Tennessee Valley Authority · NYSE:TVC
Tennessee Valley Authority — Debt Investor Presentation (April 2013)
37 slides from Tennessee Valley Authority's debt investor presentation, April 2013
Slide 1: Briefing for the Financial Community
Briefing for the Financial Community April 2013
Slide 2: Safe Harbor Statement
Safe Harbor Statement This document contains forward-looking statements relating to future events and future performance. All statements other than those that are purely historical may be forward- looking statements. In certain cases, forward-looking statements can be identified by the use of words
Slide 3: Agenda
Agenda ◘ Business & Strategy Update ◘ Overview of Financial Health ◘ Financing Program Update ◘ Question and Answer Session 2
Slide 4: Business & Strategy Update
Business & Strategy Update 3
Slide 5: Impressions of TVA
Impressions of TVA ◘ Bill’s First Few Months at TVA ─ 6,214 miles traveled ─ 2,277 employees met ─ Stakeholders and government officials visited 4
Slide 6: TVA at a Glance
TVA at a Glance Seven State Service Area Largest U.S. Public Power Provider KY ◘ Wholly owned U.S. government corporation VA ◘ Self-supported (no taxpayer funding) ◘ Unique customer base TN NC ─ 155 distributor customers ─ Direct-serve industrial customers MS ◘ 9 million service area population GA ◘
Slide 7: TVA's Unique Mission
TVA’s Unique Mission ◘ Provide safe, clean, reliable energy at low rates ◘ Stewardship ◘ Economic Development 6
Slide 8: 80 years ago, President Roosevelt asked Congress to create a corporation
80 years ago, President Roosevelt asked Congress to create “a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” 7
Slide 9: 8 8
8 8
Slide 10: Key TVA Challenges
Key TVA Challenges ◘ Economic & Market Trends ◘ New Regulations & Policies ◘ Emerging Technologies ◘ Aging Facilities ◘ Nuclear Matters 9
Slide 11: Competitive Rates Today
Competitive Rates Today 12 Month Average Retail Rate (¢ per kWh) of the Top 100 U.S. Utilities Goal: Top TVA 38th Quartile 0 5 10 15 20 25 30 35 Jan 2012 – Dec 2012 10
Slide 12: TVA Focus Areas
TVA Focus Areas ◘ Safety ◘ Cost Management ◘ Continuous Improvement ◘ Asset Planning ◘ Maintaining Financial Health ◘ Leadership and Accountability One TVA, On For All 11
Slide 13: Overview of Financial Health
Overview of Financial Health 12
Slide 14: Maintaining Financial Health
Maintaining Financial Health ◘ Financial Guiding Principles ◘ Competitive Power Rates ◘ Balanced Generation Portfolio ◘ Low Installed Costs ◘ Low Fuel and Purchased Power Costs ◘ Competitive Capital Structure ◘ Competitive Capital Costs 13
Slide 15: TVA Financial Guiding Principles
TVA Financial Guiding Principles ◘ Retire debt over the useful life of assets ◘ Only increase debt level to fund new assets ◘ Use regulatory accounting treatment for specific unusual events ◘ Rate increases as necessary to fund operational spending ◘ Evaluate rate actions to avoid significant rate v
Slide 16: TVA Power Rate Composition
TVA Power Rate Composition Wholesale Rate Revenue Requirements (¢/kWh) ($ Billions) 6.93 ¢ $11.2B 12% Debt Pay Down $ 1.4B 6% Base Capital $ 0.7B 12% Interest $ 1.3B 5% Tax Equivalents $ 0.6B Operating & 30% Maintenance $3.2B (net of non-cash items) Debt Funded Capital $1.8 B Fuel & $ 0.7B Environme
Slide 17: Power System Diversity
Power System Diversity 2012 Energy Efficiency and Hydro and Demand Response Renewables Purchases Future Energy Efficiency and Demand Response Hydro and Renewables Nuclear Purchases 16
Slide 18: Low Fuel & Purchased Power Costs
Low Fuel & Purchased Power Costs Low Fuel & Purchased Power Costs Fuel & Purchased Power Costs ($/MWh) versus Investor Owned Utility Peers $70 $60 Trend $50 $50 $40 Peer Average $40 Peer Average: $37/MWh $30 $30 $23 $20 $26 TVA $20 $23 $19 $10 $10 1st 3rd 1st $0 $0 TVA 2010 2011 2012 Data Source: Co
Slide 19: Low Installed Costs
Low Installed Costs Net Book Value per Installed Capacity ($/MW) versus Investor Owned Utility Peers $2,000 $1,600 Trend Peer Average: $1,218/MW $1,300 $1,200 Peer Average $1,100 $849 $800 $900 TVA $857 $849 $400 $700 $817 1st 1st 1st $0 $500 TVA 2010 2011 2012 Data Source: Company 2012 10-K Flings
Slide 20: Operating & Maintenance Costs
Operating & Maintenance Costs O&M Expense ($/MWh) versus Investor Owned Utility Peers $25 $22 $20 Focusing on operating cost Peer Average = $14/MWh efficiency is TVA’s $15 best opportunity for continued $10 improvement in power rates $5 $0 TVA Peer Data Source: Company 2011 FERC Form 1 Filings 19
Slide 21: Competitive Capital Structure
