With the U.S. economy expected to decline by 20% this spring due to business shutdowns caused by the COVID-19 virus, the Tennessee Valley Authority projects its power sales will be down from $300 million to $500 million this year.
Last month, electricity sales to small commercial businesses dropped by 35% and the power load for major industrial customers of TVA fell by about 10% from year ago levels, TVA Chief Financial Officer John Thomas said Thursday.
"We do know from the early trends that there will be a rather severe impact in TVA's third fiscal quarter (April to June)," Thomas told TVA directors Thursday during the board's quarterly meeting - the first virtual board meeting held online in TVA history. "What we don't know is how long this will last."
TVA economists, using an average forecast for the gross domestic product in the current quarter, project the overall economy across the Tennessee Valley will suffer its biggest drop in quarterly activity in history this spring with schools, stores, restaurants and many factories closed for some or all of the period. But TVA is forecasting the regional economy will begin to rebound by the fourth quarter of 2020.
(READ MORE: TVA bonds sell at historically low rate of 0.75%)
TVA President Jeff Lyash said the federal utility enters the slowdown with the least amount of debt in 30 years and the cheapest borrowing costs ever after TVA earned record profits of more than $1.4 billion last year. TVA is also benefiting by lower costs for fuel and improved operating efficiency at most of its major power plants.
As a result, TVA froze its base rates last year and offered a 3.1% rebate to local power companies that signed 20-year purchase power agreements with TVA. So far, 139 of the 154 municipalities and power cooperatives that buy TVA power have signed the long-term agreements and collectively those utilities got $70 million back from TVA in the first half of the fiscal year and will be even more in rebates in the second half of fiscal 2020.
Combined with a drop in its fuel cost adjustments, TVA's average delivered price of power is down 4% from a year ago, Thomas said.
Amid the COVID-19 crisis, TVA also provided up to $1 billion of additional credit to its distributors to aid in short-term cash flow problems from the cutbacks in power sales.
At the same time, TVA has allowed its distributors to delay or suspend some utility payments from financially distressed households and businesses. Lyash said so far, 92% of TVA's local power companies, which collectively serve 96% of the million people in TVA"s 7-state service area, have ended power disconnections for delinquent bill payments, at least for now.
TVA, which is both the power supplier and rate regulator for municipalities and power coops in the Valley, relaxed some of its rate schedules during the current crisis.
"We've provided regulatory flexibility to our local power companies so they can quickly meet the needs of their customers," Lyash said. "We can act quickly act to serve our customers and I think that is one of our key advantages. Public power is about people more than the bottom line."
TVA also has provided $2 million in matching funds to aid local relief efforts by its local power companies.
For the major industrial customers served directly by TVA, the federal utility adopted a "Back to Business" credit program to relax some of the monthly demand charges under TVA's industrial rate schedule since many of the businesses shut down or were orderd to significantly curb their operations since mid March. So far, 42 of the 700 major industries served by TVA have already taken advantage of the new credit, which relaxes some of the traditional monthly minimum demand charges.
"For businesses that are ready to come back into service, we want them to come back and ramp up their business as quickly as possible and we don't want any disincentive or penalties for them for starting up in the middle or end of a month and worrying about having to pay the demand charge," Lyash said. "These type of rate schedules were not intended for this kind of unprecedented environment."
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.