TVA BOARD MEETING AUGUST 22, 2013
TVA BOARD MEETING 2 CONSENT AGENDA Health Savings Account Contract Pharmacy Benefits Managers Contract Assistant Corporate Secretary Designations
3 CHAIRMAN S REPORT AUGUST 22, 2013
CHAIRMAN S REPORT 4 CHAIRMAN S REPORT Find significant efficiencies in operating costs and functions Optimize the generation portfolio by developing a robust, flexible generation fleet Improve operational performance of generation fleet Focus on our economic development mission by recruiting and retaining good jobs Improve transparency and communication Focus on low rates and long-term financial health
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 5 SUMMER PEAK DEMAND Megawatts 40,000000 35,000 30,000000 25,000 20,000000 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY24 Note: History is weather-normalized. All-time actual peak was 33,482 MW in August 2007 at 104.4⁰F. Forecast does not include the impacts of TVA EE/DR programs.
CHAIRMAN S REPORT 6 DEMAND LOAD AUGUST 16,2007 35,000 30,000000 Demand CT IPPs Combustion Turbines 33,482 MW 25,000 Interchange s Megawatt 20,000000 15,000 10,000000 Hydro Pumped Storage Coal 5,000 0 Nuclear 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour
CHAIRMAN S REPORT 7 DEMAND LOAD MAY 12, 2013 35,000 30,000000 25,000 s Megawatt 20,000000 15,000 System Load Interchange Wind (Purchases) Coal 16,494 MW 10,000000 Hydro 5,000 Nuclear 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 Hour
CHAIRMAN S REPORT 8 CHAIRMAN S REPORT Find significant efficiencies in operating costs and functions Optimize the generation portfolio by developing a robust, flexible generation fleet Improve operational performance of generation fleet Focus on our economic development mission by recruiting and retaining good jobs Improve transparency and communication Focus on low rates and long-term financial health
9 CHAIRMAN S REPORT AUGUST 22, 2013
10 PRESIDENT S REPORT AUGUST 22, 2013
PRESIDENT S REPORT 12 OVERVIEW
PRESIDENT S REPORT 13 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
PRESIDENT S REPORT 14 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
PRESIDENT S REPORT 15 GENERATION Fiscal Year-to-date t July 2013 6% 3% 1% 8% 37% Coal Nuclear Hydro 14% Gas Purchased Power Renewables 31% Energy Efficiency and Demand Response Hydro and renewables include a portion of purchased power
PRESIDENT S REPORT 16 COST PER MEGAWATT HOUR Average Operating Cost ($/MWh) Fiscal Year 2014 $200 $150 $100 $50 Delivered Cost including transmission $0 Hydro Nuclear Coal Gas CC Gas CT Large solar Wind Small solar
PRESIDENT S REPORT 17 SOLAR GENERATION BY STATE Source: SEIA through first quarter of 2013 except for Alabama, Kentucky, Mississippi and Virginia which use TVA data as of August 2013
PRESIDENT S REPORT 18 2013 SOLAR COSTS PER KWH Cents per kwh 18 17 16 Green Power Providers 14 Solar Program 12 20-Year Contract 10 8 6.5 7 6 Renewable TVA Power Rate Standard Offer 4 2013 Solar Program 2 20-Year Contract 0 Electricity Costs
PRESIDENT S REPORT 19 ENERGY EFFICIENCY AND DEMAND RESPONSE (M 2005 $) 500 Gross Regional Product kwh 20,000 Average Use per NonFarm Employee 250 17,000 0 14,000 2000 2004 2008 2012 2016 2020 2024 2000 2004 2008 2012 2016 2020 2024 Capacity Savings through Energy Efficiency Summer Season Hourly Peak Load Reductions from EE/DR 3,000 2,000 1,000 Peak Load (MW) 30,000 15,000 EE/DR Reductions (MW) 1,400 1,050 700 350 0 0 2008 2012 2016 2020 2024 2028 1 3 5 7 9 11 13 15 17 19 21 23 Hour 0
PRESIDENT S REPORT 20 AIR QUALITY Tons 2,500,000 SO2 NOx 2,000,000 1,500,000 000 1,000,000 500,000 0 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
PRESIDENT S REPORT 21 POWER SUPPLY FROM CARBON-FREE SOURCES Fiscal Year-to-date t July 2013 Nuclear 31% Hydro 51% Renewables Energy Efficiency i and Demand Response 14% Carbon Emitting 1% 3%
STEWARDSHIP
PRESIDENT S REPORT 23 ECONOMIC DEVELOPMENT Direct Jobs Created and Retained Capital Investment FYTD 2013 46,000 $4.6 billion FY 2008 thru FYTD 2013 250,000 $29 billion
PRESIDENT S REPORT 24 VALUE OF CREATING JOBS Example: Megasite Program Direct Jobs 6,800 Indirect Jobs 24,200 Total Jobs 31,000 Direct Payroll Indirect Payroll Total Payroll $433 million $925 million $1.4 billion Total Capital Investment $3.8 Billion Source: Economic Impact Study of the TVA Certified Megasite Program, Younger Associates, April 2012
PRESIDENT S REPORT 25 SEVERSTAL
PRESIDENT S REPORT 26 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
