TVA using creative means to avoid debt ceiling

TVA using creative means to avoid debt ceiling

February 15th, 2012 by Dave Flessner in Business Around the Region

Sequoyah Nuclear Plant is located near Soddy-Daisy.

Photo by Dan Henry/Times Free Press.

The Tennessee Valley Authority will boost its borrowings in 2013 by $333 million to pay for more and cleaner power.

But TVA's preliminary 2013 budget released this week projects that most of the additional debt won't count against TVA's debt limit. The federal utility is planning to use alternative financing methods to raise more than $4 billion and avoid bumping up against its own debt ceiling.

TVA Chief Financial Officer John Thomas said Tuesday TVA plans to use more leaseback agreements with outside investors to pay for ongoing work on cleaning up aging coal plants and building new nuclear reactors.

"We're building more capacity and continuing to make improvements in our air emissions, but these are long-term investments which will pay off over time," Thomas said.

With lower interest rates and more electricity sales, the share of TVA revenues going to pay interest expenses has dropped by more than half in the past decade and a half. But TVA's $2.5 billion capital spending program next year, combined with a projected stagnant growth in power sales, will push up interest expenses in fiscal 2013 from 13 percent of TVA's revenues this year to 14 percent next year.

"We're being very disciplined in our borrowing ,and our interest burden has come down significantly over time," Thomas said.

In the 1990s, then-TVA Chairman Craven Crowell set a goal of cutting overall debt in half in following decade. TVA backed off of that goal when it decided to build its own generation plants, rather than buying from other producers, to meet its rising power load.

TVA's total debt and debt-like instruments are projected to grow by the end of next year to $27.7 billion, or only $2.3 billion below the $30 billion debt ceiling Congress imposed on TVA in 1979.

But TVA spokesman Duncan Mansfield said TVA's statutory debt, or the borrowings that count against the ceiling, are projected to stay beneath $25 billion since much of TVA's money will come from leaseback arrangements or prepurchase agreements with its distributors which are not counted as statutory debt.

TVA projects it will get up to $4.4 billion from leaseback agreements on plants it sells and leases back, similar to the $1 billion deal completed in January for the John Sevier combined-cycle coal plant near Rogersville, Tenn.

Mansfield also noted that TVA is paying down about $1 billion a year on its existing assets and the inflation-adjusted value of the 1979 debt ceiling today would be worth nearly $93 billion today.

TVA's net borrowing is about 40 percent higher than comparable investor-owned utilities, Thomas said. But as a government-owned utility, TVA doesn't pay dividends or earn a profit and TVA is usually able to borrow at a lower interest rate.

"We compare very favorably with other utilities," Thomas said. "The challenge going forth is to continue to meet our financial obligations while keeping our power rates as competitive as possible."