Mild weather impacts TVA’s sales, earnings

by MBJ Staff

Published: February 7,2012

Tags: earnings, electricity, energy, power, publicly traded company, revenue, sales, utilities, Weather

NORTH MISSISSIPPI — Milder weather than last year in the Tennessee Valley Authority’s service region drove sales of electricity down 5 percent for the three-month period ended Dec. 31, 2011, compared with the same period last year, TVA said in its quarterly report to the Securities and Exchange Commission.

The lower-than-expected sales and resulting lower revenue is causing TVA to revisit expenditures for 2012, which may include project scope and schedule revisions related to operations, revisions of certain programs and initiatives, and other productivity enhancement initiatives.

The milder weather had a more significant impact on electricity sales to TVA’s municipal and cooperative distributors than industrial customers, as electricity usage is typically more temperature-driven for residential customers. Sales to local utilities declined 6 percent, while sales to directly served industrial customers were down 1 percent.

Total revenues declined 9 percent, or $260 million, to $2.6 billion in the first quarter of 2012 compared with the same period last year. The decline was driven primarily by a $102 million decrease in revenues from the recovery of fuel costs and a $100 million decrease resulting from lower sales volume due to milder weather.

Temperatures in the first quarter were warmer than normal in the Tennessee Valley, in sharp contrast to the previous year when temperatures were well below normal — December 2010, in fact, was the fifth coldest on record in the Tennessee Valley.

“Weather fluctuations are not something new for TVA, but these uncontrollable conditions impact TVA’s financial results,” CFO John Thomas said. “TVA can, however, make adjustments in its operations to mitigate some of the impact of lower sales results. We are currently in the process of evaluating planned expenditures for 2012 to determine if certain programs should be revised and are considering other productivity enhancements.”

TVA said it is also taking longer term actions that advance its strategic vision of leadership in low-cost, cleaner energy. These include retiring older, less efficient generating assets and moving to a more diversified portfolio that includes more natural gas and nuclear power.

Fuel expense was $98 million lower in the first quarter of 2012 compared with last year. Lower commodity prices and more generation from lower-cost sources, particularly hydroelectric power, also resulted in lower rates for TVA’s power customers in the first quarter of FY12.

Runoff, due to greater rainfall in TVA’s service area, was 120 percent higher in the first quarter, resulting in a 31 percent increase in low-cost hydro generation compared with last year. Nuclear generation rose by 18 percent and natural gas generation increased 71 percent, offsetting higher-cost coal-fired generation, which declined 29 percent in the first quarter.

TVA reported a $173 million net loss in the first quarter of fiscal year 2012, compared with a net loss of $48 million in last year’s first quarter.

“As the fall months are typically some of the lowest for electricity demand, it is not uncommon for TVA to run a loss during the first quarter of its fiscal year, which starts in October,” said Thomas.

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