Tennessee Valley Authority · NYSE:TVC
Tennessee Valley Authority — 08 20 2010 board presentations
182 slides from Tennessee Valley Authority's investor presentation, Aug 20, 2010
Slide 1: President's Report
PRESIDENT’S REPORT
Slide 2: TVA Performance Summary
TVA Performance Summary Vs. Plan Vs. Last Year Vs. Peers Net Cash Flow Retail Rates Rates Sales Fuel & Purchased Power Operations & Maintenance* Capital Investment Plant Reliability Reliability System Reliability Runoff Hydro y Generation ponsibility Safety Environmental (REE) Resp Organizational Ef
Slide 3: Notice of Violations
Notice of Violations 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010YTD 4
Slide 4: Operations and Financials
Operations and Financials
Slide 5: Power Sales
Power Sales Fiscal Year 2010 - July YTD Results 140 120 att-hours Sales % 100 FYTD09 136.0 105% of Gigawa Plan 133.6 107% 80 Actual 143.3 ousands o 60 40 Tho 20 0 Distributor Industrial Other 107% 112% 68% 6
Slide 6: Energy Supply
Energy Supply 80 Fiscal Year 2010 - July YTD Results 70 Plan 136 4 136.4 att-hours Actual 145.1 60 106% of Plan of Gigawa 50 40 ousands o 30 20 Tho 10 0 Hydro Coal Nuclear Gas Purchases 199% 87% 102% 167% 174% 7
Slide 7: Revenue
Revenue July YTD Fuel & Non-Fuel Revenue 10 Fuel Revenue 9.4 Non-Fuel Revenue 9 8.9 86 8.6 8 7 $ Billion 6 5 4 3 2 FY09 Plan Actual 8
Slide 8: Operating Expenditures
Operating Expenditures July YTD 2010 Spend S 10 9.4 9 11 1.1 8.5 8 1.0 7.6 1.4 7 1.1 1.9 6 $ Billion 2.9 1.6 5 2.5 4 25 2.5 3 2 4.0 3.1 1 24 2.4 0 FY09 Plan Actual Fuel & PP O&M Capital Interest 9
Slide 9: Fuel Cost Adjustment
Fuel Cost Adjustment Fourteen months (8 periods) of decline followed by 7 months of escalation 10
Slide 10: Rainfall and Runoff
Rainfall and Runoff Fiscal Year 2010 - July YTD Results 45 40 Normal 35 Actual 30 Inches 25 20 15 10 5 0 Rainfall Runoff 91% 114% 11
Slide 11: Rainfall and Runoff - Recent Trend
Rainfall and Runoff - Recent Trend FY10CumulativeRainfallDeviationfromNormal 5 4 Dec Jan 3 Oct Nov eb Feb 2 1 hes Mar Inch 0 1 May 2 2 Apr 3 June 4 4 July 5 12
Slide 12: Industry News
Industry News
Slide 13: Industry News
Industry News Congress delays energy legislation EPA proposes Cl Clean Ai Air T Transportt R Rule l EPA holds public meetings on coal combustion residue rules Georgia Power’s long-range plan calls for less reliance on coal; new focus on conservation NERC report cautions that a major shift to cleaner
Slide 14: Hard Spots
Hard Spots
Slide 15: Hard Spots
Hard Spots Extreme heat and high power demand 21
Slide 16: 22
22
Slide 17: Meeting the Summer Peak
Meeting the Summer Peak Summer, 2010 31,777 Megawatts August 4 99r F All Time 33,482 Megawatts August g 16, 2007 102r 23
Slide 18: Hard Spots
Hard Spots Extreme heat and high power demand Cooling water limits at power plants 24
Slide 19: Cooling Water Limits at Power Plants
Cooling Water Limits at Power Plants 25
Slide 20: Hard Spots
Hard Spots Extreme heat and high power demand Cooling water limits at power plants Fi att Shawnee Fire Sh Fossil F il Plant Pl t 26
Slide 21: Fire at Shawnee Fossil Plant
Fi att Sh Fire Shawnee Fossil Plant 27
Slide 22: Hard Spots
Hard Spots Extreme heat and high power demand Cooling water limits at power plants Fi att Shawnee Fire Sh Fossil F il Pl Plantt Kingston fine 28
Slide 23: 29
29
Slide 24: Hard Spots
Hard Spots Extreme heat and high power demand Cooling water limits at power plants Fi att Shawnee Fire Sh Fossil F il Pl Plantt Kingston fine Generation Partners communications 30
Slide 25: Generation Partners
Generation Partners —Wayne National Forest 31
Slide 26: Hard Spots
