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þ | QUARTERLY REPORT PURSUANT TO SECTION 13, 15(d), OR 37 OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
A corporate agency of the United States created by an act | 62-0474417 | |
of Congress | (I.R.S. Employer Identification No.) | |
(State or other jurisdiction of incorporation or organization) | ||
400 W. Summit Hill Drive | 37902 | |
Knoxville, Tennessee | (Zip Code) | |
(Address of principal executive offices) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Yesþ Noo
Yeso Noþ
Forward-Looking Information | 3 | |||||||
General Information | 4 | |||||||
Item 1. | 5 | |||||||
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Item 2. | 24 | |||||||
24 | ||||||||
26 | ||||||||
29 | ||||||||
35 | ||||||||
35 | ||||||||
35 | ||||||||
37 | ||||||||
38 | ||||||||
40 | ||||||||
41 | ||||||||
Item 3. | 42 | |||||||
Item 4. | 43 | |||||||
Item 1. | 44 | |||||||
Item 1A. | 44 | |||||||
Item 2. | 45 | |||||||
Item 3. | 45 | |||||||
Item 4. | 45 | |||||||
Item 5. | 45 | |||||||
Item 6. | 45 | |||||||
Signatures | 46 | |||||||
Exhibit Index | 47 | |||||||
Ex-31.1 Section 302 Certification | ||||||||
Ex-31.2 Section 302 Certification | ||||||||
Ex-32.1 Section 906 Certification | ||||||||
Ex-32.2 Section 906 Certification |
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• | Statements regarding strategic objectives; | ||
• | Projections regarding potential rate actions; | ||
• | Estimates of costs of certain asset retirement obligations; | ||
• | Estimates regarding power and energy forecasts; | ||
• | Expectations about the adequacy of Tennessee Valley Authority’s (“TVA”) pension plans and nuclear decommissioning trust; | ||
• | The impact of new accounting pronouncements and interpretations, including Statement of Financial Accounting Standards No. 158,“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R);” | ||
• | Estimates of amounts to be reclassified fromOther Comprehensive Income to earnings over the next year; | ||
• | TVA’s plans to continue using short-term debt to meet current obligations; and | ||
• | The anticipated cost and timetable for returning Browns Ferry Nuclear Plant Unit 1 to service. |
• | New laws, regulations, and administrative orders, especially those related to: |
– TVA’s protected service area, | |||
– The sole authority of the TVA Board of Directors to set power rates, | |||
– Various environmental and nuclear matters, | |||
– TVA’s management of the Tennessee River system, | |||
– TVA’s credit rating, and | |||
– TVA’s debt ceiling; |
• | Performance of TVA’s generation and transmission assets; | ||
• | Availability of fuel supplies; | ||
• | Changes in the price of purchased power; | ||
• | Reliability of purchased power providers, fuel suppliers, and other counterparties; | ||
• | Compliance with existing environmental laws and regulations; | ||
• | Significant delays or cost overruns in construction of generation and transmission assets; | ||
• | Significant changes in demand for electricity; | ||
• | Legal and administrative proceedings; | ||
• | Weather conditions; | ||
• | Failure of transmission facilities; | ||
• | An accident at any nuclear facility, even one unaffiliated with TVA; | ||
• | Catastrophic events such as fires, earthquakes, floods, pandemics, wars, terrorist activities, and other similar events, especially if these events occur in or near TVA’s service area; | ||
• | Events at non-TVA facilities that affect the supply of water to TVA’s generation facilities; | ||
• | Changes in the market price of commodities such as coal, uranium, natural gas, fuel oil, electricity, and emission allowances; |
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• | Changes in the prices of equity securities, debt securities, and other investments; | ||
• | Changes in interest rates; | ||
• | Creditworthiness of TVA or its counterparties; | ||
• | Rising pension costs and health care expenses; | ||
• | Increases in TVA’s financial liability for decommissioning its nuclear facilities; | ||
• | Limitations on TVA’s ability to borrow money; | ||
• | Changes in economic conditions; | ||
• | Ineffectiveness of TVA’s disclosure controls and procedures and internal control over financial reporting; | ||
• | Changes in accounting standards; | ||
• | Changes in the applicability of regulatory accounting to TVA; | ||
• | Loss of key personnel; | ||
• | Changes in technology; | ||
• | Changes in the market for TVA securities; and | ||
• | Unforeseeable events. |
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Three months ended | Six months ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating revenues | ||||||||||||||||
Sales of electricity | ||||||||||||||||
Municipalities and cooperatives | $ | 1,922 | $ | 1,745 | $ | 3,664 | $ | 3,508 | ||||||||
Industries directly served | 301 | 245 | 603 | 475 | ||||||||||||
Federal agencies and other | 26 | 32 | 51 | 58 | ||||||||||||
Other revenue | 28 | 26 | 63 | 59 | ||||||||||||
Total operating revenues | 2,277 | 2,048 | 4,381 | 4,100 | ||||||||||||
Operating expenses | ||||||||||||||||
Fuel and purchased power | 824 | 717 | 1,563 | 1,462 | ||||||||||||
Operating and maintenance | 576 | 567 | 1,161 | 1,167 | ||||||||||||
