In its second quarter earnings call Friday, the Tennessee Valley Authority outlined how it is continuing its strategy toward more natural gas and nuclear energy as elements of a balanced energy generation mix for the Tennessee Valley.
With TVA board approval of a new estimate to complete the second nuclear unit at Watts Bar and the John Sevier Combined Cycle Gas Plant coming online $30 million under budget and ahead of schedule, TVA is moving ahead with its vision to provide cleaner, low-cost energy.
“John Sevier is the fifth combined cycle gas plant we have built, bought or leased in the past five years, and Watts Bar Unit 2 will add a second, almost identical unit to a current single-unit site. This will improve both the volume and the cost of clean energy from Watts Bar,” President and CEO Tom Kilgore said.
“Together, these facilities signal our continuing commitment to cleaner and lower cost generation that will help us achieve our vision goals of low rates, high reliability and responsibility.”
Chief Financial Officer John Thomas announced second quarter earnings. Electricity sales declined 5.9 percent for the first half of fiscal year 2012, compared with the same period last year, as the TVA service region continued to experience unseasonably warm weather, TVA said in its quarterly report to the Securities and Exchange Commission.
This winter was one of the warmest on record and utilities across the region have reported lower revenue because of reduced heating needs for homes and businesses.
Local power companies served by TVA, whose residential sales are typically more sensitive to temperature changes, purchased 7.4 percent less in the first six months of 2012, compared with the same period last year, while sales to TVA’s industrial customers grew 0.4 percent.
“The good news is that power rates are lower for our customers, in part because of lower fuel costs for TVA,” Thomas said. “However, with the impact of the milder weather we are now projecting revenues to be 7 percent lower than originally planned for the fiscal year.”
Total revenues declined 10.8 percent, or $624 million, to $5.2 billion in the first six months of 2012, compared with the same period last year. The decline was driven primarily by a $386 million decrease in base revenues and a $236 million reduction in fuel cost recovery. Base revenue declined primarily due to the mild weather, which lowered both electricity sales and the average effective rate charged to customers. Under a TVA wholesale rate structure effective since April 2011, weather conditions can lower the effective rate for local power companies by reducing peak demand charges.
“In response to our lower revenue forecast, we are looking for every opportunity for cost savings and greater efficiency, from reprioritizing capital projects to reducing travel,” Thomas said. “We will continue to make adjustments in our operations and consider other productivity enhancements throughout the year.”
In addition, Thomas said TVA is enhancing its Valley Investment Initiative program, providing incentives to industries to expand, locate or stay in the region and opportunities for future sales growth.
Helping to lower power rates to customers, TVA’s fuel expense was $323 million lower in the first six months of 2012 compared with the same period last year. Lower market prices for natural gas and more generation from lower-cost sources, particularly hydroelectric power, contributed to lower expense.
Generation from gas-fired and hydroelectric facilities was 130 percent and 25 percent higher, respectively, in the first six months of 2012, compared with the same period last year to take advantage of low-cost fuel options, while coal-fired generation declined 35 percent.
TVA reported a $267 million net loss in the first six months of 2012, compared with net income of $205 million reported for the first six months of last year.