Hard Spots Extreme heat and high power demand Cooling water limits at power plants Fi att Shawnee Fire Sh Fossil F il Pl Plantt Kingston fine Generation Partners communications Reaction to mixed oxide fuel 32
Slide 27: 33
33
Slide 28: Highlights
Highlights
Slide 29: Highlights
Highlights Improving regional economy and power sales 35
Slide 30: Regional Manufacturing Trend
Regional Manufacturing Trend 12% Industrial Production (seasonally adjusted index, 2002=100) 8% 4% onth, previous year) 0% -4% nge, same mo -8% -12% (% chan -16% Source: Federal Reserve; TVA -20% 20% 36
Slide 31: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 37
Slide 32: SAAT y Wes
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Slide 33: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 Favorable ruling on North Carolina lawsuit 39
Slide 34: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 Favorable ruling on North Carolina lawsuit Toyota resumes construction in Mississippi 40
Slide 35: New Toyota Plant at TVA Megasite, Blue Springs, MS
New Toyota Plant at TVA Megasite, Blue Springs, Springs MS 41 —RYC Behind the Lens
Slide 36: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 Favorable ruling on North Carolina lawsuit Toyota resumes construction in Mississippi Major 500-kilovolt transmission project completed 42
Slide 37: t [ v4 rt . m4
t 7 1 [ v4 rt . m4
Slide 38: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 Favorable ruling on North Carolina lawsuit Toyota resumes construction in Mississippi Major 500-kilovolt transmission project completed Watts Bar progress 44
Slide 39: 45
45
Slide 40: Highlights
Highlights Improving regional economy and power sales 523-day run by Browns Ferry Unit 1 Favorable ruling on North Carolina lawsuit Toyota resumes construction in Mississippi Major 500-kilovolt transmission project completed Improving demand response ORAU h health l h screening i results l for f Kin
Slide 41: Chairman's Report
Chairman’s Report 1A
Slide 42: Vision and Strategic Direction
Vision and Strategic Direction
Slide 43: TVA's Vision: Roadmap to the Future
TVA’s TVA s Vision R d Roadmap t the to th Future F t
Slide 44: Overview
Overview A Look Back (briefly) A Look at Today A Vision for Tomorrow 51
Slide 45: History of Accomplishment
History of Accomplishment River Management Economic Development cl logical Innovation Environmental Stewardship
Slide 46: History of Accomplishment
History of Accomplishment Low-cost Power River Management Technological Innovation Environmental Stewardship
Slide 47: Largest Public Power Provider
Largest Public Power Provider 2009 Sales in Billions of Kilowatt-hours 150 100 50 0 TVA Bonneville Power Salt River Santee Cooper Los Angeles DWP 54
Slide 48: A Look at Today
A Look at Today Economic uncertaintyy Infrastructure investments needed Still no clear national energy policy Opportunities exist for TVA to lead 55
Slide 49: Our Mission Isn't Changing
Our Mission Isn’t Isn t Changing 56
Slide 50: But the times are changing, so our vision is changing
But the times are changing… changing So our vision is changing To achieve our mission today we must lead with: Focus …on key critical issues Action …to achieve an impact y Clarity…so results are transparent p 57
Slide 51: TVA's Vision
TVA’s Vision One of the Nation’s Leading Providers of Low-Cost and Cleaner Energy by 2020
Slide 52: TVA's Vision
TVA’ss Vision TVA Serve the People of the Tennessee Valley by being: The Nation’s leader in improving our air quality The Nation Nation’s s leader in increased nuclear production The Southeast’s leader in increased energy efficiency
Slide 53: Staying Focused on...
