Tennessee Valley Authority · NYSE:TVC
Tennessee Valley Authority — Investor Presentation (August 2015)
95 slides from Tennessee Valley Authority's investor presentation, Aug 21, 2015
Slide 1: Board Meeting
Board Meeting August 21, 2015 Knoxville, TN
Slide 2: President's Report
President’s Report August 21, 2015 BILL JOHNSON President and CEO
Slide 3: Safety
Safety | 3
Slide 4: Strategic Imperatives
Strategic Imperatives UTILITY-SCALE SOLAR PPA | 4
Slide 5: Expectations for TVA
Expectations for TVA • Better financial health now and for the long-term • Focus on customer service and stakeholder satisfaction • Better operational performance • Robust planning for region’s future energy needs • Affordable energy for customers, consumers, and region’s ability to compete | 5
Slide 6: Significant Progress
Significant Progress • Reduced O&M costs by $500 million • Funding some capital investments without debt • Total financing obligations $907 million below plan • Better operational performance • Improving customer service and loyalty • Competitive rate position | 6
Slide 7: Progress In Energy
Progress In Energy
Slide 8: Watts Bar Unit 2
Watts Bar Unit 2 * (yh
Slide 9: Progress In Energy
Progress In Energy | 9
Slide 10: Progress In Environment
Progress In Environment
Slide 11: Boone Dam
Boone Dam | 11
Slide 12: River System Management
River System Management au VA
Slide 13: Progress In Economic Development
Progress In Economic Development
Slide 14: Progress In Economic Development
Progress In Economic Development | 14
Slide 15: Energy | Environment | Economic Development
Energy | Environment | Economic Development
Slide 16: Integrated Resource Plan
Integrated Resource Plan | 16
Slide 17: Strategic Pricing Plan
Strategic Pricing Plan Collaborative effort with customers for: • Improved rate structure • Better defined cost of service • Stronger price signals • Improved pricing products | 17
Slide 18: Clean Power Plan
Clean Power Plan • Reviewing recently released plan • 30% reduction in CO2 emissions since 2005 • By 2020, nearly 40% below 2005 levels | 18
Slide 19: Energy | Environment | Economic Development
Energy | Environment | Economic Development
Slide 20: 2016 Budget
2016 Budget • Manage O&M costs through increased efficiency and productivity • Invest in the power system to ensure a safe, affordable, reliable, and cleaner power supply for the region • Carry out environmental stewardship responsibilities • Continue to foster quality economic growth | 20
Slide 21: Energy | Environment | Economic Development
Energy | Environment | Economic Development
Slide 22: Widows Creek Fossil Plant
Widows Creek Fossil Plant | 22
Slide 23: Slide 23
Slide 24: External Relations Committee
External Relations Committee
Slide 25: Integrated Resource Plan
Integrated Resource Plan JOE HOAGLAND Vice President, Stakeholder Relations
Slide 26: For Board Consideration
For Board Consideration That the TVA Board: • Approve the planning direction recommended in the 2015 IRP • Affirm merits of a diverse energy resource portfolio • Direct TVA staff to monitor future developments such as changes in • energy efficiency pricing & performance • renewable resources pricing
Slide 27: Integrated Resource Planning is Forward Looking
Integrated Resource Planning is Forward Looking THE IRP STRIVES TO ACHIEVE SIX KEY GOALS: Low Cost Reliable Risk Informed Environmentally Diverse Flexible Responsible BOARD MEETING | 27
Slide 28: Assesses Options to Balance Supply and Demand
