TVA projects COVID-19 could cut revenues up to $500 million this year

But cheaper fuel, operating costs boost first quarter net income for utility

The Tennessee Valley Authority building in downtown Chattanooga is shown in 2016. / Staff file photo

A milder winter and a slowdown in economic activity late in the first quarter cut electricity sales in the Tennessee Valley by about 2% during the first three months of 2020.

The Tennessee Valley Authority said Tuesday that lower power sales and rebates given to local power companies that signed 20-year power agreements cut TVA revenues by 8.3% in the past quarter to just over $2.5 billion. But operating expenses in the three-month period fell even more, dropping 11.3% to $1.9 billion with declines in everything from fuel costs to interest payments.

As a result, TVA said its net income rose in the past quarter by 5.8% to $255 million as cheaper fuel and purchased power and lower operating costs saved the utility $231 million during the period.

TVA said so far the coronavirus has not significantly affected power sales or delivery. But in its quarterly report Tuesday, TVA projects that the economic slowdown from the COVID-19 pandemic is likely to cut TVA revenues from $300 million to $500 million during the balance of its fiscal 2020 year.

Due to higher volatility in the financial markets from COVID-19, TVA also increased its target balance of cash and cash equivalents by $500 million in what officials said was "a precautionary measure" for a more uncertain future.

"The impact of the COVID-19 pandemic on the communities we serve is unprecedented, and we know there will be continued economic uncertainty in the weeks and months ahead," said John Thomas, TVA's chief financial officer. "TVA's success in recent years in reducing costs, investing in more efficient generation, and reducing debt will help us keep power rates low, maintain reliable operations, and support our partners with greater flexibility, all of which become even more critical during this difficult time."

Recognizing the potential financial impact on local power companies, TVA announced last month that it is making up to $1 billion of credit support available as an option to local power companies through the deferral of wholesale power payments, based on the needs of individual local power companies.

"TVA has a unique responsibility to maintain vital services, including a reliable power system and river management system, to help ensure public health and safety during this challenging time," said Jeff Lyash, TVA's president and chief executive officer. "We believe that using the strength of TVA's balance sheet to support our partners and customers during this difficult time is just as vital to ensure a successful recovery for the Tennessee Valley."

Last August, TVA adopted a budget that did not increase base rates and gave local power companies such as Chattanooga's EPB a 3.1% credit each month if they signed a 20-year power agreement with TVA. So far, 139 of the 154 municipalities and power cooperatives that distribute TVA electricity have signed such long-term purchase power contracts. For those signing the long-term agreements, TVA's electricity rates have been cut for the first time in 13 years.

Power prices have dropped even more this year due to cheaper fuel cost adjustments on TVA bills. TVA has reduced the fuel portion of power bills in each of the past four months due to abundant rain, which is providing more hydro generation, and cheaper natural gas and coal prices due to the drop in overall energy demand and use of fossil fuels last month, which helps determine the May fuel cost adjustment.

The second quarter of 2020 was the wettest TVA second quarter on record with 24.6 inches of rainfall received.

Fuel costs next month will be the lowest for TVA of any May in over a decade.

TVA, which a generation ago derived more than two third of its power from coal-fired generation, produced only 12% of its total electricity from coal in the first half of the current fiscal year. TVA got 43% of its power from nuclear power, 21% from natural gas, 11% from hydroelectric dams and the rest was purchased from other utilities and producers.