Fitch: latest TVA coal shutdowns are a credit neutral action

November 21, 2013 10:21 AM Eastern Standard Time

NEW YORK–(BUSINESS WIRE)–The Tennessee Valley Authority’s plan to retire eight of its 59 coal-fired units is a neutral factor in its short-term credit quality according to Fitch Ratings. Plans to shutter the plants were principally driven by a longstanding agreement between TVA and the Environmental Protection Agency (EPA) and were outlined in TVA’s 2011 integrated resource plan (IRP).

Although Fitch is concerned about the implicit costs of retiring coal-fired generating capacity prior to the end of its useful life, continued operation of the TVA plants would have required significant new investment to meet environmental regulations.

The EPA agreement requires TVA to ultimately retire 18 coal-fired units by 2018. The reduction in coal-fired generating capacity is expected to be replaced primarily by a mix of natural gas and nuclear capacity. TVA’s eventual goal is to meet its load growth from a more balanced generation fleet of approximately 40% nuclear with the balance split evenly between coal, natural gas and hydro and renewables. Over the longer run, we view TVA’s efforts to broaden its mix of generating capacity as a positive credit factor.

This announcement will have no effect on the authority’s rating (‘AAA’) or the resolution of the Rating Watch Negative currently assigned its global power bonds. This rating continues toreflect TVA’s status as a wholly owned corporation of the U.S. government and Fitch’s belief that repayment of outstanding power bonds would ultimately receive the support of the U.S. government in the event of fiscal distress. The Rating Watch is expected to be resolved concurrently with the Rating Watch Negative currently assigned to the United States of America’s ‘AAA/F1+’ foreign and local currency Issuer Default Ratings.

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