Assesses Options to Balance Supply and Demand MW Capacity Gap Chart Capacity Capacity Shortfall Surplus BOARD MEETING | 28
Slide 29: Provides Directional Guidance
Provides Directional Guidance THE IRP IS A COMPASS; NOT A GPS • Recommends directions and ranges • Does not prescribe specific assets, rates, or programs BOARD MEETING | 29
Slide 30: Structured Robust Analytical Process
Structured Robust Analytical Process Selected Scenarios and Strategies Draft IRP Final IRP Recommendations developed & planning direction provided BOARD MEETING | 30
Slide 31: Includes Integrated Resource Plan Innovations
Includes Integrated Resource Plan Innovations • Significant modeling achievements (industry leadership) • Energy efficiency and renewable resources selected based on least-cost planning principles • Stakeholder engagement provides exceptional transparency BOARD MEETING | 31
Slide 32: Key Stakeholders Engaged
Key Stakeholders Engaged Included: • TVA’s Regional Energy Resource Council • Strong cross-section in the Working Group • State Agencies • Local Power Companies / TVPPA • Industrial Customers / TVIC • Environmental/Energy Non-governmental Organizations • Academia / Research • Economic Development /
Slide 33: Extensive Engagement
Extensive Engagement Working Group Meetings 7 Regional Public Meetings November 5, 2013 3/19 – Chattanooga December 5, 2013 4/6 – Knoxville January 13, 2014 February 19, 2014 4/9 – Huntsville March 27 & 28, 2014 April 29 & 30, 2014 4/14 – Tupelo May 29 & 30, 2014 4/15 – Memphis June 19 & 20, 2014 Oc
Slide 34: IRP Achievements
IRP Achievements Cost of Power Reliability Portfolio Mix Keeps electricity Maintains Seeks a balanced affordable Keeping electricity availability of supply Maintaining portfolio that Seeking a affordable & ability availability of balanced portfolio minimizes risk supply and ability to deliver that m
Slide 35: The Future of Our Energy Supply
The Future of Our Energy Supply • More . . . • Energy efficiency & demand response • Natural gas • Renewables • Nuclear uprates • Less coal • No new base load in the planning horizon after Watts Bar Unit 2 and nuclear uprates TVA will provide reliable, affordable and sustainable power & strive for e
Slide 36: Recommendation
Recommendation That the TVA Board: • Approve the planning direction recommended in the 2015 IRP • Affirm merits of a diverse energy resource portfolio • Direct TVA staff to monitor future developments such as changes in • energy efficiency pricing & performance • renewable resources pricing & perfor
Slide 37: RERC Members
RERC Members Lance Brown Wes Kelley Jack Simmons Partnership for Affordable Clean Energy Columbia (TN) Power & Water Systems Tennessee Valley Public Power Association Chris Champion Peter J. Mattheis State of Mississippi Tennessee Valley Industrial Committee Stephen Smith Southern Alliance for Clean
Slide 38: Finance, Rates and Portfolio Committee
Finance, Rates and Portfolio Committee
Slide 39: FY 2016 Financial Plan and Budget
FY 2016 Financial Plan and Budget JOHN THOMAS Executive Vice President and Chief Financial Officer
Slide 40: Overview
Overview Discussion Topic Key Takeaway Higher revenue FY15 Update O&M and debt reductions lowered overall cost Live within our means FY16 Planning Balance rates and debt Achieved $500 million O&M reduction Cost Drivers Incremental $178 million of productivity Rate Outlook Recommending small increase
Slide 41: Fiscal Year-to-Date June 2015