Depreciation, amortization, and accretion | 382 | 389 | 738 | 777 | ||||||||||||
Tax equivalents | 109 | 93 | 217 | 187 | ||||||||||||
Total operating expenses | 1,891 | 1,766 | 3,679 | 3,593 | ||||||||||||
Operating income | 386 | 282 | 702 | 507 | ||||||||||||
Other income | 18 | 16 | 30 | 28 | ||||||||||||
Unrealized gain on derivative contracts, net | 16 | 21 | 31 | 35 | ||||||||||||
Interest expense | ||||||||||||||||
Interest on debt | 339 | 339 | 675 | 674 | ||||||||||||
Amortization of debt discount, issue, and reacquisition costs, net | 5 | 5 | 10 | 10 | ||||||||||||
Allowance for funds used during construction and nuclear fuel expenditures | (50 | ) | (39 | ) | (99 | ) | (75 | ) | ||||||||
Net interest expense | 294 | 305 | 586 | 609 | ||||||||||||
Net income (loss) | $ | 126 | $ | 14 | $ | 177 | $ | (39 | ) | |||||||
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At March 31 | At September 30 | |||||||
2007 | 2006 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 382 | $ | 536 | ||||
Restricted cash and investments (Note 1) | 194 | 198 | ||||||
Accounts receivable, net | 1,171 | 1,359 | ||||||
Inventories and other | 690 | 576 | ||||||
Total current assets | 2,437 | 2,669 | ||||||
Property, plant, and equipment | ||||||||
Completed plant | 36,545 | 35,652 | ||||||
Less accumulated depreciation | (15,744 | ) | (15,331 | ) | ||||
Net completed plant | 20,801 | 20,321 | ||||||
Construction in progress | 3,325 | 3,539 | ||||||
Nuclear fuel and capital leases | 592 | 574 | ||||||
Total property, plant, and equipment, net | 24,718 | 24,434 | ||||||
Investment funds | 1,059 | 972 | ||||||
Regulatory and other long-term assets(Note 1) | ||||||||
Deferred nuclear generating units | 3,325 | 3,521 | ||||||
Other regulatory assets | 1,794 | 1,809 | ||||||
Subtotal | 5,119 | 5,330 | ||||||
Other long-term assets | 834 | 1,115 | ||||||
Total deferred charges and other assets | 5,953 | 6,445 | ||||||
Total assets | $ | 34,167 | $ | 34,520 | ||||
LIABILITIES AND PROPRIETARY CAPITAL | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 774 | $ | 890 | ||||
Accrued liabilities | 205 | 211 | ||||||
Collateral funds held | 191 | 195 | ||||||
Accrued interest | 412 | 403 | ||||||
Current portion of lease/leaseback obligations | 43 | 37 | ||||||
Current portion of energy prepayment obligations | 106 | 106 | ||||||
Short-term debt, net | 2,638 | 2,376 | ||||||
Current maturities of long-term debt (Note 3) | 50 | 985 | ||||||
Total current liabilities | 4,419 | 5,203 | ||||||
Other liabilities | ||||||||
Other liabilities | 2,277 | 2,305 | ||||||
Regulatory liabilities (Note 1) | 317 | 575 | ||||||
Asset retirement obligations | 2,112 | 1,985 | ||||||
Lease/leaseback obligations | 1,041 | 1,071 | ||||||
Energy prepayment obligations (Note 1) | 1,085 | 1,138 | ||||||
Total other liabilities | 6,832 | 7,074 | ||||||
Long-term debt, net(Note 3) | 20,097 | 19,544 | ||||||
Total liabilities | 31,348 | 31,821 | ||||||
Commitments and contingencies | ||||||||
Proprietary capital | ||||||||
Appropriation investment | 4,753 | 4,763 | ||||||
Retained earnings | 1,736 | 1,565 | ||||||
Accumulated other comprehensive income | 6 | 43 | ||||||
Accumulated net expense of nonpower programs | (3,676 | ) | (3,672 | ) | ||||
Total proprietary capital | 2,819 | 2,699 | ||||||
Total liabilities and proprietary capital | $ | 34,167 | $ | 34,520 | ||||
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2007 | 2006 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 177 | $ | (39 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation, amortization, and accretion | 748 | 787 | ||||||
Nuclear refueling outage amortization | 39 | 46 | ||||||
Loss on project write-downs | 22 | — | ||||||
Amortization of nuclear fuel | 59 | 67 | ||||||
Non-cash retirement benefit expense | 101 | 151 | ||||||
Net unrealized gain on derivative contracts | (31 | ) | (35 | ) | ||||
Prepayment credits applied to revenue | (53 | ) | (53 | ) | ||||
Other, net | (40 | ) | 14 | |||||
Changes in current assets and liabilities | ||||||||
Accounts receivable, net | 210 | 218 | ||||||
Inventories and other | (110 | ) | (163 | ) | ||||
Accounts payable and accrued liabilities | (97 | ) | (131 | ) | ||||
Accrued interest | 9 | 15 | ||||||
Deferred nuclear refueling outage costs | (77 | ) | (34 | ) | ||||
Other, net | (12 | ) | (50 | ) | ||||
Net cash provided by operating activities | 945 | 793 | ||||||
Cash flows from investing activities | ||||||||
Construction expenditures | (712 | ) | (627 | ) | ||||
Combustion turbine asset acquisitions | (98 | ) | — | |||||
Nuclear fuel expenditures | (83 | ) | (147 | ) | ||||
Change in restricted cash and investments | 4 | (31 | ) | |||||
Purchase of investments | 2 | (4 | ) | |||||
Loans and other receivables | ||||||||
Advances | (4 | ) | (2 | ) | ||||
Repayments | 8 | 6 | ||||||
Proceeds from sale of receivables/loans | 2 | 8 | ||||||
Other, net | 1 | — | ||||||
Net cash used in investing activities | (880 | ) | (797 | ) | ||||
Cash flows from financing activities | ||||||||
Long-term debt | ||||||||
Issues | 28 | 68 | ||||||
Redemptions and repurchases | (464 | ) | (155 | ) | ||||
Short-term issues, net | 262 | 97 | ||||||
Payments on combustion turbine financing | (18 | ) | (17 | ) | ||||