Competitive Capital Structure Competitive Capital Structure Total Capitalization to Total Assets (%) versus Investor Owned Utility Peers 90% Peer Average: 78% Trend 80% Peer Average 68% 75% 60% 70% 72% TVA 69% 68% 65% 2nd 2nd 2nd 60% 30% 2010 2011 2012 TVA Data Source: Company 2012 10-K Flings 20
Slide 22: Capitalization Relative to Capacity
Competitive Capital Structure Capitalization Relative to Capacity Total Capitalization Per Kilowatt of Capacity ($/KW) versus Investor Owned Utility Peers $2,500 Trend $2,000 $1,500 Peer Average Peer Average: $1,395/KW $1,500 $1,250 $1,000 $921 $1,000 TVA $908 $933 $921 $500 $750 1st 1st 1st $0 $500
Slide 23: Competitive Capital Costs
Competitive Capital Costs Comparison of Financing Expense versus Investor Owned Utility Peers 16.0% 15.8% 15.3% 14.6% 14.3% 12.2% 12.1% 11.5% 11.3% 11.1% As a Percent of Revenues: Dividends Interest Expense 4.5% TVA 4.1% 4.1% 3.8% 3.3% 3.3% 3.2% 2.7% 2.7% 2.6% As a Percent of Assets: TVA Data Source
Slide 24: Improved Debt Service Coverage
Improved Debt Service Coverage Debt Service Coverage 2.5x 2.0x Average = 1.50 1.5x Average = 0.92 1.0x 0.5x 0.0x 1996 2006 2007 2012 23
Slide 25: TVA's Year-Old Debt Ceiling
TVA’s 34 Year-Old Debt Ceiling $100,000 $96B if adjusted for inflation: $90,000 $80,000 $70,000 $60,000 $ millions $50,000 $40,000 Alternative $30B Bonds & Notes Limit Financings $30,000 $2.8B $20,000 Bonds & Notes $24.1B $10,000 TOTAL $- $26.9B 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004
Slide 26: Power Appropriations
Power Appropriations TVA Repaying Original Investment in Power System $$4 4 Billion • Power Program self-funded since 1959 $3.6 B Total • Repaying $1.0 billion in power appropriations Payments • Final principal payment in FY14 $3 • Permanent investment of $258 million $2.6 B Interest $2 $1 $1.0 B Pr
Slide 27: Non-Power Appropriations
Non-Power Appropriations $400 Million • Since 1960, appropriations covered only non-power activities • Non-power appropriations ended in 1999 $300 • TVA’s mission is funded today exclusively with power system revenues $200 • Flood Control • Navigation $100 • Economic Development • Technology Develop
Slide 28: Capital Expenditures Outlook
Capital Expenditures Outlook Actual Estimated 2012 2013 2014 2015 Watts Bar Unit 2 $397 $500 $500 $500 Other Capacity Expansion Bellefonte 196 182 151 149 Other Generation Projects 125 37 61 181 Environment 38 392 750 739 Coal Combustion Residual 141 107 97 79 Transmission 256 324 420 428 Other 727
Slide 29: Load Growth Projections
Load Growth Projections Annual Summer System Peak – Weather Normalized MW 40,000 Prior Plan 1.2% 35,548 32,382 32,366 Revised Plan 0.4% 31,116 30,000 20,000 10,000 13,639 12,919 Minimum 12,584 Load 0 FY07 FY12 FY23 FY23 Revised TVA All-Time Peak: 33,482 MW - August 16, 2007 28
Slide 30: Managing Cash and Debt
Managing Cash and Debt Increasing productive assets with cash generated from operations $ Millions $2,500 $13 Billion Capital $2,000 (Gross PP&E) $1,500 $1.2 billion $1,000 Net Change in Debt & $500 Other Financing Obligations $- $(500) FY07 FY08 FY09 FY10 FY11 FY12 FY13 1/2 Year Note: Change in deb
Slide 31: Maintaining Financial Flexibility
Maintaining Financial Flexibility ◘ Capital expenditures for new generation and clean air goals are a challenge, but manageable utilizing ─ Statutory debt capacity ─ Alternative financing (leases, customer prepays, etc.) ─ Revenues collected for legacy debt management (capital offset) ─ Maintaining
Slide 32: Financing Program Update
Financing Program Update 31
Slide 33: Financing Portfolio Management Principles
Financing Portfolio Management Principles ◘ Maintain an average life of debt less than the average life of TVA’s assets ◘ Seek lower funding costs in balance with risk considerations ◘ Maintain appropriate financial flexibility ◘ Seek to maintain strong credit quality ◘ Maintain a strong reputation
Slide 34: Strong Liquidity Resources
Strong Liquidity Resources ◘ Short-term Discount Notes Program ─ Robust, well-established program ─ Weekly offerings ◘ Commercial bank credit facilities ($2.5 billion) ─ Two $1 billion facilities, syndicated ─ One $500 million facility ─ Five-year, staggered maturities ◘ U.S. Treasury credit facilit
Slide 35: Recent Financing Highlights
Recent Financing Highlights ◘ $1 Billion John Sevier Combined Cycle Lease-Purchase (Jan 2012) ◘ $1 Billion 2012 Series A Power Bonds: 10-year, 1.875% (Aug 2012) ◘ $1 Billion 2012 Series B Power Bonds: 30-year, 3.500% (Dec 2012) 34
Slide 36: Financing Portfolio Maturities Profile
Financing Portfolio Maturities Profile Note: Short-term Discount Notes not shown 35
Slide 37: Question & Answer Session
QUESTION & ANSWER SESSION Kingston – East Embayment Area (2012)
Tennessee Valley Authority — Debt Investor Presentation (April 2013) on 6ix