Fiscal Year-to-Date June 2015 Net Income: $549M better than plan and $462M better than last year Base Revenues ($368M above plan) • Extreme weather resulting in 8% more degree days • Fuel expense $52M favorable due to generation performance and lower gas prices Operating & Maintenance Expenses ($143
Slide 42: Weather Patterns
Weather Patterns Heating Degree Days for the nine months ended June 30 4,500 °Days 3,343 Warmer Colder 4,000 FY14 3,500 3,697 FY15 3,551 FY13 3,000 3,332 FY12 2,585 2,500 Fiscal year 1978 through 2015 Heating Degree Days ( low to high) BOARD MEETING | 42
Slide 43: Weather Impact
Weather Impact Energy delivered FYTD 2015 vs. 2014 Percent of Total Sales -0.4% Local Power Actual Companies 87% 0.2% Weather Normal -0.4% Industries -0.4% Directly Served (1) 11% -14.5% Federal Agencies -14.5% and Other 2% -0.7% -0.2% Total -2.0% -16.0% -1.0% 0.0% 1.0% (1) Excludes e nergy for USEC
Slide 44: Q3 Summary Income Statement
Q3 Summary Income Statement Net Income favorability due to higher revenues and lower operating spend FYTD 2015 FYTD 2014 Variance '15 v '14 $ million Actual Budget Fav/(Unfav) Actual Fav/(Unfav) Operating Revenue $ 7,832 $ 7,464 $ 368 $ 7,971 $ (139) Fuel & Purchased Power 2,480 2,532 52 2,747 267 B
Slide 45: Q3 Summary Cash Flow Statement
Q3 Summary Cash Flow Statement FYTD 2015 FYTD 2014 $ million Actual Budget Variance Actual '15 v '14 Cash Flow from Operating Activities $ 2,016 $ 1,594 $ 422 $ 1,987 $ 29 Cash Flow used in Investing Activities (2,690) (2,919) 229 (1,961) (729) Cash Flow from Financing Activities 674 1,325 (651) (1,
Slide 46: Q3 Summary (v. Plan)
Q3 Summary (v. Plan) Higher Revenue Lower Fuel Cost Lower Expenses • Operation & Maintenance • Interest Higher Net Income and Lower Debt BOARD MEETING | 46
Slide 47: FY 16 Budget and Business Plan
FY 16 Budget and Business Plan
Slide 48: Our Mission and Strategic Imperatives
Our Mission and Strategic Imperatives Why We Are Here How We Achieve Sustainability TVA Mission Strategic Imperatives Energy Environment Economic Development BOARD MEETING | 48
Slide 49: Rates and Debt – FY14 Board Approved Plan
Rates and Debt – FY14 Board Approved Plan Total Financing Obligations Wholesale Rate excluding Fuel $ b illion ¢ / kWh $30 7 6 $25 $21.8 5 1.5% CAGR 4 at Retail $20 3 $15 2 1 $10 0 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 BOARD MEETING | 49
Slide 50: Balancing Rates and Debt
Balancing Rates and Debt Total Financing Obligations Wholesale Rate excluding Fuel $ billion ¢ / k Wh 30 FY14 Board 7 FY14 Board Approved Approved 6 1.5% CAGR at Retail 25 5 FY16 LRFP FY16 LRFP with 4 0.7% CAGR at Retail 20 1.5% Increases through FY23 3 $20.0 2 15 1 10 0 FY14 FY15 FY16 FY17 FY18 FY1
Slide 51: Near Term Rate Increases for New Assets
Near Term Rate Increases for New Assets Near Term Asset Decision Watts Bar Allen GAF/SHF Annual Impacts Paradise CC Total Unit 2 CC Controls ($ million) Depreciation / Debt Paydown $125 $25 $20 $90 $260 Interest Expense $200 $45 $40 $50 $335 O&M and Base Capital * $125 - - - $125 Annual In-Service C
Slide 52: Current Retail and Industrial Rate Positions
Current Retail and Industrial Rate Positions Effective Retail Rates Effective Industrial Rates Top Quartile 8.70 Median 9.03 Bottom Quartile 9.53 Top Quartile 5.88 Median 6.22 Bottom Quartile 6.31 11 8 10 9.03 7 5.68 9 6 8 5 7 6 4 5 3 NextEra Southern PPL Duke TVA Dominion AEP Ameren Entergy NextEra
Slide 53: Plan Assumptions & Updates
Plan Assumptions & Updates • Load and energy growth remains modest (~1%) • Continued focus on driving sustainable O&M reductions and productivity • Watts Bar 2 begins commercial operations • Widows Creek 7 idled by end of FY15 • Timing/project changes for capital spending • Pension contribution of $
