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Colder Weather Drives Up TVA Operating Costs in First Quarter

KNOXVILLE, /PRNewswire-USNewswire/ -- Unseasonably cold temperatures in December led to increased demand for electricity from the Tennessee Valley Authority, which drove up operating costs during the first quarter of the 2011 fiscal year, TVA reported Wednesday.

The federal utility also reported a net loss of $48 million for the three-month period, which ended Dec. 31, as part of its Form 10-Q filing with the Securities and Exchange Commission. The loss, compared to net income for reinvestment of $150 million in the first quarter of the 2010 fiscal year, was attributed mainly to a 17 percent increase in operating and maintenance expenses over the prior year.

Those expenses included maintenance projects at various plants to improve reliability, security upgrades, benefit expenses, support for energy efficiency and demand response initiatives, and costs related to unexpected outages at two nuclear plants in December.

Fuel and power purchased from other utilities to meet peak demand totaled more than $1 billion in the first quarter, compared with $608 million in the same period last year.

The cost of fuel for TVA's own generating sources jumped 13 percent during the quarter from a year ago. Expenses also increased because TVA generated 45 percent less hydroelectric power during the period. TVA purchased 31 percent more power during the quarter than a year ago.

"By not increasing base prices, TVA expected to have a slight net operating loss in the first quarter," Chief Financial Officer John Thomas said. "As sales increase during the winter and summer months, we will return to a positive net income, to be reinvested in the power system." TVA makes no profit and reinvests all net income in the power system and other infrastructure. TVA receives no tax money.

Colder-than-normal weather in December boosted sales of electricity by 2 percent for the quarter. The increase was primarily in sales to residential customers as TVA set all-time records for the month of December in both 24-hour usage and peak demand.

Operating revenues in the first quarter were up $479 million, or 20 percent, to $2.8 billion as compared to $2.3 billion a year ago. While base power rates did not change, revenues rose, mainly because of increases in the fuel cost adjustment, a monthly charge that allows TVA to recover the cost of various types of fuel, including coal and natural gas. The fuel cost adjustment produced $457 million in revenues to help offset increases in fuel and power purchases during the quarter.

The quarterly report also discussed TVA's future challenges and key initiatives, including planning for additional clean, reliable energy resources and replacing aging power plants.

"This year TVA will present its Integrated Resource Plan to guide our power system investments and production planning over the next 20 years," Thomas said. "Similar to other electric utilities, TVA does expect to make significant investments over the next decade in new generation sources to meet growing demand, as well as in energy efficiency programs, and to meet expected environmental regulations."

Published February 3, 2011

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