Payments on equipment financing | (7 | ) | (6 | ) | ||||
Financing costs, net | — | (2 | ) | |||||
Payments to U.S. Treasury | (20 | ) | (18 | ) | ||||
Net cash provided by financing activities | (219 | ) | (33 | ) | ||||
Net change in cash and cash equivalents | (154 | ) | (37 | ) | ||||
Cash and cash equivalents at beginning of period | 536 | 538 | ||||||
Cash and cash equivalents at end of period | $ | 382 | $ | 501 | ||||
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Accumulated | Accumulated | |||||||||||||||||||||||
Other | Net Expense | |||||||||||||||||||||||
Appropriation | Retained | Comprehensive | of Stewardship | Comprehensive | ||||||||||||||||||||
Investment | Earnings | Income (Loss) | Programs | Total | Income (Loss) | |||||||||||||||||||
Balance at December 31, 2005 | $ | 4,778 | $ | 1,190 | $ | 44 | $ | (3,665 | ) | $ | 2,347 | $ | — | |||||||||||
Net income (loss) | — | 16 | — | (2 | ) | 14 | 14 | |||||||||||||||||
Return on appropriation investment | — | (4 | ) | — | — | (4 | ) | — | ||||||||||||||||
Other comprehensive income (Note 2) | — | — | 72 | — | 72 | 72 | ||||||||||||||||||
Return of appropriation investment | (5 | ) | — | — | — | (5 | ) | — | ||||||||||||||||
Balance at March 31, 2006 | $ | 4,773 | $ | 1,202 | $ | 116 | $ | (3,667 | ) | $ | 2,424 | $ | 86 | |||||||||||
Balance at December 31, 2006 | $ | 4,758 | $ | 1,613 | $ | 28 | $ | (3,674 | ) | $ | 2,725 | $ | — | |||||||||||
Net income (loss) | — | 128 | — | (2 | ) | 126 | 126 | |||||||||||||||||
Return on appropriation investment | — | (5 | ) | — | — | (5 | ) | — | ||||||||||||||||
Accumulated other comprehensive loss (Note 2) | — | — | (22 | ) | — | (22 | ) | (22 | ) | |||||||||||||||
Return of appropriation investment | (5 | ) | — | — | — | (5 | ) | — | ||||||||||||||||
Balance at March 31, 2007 | $ | 4,753 | $ | 1,736 | $ | 6 | $ | (3,676 | ) | $ | 2,819 | $ | 104 | |||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Other | Net Expense | |||||||||||||||||||||||
Appropriation | Retained | Comprehensive | of Stewardship | Comprehensive | ||||||||||||||||||||
Investment | Earnings | Income (Loss) | Programs | Total | (Loss) Income | |||||||||||||||||||
Balance at September 30, 2005 | $ | 4,783 | $ | 1,244 | $ | 27 | $ | (3,662 | ) | $ | 2,392 | $ | — | |||||||||||
Net (loss) | — | (34 | ) | — | (5 | ) | (39 | ) | (39 | ) | ||||||||||||||
Return on appropriation investment | — | (8 | ) | — | — | (8 | ) | — | ||||||||||||||||
Accumulated other comprehensive income (Note 2) | — | — | 89 | — | 89 | 89 | ||||||||||||||||||
Return of appropriation investment | (10 | ) | — | — | — | (10 | ) | — | ||||||||||||||||
Balance at March 31, 2006 | $ | 4,773 | $ | 1,202 | $ | 116 | $ | (3,667 | ) | $ | 2,424 | $ | 50 | |||||||||||
Balance at September 30, 2006 | $ | 4,763 | $ | 1,565 | $ | 43 | $ | (3,672 | ) | $ | 2,699 | $ | — | |||||||||||
Net income (loss) | — | 181 | — | (4 | ) | 177 | 177 | |||||||||||||||||
Return on appropriation investment | — | (10 | ) | — | — | (10 | ) | — | ||||||||||||||||
Accumulated other comprehensive loss (Note 2) | — | — | (37 | ) | — | (37 | ) | (37 | ) | |||||||||||||||
Return of appropriation investment | (10 | ) | — | — | — | (10 | ) | — | ||||||||||||||||
Balance at March 31, 2007 | $ | 4,753 | $ | 1,736 | $ | 6 | $ | (3,676 | ) | $ | 2,819 | $ | 140 | |||||||||||
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(Dollars in millions except where noted)
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At March 31 | At September 30 | |||||||
2007 | 2006 | |||||||
Power receivables billed | $ | 243 | $ | 303 | ||||
Power receivables unbilled | 908 | 1,031 | ||||||
Total power receivables | 1,151 | 1,334 | ||||||
Other receivables | 23 | 35 | ||||||
Allowance for uncollectible accounts | (3 | ) | (10 | ) | ||||
Net accounts receivable | $ | 1,171 | $ | 1,359 | ||||
At March 31 | At September 30 | |||||||
2007 | 2006 | |||||||
Regulatory Assets | ||||||||
Minimum pension liability | $ | 914 | $ | 914 | ||||
Nuclear decommissioning costs | 420 | 474 | ||||||
Debt reacquisition costs | 221 | 232 | ||||||
Deferred trading program loss | — | 6 | ||||||
Deferred outage costs | 124 | 85 | ||||||
Deferred capital lease asset costs | 71 | 76 | ||||||
Unrealized losses on purchased power contracts | 8 | 22 | ||||||
Fuel cost adjustment | 36 | — | ||||||
Subtotal | 1,794 | 1,809 | ||||||
Deferred nuclear generating units | 3,325 | 3,521 | ||||||
Total | $ | 5,119 | $ | 5,330 | ||||
Regulatory Liabilities | ||||||||
Unrealized gain on coal purchase contracts | $ | 237 | $ | 487 | ||||
Deferred trading program gain | 2 | — | ||||||
Capital lease liability | 78 | 88 | ||||||
Total | $ | 317 | $ | 575 | ||||
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Three Months Ended | Six Months Ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Balance at beginning of period | $ | 2,007 | $ | 1,883 | $ | 1,985 | $ | 1,857 | ||||||||
Changes in nuclear estimates to future cash flows | 82 | (89 | ) | 82 | (89 | ) | ||||||||||
Non-nuclear additional obligations | 1 | — | 1 | — | ||||||||||||
83 | (89 | ) | 83 | (89 | ) | |||||||||||
Add: ARO (accretion) expense | ||||||||||||||||
Nuclear accretion (recorded as a regulatory asset) | 15 | 23 | 30 | 46 | ||||||||||||