Slide 54: TVA Cost Structure
TVA Cost Structure Revenue Wholesale Requirements Rate $10.7B 6.72¢/kWh Efforts to M anage Cost $1.9B* $1.1 10% Base Capital $0.6 Environmental Manage capital cost, $1.4 13% which is recovered over Capacity Debt Service $1.3 Expansion the life of the asset $0.5 5% Tax Equivalents & Other Reduce TVA
Slide 55: Annual Peak & Energy (Weather-Normalized)
Annual Peak & Energy (Weather-Normalized) 33,000 USEC 30,598 CAGR Peak 1.0% FY15-18 30,000 MW 27,000 24,000 21,000 FY11 FY12 FY13 FY14 FY15F FY16P FY17P FY18P 180,000 USEC 162,565 Energy 170,000 CAGR 1.5% FY15-18 GWh 160,000 150,000 140,000 130,000 FY11 FY12 FY13 FY14 FY15F FY16P FY17P FY18P BOARD
Slide 56: Energy Forecast and Efficiency Impacts
Energy Forecast and Efficiency Impacts GWh 190,000 190,000 Naturally Occurring EE TVA EE 8,800 170,000 7% 2,700 6,400 5% 2,100 Recession 150,000 Net impact System with EE Impacts 165,600 159,100 130,000 110,000 110,000 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15F FY16P FY17P FY18P FY15F FY18P Energ
Slide 57: Energy Forecast through FY18
Energy Forecast through FY18 CAGR Residential Customers 1,500 GWh 0.3% Large Commercial & Industrial Customers 2,100 GWh 0.4% Small Commercial & Industrial Customers 2,100 GWh 0.3% Directly Served Customers 2,200 GWh 0.5% Net Change 7,100 GWh 1.5% Energy growth ~ 1.5% near term (FY15-18), ~1.0% lon
Slide 58: Revenue
Revenue $ billion $14 Sales (GWh) $11.8 USEC $12 $11.2 $11.0 $11.1 $10.9 $11.1 $11.3 $10.8 $10 167,730 $10.7 FY15B 161,768 $8 158,752 $6 155,820 w/o USEC FY15B $4 $2 $0 FY11A FY12A FY13A FY14A FY15F FY16P FY17P FY18P FINANCIAL OUTLOOK | 58
Slide 59: Fuel & Purchased Power
Fuel & Purchased Power $5 Energy $ billion (GWh) $4 $3 Gas Wind & Solar $2 Purchased Power Nuclear $1 Coal $25.94/MWh $23.85/MWh $23.17/MWh $26.21/MWh $23.31/MWh $23.02/MWh $23.11/MWh $23.09/MWh Total Fuel Rate $0 FY11A FY12A FY13A FY14A FY15F FY16P FY17P FY18P NOTE: Excludes adjustments to fuel exp
Slide 60: Energy Efficiency and Demand Response
Energy Efficiency and Demand Response By FY18, T VA will have invested nearly $1 billion in energy efficiency and demand response programs, which are estimated to reduce F Y18 capacity needs by more than 800 MW Net Cumulative MW Net Cumulative GWh FY15 Budget Adjustment FY16 Budget FY15 Budget Adjus
Slide 61: O&M Expense
O&M Expense Targeting continued efficiencies $4 $3.7 to offset inflation through FY18 $3.6 $3.5 $3.4 $3.3 $ billion $3.0 $2.9 $2.9 $2.9 $2.9 $3 3.0 Other 2.5 Projects* Outage $2 Routine $1 $0 FY11A FY12A FY13A FY13B FY14A FY15B FY15F FY16P FY17P FY18P * Includes EEDR program costs and Corporate Insu
Slide 62: Key Drivers: FY15 – FY16 O&M Expense
Key Drivers: FY15 – FY16 O&M Expense $67 $23 $ million $76 $8 $50 $2,989 $2,919 Incremental Unit Spend • Watts Bar 2 Ops $178 • Ackerman FY15 Budget Labor Incremental Dam Safety Coal Closures Severance SBU O&M O&M FY16 Plan Escalation Unit Spend Efficiencies Efficiencies BOARD MEETING | 62
Slide 63: Capital Expenditures
Capital Expenditures $4 $ billion $3.3 $3.1 $3.0 $3 $2.7 $2.7 $2.2 $2.2 $2.2 $2 Environmental/Other Capacity Expansion $1 Base $0 FY11 FY12 FY13 FY14 FY15F FY16P FY17P FY18P *Capital Expenditures include AFUDC, Ash Remedy ARO, Kingston Ash Cleanup, and Bellefonte Regulatory Asset Spend BOARD MEETING
Slide 64: FY16 Capacity Expansion and Environmental Spend
