The decline in interest rates may be bad news for those seeking investment earnings on their bank CDs or savings bonds, but it is good news for America's biggest government-owned utility.
The Tennessee Valley Authority is taking advantage of the drop in interest rates to replace $217 million of bonds currently yielding from 2.375% to 3.25% to achieve even lower borrowing rates for TVA. The federal utility announced Tuesday it will redeem early nine issues of bonds on Nov. 15. The bonds originally had maturity dates from 2025 until 2042.
"The recent drop in interest rates has created an opportunity for TVA to save $4 million annually by redeeming these bonds," said Tammy Wilson, TVA's treasurer and chief risk officer. "Those savings will benefit our customers and support TVA's ongoing mission of providing affordable power."
With inflation still running below the target set by the Federal Reserve Board and the Fed promising to further lower interest rates, bond yields on government notes, including those issued by TVA, have continued to decline this year.
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TVA enjoys a top bond rating and is able to borrow money cheaper than investor-owned utilities because of the implied backing of the U.S. governments for its debt. Although TVA debt is not government guaranteed, its rates are comparable with U.S. treasuries.
TVA also is benefiting by cutting its long-term borrowings. In the most recent fiscal year, TVA cut its debt by more than $1 billion and it on pace to meet its 10-year debt reduction goal of $21.8 earlier than originally forecast.
In the next three years, TVA President Jeff Lyash expects to trim the agency's debt to between $18 billion and $20 billion as it reduces its new capital spending program and takes advantage of a favorable economy and historically low interest rates.
TVA also has cut more than $800 million a year in its operating costs, allowing it to continue to pay down its debt this year even without any base rate increase in power rates for the first time in nearly a decade.