Staying Focused on on… Our Rates O r Reliabilit Our Reliability O R Our Reputation t ti 60
Slide 54: While acting on new initiatives
While acting on new initiatives initiatives… • Improved air quality • Increased I d nuclear l production d ti • Increased energy efficiency 61
Slide 55: While acting on new initiatives
While acting on new initiatives initiatives… • Improved air quality • Increased I d nuclear l production d ti • Increased energy efficiency 62
Slide 56: Cleaner Power Production
Cleaner Power Production Significantly increase production from low emission electricity generators
Slide 57: Reduce Emissions
Reduce Emissions Reduce SO2, NOX, mercury, particulate, and CO2 emissions from TVA plants
Slide 58: Sulfur Dioxide Emissions
Sulfur Dioxide Emissions s Y* © 5 > s ss n wv = 2 i= 2 s n 2 & 2 3 2 = s Ss a gs Forecast 1980 1985 1990 1995 2000 2005 2010 2015 2020
Slide 59: Nitrogen Oxide Emissions
Nitrogen Oxide Emissions s Ss Ss a 2 [-) = s n s a Ss Es s 5 s i—) s = & Forecast Ss NY Ss 1995 2000 2005 2010 2015 2020
Slide 60: While acting on new initiatives
While acting on new initiatives initiatives… • Improved air quality • Increased I d nuclear l production d ti • Increased energy efficiency 67
Slide 61: New generation
New generation Lead the nation in delivery of new nuclear capacity
Slide 62: Nuclear Capacity Additions
Nuclear Capacity Additions 69
Slide 63: Technology
Technology Demonstrate the first small modular reactor in the U.S. Image courtesy of Babcock and Wilcox
Slide 64: While acting on new initiatives
While acting on new initiatives initiatives… • Improved air quality • Increased I d nuclear l production d ti • Increased energy efficiency 71
Slide 65: Energy Efficiency
Energy Efficiency Help consumers and businesses use energy more efficiently and save money
Slide 66: Energy Efficiency Program Goal
Energy Efficiency Program Goal 73
Slide 67: Demand management
Demand management Reduce peak power usage with demand management tools, i l di ti including time-of-use f rates
Slide 68: Efficient production
Efficient production Minimize transmission losses and optimize plant efficiency
Slide 69: TVA's Vision
TVA’s Vision One of the Nation’s Leading Providers of Low-Cost and Cleaner Energy by 2020
Slide 70: Achieving the Vision
Achieving g the Vision Role of the Integrated Resource Plan
Slide 71: Integrated Resource Plan Process
Integrated Resource Plan Process Scope Summer 2009 78
Slide 72: Stakeholders Are Involved
Stakeholders Are Involved • Commonwealth of Kentucky • State of Tennessee • Tennessee Chamber of Commerce and • Howard Baker Center for Public Policy Industry • Joe Wheeler EMC • Tennessee Paper Council • Oak Ridge National Laboratory • Tennessee Valley Industrial Committee • Tennessee Valley Public
Slide 73: Integrated Resource Plan Process
Integrated Resource Plan Process Develop Present Analyze and Scope Inputs and Initial Evaluate Framework Results Summer Fall 2009 – Spring Now 2009 Winter 2010 2010 80
Slide 74: Integrated Resource Plan Process
Integrated Resource Plan Process Develop Present Analyze and Incorporate Complete Scope Inputs and Initial Evaluate Input IRP Framework Results Summer Fall 2009 – Spring Fall 2010 – Spring Now Winter 2011 2011 2009 Winter 2010 2010 81
Slide 75: IRP Helps Shape and Test the Vision
IRP Helps Shape and Test the Vision TVA Mission Strategic g Vision Activities Translation Integrated Resource Plan (IRP) Tests and Shapes Activities Tactical Activities FY 11 Business Plan 82
Slide 76: Building Flexibility for Future Decisions
Building Flexibility for Future Decisions IRP will present multiple p p planningg strategies Building a “Multi-lane Highway” of Flexibility Portfolios cover a Breadth of broad range of resource Recommended options supply pp y and direction adopted considered by Board in IRP demand-side options Time
Slide 77: IRP Uses Scenario Planning Method
IRP Uses Scenario Planning Method Scenarios Current #1 #2 #3 #4 #5 #6 Situation A ategies B Planning Stra C D E 84
Slide 78: Modeling is Extensive
Modeling is Extensive A total of 2,520 cases are considered (35 portfolios tf li x 72 iterations) it ti ) Develop Planning Inputs Optimized Production Identify Capacity Total Plan Costs Capacity Plans Cost and Resource Planning Financial Options Model Analysis Define Constraints 85
Slide 79: Portfolio Expansion Plans
Portfolio Expansion Plans DiversityFocusedResourcePortfolio(StrategyC) CapacityAdditionsbyScenario 25,000 2010Spring Scenario1 Scenario2 Scenario3 Scenario4 Scenario5 Scenario6 Baseline 20,000 CapacityAdditions(MW) 15,000 10,000 5,000 2010 22015 22020 22025 22028 2010 22015 22020 22025 22028 2010 22