FY16 Capacity Expansion and Environmental Spend Allen CC Gas $785 Paradise CC Gallatin Johnsonville DuPont Co-Gen Clean A ir $312 Shawnee Ash $274 Transmission $181 Nuclear $176 Watts Bar 2 (including AFUDC) BLN Reg $53 Capacity Expansion $ 1,242 Asset/Other Environmental/Other $ 639 Hydro $50 Tota
Slide 65: Total Financing Obligations
Total Financing Obligations $ billion $30 $29 $28.0 FY14 Board Approved $28 $27.5 $26.9 $27.0 $27.0 $27 $26.7 $26.5 $26.5 $26.1 $26 $25 FY16 L RFP $24 $23 FY11 FY12 FY13 FY14 FY15F FY16P FY17P FY18P BOARD MEETING | 65
Slide 66: Rate Outlook
Rate Outlook | 66
Slide 67: Summary Income Statement
Summary Income Statement $ million Operating Revenue $ 10,753 Fuel & Purchased Power 3,406 Operations, Maintenance 2,919 Depreciation, Amortization, Accretion 1,976 Tax Equivalents 532 Operating Expenses 8,833 Other Income / (Expense) 37 Net Interest Expense 1,365 Net Income $ 592 BOARD MEETING | 67
Slide 68: Revenue Requirements
Revenue Requirements $ million Fuel $ 3,406 O&M 2,919 Base Capital 1,095 Interest 1,365 Tax Equivalents 532 Debt Paydown 1,407 Other (58) Total TVA Revenue Requirements $ 10,666 Base Revenues 7,225 Fuel Revenues 3,241 Rate Action Revenues 200 Total Electric Revenues $ 10,666 Surplus /(Shortfall) – S
Slide 69: Summary
Summary • Includes 1.5% effective retail rate increase • Achieves debt reduction goal • Provides $3 billion in new capital investment • $178 million incremental productivity BOARD MEETING | 69
Slide 70: Recommendation
Recommendation Approve the following: • FY16 Budget • Rate Adjustment of $200 million effective October 1 − Effective retail rate increase of 1.5% • Financial Shelf for issuance of up to $2.0 billion of long-term bonds • Projects over $50 million • Land Condemnations • Regulatory Accounting BOARD ME
Slide 71: Rate Change and Products
Rate Change and Products JOHN THOMAS Executive Vice President and Chief Financial Officer
Slide 72: Purpose
Purpose Request approval of changes to: • Rate Structures • Pricing Products BOARD MEETING | 72
Slide 73: Strategic Pricing Plan
Strategic Pricing Plan Objectives: • Improve fixed cost recovery • Improve pricing signals • Encourage technology investment Process: • Collaborate with customers and customer associations • Improve pricing through more frequent, incremental changes BOARD MEETING | 73
Slide 74: Scope
Scope A TVA Rate Change is a change in the rate structure or the allocation of revenue requirements among customer classes Proposed rate change scope items: • Time-of-Use (TOU) Rate Structure • Seasonal Demand and Energy (SD&E) Rate Structure • Fuel Cost Adjustment (FCA) • General Manufacturing Cred
Slide 75: Key Changes
Key Changes Narrowed on-peak period to better align with TVA’s system peak Improved alignment with cost of service: • Creating on and off-peak Demand charges • Separating Fuel cost for large, less weather sensitive loads Improved Energy charge for large customers to be more representative of TVA mar
Slide 76: Recommendation
Recommendation Recommend approval of changes to: • Rate Structures • Pricing Products BOARD MEETING | 76
Slide 77: Audit, Risk, and Regulation Committee
Audit, Risk, and Regulation Committee
Slide 78: FY 2016 External Auditor Selection
FY 2016 External Auditor Selection
Slide 79: Pre-Approval of Audit Services/Fees
Pre-Approval of Audit Services/Fees
Slide 80: Billing Adjustment Policy
Billing Adjustment Policy SHERRY QUIRK General Counsel
Slide 81: Background
