TVA coping with reduced power demand, many capital projects

The Tennessee Valley Authority (TVA) is simultaneously coping with shrinking power demand, and hence revenues, while making major capital investments in its coal and nuclear fleet – and increasing renewable energy resources.

This juggling act, made more complicated by the recent loss of TVA’s largest single electric customer, highlighted TVA’s board meeting Aug. 22 in Knoxville, Tenn.

TVA’s fiscal year 2014 budget anticipates 4.6% lower sales year over year and is about 6% less than 2013, including capital expenditures of $3.3bn for Watts Bar 2 nuclear plant and clean air controls at Gallatin Fossil Plant.

TVA’s President and CEO Bill Johnson said TVA’s priorities include “living within our means” by bringing operations and maintenance expenses in line with recent trends in declining electricity sales and revenues.

“Demand for our product is down and that won’t change anytime soon. The weather, the economy, energy efficiency/demand response, and rate design are all factors,” Johnson said. “We’re working harder than ever to reduce our costs, but they are not declining at the rate of our sales and revenues.”

TVA is executing a plan to reduce O&M costs by $500m by 2015. Nearly $150m in reductions have been achieved this fiscal year with plans for an additional $150m by the end of 2014 and another $200m in 2015, TVA said.

This spring USEC (NYSE:USU) announced it would stop enriching uranium at its gaseous diffusion plant in Paducah, Ky. Power sales from USEC represented 5% of TVA’s total operating revenues in FY 2012.

TVA officials said the USEC Paducah plant shutdown has been expected for years, so it was not a big surprise. Loss of the USEC plant will be felt more by TVA during FY 2014, which will mark the first full 12-month period of shutdown.

TVA’s President and CEO Bill Johnson and others noted that TVA’s power demand peak was reached in 2007.

On the capital improvement front, Johnson said that TVA is on track to meet its revised budget and schedule for completing the Watts Bar 2 nuclear power plant in late 2015.

In April of 2012, the TVA board rededicated the federal utility to finishing the incomplete 1,100-MW nuclear unit despite a major cost overrun since 2007. TVA had originally expected to revive the Watts Bar plant for $2.5bn. In spring of 2012, TVA said the project would cost between $4bn and $4.5bn and the job won’t be finished until late 2015.

During the public forum segment of the board member, various speakers said TVA could improve its budget picture by cancelling any plans for developing a reactor at the Bellefonte site and abandoning plans for a small nuclear reactor (SMR) project at the Clinch River site.

TVA has been looking to expand its nuclear footprint in order to help it reduce greenhouse gas emissions and other air pollutants.

On other generation updates, TVA officials said the first unit at the 1,600-MW Raccoon Mountain pumped storage hydro plant should return to service in October.

TVA raises some rates; Oks hydro improvements

The board approved a $10.5bn FY 2014 budget at its meeting and a 1.5% retail rate increase – TVA’s first increase in two years.

While we never like to raise rates, this small adjustment is necessary to meet our 2014 revenue requirements and operate our system safely and reliably,” Johnson said.

The new budget and rate adjustment go into effect with TVA’s new fiscal year, which begins Oct. 1, 2013.

In other action, the board:                    

•Approved a five-year extension of the Environmental Adjustment; up to $3.5 billion in contracts for fuel and purchased power, and up to $4 billion of long-term bonds.

•Approved TVA entering contracts for hydroelectric modernization and transmission system construction and modification services.

•Approved changes to the annual and long-term employee performance goals incentive programs.

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.