Slide 80: Implications of Draft IRP Results
Implications of Draft IRP Results Early Indication Implication Environmental Cleaner portfolio provides cost and environmental Benefits benefits Nuclear Needed by 2018-2020 to replace coal Energy Efficiency and Steady growth of EE/DR effort Demand Response Renewable Consider additional cost-effectiv
Slide 81: Cumulative Capacity Changes
Cumulative Capacity Changes 4000 CumulativeCapacityChanges 2011 2015 2011 2000 MW Nuclear Gas 1,140MW 1,000MW 0 IdledCoal Idled Coal 1,000MW 2000 88
Slide 82: Cumulative Capacity Changes with EE&DR
Cumulative Capacity Changes with EE&DR 4,000 CumulativeCapacityChanges p y g 2011 2015 2 000 2,000 EE&DR MW 1,900MW Nuclear Gas 1,140MW 1,000MW 0 IdledCoal Idled Coal 1,000MW 2,000 89
Slide 83: Committed to Serving the Public
Committed to Serving the Public Integrated Resource Plan 90
Slide 84: TVA's Vision
TVA’s Vision One of the Nation’s Leading Providers of Low-Cost and Cleaner Energy by 2020
Slide 85: First steps toward the Vision
First steps toward the Vision Idling approximately 1,000 1 000 megawatts of our older, unscrubbed coal units Recommending approval of the next phase of the Bellefonte Nuclear Project Recommending approval for an increase in the energy efficiency budget 92
Slide 86: Next Steps
Next Steps Approval of: • Vision • Fiscal Year 2011 Budget • Integrated g Resource Plan in Spring 2011 93
Slide 87: TVA's Vision
TVA’s Vision One of the Nation’s Leading Providers of Low-Cost and Cleaner Energy by 2020
Slide 88: Finance, Rates, and Portfolio
Finance, Rates, and Portfolio
Slide 89: Fiscal Year 2011 Budget Approval
Fiscal Year 2011 Budget Approval
Slide 90: What This Plan Includes
What This Plan Includes Discussion Topic Key Takeaway Supply and Demand Well Balanced F l and Fuel d Purchased P h d Power P Pi Prices IIncreasing i Operational Spending Asset Investments Capacity Expansion Addressing Future Needs Appropriately Capitalized Financial Health Principles Based Economic
Slide 91: Supply and Demand
Supply and Demand
Slide 92: Economic Drivers
Economic Drivers Expect some regional GDP growth in 2011 Industrial production has been recovering faster p than expected Weak commercial activity continues Unemployment remains high in the region 100
Slide 93: Projected TVA Sales
Projected TVA Sales 180.1 Weather Normal - Weather Wh) Slight Economic (billion kW R Recovery 171.2 170.1 167.6 164.0 2008 2009 2010 Budget 2010 Forecast 2011 Forecast Excludes off-system sales 101
Slide 94: Capacity & Peak Demand Balance
Capacity & Peak Demand Balance Firm Requirements Firm Supply 2% 0% 2% Distributors 13% 17% Coal Direct Served 4% G Gas 37% Reserves Purchase Losses Nuclear 18% Hydro EE / DR 81% Renewables 8% 18% Total Firm Requirements Net 1,464 MW Total Firm Supply = 36,068 36 068 MW Long = 37,532 37 532 MW 102
Slide 95: Key Takeaways (Supply & Demand)
Key Takeaways (Supply & Demand) Slight sales decline due to weather Modest economic recovery continues System S t demands d d mett with ith planned l d capacity it additions 103
Slide 96: Fuel and Purchased Power
Fuel and Purchased Power
Slide 97: Coal Prices
$/ton $10 $20 $30 $40 $50 $60 $70 $80 $0 Jan-07 Mar--07 May -07 Jul-07 Sep--07 Nov--07 Jan-08 Coal Prices Mar--08 May -08 Jul-08 Sep--08 Nov--08 Jan-09 Mar--09 May -09 Jul-09 Sep--09 Nov--09 Jan-10 to rebound from 2009 lows Prices are down significantly Mar--10 from 2008 highs and expected May -10 J
Slide 98: Natural Gas Prices
Natural Gas Prices Natural Gas Prices – Henry Hub $8 90% Case $7 $6 $5 $/MMBtu $4 10% 0% Case $3 $2 $ Gas prices are expected to rise driven primarily by economic $1 recovery. $0 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 106
Slide 99: Purchased Power Prices
Purchased Power Prices Power Prices – Into TVA $90 $80 $70 90% Case $60 $/MWh $50 $40 $30 10% Case $20 Power prices will likely follow the gas price trajectory $10 $0 Jan-09 Sep-09 May-10 Jan-11 Sep-11 107
Slide 100: Fuel and Purchased Power
Fuel and Purchased Power • Less volume due to lower sales -$100M • Higher prices: Coal +$350M; Purchase Power +$200M; Gas +$50M • Hydro impact: +$150M $5,000 $4,330 ((in millions) $4,056 $3,908 $3,827 $4,000 $3,000 Oil & Gas Nuclear Purchased Power $2,000 Coal C l $1,000 $0 2008 2009 2010 Forecast 2
Slide 101: Fuel and Purchased Power Contracting
