10 minute read
Financial Strength
Building the Future... with Our Stakeholders
TVA invests in our communities and our partners. Thanks to the fi nancial strength we’ve worked hard to achieve, we invest heavily in our operations — which ensures our power system is operating at top capacity. And we invest in our communities, providing everything from Pandemic Recovery Credits to support for students. We are stronger together.
Financial strength enables investment in operations
TVA’s focus on fi nancial strength and stability enables us to invest wisely — in partnerships, in communities, and in our operations as we develop the Energy System of the Future
The seven-state region we serve benefi ts from these investments, with reliable, low-cost energy. We have maintained a 99.999% reliability rate for 23 consecutive years.
At TVA, we have one of the largest high-voltage transmission systems in North America. We are fi ve years into a 10-year, $300 million fi ber optic initiative that will improve the reliability and resiliency of our 16,400-mile grid. As of Sept. 30, 2022, TVA had spent $197 million on installation of the fi ber optic lines and expects to spend an additional $103 million.
Central to the success of the grid of tomorrow is TVA’s new state-of-the-art Primary System Operations Center, which is being built in rural Meigs County, Tennessee. The secure facility is approximately 50% complete with construction and is expected to be constructed by the end of calendar year 2023 and fully operational in 2025.
“When completed, the two-story concrete structure will far exceed the capabilities of our current facility and be among the best in the nation,” said Greg Henrich, vice president of Transmission Operations & Power Supply at TVA.
A new energy management system (EMS), which was approved for $90 million, is being constructed for use in the Primary System Operations Center. The EMS is expected to be complete in 2026 and will have enhanced grid visibility, increased security and other advanced features.
“Rigorous benchmarking and research help ensure the center and the new EMS will provide us with a more fl exible and responsive system needed for the changing power system in the future,” Henrich said. “It will allow TVA to continue 99.999% reliability, build resiliency, provide low-
cost electricity and attract industry and jobs to the Tennessee Valley.”
TVA’s fi nancial stability has enabled improvements and maintenance to our most-steadfast forms of renewable energy — the 49 dams in our power system. TVA has invested more than $900 million in dam safety projects since 2010.
A sophisticated system of dams control fl ooding along the Tennessee River watershed, and each year the system prevents about $300 million in fl ood damage in the TVA region and along the Ohio and Mississippi rivers. To date, the operation of this system is estimated to have prevented more than $9.7 billion in fl ood losses across the Tennessee Valley.
In FY 2022, TVA invested $4.6 million on analysis and preparation and $17 million in capital expenses for 27 strategic risk mitigation dam projects. In that same time period, we also spent $18.7 million on day-to-day care of the dams.
Our unique mission provides us with an opportunity — and obligation — to serve in a leadership role in accelerating a clean-energy future for the region and nation.
“TVA has one of the nation’s cleanest, lowestcost, most reliable power systems, and it’s fueling our region’s economic growth,” said John Thomas, TVA’s Executive Vice President and Chief Financial and Strategy Offi cer. “We continue to invest in our system, including more than $1 billion in base capital investments in our FY 2023 budget, which will enhance our decarbonization efforts and help maintain stable rates.”
Strength in stability
• Entirely self-funded since 1999
• Maintained fl at wholesale base rates since FY 2019
• Total fi nancing obligations are at the the lowest level in 35 years
Credits support partners, customers in need
In Fall 2020, at the height of the COVID-19 pandemic, Knoxville Utilities Board (KUB) fi elded a lot of calls from worried customers who couldn’t pay their bills due to job loss, reduced hours and other situations.
As the local power company (LPC) tried to determine how to meet its customers’ needs, TVA — a long-time partner — announced a special Pandemic Relief Credit program that would apply a 2.5% base rate credit for LPCs, directly served customers and the LPCs’ large customers.
KUB decided to distribute its entire Pandemic Relief Credit, which amounted to $7.2 million, to its customers in need.
“When we found out we’d be getting this credit, it felt like the right thing to do — to pass that money on to our customers who were struggling,” said Tiffany Martin, Vice President and Chief Customer Offi cer at KUB.
TVA provided a combined total of $449 million in Pandemic Relief Credits in FY 2021 and Pandemic Recovery Credits in FY 2022 for LPCs, their large commercial and industrial customers, and TVA directly served customers
TVA expects to provide an additional $230 million in Pandemic Recovery Credits in FY 2023
“For our customers, it created a sense of reassurance,” she added. “They realized that KUB is here and cares, and that TVA cares, too. We couldn’t have provided that help without TVA’s relief credits and partnership.”
KUB developed the COVID Utility Relief Effort (CURE) program, which provided a one-time payment of up to $1,000 for residential customers and $3,000 for business customers. To date, it has provided 9,694 customers with more than $6.6 million in funding, and it launched Phase 2 of the program in Fall 2022.
In addition to the FY 2021 credits, TVA provided 2.5% in Pandemic Recovery Credits in FY 2022, and the TVA Board approved a 2.5% Pandemic Recovery Credit for FY 2023.