Non-nuclear accretion (charged to expense) | 7 | 4 | 14 | 7 | ||||||||||||
22 | 27 | 44 | 53 | |||||||||||||
Balance at end of period | $ | 2,112 | $ | 1,821 | $ | 2,112 | $ | 1,821 | ||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Accumulated other comprehensive income at beginning of period | $ | 28 | $ | 44 | $ | 43 | $ | 27 | ||||||||
Changes in fair value: | ||||||||||||||||
Inflation swap | 8 | 5 | 9 | (5 | ) | |||||||||||
Foreign currency swaps | (30 | ) | 67 | (46 | ) | 94 | ||||||||||
Accumulated other comprehensive income at end of period | $ | 6 | $ | 116 | $ | 6 | $ | 116 | ||||||||
At March 31 | At September 30 | |||||||
2007 | 2006 | |||||||
Short-term debt | ||||||||
Discount notes (net of discount) | $ | 2,638 | $ | 2,376 | ||||
Current maturities of long-term debt | 50 | 985 | ||||||
Total short-term debt, net | 2,688 | 3,361 | ||||||
Long-term debt | ||||||||
Long-term | 20,275 | 19,722 | ||||||
Unamortized discount | (178 | ) | (178 | ) | ||||
Total long-term debt, net | 20,097 | 19,544 | ||||||
Total outstanding debt | $ | 22,785 | $ | 22,905 | ||||
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• | Operation, maintenance, and administration of its power system, | ||
• | Payments to states and counties in lieu of taxes (“tax equivalent payments”), | ||
• | Debt service on outstanding Bonds, | ||
• | Payments to the U.S. Treasury as a repayment of and a return on the outstanding amount TVA is required to repay the United States for its investment in TVA’s power facilities, and | ||
• | Such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of maturity, additional reduction of the outstanding amount TVA is required to repay the United States for its investment in TVA’s power facilities, and other purposes connected with TVA’s power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. |
• | The depreciation accruals and other charges representing the amortization of capital expenditures, and | ||
• | The net proceeds from any disposition of power facilities, | ||
for either | |||
• | The reduction of its capital obligations (including Bonds and the outstanding amount TVA is required to repay the United States for its investment in TVA’s power facilities), or | ||
• | Investment in power assets. |
Date | Amount | Interest Rate | ||||||||
Redemptions/Maturities: | ||||||||||
electronotes® | First Quarter 2007 | $ | 2 | 4.65 | % | |||||
Second Quarter 2007 | 5 | 4.78 | % | |||||||
2001 Series D | December 2006 | 75 | 4.88 | % | ||||||
1997 Series A | January 2007 | 382 | 6.64 | % | ||||||
Total | $ | 464 | ||||||||
Issuances: | ||||||||||
electronotes® | First Quarter 2007 | $ | 9 | 5.50 | % | |||||
Second Quarter 2007 | 19 | 5.29 | % | |||||||
$ | 28 | |||||||||
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At March 31 | At September 30 | |||||||
2007 | 2006 | |||||||
Inflation Swap | $ | — | $ | 22 | ||||
Interest Rate Swap | (122 | ) | (131 | ) | ||||
Currency Swaps: | ||||||||
Sterling | 52 | 47 | ||||||
Sterling | 139 | 133 | ||||||
Sterling | 67 | 66 | ||||||
Swaptions: | ||||||||
$1 Billion Notional | (274 | ) | (296 | ) | ||||
$28 Million Notional | (3 | ) | (3 | ) | ||||
$14 Million Notional | (1 | ) | (2 | ) | ||||
Coal Contracts with Volume Options | 237 | 487 | ||||||
Purchase Power Option Contracts | (8 | ) | (22 | ) |
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Three Months Ended | Six Months Ended | |||||||||||||||
March 31, 2007 | March 31, 2007 | |||||||||||||||
Notional | Contract | Notional | Contract | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(in mmBtu) | (in millions) | (in mmBtu) | (in millions) | |||||||||||||
Futures contracts | ||||||||||||||||
Financial positions, beginning of period, net | 6,910,000 | $ | 54 | 4,290,000 | $ | 35 | ||||||||||
Purchased | 2,320,000 | 17 | 6,580,000 | 49 | ||||||||||||
Settled | (5,140,000 | ) | (37 | ) | (6,780,000 | ) | (49 | ) | ||||||||
Realized (losses) | — | (3 | ) | — | (4 | ) | ||||||||||
Net positions-long | 4,090,000 | 31 | 4,090,000 | 31 | ||||||||||||
Swap Futures | ||||||||||||||||
Financial positions, beginning of period, net | — | — | 1,822,500 | 11 | ||||||||||||
Fixed portion | 387,500 | 3 | 387,500 | 3 | ||||||||||||
Floating portion — realized | (387,500 | ) | (3 | ) | (2,210,000 | ) | (12 | ) | ||||||||
Realized (losses) | — | — | — | (2 | ) | |||||||||||
Net positions-long | — | — | — | — | ||||||||||||
Holding gains (losses) | ||||||||||||||||
Unrealized (loss) at beginning of period, net | — | (8 | ) | — | (6 | ) | ||||||||||
Unrealized gain for the period | — | 10 | — | 8 | ||||||||||||
Unrealized gain at end of period, net | — | 2 | — | 2 | ||||||||||||
Financial positions at end of period, net | 4,090,000 | $ | 33 | 4,090,000 | $ | 33 | ||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31 | March 31 | March 31 | March 31 | |||||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
Service cost | $ | 30 | $ | 31 | $ | 2 | $ | 2 | $ | 60 | $ | 63 | $ | 3 | $ | 4 | ||||||||||||||||
Interest cost | 123 | 110 | 6 | 6 | 246 | 220 | 12 | 14 | ||||||||||||||||||||||||
Expected return on plan assets | (143 | ) | (122 | ) | — | — | (286 | ) | (245 | ) | — | — | ||||||||||||||||||||