Fuel and Purchased Power Contracting The Contracting Plan is the basis to authorize contracts that satisfy fuel- and power-related operating requirements. It enables TVA to: • Economically and reliably supply fuel to TVA’s fleet • Purchase P h power where h economical i l • Manage rate volatility fo
Slide 102: Key Takeaways (Fuel & Purchased Power)
Key Takeaways (Fuel & Purchased Power) Fuel volume down due to lower sales Overall commodity prices trending up L Lower priced i d contracts t t expiring ii Laddered hedging utilized to mitigate customer fuel volatility 110
Slide 103: Gas Transportation
Gas Transportation
Slide 104: Gas Transportation
Gas Transportation 31% of TVA gas supplies are transported on Texas Gas The Lagoon Creek CC with Winter Dependable Capacity of 615 MW and a Texas Gas supplies 4 TVA gas facilities gas demand of 105,600 dth/day can - Southaven CC - Lagoon Creek CT also receive gas from Texas Gas - Marshall CT - Allen
Slide 105: Gas Transportation
Gas Transportation Texas Gas Transmission is the sole gas pipeline to the Southaven CC facility and supplies the Lagoon Creek CC, Marshall CT and Allen CT facilities Firm pipeline capacity is required to ensure reliable power g p generation capacity p y from the 817 MW Southaven CC facility The 10 y
Slide 106: Enrichment Services Contracts
Enrichment Services Contracts
Slide 107: Enrichment Services Contracts
Enrichment Services Contracts TVA must buy uranium enrichment services to ensure an adequate and uninterrupted supply of fuel for our nuclear reactors 115
Slide 108: Uranium Processing
Uranium Processing Steps to becoming reactor fuel Enrichment C Conversion i tto UF6 F b i ti Fabrication (UO2) Uranium Mines and Mills (U3O8) Reactors 116
Slide 109: GLE Enrichment Offer
GLE Enrichment Offer GLE (North Carolina plant) provides competitive offer for enrichment: • The contract would provide 12% of TVA’s enrichment needs from 2015 to 2025 • Pricing compares favorably with previously accepted contracts • Supply diversification • Total price: $400 million 117
Slide 110: GLE New Technology Risk Mitigation
GLE New Technology Risk Mitigation Laser technology to be commercially proven TVA’s enriched uranium inventory is a mitigation against GLE production delays In case of the GLE project termination, other enrichment services contracts can be entered into with existing TVA enrichment suppliers Once GLE
Slide 111: Operational Spending
Operational Spending
Slide 112: Base Capital per Kilowatt Investment
Base Capital per Kilowatt Investment $45 AEP ($42/kw) $40 Southern ($40/kw) Progress ($35/kw) $35 $30 $25 $23 $23 $18 Low Investment $20 $19 $17 $17 $16 $16 $16 $15 $12 $13 $12 $10 $ $5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 120
Slide 113: Non-Fuel Operations and Maintenance Expenses
Non-Fuel Operations and Maintenance Expenses $4,000 $3 282 $3,282 $2,995 $3,000 Economic s) Development (in millions $2,338 $2,300 Energy Efficiency and Demand Response $2,000 Pension Outage Base O&M $1,000 $0 2008 2009 2010 2011 121
Slide 114: Non-Fuel O&M Increases
Non-Fuel O&M Increases Fiscal Year 2011 Incremental fossil and nuclear investments $80 million Additional Nuclear Refueling Outages $30 million Anticipated inflation $80 million Energy efficiency and demand response $45 million programs Economic development $40 million 122
Slide 115: Capital Investment
Capital Investment $1,400 $1,199 $1,200 Increased investments: $1,000 $911 • Material condition (in millions) Environmental $753 $757 • Asset performance $800 Fossil • Physical and cyber security $600 N l Nuclear • Clean air • Ash management Corporate, $400 Transmission & Security $200 $0 2008 2009
Slide 116: 2011 Capital Projects
2011 Capital Projects Environmental Kingston - Wet to Dry Ash Conversion PAF 1-2 Particulate Collection WCF 7-8 Particulate Collection Particulate Control Improvement SO3 Mitigation $351 million Base Capital p Physical and Cyber Security Improvements Nuclear Security Upgrades Watts Bar Control Rod R
Slide 117: Key Takeaways (Operational Spending)
Key Takeaways (Operational Spending) Increased investments to: • Improve material condition • Support S energy efficiency ffi i and dddemand d response • Reduce environmental impacts 125
Slide 118: Capacity Expansion
Capacity Expansion
Slide 119: Capacity Additions (Cumulative)
Capacity Additions (Cumulative) 5,000 4,160 4,000 2,830 3,000 MW Watts Bar 2 John Sevier CC Lagoon Creek CC 2,000 1,354 EE & DR 1,000 385 0 2010 2011 2012 2013 127
Slide 120: Capacity Additions
