Fuel, Purchased Power Costs Continue To Drive TVA Expenses Up
May 12, 2006
TVA reported a net loss of $39 million for the first half of the 2006 fiscal year, compared to a net income of $66 million for the first six months of fiscal year 2005. An increase of $387 million in fuel and purchased power costs contributed significantly to the net loss. The increase in fuel and purchased power expenses was 36 percent higher than the same six-month period of the 2005 fiscal year.
For the 2006 second quarter, which ended March 31, 2006, net income was $14 million, compared to a net loss of $24 million reported for the second quarter last year. Contributing factors included increased revenue as a result of higher rates along with a decrease in operating and maintenance expense and a decrease in interest expense. However, fuel and purchased power costs for the quarter increased almost 20 percent, compared to the second quarter of last year.
“Over the past several months, TVA has continued to be challenged by higher costs for fuel and purchased power. We have responded by reducing expenses that we can control,” said TVA Acting Chief Executive Officer and President Tom Kilgore. “We feel that we have mitigated the substantial fuel and purchased power cost increases that TVA and other utilities are facing, but given the magnitude of the increases, we cannot match the increases dollar for dollar.”
TVA passed along only about half of its higher costs for fuel and purchased power since July 2005 in implementing a rate increase April 1, 2006, the beginning of the third quarter. TVA continues to consider a fuel cost adjustment formula that would routinely adjust TVA’s rates up and down as fuel and purchased power costs rise and fall.
Even with the April 1 rate increase, the average retail price of electricity in the Tennessee Valley is still below the national average. “Compared to other parts of the country, TVA power is still a great value, and TVA remains a strong organization,” Kilgore said.
For example, he said, February and March were the second driest in 117 years, but TVA employees managed the Tennessee River system to maintain water quality and water supply. In addition, after dozens of tornadoes extensively damaged the TVA transmission system on two separate occasions in early April, TVA employees worked around the clock to restore service to all customers within 48 hours.
A rate increase effective at the beginning of TVA’s 2006 fiscal year, Oct. 1, 2005, contributed significantly to an increase in operating revenues for both the first half of the fiscal year and the second quarter. Operating revenues totaled approximately $4 billion for the six-month period, a 12-percent increase compared to the first six months of 2005.
Operating revenues for the second quarter exceeded $2 billion, an increase of about 11 percent over 2005. Net interest expense for the first two quarters of 2006 was $598 million, a decrease of more than 5 percent from 2005. Net interest expense for the second quarter of 2006 was $299 million, 5 percent lower than the second quarter of 2005. A lower average interest rate on long-term debt contributed to the decrease.
TVA is the nation’s largest public power provider and is completely self-financing with revenues of $7.8 billion in 2005. TVA provides power to large industries and 158 power distributors that serve approximately 8.6 million consumers in seven southeastern states. TVA also manages the Tennessee River and its tributaries to provide multiple benefits, including flood damage reduction, navigation, water quality and recreation.
Media Contact
John Moulton
TVA News Bureau, Knoxville, (865) 632-6000
Power Program Financial and Statistical Highlights (unaudited) (in millions) (38 kb, PDF)