Amortization of prior service costs | 9 | 9 | 1 | 2 | 18 | 18 | 2 | 3 | ||||||||||||||||||||||||
Amortization of losses | 21 | 33 | 2 | 4 | 41 | 66 | 4 | 8 | ||||||||||||||||||||||||
Net periodic benefit | $ | 40 | $ | 61 | $ | 11 | $ | 14 | $ | 79 | $ | 122 | $ | 21 | $ | 29 | ||||||||||||||||
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For the Six Months Ended March 31
2007 | 2006 | |||||||
Cash provided by (used in) | ||||||||
Operating activities | $ | 945 | $ | 793 | ||||
Investing activities | (880 | ) | (797 | ) | ||||
Financing activities | (219 | ) | (33 | ) | ||||
Net decrease in cash and cash equivalents | $ | (154 | ) | $ | (37 | ) | ||
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• | An increase in cash provided by operating revenues of $261 million resulting primarily from higher average rates and increased demand for industries directly served in the first six months of 2007; | ||
• | Less cash paid for interest of $27 million in the first six months of 2007; and | ||
• | Proceeds from customers of $34 million in the first six months of 2007 related to a future generation reserve. |
• | An increase in cash paid for fuel and purchased power of $145 million due to higher volume of fuel and purchased power as well as increased market prices for fuel; | ||
• | An increase in tax equivalent payments of $30 million; and | ||
• | An increase in expenditures for nuclear refueling outages of $43 million due to two planned outages in the first six months of the current year compared to one planned outage in the prior year. |
• | A smaller increase in inventories and other of $53 million in the first six months of 2007 due to higher beginning fuel inventories in the current year resulting in decreased purchases of coal; and | ||
• | A smaller decrease in accounts payable and accrued liabilities of $34 million in the first six months of 2007 due to timing of accruals and an increase in distributor revenues collected in advance. |
• | An $8 million reduction in accounts receivable collections; and | ||
• | A smaller increase in accrued interest of $6 million. |
• | An increase in expenditures for capital projects of $85 million primarily due to increased expenditures of $84 million related to the Watts Bar Steam Generator Replacement project and a corresponding increase in AFUDC of $20 million, partially offset by a decrease in expenditures for the Browns Ferry Unit 1 restart of $30 million; and | ||
• | An increase in expenditures of $98 million to acquire the Gleason and Marshall County combustion turbine facilities. |
• | A decrease in expenditures for the enrichment and fabrication of nuclear fuel of $64 million related to the restart of Browns Ferry Unit 1; and | ||
• | A larger source from collateral deposits in the first six months of 2007 of $35 million as compared to the first six months of 2006. See Note 1 —Summary of Significant Accounting Policies — Restricted Cash and Investments. |
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• | A decrease of $40 million in long-term debt issues; and | ||
• | An increase in redemptions and repurchases of long-term debt of $309 million. |
Total | 2007(1) | 2008 | 2009 | 2010 | 2011 | Thereafter | ||||||||||||||||||||||
Debt(2) | $ | 22,711 | $ | 2,638 | $ | 90 | $ | 2,030 | $ | 63 | $ | 1,015 | $ | 16,875 | ||||||||||||||
Interest payments relating to debt | 21,099 | 600 | 1,173 | 1,117 | 1,063 | 1,032 | 16,114 | |||||||||||||||||||||
Leases | ||||||||||||||||||||||||||||
Non-cancelable operating | 114 | 22 | 40 | 26 | 13 | 5 | 8 | |||||||||||||||||||||
Capital | 240 | 31 | 59 | 58 | 57 | 29 | 6 | |||||||||||||||||||||
Power purchase obligations | 4,596 | 117 | 162 | 171 | 173 | 174 | 3,799 | |||||||||||||||||||||
Purchase obligations | ||||||||||||||||||||||||||||
Fuel purchase obligations | 3,342 | 1,029 | 543 | 504 | 482 | 223 | 561 | |||||||||||||||||||||
Other obligations | 454 | 107 | 205 | 125 | 8 | 2 | 7 | |||||||||||||||||||||
Payments on other financings | 1,507 | 35 | 89 | 85 | 89 | 95 | 1,114 | |||||||||||||||||||||
Payment to the U.S. Treasury(3) | ||||||||||||||||||||||||||||
Return of appropriation investment | 150 | 20 | 20 | 20 | 20 | 20 | 50 | |||||||||||||||||||||
Return on appropriation investment | 282 | 20 | 23 | 22 | 21 | 20 | 176 | |||||||||||||||||||||
Retirement plans | 44 | 44 | — | — | — | — | — | |||||||||||||||||||||
Total | $ | 54,539 | $ | 4,663 | $ | 2,404 | $ | 4,158 | $ | 1,989 | $ | 2,615 | $ | 38,710 | ||||||||||||||
Notes: | ||
(1) | Period April 1 — September 30, 2007. | |
(2) | Does not include noncash items of foreign currency valuation loss of $252 million and unamortized discount of $178 million. | |
(3) | TVA has access to financing arrangements with the U.S. Treasury whereby the U.S. Treasury is authorized to accept from TVA a short-term note with the maturity of one year or less in an amount not to exceed $150 million. TVA may draw any portion of the authorized $150 million during the year. Interest is accrued daily at a rate determined by the United States Secretary of the Treasury each month based on the average rate on outstanding marketable obligations of the United States with maturities of one year or less. During 2006, the daily average outstanding balance was $131 million. TVA’s practice is to repay on a quarterly basis the outstanding balance of the note and related interest. Because of this practice, there was no outstanding balance on the note as of March 31, 2007. Accordingly, the Commitments and Contingencies table does not include any outstanding payment obligations to the U.S. Treasury for this note at March 31, 2007. |
