Tennessee Valley Authority (TVA) President and CEO Bill Johnson said the recent extreme cold weather does not change the way that the federal utility looks at the need to bring on new natural gas generation to compensate for retiring coal units.
Johnson made his comments during a Feb. 4 conference call on TVA’s first quarter earnings for Fiscal Year (FY) 2014. With TVA being a federal entity, its first quarter is the last quarter of the 2013 calendar year, which includes the so-called “shoulder months” of low demand, Johnson said.
While it fell after the TVA first quarter, Johnson also commented on the so-called “polar vortex” of extreme cold during January. The cold weather correlated with dramatic increases in demand and price for natural gas and spot power in several parts of the country.
Johnson said the cold snap, while it set new power records at TVA, won’t alter the coal-versus-gas dynamic. It also won’t cause TVA to reconsider plans to build new gas-fired capacity on the grounds of the Paradise coal station in Kentucky.
The series of severe cold waves that swept the Tennessee Valley in January are pretty rare events. Natural gas prices did shift upward, but not as dramatically as the gas price volatility of old, Johnson said.
“We expect demand growth to remain low and environmental restrictions to become even more stringent,” Johnson said.
On another issue, Johnson said that TVA has nearly completed its work with the U.S. Office of Management and Budget (OMB) to help the federal government decide whether TVA should be taken private. Johnson would not predict when the government might issue any sort of formal findings.
“I believe at this point all the analytical work is done,” Johnson said. The CEO hopes conclusions can be reached soon. “It has been a very collaborative and cooperative process,” he added.
On operational goals, much of the construction is done on Watts Bar 2. Work on completing the nuclear unit in Tennessee is shifting toward major systems testing, Johnson said. TVA intends to bring the nuclear facility online in late 2015.
Johnson said the Nuclear Regulatory Commission (NRC) has removed its “red finding” at TVA’s Browns Ferry nuclear plant in Alabama. This is further evidence that TVA’s nuclear operating performance is improving, Johnson said.
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Overall, TVA said operating expenses declined and its bottom line results improved in 1Q14 compared with the same quarter a year ago.
TVA has set a goal to decrease its operation and maintenance expense by $500m over the next couple of years and that includes “headcount,” Johnson said.
Cost-cutting efforts at TVA include a recently-launched voluntary reduction in force program that Johnson thinks will appeal to employees who are nearing retirement age.
TVA reported a $67m net loss on operating revenues of $2.38bn in the first quarter of 2014, an improvement over a $245m loss on revenues of $2.58bn for the same period last year.
The TVA filing to the Securities and Exchange Commission (SEC) covered the three months ended Dec. 31, 2013.
Compared with last year, operating and maintenance expenses were down $112m, or 12%, in the first quarter of 2014. This was driven by a $91m decrease in expenses from planned outages, projects and scheduled maintenance, and a reduction in contract labor. A $10m increase in coal-fired operation outages partially offset the O&M savings.
Total operating expenses were 14 % lower than the same period last year, driven primarily by a 32 % decrease in fuel expenses. TVA’s nuclear and hydroelectric generation increased 29% and 30%, respectively, compared to the first quarter of last year, helping to drive the lower fuel costs. A 2% increase in purchased power expense also partially offset higher gas prices.
Total electricity sales were down 3% for the quarter, primarily due to the loss of TVA’s largest directly served customer. But sales to local power companies were 7% higher as a result of cooler weather than a year ago and some growth in electric demand.
Improved nuclear generation was due in part to favorable refueling and maintenance schedules. The increase in hydroelectric power was due to very wet weather during the past year, TVA officials said.
TVA operates the nation’s largest public power system and supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky and in portions of northern Georgia, western North Carolina, and southwestern Virginia to a population of over nine million people.
TVA sales were actually up when you exclude the impact of loss of TVA’s largest customer, the uranium enrichment plant run by USEC, officials said.