Despite record-setting heat in October and record cold in November, sales of electricity in the Tennessee Valley totaled nearly 4% less in the last three months of last year than the previous year, cutting TVA revenues by $149 million in its first fiscal quarter of 2020 compared with a year ago.
The Tennessee Valley Authority said today that total degree days impacted by overall heating and cooling were 9% below from October through December last year than they were in the same period in 2018. TVA offset the drop in revenues — and absorbed the first of its rebates provided to most of its local power companies that signed long-term contracts -- by cutting its operating, fuel, interest and tax equivalent payments during the quarter.
TVA's fuel and purchased power expense was 13% lower year-over-year, driven by lower effective fuel and purchased power rates.
Despite the drop in revenues and charges to local power companies, TVA officials said the utility's net income of $192 million in the first fiscal quarter of the year remained healthy, even though TVA's profits in the quarter were less than half of the $423 million TVA earned in the first quarter of its record profit year in fiscal 2019.
"This year has started off as a strong one for TVA's customers and, ultimately, for the nearly 10 million people we collectively serve," TVA President Jeff Lyash said in an earnings report today. "The diversity of TVA's power system continues to benefit consumers in the Tennessee Valley with lower fuel costs, and our local power company customers are starting to see the financial benefits of their new partnerships with TVA."
TVA directors voted last August not to raise its base rates and to offer rebates to municipalities and power cooperatives that sign 20-year purchase agreements in TVA. It was the first time in 13 years, TVA offered cheaper base-rate power to its customers.
TVA has also cut its monthly fuel-cost portion of power bills this year, trimming this month's fuel charges to the lowest for any February in seven years.
TVA's fuel costs are down due to cheaper natural gas prices and increased hydroelectric generation from above-average rainfall producing higher output from TVA's 29 power-generating dams and higher nuclear power generation from the power upgrade at the Browns Ferry Nuclear Power Plant.
With stagnant or declining overall demand, TVA is burning less coal and rarely using its combustion turbines or buying more expensive power on the grid.
TVA's long-term strategy is to keep power rates steady with no base rate increases for at least the next 10 years, barring unexpected price shocks or market changes.
"TVA continues to provide steady, low rates for our customers," said John Thomas, TVA's chief financial officer. "We are clearly seeing the financial benefits now from our transition to a cleaner generation fleet and lower debt, and these benefits will continue for years to come."
TVA trimmed its net long-term statutory debt at the end of 2019 to $20.03 billion, or $163 million less than a year earlier. With its debt at the lowest level in nearly 30 years and interest rates near historic lows, TVA's interest expenses were down 5% in the quarter to $287 million, according to TVA's quarterly filing today with the U.S. Securities and Exchange Commission.
TVA's depreciation and amortization expense was $239 million higher during the quarter versus the same period a year earlier, primarily due to a $225 million increase related to accelerating the retirements of some of its older generating assets, including the Paradise Fossil Plant in Kentucky, which shut down its last coal unit last week.
Operating and maintenance expense was $56 million lower in TVA's most recent fiscal quarter, driven by a $65 million decrease from the prior year's accelerated recovery of the regulatory asset for certain environmental cleanup costs, which were fully amortized at Sept. 30, 2019.