long-term borrowing obligations were within $2 billion of that cap less than a decade ago when it developed a 10-year plan to cut its debt and presented the strategy to then President Obama’s White House budget office.
“TVA over the past six years has reduced that debt by nearly $5 billion and our objective is to reduce it further over the coming years so that we meet the commitment we’ve made to the Office of Management and Budget to be below $21.8 billion by 2023,” Lyash said.
TVA Chief Financial Officer John Thomas said the debt reduction “is making us much more financially healthy” and he said TVA is on pace to achieve TVA’s commitment to OMB for its debt reduction target a couple of years earlier than originally forecast.
“This is a significant movement from where we were five or six years ago to now be in a place where people are wondering if TVA is too financially healthy and making too much money,” Thomas said. “We continue to get TVA’s financial house in order by keeping controllable costs low and being responsible with TVA’s balance sheet.”
Customers of TVA are hoping that the utility’s improved balance sheet will translate into cheaper, or at least stable, power bills for the nearly 10 million people served by TVA in its 7-state region.
“This is the best financial condition that TVA has been in several decades and are certainly in good enough shape not to have a rate increase in fiscal 2020,” said Doug Peters, president of the Tennessee Valley Public Power Association, which represents the 154 municipalities and power coops that buy and distribute TVA power. “We look forward to talking with TVA about their plans next week.”
Lyash plans to talk with TVA distributors about the next fiscal year on Tuesday at an “all customers” meeting with the members of the TVPPA in Murfreesboro, Tennessee.
TVA said Friday that in the most recent fiscal quarter it earned only about a third as much in net income as it did a year ago. But the decline was due entirely to milder weather this year and additional write-offs of TVA’s coal ash cleanup and the planned shutdown of its Bull Run and Paradise coal plants.
In the first nine months of this fiscal year, TVA earned $829 million in fiscal 2019, down 32% from the net income of $1.2 billion for the same period a year ago.
TVA’s fuel and purchased power expense was 3% lower than the nine-month period ended June 30, 2018, driven by a $114 million decrease in fuel expense. Lower commodity prices and a 26% gain in hydroelectric generation from increased rainfall helped drive fuel expense down.
“We were pleased to be able to keep our power rates essentially flat through the first nine months of this year,” Lyash said. “The diversity of TVA’s power system let us benefit from lower natural gas prices and higher hydroelectric production to keep costs low for our customers.”
Because TVA has less natural gas generation than many other utilities, TVA has not benefited as much as some power companies by the drop in gas prices. TVA also has a higher debt burden than nearly all other utilities due to its original investments in 17 nuclear reactors it once planned to build. Only seven of those reactors were ever finished and operated, however.
TVA’s quoted industrial rates are only slightly better than the U.S. average and its residential rates rank in the lowest one fourth of America’s 100 biggest utilities for costs per kilowatthour, according to U.S. Energy Information Agency data. But Lyash said he expects TVA to improve its competitive position in the future.
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.