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THURSDAY, MAY 17, 2007
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TVA's profit up, forecasts shortfall for year
Utility's income strong in quarter, trims outlook amid major drought

By Duncan Mansfield
Associated Press Writer

KNOXVILLE — The Tennessee Valley Authority reported Wednesday strong earnings in the second quarter, but forecast a $60 million shortfall for the year brought on by one of the worst droughts on record in the Eastern Tennessee Valley.

TVA, the nation's largest public utility, said income rose to $126 million for the three-months ending March 31, compared to $14 million a year ago. Revenues reached $2.27 billion, up $229 million from the year before.

But the agency said much of that was due to rate increases a year ago. Power sales were flat for the quarter and down 2.8 percent from budgeted levels for the first half of the year.

In a filing Tuesday with the Securities and Exchange Commission, TVA said net income on its $9.3 billion budget for fiscal 2007 would be off about $60 million, or 13.9 percent. The agency blamed a mild winter that cooled power sales and a lack of rain that's cut electric generation.

"We expect the dry conditions, which we have experienced since December, to continue to affect TVA's hydro generation output and revenue outlook throughout the summer months," TVA President and Chief Executive Officer Tom Kilgore said Wednesday.

The forecast doesn't mean the agency expects to end the year with a loss or necessarily will need another rate increase, TVA spokesman John Moulton said.

The quarterly report noted that management already "has identified cost reductions in operating and maintenance activities to be implemented over the remainder of the year."

'Cut costs'

Moulton couldn't provide specific actions, but said, "All organizations will look at ways they will cut costs. If projects can be differed until the next year, then they will do that."

TVA provides electricity to about 8.7 million consumers through 158 distributors and directly to several large industries in Tennessee and parts of Alabama, Mississippi, Kentucky, North Carolina, Georgia and Virginia.

The federal utility is recouping higher costs for fuel and purchased power through its newly adopted policy of charging customers periodic fuel adjustment charges. An extra 84 cents per kilowatt hour enacted April 1 is expected to bring in $29 million in the third quarter. Another adjustment in July is expected to raise $36 million more in the fourth quarter.

Even with these fuel charges, however, TVA is still anticipating the $60 million shortfall.

For the six months ending March 31, TVA said its 29 hydroelectric dams, its cheapest source of electricity, are generating 27.8 percent less power than projected.

The agency said that without more rain the trend could also affect generation at its 11 coal-fired power plants, whose operations may be curtailed if cooling water discharges into the Tennessee River system get too hot. The agency made no mention of its three nuclear plants, which face similar discharge restrictions.

"TVA management is currently reviewing these issues and expects to have plans in place before the anticipated increased electricity demand during the summer months," the report said.

Most of TVA's reservoir lakes and many of its power plants are in the eastern half of the Tennessee Valley, which has experienced its driest three-month period — January through March — in 118 years of record keeping. Rainfall was 67 percent of normal and runoff was 62 percent, TVA said.

"The effects of the weather on sales, additional purchased power due to more outage days, and lower rated electrical capabilities of generating equipment, along with higher fuel prices have increased TVA's delivered cost of power in 2007," the report said.

For the first half of the year, TVA reported a profit of $177 million compared to a $39 million loss at this point in 2006. Revenues were $4.38 billion, up $281 million.

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On the Net:

TVA, www.tva.gov.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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