Management’s
Discussion
and Analysis |
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Operating
Revenues and Expenses
(millions of
dollars)
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Results
of Operations
1999
Compared to 1998
Operating
Revenues
Operating revenues were $6,595 million in 1999 compared with $6,729
million in 1998. The $134 million decrease was primarily due to a reduction
in wholesale sales to other utilities related to mild weather and a
weaker spot market for power during 1999.
Operating
Expenses
Operating
expenses increased $358 million, from $4,549 million in 1998 to $4,907
million in 1999. This increase was primarily due to a $261 million charge
for the acceleration of the amortization of regulatory assets (see note
1—Accelerated
amortization), coupled with a $111 million increase in the
amortization of regulatory assets attributable to the reclassification
of certain nuclear fuel costs (see note 1—Other
deferred charges).
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Cash
Flows from Operations
(millions of
dollars)
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Interest
Expense
Net interest
expense declined $182 million, from $1,959 million in 1998 to $1,777
million in 1999. This reduction largely reflects savings associated
with the refinancing of $3.2 billion of debt issues formerly held by
the Federal Financing Bank. Total outstanding indebtedness, as of September
30, 1999, was $26.4 billion, with an average interest rate of 6.83 percent;
as of September 30, 1998, this amount outstanding was $26.7 billion,
with an average interest rate of 7.45 percent.
1998
Compared to 1997
Operating Revenues
Operating revenues were $6,729 million in 1998 compared with $5,934
million in 1997. The $795 million increase was primarily due to additional
revenues from the 1998 rate increase, coupled with an increase in energy
sales to municipalities and cooperatives as a result of the hot summer
during 1998. The TVA service area experienced 2.2 percent greater heating
degree days and 46.2 percent greater cooling degree days in 1998 versus
1997.
Operating
Expenses
Operating
expenses increased $469 million, from $4,080 million in 1997 to $4,549
million in 1998. This increase was primarily due to higher fuel and
purchased power expense in 1998 as a result of higher system generation
and greater purchases of power at higher prices, coupled with an increase
in operating and maintenance expense.
Other
Income and Expenses
TVA had
net other income of $12 million in 1998 compared with net other income
of $157 million in 1997. The 1997 net other income consisted primarily
of investment earnings of the decommissioning trust funds of $138 million.
Subsequent to 1997, TVA modified its accounting methodology such that
investment earnings of the decommissioning trust funds are deferred
(see note 9—Decommissioning
costs).
Interest
Expense
Net interest
expense declined $44 million, from $2,003 million in 1997 to $1,959
million in 1998. Total outstanding indebtedness, as of September 30,
1998, was $26.7 billion, with an average interest rate of 7.45 percent;
as of September 30, 1997, this amount outstanding was $27.4 billion,
with an average interest rate of 7.56 percent.
Liquidity
and Capital Resources
Capital
Structure
During
the first 25 years of TVA’s existence, the U.S. Government made
appropriation investments in TVA power facilities. In 1959, TVA received
congressional approval to issue bonds to finance its growing power program.
For the last four decades, TVA’s power program has been required
to be self-supporting. As a result, TVA funds its capital requirements
through internal cash generation and through borrowings (subject to
a congressionally mandated $30 billion debt limit).
A return on the
U.S. Government’s initial appropriation investment in TVA power
facilities, plus a repayment of the initial investment, is specified
by law. The combined payment for 1999 was $57 million. Total cumulative
repayments and return on investment by TVA to the U.S. Treasury exceed
$3 billion.
Cash
Flows
Net
cash provided by power program operations for 1999, 1998, and 1997 was
$1,431 million, $1,394 million and $1,066 million, respectively. This
positive trend reflects improvements made in TVA’s operating activities
during the three-year period coupled with the rate increase in 1998.
Net cash used in
investing activities for 1999, 1998, and 1997 was $956 million, $742
million, and $580 million, respectively. The $214 million increase from
1998 to 1999 was primarily due to an increase in construction expenditures
of $192 million reflecting the construction of natural gas combustion
turbines for peaking power. The $162 million increase from 1997 to 1998
primarily reflects the 1997 sale of certain receivables.
Net cash used in
financing activities for 1999, 1998, and 1997 was $763 million, $560
million and $425 million, respectively. For 1999, the cash used in financing
activities reflects the aggregate net repayment of total outstanding
debt of $308 million coupled with borrowing expenses and other financing
costs of $391 million.
Capital
Resources
During
1999, 1998, and 1997 TVA accessed the capital markets through cost-effective
long-term financing structures and continued to expand its investor
base by tapping the global and retail debt markets. The proceeds from
the borrowings were used to refinance existing debt.
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