Total | 2007* | 2008 | 2009 | 2010 | 2011 | Thereafter | ||||||||||||||||||||||
Energy prepayment obligations | $ | 1,191 | $ | 53 | $ | 106 | $ | 105 | $ | 105 | $ | 105 | $ | 717 | ||||||||||||||
Note: | ||
* | Period April 1 — September 30, 2007. |
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Three Months Ended | Six Months Ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating revenues | $ | 2,277 | $ | 2,048 | $ | 4,381 | $ | 4,100 | ||||||||
Operating expenses | (1,891 | ) | (1,766 | ) | (3,679 | ) | (3,593 | ) | ||||||||
Operating income | 386 | 282 | 702 | 507 | ||||||||||||
Other income | 18 | 16 | 30 | 28 | ||||||||||||
Unrealized gain on derivative contracts, net | 16 | 21 | 31 | 35 | ||||||||||||
Interest expense, net | (294 | ) | (305 | ) | (586 | ) | (609 | ) | ||||||||
Net income (loss) | $ | 126 | $ | 14 | $ | 177 | $ | (39 | ) | |||||||
Sales (millions of kWh) | 43,760 | 41,585 | 83,275 | 83,060 | ||||||||||||
Heating degree days (normal 1,874 and 3,194, respectively) | 1,632 | 1,609 | 2,859 | 2,962 | ||||||||||||
Cooling degree days (normal 9 and 68, respectively) | 63 | 20 | 126 | 139 | ||||||||||||
Combined degree days (normal 1,883 and 3,262, respectively) | 1,695 | 1,629 | 2,985 | 3,101 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
March 31 | March 31 | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | |||||||||||||||||||
Sales of Electricity | ||||||||||||||||||||||||
Municipalities and cooperatives | $ | 1,922 | $ | 1,745 | 10.1 | % | $ | 3,664 | $ | 3,508 | 4.4 | % | ||||||||||||
Industries directly served | 301 | 245 | 22.9 | % | 603 | 475 | 26.9 | % | ||||||||||||||||
Federal agencies and other | 26 | 32 | (18.8 | %) | 51 | 58 | (12.1 | %) | ||||||||||||||||
Other revenue | 28 | 26 | 7.7 | % | 63 | 59 | 6.8 | % | ||||||||||||||||
Total operating revenues | $ | 2,277 | $ | 2,048 | 11.2 | % | $ | 4,381 | $ | 4,100 | 6.9 | % | ||||||||||||
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• | A $177 million increase in revenues from municipalities and cooperatives attributable to increased sales of 6.9 percent and an increase in average rates of 4.1 percent; and | ||
• | A $56 million increase in revenues from industries directly served attributable to increased sales of 0.1 percent and an increase in average rates of 23.4 percent. |
• | A $156 million increase in revenues from municipalities and cooperatives attributable to increased sales of 0.1 percent and an increase in average rates of 5.2 percent; and | ||
• | A $128 million increase in revenues from industries directly served attributable to increased sales of 1.3 percent and an increase in average rates of 26.0 percent. |
(Millions of kWh)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
March 31 | March 31 | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | |||||||||||||||||||
Sales of electricity | ||||||||||||||||||||||||
Municipalities and cooperatives | 35,102 | 32,828 | 6.9 | % | 66,009 | 65,932 | 0.1 | % | ||||||||||||||||
Industries directly served | 8,175 | 8,166 | 0.1 | % | 16,283 | 16,078 | 1.3 | % | ||||||||||||||||
Federal agencies and other | 483 | 591 | (18.3 | %) | 983 | 1,050 | (6.4 | %) | ||||||||||||||||
Total sales of electricity | 43,760 | 41,585 | 5.2 | % | 83,275 | 83,060 | 0.3 | % | ||||||||||||||||
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• | A 28 million kilowatt-hour decrease in sales to federal agencies directly served (included inFederal Agencies and Other) primarily as a result of a decrease in demand by one of TVA’s largest directly served federal agencies due to a change in the nature and scope of its test programs; and | ||
• | An 80 million kilowatt-hour decrease in off-system sales (included inFederal Agencies and Other) attributable to decreased generation available for sale primarily as a result of the record-setting dry period. |
• | A 77 million kilowatt-hour increase in sales to municipalities and cooperatives due to favorable economic growth in the service area, partially offset by a decrease in combined weather degree days of 3.7 percent; and | ||
• | A 205 million kilowatt-hour increase in sales to industries directly served mainly as a result of increased sales to TVA’s largest directly served industrial customer to accommodate higher production levels at its facility, partially offset by decreased sales to other large directly served industrial customers reflecting reduced demand due to more unplanned outages at those facilities compared to the prior period. |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
March 31 | March 31 | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | |||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Fuel and purchased power | $ | 824 | $ | 717 | 14.9 | % | $ | 1,563 | $ | 1,462 | 6.9 | % | ||||||||||||
Operating and maintenance | 576 | 567 | 1.6 | % | 1,161 | 1,167 | (0.5 | %) | ||||||||||||||||