Capacity Additions 4,000 CumulativeCapacityChanges 2011 2015 2011 2,000 EE&DR MW 1,900MW Nuclear Gas 1,140MW 1,000MW 0 IdledCoal Idled Coal 1,000MW 2,000 128
Slide 121: Capacity Expansion
Capacity Expansion ($ millions) In- MW 2010 & 2011 Total Service Prior Project j Date Lagoon Creek CC 2011 540 $441 $4 $445 John Sevier CC 2012 878 $389 $314 $818 Watts Bar Unit 2 2013 1,138 $1,419 $635 $2,494 Bellefonte – Unit 1 Phase 2 2018 1 260 1,260 $56* $248 TBD Nuclear Uprates $97 $14 $436 Tr
Slide 122: Bellefonte
Bellefonte
Slide 123: Supporting Bellefonte Technology Recommendation
Supporting Bellefonte Technology Recommendation Latest power supply plan shows TVA need for new Need For Power capacity in 2018-2020 timeframe and BLN chosen as least east cost a alternative te at e for o portion po t o oof tthe e need. eed Final Final SEIS completed June 21. Bellefonte 1 is TVA Env
Slide 124: Fiscal Year 2011 Scope
Fiscal Year 2011 Scope Reduces Project Risk and Preserves Completion Option Initial Engineering Regulatory Reg lator Design & Project Framework Staffing Development $248m Long Lead Asset Preservation Procurement and Facilities Preparation 132
Slide 125: Contracts Provide Flexibility
Contracts Provide Flexibility Contracts will be entered that provide flexibility to transition project to next phase Several contracts will be entered during Fiscal Year 2011 that include terms and scope beyond Fiscal Year 2011, to preserve the option for the project to move f forward d to the h fi
Slide 126: Financial Health
Financial Health
Slide 127: Net Book Value per Installed Capacity
Net Book Value per Installed Capacity $1,200 1,100 1,083 $1,000 973 936 930 914 957 -IOU Average 873 845 794 $800 ollars/kW $600 Do $400 $200 $0 EXC ETR DUK AEP D SO PGN FPL TVA Data Source: 2009 Company 10-K Filings. 135
Slide 128: Fuel and Purchased Power Cost per MWh
Fuel and Purchased Power Cost per MWh $80 $70 $70 $60 $58 Dollars/MWh h $ $50 $47 $40 $41 -IOU Average $35 $34 $31 $ D $29 $29 $30 $23 $20 $10 $0 FPL D PGN ETR SO EXC DUK TVA AEP Data Source: 2009 Company 10-K Filings. 136
Slide 129: Total Capitalization to Total Assets
Total Capitalization to Total Assets 0.90 0.81 2006 TVA Level 0.80 0.78 0.78 0.77 0.76 0 75 0.75 0 74 0.74 0.75 - IOU Average 0.73 0.70 0.63 0.60 0.50 Data Source: SO D DUK AEP FPL PGN ETR TVA EXC 2009 Company 10-K Filings. Total capitalization includes debt, equity, and deferred taxes. 137
Slide 130: Financial Guiding Principles
Financial Guiding Principles Retire debt over the useful life of assets Only issue new debt for new assets Use regulatory U l t ttreatment t t for f specific ifi unusuall events Rate increases as necessary to fund operational spending Evaluate rate actions to avoid significant g rate volatility 138
Slide 131: Debt and Debt-Like Obligations
Debt and Debt-Like Obligations (in billions) FY10EndingDebt(Forecast) $26.0 New Borrowings: Capacity Expansion $1.5 Kingston 0.2 Environmental Investments 0.4 Refinancings 1.2 TotalNewBorrowings $3.3 Debt Paydown: Nuclear Regulatory Asset ($0.4) Legacy Debt (0.5) 2009 Pension Contribution (0 3) (0.3
Slide 132: Key Takeaways (Financial Health)
Key Takeaways (Financial Health) TVA has: • Competitively installed asset base • Improved I d and d competitive i i capital i l structure • Sound financial guiding principles • Low cost of capital p • Superior credit rating 140
Slide 133: Risks and Challenges
Risks and Challenges
Slide 134: Risks and Challenges
Risks and Challenges Economic uncertainty Weather H d generation Hydro ti Regulatory risks Pension fund 142
Slide 135: Recap and Recommended Action
Recap and Recommended Action
Slide 136: Operating Budget Expenses
Operating Budget Expenses ($ millions) Operating Revenue $11,846 Operating Expenses Fuel & Purchased Power 4,344 Operations, Maintenance, and Other 3,437 Interest & Other 1,284 Tax Equivalents 567 Subtotal 9,632 Other Operating Cashflow (154) Operating Cashflow $2,060 144
Slide 137: Capital Budget
Capital Budget ($ millions) Operating Cashflow $2,060 Nuclear 1,258 Gas 318 E i Environmental l 3 1 351 Transmission 262 Fossil 344 River Operations 77 Nuclear Fuel 304 Other 6 Total Capital Expenditures 2,920 Other Investing 61 Net Cashflow Prior to Financing $(921) 145
Slide 138: Financing
Financing ($ millions) Net Cashflow Prior to Financing $(921) New Borrowings 3,280 Debt Paydown (2,285) Other Financing (74) Subtotal 921 Shortfall $0 No recommended base rate increase for October 1 146
Slide 139: Plan Summary