PRESIDENT S REPORT 27 LOAD GROWTH PROJECTIONS Megawatt Hours 220,000 200,000000 180,000 160,000 140,000 120,000 100,000 FY00 FY04 FY08 FY12 FY16 FY20 FY24
PRESIDENT S REPORT 28 PRIORITIES O&M Expenses in line with revenues Complete Watts Bar 2 Evaluate remainder of coal fleet Preserve Bellefonte as an option Continue exploring small modular reactor technology Attracting and retaining jobs for the region Update our Integrated Resource Plan
PRESIDENT S REPORT 29 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
PRESIDENT S REPORT 30 CAPITAL EXPENSES $ Billions 2.5 2.0 1.5 1.0 0.5 - FY10 FY11 FY12 FY13F FY14P FY15P FY16P
PRESIDENT S REPORT 31 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
PRESIDENT S REPORT 32 OUR PEOPLE Rates Asset Portfolio Serve the citizens of the Tennessee Valley Stewardship Debt
PRESIDENT S REPORT 33 ACTION AREAS OUR WORK OUR BUDGET OUR PEOPLE
34 FINANCE, RATES, AND PORTFOLIO COMMITTEE AUGUST 22, 2013
FINANCE, RATES, AND PORTFOLIO COMMITTEE 35 FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN AUGUST 22, 2013
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 36 FISCAL YEAR 2014 FINANCIAL PLAN FISCAL YEAR 2013 FINANCIAL UPDATE
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 37 FISCAL YEAR-TO-DATE JUNE 2013 Lower base revenues than planned with milder winter Fuel is favorable from increased hydro generation as result of higher rainfall/runoff offset by higher than planned natural gas prices Cash Flow impacted by lower revenues but offset by management actions Capacity Expansion slowed to match current conditions
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 38 BASE REVENUES FYTD Non-Fuel Revenue is $121M below budget $ Millions 1000 1/3 of planned revenue in June-August 800 FY13 Budget 600 400 FY13 Actual 200 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
FINANCE, RATES, AND PORTFOLIO COMMITTEE FY13 FINANCIAL UPDATE 39 LOWER FUEL RATES Rainfall helps move FY13 Fuel Rates below last year s $/MWh 28 Higher Gas Prices 26 24 FY12 22 More Rainfall 20 FY13 18 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
FINANCE, RATES, AND PORTFOLIO COMMITTEE FY13 FINANCIAL UPDATE 40 FYTD13 INCOME STATEMENT (UNAUDITED) FYTD Income is favorable to budget by $79M & prior year by $87M FYTD13 FYTD12 $ millions Actual Budget Variance Actual 13 vs 12 Total Operating Revenue $ 7,922 $ 8,000 $ (78) $ 7,949 $ (27) Fuel and Purchased Power 2,914 2,916 2 2,772 (142) O&M Routine 1,653 1,769 116 1,723 70 O&M Outage/Other O&M 1,009 957 (52) 902 (107) Taxes, Depreciation, Other 1,616 1,638 22 1,875 259 3,619 3,6193,619 3,619 Interest 933 1,002 69 967 34 Net Income/(Loss) $ (203) $ (282) $ 79 $ (290) $ 87
FINANCE, RATES, AND PORTFOLIO COMMITTEE FY13 FINANCIAL UPDATE 41 FYTD13 CASH FLOW STATEMENT UNAUDITED FYTD Change in Cash is favorable to budget by $112M FYTD13 FYTD12 $ millions Actual Budget Variance Actual 13 vs 12 Beginning Cash/Short-term Investments $ 868 $ 200 $ 668 $ 507 $ 361 Cash Flow from Operating Activity 1,478 1,458 20 1,252 226 Cash Flow from Investing Activity (1,745) (1,910) 165 (1,867) 122 Cash from Financing Activity 379 452 (73) 355 24 Ending Cash/Short-term term Investments $ 980 $ 200 $ 780 $ 247 $ 733 3,619 3,6193,619 3,619 Statutory Debt $ 24,678 $ 25,043 $ 365 $ 24,154 $ (524) Total Financing Obligations $ 27,328 $ 27,328 $ - $ 27,002 $ (326)
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN FISCAL YEAR 2014 FINANCIAL PLAN BUDGET AND BUSINESS PLAN
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 43 FISCAL YEAR 2014 KEY FINANCIAL PLAN ASSUMPTIONS Live within our means Reduce O&M $500M by 2015 ($300M by FY14, $500M by FY15 ) Borrow for nuclear expansion Manage long-term debt Increase stewardship Plan for modest economic growth Continue commitment to energy efficiency, demand response and alternative energy
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN FISCAL YEAR 2014 FINANCIAL PLAN DEMAND AND SUPPLY BALANCE
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 45 FISCAL YEAR 2014 SUMMER PEAK FORECAST Megawatts 40 000 40,000 Summer Peak Demand +5,000 MW 35,000 FY14 Budget Forecast 30,000000-4,050 MW 25,000 CAGR: 2000-2010 0.7% 2012-2024 0.4% 20,000000 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY24 Note: History is weather-normalized. All-time actual peak was 33,482 MW in August 2007 at 104.4⁰F. Forecast does not include the impacts of TVA EE/DR programs.