Depreciation, amortization, and accretion | 382 | 389 | (1.8 | %) | 738 | 777 | (5.0 | %) | ||||||||||||||||
Tax equivalents | 109 | 93 | 17.2 | % | 217 | 187 | 16.0 | % | ||||||||||||||||
Total operating expenses | $ | 1,891 | $ | 1,766 | 7.1 | % | $ | 3,679 | $ | 3,593 | 2.4 | % | ||||||||||||
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• | A $10 million increase in fuel expense reflecting higher aggregate fuel cost per kilowatt-hour net thermal generation of 0.2 percent, increased generation of 1.1 percent and 159.1 percent at the coal-fired and combustion turbine plants, respectively, in part because of lower hydroelectric generation, and a FCA deferral for fuel expense of $6 million. In accordance with the FCA methodology, TVA has deferred the amount of fuel costs that were lower than the amount included in power rates for the first quarter of 2007. This $6 million deferred amount will be refunded to customers in future FCA adjustments; | ||
• | A $97 million increase in purchased power expense due to higher volume acquired of 66.2 percent to accommodate for decreased total generation of 1.4 percent, partially offset by a decreased average purchase price of 6.2 percent and a FCA deferral for purchased power expense of $30 million. In accordance with the FCA methodology, TVA has deferred the amount of purchased power costs that were higher than the amount included in power rates for the first quarter of 2007. This $30 million deferred amount will be charged to customers in future FCA adjustments; | ||
• | A $9 million increase in operating and maintenance expense mainly as a result of increased outage and routine operating and maintenance costs at fossil-fired plants of $32 million due to more planned outages during the second quarter of 2007 and the significant planned recovery work on the three Paradise coal-fired units, partially offset by decreased pension financing costs of $22 million attributable to a 0.52 percent higher discount rate and a 0.50 percent higher than expected long-term rate of return on pension plan assets; and | ||
• | A $16 million increase in tax equivalent payments reflecting increased gross revenues from the sale of power during 2006 as compared to 2005. |
• | A $36 million increase in fuel expense as a result of higher aggregate fuel cost per kilowatt-hour net thermal generation of 9.2 percent and increased generation of 2.6 percent and 42.0 percent at the coal-fired and combustion turbine plants, respectively, partially offset by a FCA deferral for fuel expense of $33 million. In accordance with the FCA methodology, TVA has deferred the amount of fuel costs that were higher than the amount included in power rates for the first two quarters of 2007. This $33 million deferred amount will be charged to customers in future FCA adjustments; | ||
• | A $65 million increase in purchased power expense attributable to higher volume acquired of 38.2 percent to accommodate for decreased total generation of 2.1 percent, partially offset by a decreased average purchase price of 16.5 percent and a FCA deferral for purchased power expense of $7 million. In accordance with the FCA methodology, TVA has deferred the amount of purchased power costs that were higher than the amount included in power rates for the first two quarters of 2007. This $7 million deferred amount will be charged to customers in future FCA adjustments; and | ||
• | A $30 million increase in tax equivalent payments reflecting increased gross revenues from the sale of power during 2006 as compared to 2005. |
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• | A $6 million decrease in operating and maintenance expense primarily due to decreased pension financing costs of $45 million as a result of a 0.52 percent higher discount rate and a 0.50 percent higher than expected long-term rate of return on pension plan assets, partially offset by increased outage and routine operating and maintenance costs at fossil-fired plants of $15 million due to more outages during the first six months of 2007 and the significant planned recovery work on the three Paradise Fossil Plant coal-fired units, a $17 million write-down of a scrubber project at TVA’s Colbert Fossil Plant (“Colbert”), and write-downs of $5 million relating to other construction work-in-progress; and | ||
• | A $39 million decrease in depreciation, amortization, and accretion expense largely due to a $45 million decrease in depreciation expense primarily attributable to the depreciation rate reduction for Browns Ferry Nuclear Plant reflecting the 20-year license extension approved on May 4, 2006, partially offset by a $6 million increase in accretion expense mainly reflecting the adoption of FIN No. 47 and the updated incremental accretion for SFAS No. 143. |
• | A $42 million smaller gain related to the mark-to-market valuation of swaption contracts, from a $59 million gain in the second quarter of 2006 to a $17 million gain in the second quarter of 2007; and | ||
• | A $30 million net change related to the mark-to-market valuation adjustment of an interest rate swap contract, from a $30 million gain in the second quarter of 2006 to no gain or loss in the second quarter of 2007. |