Plan Summary Discussion Topic Key Takeaway Supply and Demand Well Balanced F l and Fuel d Purchased P h d Power P Pi Prices IIncreasing i Operational Spending Asset Investments Capacity Expansion Addressing Future Needs Appropriately Capitalized Financial Health Principles Based Economic and regulat
Slide 140: Recommendation
Recommendation Approve the 2011 budget that includes: • Operational Spending of $9 $9.632 632 billion Approve Capital spending of $2.920 billion including: • Bellefonte Unit 1 Phase 2 Approve Fuel Contracting Plan including: • Gas G Transportation T i – Texas T Gas G Transmission T i i LLC • Nuclear
Slide 141: Financial Shelf
Financial Shelf
Slide 142: Topic
Topic TVA’s authorization to issue power bonds and related interest rate hedges expires at the end of each fiscal year and needs to be renewed for the following year 150
Slide 143: Background
Background Power bonds are typically issued to: • Refinance existing debt • Fund new capacity Interest rate hedges may ma be used sed to red reduce ce e exposure pos re to fluctuating interest rates Issuing individual bonds requires: • Notification of Board Finance, Rates, and Portfolio Committee •
Slide 144: Recommendation
Recommendation Approve the issuance of up to $3.5 billion of long-term bonds and the ability to utilize interest rate hedges in fiscal year 2011 152
Slide 145: Rates
Rates
Slide 146: Topic
Topic 1. New wholesale rate structures to be effective in April 2011 2. Optional p Rates for Large g Direct-Serve and Distributor-Served Customers from October 2010 to March 2011 3. Revised Fuel Cost Adjustment (FCA) formula in October 2010 to more accurately capture seasonal fuel costs 154
Slide 147: Background
Background Since 1992, TVA has billed its distributors based on the demand and energy gy usage g of the distributor’s retail customers TVA issued a Rate Change Letter to its distributors on July 8, 2009, to implement new wholesale rate structures, including time-of-use time of use rates TVA has had
Slide 148: Why change TVA's Rates?
Why change TVA’s Rates? Provide the proper price signals Encourage demand response, energy efficiency, and smart g grid technology gy Provide customers with opportunities to save on their energy costs Keep bills as low as feasible 156
Slide 149: What are Time-of-Use Rates?
What are Time-of-Use Rates? Time-of-Use (TOU) rates contain pricing differences between seasons of the year and hours of the day TVA has conducted several successful pilot programs with time-of-use rate structures TOU rates provide incentives for customers to reduce peak demand and improve the load
Slide 150: Hourly Energy Costs Vary by Time of Day
Hourly Energy Costs Vary by Time of Day TVA Hourly Marginal Energy Cost 120 Summer Peak Day 100 ($/MWh) 80 Winter Peak Day 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 158
Slide 151: Our Neighbors Are Addressing These Same Challenges
Our Neighbors Are Addressing These Same Challenges New technologies will provide customers with the tools to make wise energy decisions Entergy’s TOU rates may help Smart energy use can help manage the you manage number of new power plants built to your electric bill meet peak demand if you can redu
Slide 152: Wholesale Rate Change Proposal
Wholesale Rate Change Proposal In April 2011, there will be two wholesale rate options: • Wholesale Time-of-Use (TOU) ( ) • Wholesale Demand & Energy (D&E) Segmentation of large customers (> 5 MW) into separately metered rate • TOU Rates with more significant price signals • Seasonal Demand & Energy
Slide 153: October 2010 Changes
October 2010 Changes With the transition to the new rate structure in April TVA needs to make adjustments to both the April, FCA and the large customer rates in October For the FCA, TVA will implement a change in the g rate more closely formula so that the resulting y reflects seasonal fuel costs Fo
Slide 154: Recommendation
Recommendation 1. New wholesale rate structures to be effective in April 2011 2. Optional p Rates for large g customers from October 2010 to March 2011 (> 5 MW) 3. Revised Fuel Cost Adjustment formula in October 2010 to reflect seasonal fuel costs 162
Slide 155: Ash and Gypsum Facility Contracts
Ash and Gypsum Facility Contracts
Slide 156: Topic
Topic Work required to go to dry handling processes for ash and gypsum and to close all wet impoundments Includes both engineering design services and coal combustion product management services 164
Slide 157: Ash Management Engineering Services Contracts