Background • Billing errors can be the result of a variety of factors: Meter installation, meter calibration, equipment failure, meter programming, billing system issues, contract management, other human error • When invoice errors are discovered, TVA makes a revision for the entire period of error
Slide 82: Decision Factors
Decision Factors • Since the change from end-use wholesale rates in 2011, TVA has instituted internal controls in metering and billing to improve invoice accuracy • These internal controls will limit the number of billing errors going forward • TVA also reviewed its historic billing process for fair
Slide 83: Recommendation
Recommendation Board approval to limit the period of time over which TVA would recoup or repay based on billing errors • Set limit at 6 years from the date of discovery of the error • Limit would be applied to both under billings and over billings • Policy revision would cover any open or future adj
Slide 84: Local Rate Adjustment Process
Local Rate Adjustment Process
Slide 85: People and Performance Committee
People and Performance Committee
Slide 86: Corporate Goals
Corporate Goals JOHN THOMAS Executive Vice President and Chief Financial Officer
Slide 87: Fiscal Year 2016 Performance Goals
Fiscal Year 2016 Performance Goals Approve scorecards for FY16: • Annual Incentive Program (Winning Performance) Designed to promote teamwork, create a high performance culture, and motivate and reward all eligible employees for achieving goals • Executive Long-Term Incentive Plan (ELTIP) Designed t
Slide 88: FY16 Winning Performance Design
FY16 Winning Performance Design • Corporate multiplier between 0 and 1.0 • Board defines key performance measures aligned to strategic imperatives • Board / CEO qualitatively assess performance compared to target to determine final multiplier • CEO establishes Business Unit scorecards • Board contin
Slide 89: Winning Performance Scorecard Overview
Winning Performance Scorecard Overview Corporate Multiplier Aligns to Financial and Stewardship Strategic Imperatives Outlined by Board Measure Target Safe Workplace - 0 Financial Health Operating Cash Flow Budget - Net Income - Budget Total Financing Obligations Budget - Jobs Created / Retained
Slide 90: Executive Long-Term Incentive Plan
Executive Long-Term Incentive Plan FY18 ELTIP Cycle Scorecard: Measures include: • Wholesale Rate Excluding Fuel • Load Not Served • External Measures Index: − INPO Index − Media Tone − Stakeholder Survey − Customer Loyalty − Board Level Significant Events BOARD MEETING | 90
Slide 91: ELTIP Scorecards
ELTIP Scorecards Measure Weight Threshold Target Stretch Wholesale Rate Excluding Fuel 40% 4.91 4.82 4.72 (FY16 – FY18 avg.) Load Not Served 30% 5.0 4.2 3.7 (FY16 - FY18 avg.) External Measures 30% 81.0 89.0 96.5 (FY16 - FY18 avg.) FY17 wholesale rate targets based on final approved FY15 business pl
Slide 92: Recommendation
Recommendation Winning Performance • Approve Strategic Measures and targets in corporate multiplier Executive Long-term Incentive Plan • Approve ELTIP 2018 Cycle scorecard and targets BOARD MEETING | 92
Slide 93: Nuclear Oversight Committee
Nuclear Oversight Committee
Slide 94: Proposed Committee Roster
Proposed Committee Roster Audit, Risk, and Finance, Rates, and Nuclear Oversight Regulation Committee Portfolio Committee Committee Lynn Evans, Chair Pete Mahurin, Chair Marilyn Brown, Chair Eric Satz Richard Howorth Richard Howorth Ron Walter Mike McWherter Gina Lodge Joe Ritch Joe Ritch External R
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Tennessee Valley Authority — Investor Presentation (August 2015) on 6ix