“TVA’s strong fi nancial results put us in position to help our customers with recovery from the pandemic,” Jeff Lyash, TVA President and Chief Executive Offi cer, said. “We’re able to invest in our communities and our LPC partners because of the fi nancial strength we’ve worked hard to achieve. This is a testament to the public power model.”
Martin agreed.
“TVA is a trusted partner,” Martin said, “and KUB, our customers and our communities benefi t from their partnership.”
Enterprise sees strong demand for its fi rst 30-year bond since 2012
TVA priced $500 million of new 30-year maturity global power bonds on Sept. 8, 2022, with an interest rate of 4.25%.
The offering marked TVA’s fi rst 30-year bond since 2012, and the 4.25% rate is tied as the second-lowest ever for a TVA bond of 30 years or longer in maturity.
As TVA Builds the Energy System of the Future, the proceeds of the bonds will be used for general power system purposes and to refi nance existing debt.
Despite an increase in interest rates in the fi rst half of the year, long-term rates remained low in September, creating an opportunity for TVA to secure funding at attractive levels.
“We were pleased to see a window of stability and an opportunity for TVA to take advantage of still historically low long-term rates,” said Tammy Wilson, Vice President, Treasurer and Chief Risk Offi cer at TVA. “With one of the nation’s largest electric power systems, TVA is a natural issuer of longer-maturity bonds. The success of this transaction shows the confi dence investors have in TVA and the strength of the public power model.”
Strong demand for high-quality investments of longer duration contributed to the success of the offering. The bonds drew interest from a variety of investors, including asset managers, pension funds and insurance companies, among others.
“The new 30-year bond fi ts well in TVA’s debt profi le, which has a low number of bonds maturing in the early 2050s,” Wilson said. “TVA debt levels remain at the lowest in 35 years, and the new bonds will help TVA maintain stable interest costs for decades to come.”
Winning combination
Student stock pickers manage millions
Students at 25 universities across the Tennessee Valley gain experience managing a portion of the funds in TVA’s Asset Retirement Trust.
The investment returns earned by the students are contributing to TVA’s mission of providing reliable, low-cost power by earning a return on our investment assets that are going to one day offset the decommissioning costs of our power assets.
Students from each university actively manage an approximately $500,000 portfolio. It provides students with real-world experience that often leads to paid internships and gainful employment.
The students banked a 25% return for 2021 and are successfully managing the volatility in the markets for 2022. Investment Challenge Program students have collectively outperformed the S&P 500 total return of 8.56% by 53 basis points annually since inception — an excess cumulative return of 80% — and have generated $16 million in investment returns.
The program is an example of the power of partnerships.
—Andrea Brackett, TVA Vice President of Cybersecurity and Chief Information Security Offi cer
Fiscal year 2022 was a busy one at TVA, as we continued to work to advance cleaner energy while meeting record power demand and providing reliable, low-cost power for the region.
We continue to focus on our fi ve strategic priorities to achieve our mission, and one of these priorities is Financial Strength.
We work with 153 local power companies, and today, 147 of our local power company customers, or 96%, are on 20-year evergreen power contracts. They accounted for 77% of total operating revenues this fi scal year.
Our fi nancial strength enables us to support our partners. Partner credits returned to our customers this fi scal year totaled $199 million. These credits have totaled more than $560 million since TVA introduced the 20-year contract option in 2019.
Our strong fi nancial results also have positioned us to help all of our customers with recovery from the pandemic. This year, the 2.5% Pandemic Recovery Credit we provided totaled $228 million. TVA has now provided $449 million in pandemicrelated credits, which is money that stays in our communities to address local needs.
Our focus on operational excellence and on a clean, diverse power supply is helping to offset rising energy prices and keep the price of power low for our customers. This fi scal year, more than half of the electricity supplied by TVA was from nuclear, hydroelectric and purchased power renewables, which are sources not directly impacted by the recent fl uctuations in fuel prices.
Our business model is based on generating the revenue needed to manage our system while keeping our power rates low and providing reliable and sustainable power, which creates an attractive business environment.
Together, TVA and our partners in economic development had one of our best years yet, expecting to help create or retain approximately 66,500 jobs and more than $10.2 billion projected capital investments to our region.
This year, our operating revenue was 19% higher than the year before, primarily due to higher fuel cost recovery revenue and higher power sales. Our total operating revenues for the year were $12.5 billion on 163 billion kilowatt-hours of electricity sales.
“Our public power model continues to provide value to the communities and customers we are privileged to serve,” said Jeff Lyash, President and Chief Executive Offi cer at TVA. “We are building the future together, and it looks quite strong.”
Residential rates lower than 80% of the top 100 U.S. utilities based on June 2022 12-month rolling average from U.S. Energy Information Administration (EIA)
Industrial rates lower than more than 95% of the top 100 U.S. utilities based on June 2022 12-month rolling average from EIA data Return 5% of Power Revenues to States and Counties as tax equivalent payments, totaling nearly $512 million* in FY 2022, $5.3 billion* in past 10 years and $15.7 billion* since 1941
*Not including the tax equivalent impact associated with fuel cost adjustments