Ash Management Engineering Services Contracts Board approval is requested to supplement TVA’s existing contracts for engineering design services for TVA’s ash management program with: St t Consulting Stantec C lti S Services, i IInc. URS Corporation CDM F Federal d lS Services, i IInc. Geosyntec Con
Slide 158: Coal Combustion Product Management Services
Coal Combustion Product Management Services Board approval is also requested to award individual contracts for Coal Combustion Product management services at various fossil plants to: Ch h Inc. Charah, I Charleston Construction Company, Inc. M Morgan Corporation C ti Trans Ash Inc. Under the propose
Slide 159: Recommendation
Recommendation Recommend that the Board authorize: • Extending the term and increase the aggregate g g contracts amount of the engineering • Authorize ash handling contracts to be allocated among four contractors 167
Slide 160: People and Performance
People and Performance 1A
Slide 161: Fiscal Year 2011 Annual Incentive Goals
Fiscal Year 2011 Annual Incentive Goals
Slide 162: Topic
Topic Annual Incentive programs form the basis for evaluating and rewarding employees for TVA’s TVA s Fiscal Year 2011 performance For Board Consideration Approve proposed Winning Performance measures and targets for Fiscal Year 2011
Slide 163: Background
Background Winning Performance provides incentives to TVA employees for Fiscal Year 2011 goals Employees p y are rewarded for meeting g both corporate and organization specific goals Annual incentives for executives are aligned with employees and include specific individual performance goals 171
Slide 164: TVA's Performance Focus
TVA’s Performance Focus Rates Reputation • Live within our means Environment • Keep bills as low as feasible • Demonstrate proactive environmental leadership Employees Reliability • Cultivate a safe and • Improve plant reliability and organizationally healthy workplace efficiency environment • Maint
Slide 165: Fiscal Year 2011 Annual Incentive Plans
Fiscal Year 2011 Annual Incentive Plans Proposed Corporate Measures Weight Threshold Target Stretch Equivalent 50% 84.1% 86.0% 87.9% Availability Factor Net Cash Flow $150M less $150M more 50% than Budget Budget than Budget ($ Millions) 173
Slide 166: Recommendation
Recommendation Approve the proposed Fiscal Year 2011 Annual Incentive Plan measures and goals 174
Slide 167: Audit, Risk, and Regulation
Audit, A dit Risk, Ri k and d Regulation
Slide 168: Enterprise Risk Management Policy
Enterprise Risk Management Policy
Slide 169: Topic
Topic Considered best practice to have a Board approved enterprise risk management policy Management has developed a policy based on sound risk management practices for Board consideration
Slide 170: Background
Background 2004 TVA Board established the position of Chief Risk Officer 2005 TVA Board established the Enterprise p Risk Management Council TVA risk management practices and approaches have been maturing 179
Slide 171: Background
Background Enterprise Risk Management Policy • Board adoption is recommended as a best practice to provide appropriate guidance to the organization • Provides overarching guidance for all risk management activities • Establishes risk governance, general processes and roles and responsibilities • Req
Slide 172: Recommendation
Recommendation Adopt the Enterprise Risk Management Policy Delegate authority to Enterprise Risk Council to amend the ERM Policy only after formal consultation with the B dC Board Committee itt ththatt reviews i TVA’ TVA’s risk i k managementt functions Delegate authority to Enterprise Risk Council
Slide 173: Slide 173
Slide 174: Customer and External Relations
Customer C t andd External Relations
Slide 175: Chickamauga Marina – Commercial Recreation Lease
Chickamauga Marina – Commercial Recreation Lease
Slide 176: Lease Location Map
Slide 177: 186
186
Slide 178: Recommendation
Recommendation 19-year commercial recreation lease affecting approximately 14.7 14 7 acres in Hamilton County County, Tennessee, on Chickamauga Reservoir 187
Slide 179: Fort Loudon Marina – Commercial Recreation Easement
Fort Loudon Marina – Commercial Recreation Easement
Slide 180: - Louisville
a - Louisville a K : 41) 2 NX Lenoir City, SS
Slide 181: 190
190
Slide 182: Recommendation
Recommendation 30-year commercial recreation easement and a 30-year nonexclusive access road easement affecting approximately 9.5 acres in Loudon County Tennessee County, Tennessee, on Fort Loudoun Reservoir 191
Tennessee Valley Authority — 08 20 2010 board presentations on 6ix