• | A $29 million smaller gain related to the mark-to-market valuation of swaption contracts, from a $51 million gain in the first two quarters of 2006 to a $22 million gain in the first two quarters of 2007; and |
• | A $33 million smaller gain related to the mark-to-market valuation adjustment of an interest rate swap contract, from a $43 million gain in the first two quarters of 2006 to a $10 million gain in the first two quarters of 2007. |
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Three Months Ended | Six Months Ended | |||||||||||||||||||||||
March 31 | March 31 | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | |||||||||||||||||||
Interest expense | ||||||||||||||||||||||||
Interest on debt | $ | 339 | $ | 339 | 0.0 | % | $ | 675 | $ | 674 | 0.1 | % | ||||||||||||
Amortization of debt discount, issue, and reacquisition costs, net | 5 | 5 | 0.0 | % | 10 | 10 | 0.0 | % | ||||||||||||||||
AFUDC and nuclear fuel expenditures | (50 | ) | (39 | ) | 28.2 | % | (99 | ) | (75 | ) | 32.0 | % | ||||||||||||
Net interest expense | $ | 294 | $ | 305 | (3.6 | %) | $ | 586 | $ | 609 | (3.8 | %) | ||||||||||||
Percent | Percent | |||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | |||||||||||||||||||
Interest rates (average) | ||||||||||||||||||||||||
Long-term | 5.98 | 6.07 | (1.5 | %) | 6.02 | 6.06 | (0.7 | %) | ||||||||||||||||
Discount notes | 5.16 | 4.33 | 19.2 | % | 5.20 | 4.13 | 25.9 | % | ||||||||||||||||
Blended | 5.89 | 5.88 | 0.2 | % | 5.93 | 5.85 | 1.4 | % |
• | A decrease in the average long-term interest rate from 6.07 percent to 5.98 percent; | ||
• | A decrease of $151 million in the average balance of long-term outstanding debt; and | ||
• | An $11 million increase in AFUDC due to a 24.4 percent increase in the construction work in progress base. |
• | An increase in the average discount notes interest rate from 4.33 percent to 5.16 percent; and | ||
• | An increase of $88 million in the average balance of discount notes outstanding. |
• | A decrease in the average long-term interest rate from 6.06 percent to 6.02 percent; | ||
• | A decrease of $286 million in the average balance of long-term outstanding debt; | ||
• | A decrease of $99 million in the average balance of discount notes outstanding; and | ||
• | A $24 million increase in AFUDC due to a 26.0 percent increase in the construction work in progress base. |
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• | Expanding the types of financial arrangements that count towards TVA’s $30 billion debt ceiling; | ||
• | Requiring TVA to register its debt securities with the Securities and Exchange Commission; and | ||
• | Allowing Congress to establish the amount of TVA’s Office of Inspector General’s budget and directing TVA to fund the amount with power revenues beginning in 2008. Funding for TVA’s Office of the Inspector General is currently paid directly by TVA. |
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(1) | Construct, own, and operate any generation facility, individually or jointly with other distributors; | ||
(2) | Receive partial requirements services from TVA; | ||
(3) | Receive transmission services from TVA that are sufficient to meet all electric energy requirements of the distributors; and | ||
(4) | Elect, not later than 180 days after enactment, to rescind the termination notice “without the imposition of a reintegration fee or any similar fee.” |
(1) | Construct, own, and operate any generation facility, individually or jointly with another distributor; and | ||
(2) | Receive partial requirements from TVA within a ratable limit, which cumulatively stays within a three-percent compounded annual growth rate on the TVA system. |
(1) | TVA would have to provide transmission to enable such distributor to receive its share of SEPA power at one or more of the distributor’s delivery points specified by that distributor; and | ||
(2) | The price that such distributor would pay for its SEPA power would be the same rate that TVA pays for the SEPA power that it receives for the remaining distributors. |
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Exhibit No. | Description | |||
31.1 | Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Executive Officer | |||
31.2 | Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Financial Officer | |||
32.1 | Section 1350 Certification Executed by the Chief Executive Officer | |||
32.2 | Section 1350 Certification Executed by the Chief Financial Officer |
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TENNESSEE VALLEY AUTHORITY (Registrant) | ||||
By: | /s/ Tom D. Kilgore | |||
Tom D. Kilgore | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ John M. Hoskins | |||
John M. Hoskins | ||||
Interim Chief Financial Officer and Executive (Principal Financial Officer) Vice President, Financial Services |
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Exhibit No. | Description | |||
31.1 | Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Executive Officer | |||
31.2 | Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Financial Officer | |||
32.1 | Section 1350 Certification Executed by the Chief Executive Officer | |||
32.2 | Section 1350 Certification Executed by the Chief Financial Officer |
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