Fuel, Purchased Power Costs Continue To Drive TVA Expenses Up
August 18, 2006
TVA reported net income of $123 million for the nine months that ended June 30, 2006, which was $72 million more than net income for the same period in the 2005 fiscal year.
While operating revenues for the first nine months increased about 14 percent, fuel and purchased power costs increased 37 percent, or $621 million, compared with the same period in the prior fiscal year. Operating expenses for the first nine months of the 2006 fiscal year totaled almost $5.5 billion, a 20-percent increase from the same period a year ago. The increase in fuel and purchased power costs accounted for more than two thirds of the increase in operating expenses, with another 30 percent caused by higher depreciation and amortization expenses.
For the third quarter of the 2006 fiscal year, net income was $162 million, compared to a net loss of $15 million reported for the third quarter of fiscal year 2005. The increase in net income was primarily a result of higher power rates.
Fuel and purchased power costs totaled $833 million for the third quarter, an increase of 39 percent over fuel and purchased power costs in the third quarter of last year. Operating expenses for the third quarter were about $1.9 billion, an increase of almost 21 percent from the same period in the prior fiscal year. The increase in fuel and purchased power costs accounted for more than 70 percent of the increase in third quarter operating expenses, with another 23 percent caused by higher depreciation and amortization expenses.
“Like all utilities and even motorists filling up their tanks, TVA is struggling with much higher fuel costs,” said TVA President and Acting Chief Executive Officer Tom Kilgore. “We have cut back and delayed some projects to offset as much of these costs as we could. The rate increase in April of this year was necessary to cover costs we could not offset internally.”
“With the rate increase and our cost controls, TVA’s net income through the third quarter is significantly higher than the same period last year,” Kilgore said. “Maintaining an appropriate level of net income is important for providing cash to pay down debt, satisfy the requirements of our bond covenants and maintain ready access to capital markets.”
With the TVA Board’s approval of a 4.5-percent rate reduction effective Oct. 1, any future changes in fuel and purchased power costs that deviate from the budget will be reflected in quarterly rate adjustments similar to those used by other utilities across the country.
The summer’s hot, dry weather is challenging the TVA power system and the region’s natural resources, Kilgore said. In July, TVA met the highest power demand ever in its seven- state service area, and August became the fifth straight month in which TVA met monthly records for power demand generated by the region’s businesses, homes and industries.
Lack of rainfall in the Tennessee Valley has reduced TVA’s hydroelectric generation and resulted in lower than expected reservoir levels toward the end of the summer.
“Despite these challenges, TVA is carefully managing the flow of water through our reservoir system to generate power, protect aquatic habitat, support river transportation and summer recreation and ensure an adequate water supply for industry and other vital needs,” Kilgore said.
TVA is the nation’s largest public power provider and is completely self-financed 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