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 46 FISCAL YEAR 2014 ENERGY FORECAST Gigawatt Hours 220,000 Annual Energy 200,000 +14.6% 180,000 160,000 140,000 FY14 Budget Forecast FY30-10.3% 120,000 CAGR: 2000-2010 0.7% 2012-2024 0.0% 100,000 FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 FY22 FY24
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 47 REGIONAL ECONOMY GROWING, BUT MORE ENERGY EFFICIENT GRP (M 2005 $) 500 Gross Regional Product GWh /GRP (M 2005 $) 0.7 Energy Intensity 400 0.6 0.5 300 0.4 200 0.3 100 CAGR: 1990-2008 30% 3.0% 2000-2010 1.5% 2012-2024 2.6% 0.2 0.1 0 0 2000 2003 2006 2009 2012 2015 2018 2021 2024 2000 2003 2006 2009 2012 2015 2018 2021 2024
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 48 FISCAL YEAR 2014 DIRECTLY SERVED ENERGY USE GWh 25,000 20,000000 Other Directly Served 15,000 Recession Impact 10,000 5,000 USEC 0 FY00 FY04 FY08 FY12 FY16 FY20 FY24
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 49 RESPONDING TO NEW RATES Local Power Companies Have Reduced Peak Demand Under New Rate Structure Normalized Peak Demand (MW) 9400 3.5% Average Monthly Reduction since 2010 2010 2011 2012 8700 8000 June July August Rate change effective April 1, 2011; peaks are normalized for weather
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 50 ENERGY SALES 4.6% LOWER FY13 to FY14: USEC Reduction 8,200 GWh Efficiency Gains 750 Economic Growth 1,200 Directly Served Customers 300 Other (Losses) 100 Net Change 7,550 GWh TVA Energy Efficiency Program Impacts 360 Energy: decreasing 4.6% driven primarily by USEC; decreasing 4.8% with TVA Energy Efficiency programs. Demand: summer peak increases 0.4% from 29,914 MW in FY13 to 30,027 MW in FY14; 0% growth with TVA DR programs.
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 51 REVENUE TREND $ Billions Sales in TWh 14 200 12 10 8 11.1 10.7 11.7 11.1 10.9 10.3 10.6 10.8 Billing Demand 190 180 170 160 6 Energy 150 4 140 2 Fuel 130 - FY09 FY10 FY11 FY12 FY13F FY14P FY15 P FY16 P 120 Excludes other revenues
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014: BUDGET AND BUSINESS PLAN DEMAND & SUPPLY BALANCE 52 LIVING WITHIN OUR MEANS $ Billions $10.3 Electric Revenue Growth Capital $ 1.0 $ 1.0 $ 1.3 $ 0.5 Investment in Growth Base Capital Interest Tax Equivalents $0.9 $ 1.1 $ 3.0 O&M (net of non-cash items) $ 3.5 Fuel & Purchased Power Excludes other revenues
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN FISCAL YEAR 2014 FINANCIAL PLAN COST DRIVERS
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 54 FUEL AND PURCHASED POWER $ Billions $5 $4 $3 $4.1 176.2 $4.3 $3.9 $3.8 $3.5 $3.6 $3.5 Purchased Power Gas $2 Nuclear $1 160.2 161.3 Coal $0 FY10 FY11 FY12 FY13F FY14P FY15P FY16P NOTE: Excludes adjustments to fuel expense related to FCA fuel revenue over/under recovery.
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 55 O&M EXPENSE TRENDS $ Billions $4 $3.2 $3.6 $3.5 $3.7 $3.5 $3.4 $3.2 $3.2 $3 Other Projects $2 Outage $1 Routine $- FY10 FY11 FY12 FY13P FY13F FY14P FY15P FY16P
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 56 BASE CAPITAL SPENDING $ Millions 1,200 1,000 800 $889 $842 $800 $946 $1,027 $1,032 Nuclear 600 400 $569 Non-Nuclear Generation 200 - Transmission Corporate &Other FY10 FY11 FY12 FY13F FY14P FY15P FY16P
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 57 CAPACITY EXPANSION AND ENVIRONMENTAL CAPITAL $ Billions 2.5 2.0 1.5 Natural Gas Kingston Ash 1.0 0.5 AFUDC*/Other Environmental Ash Remediation Waste Water Clean Air Nuclear - FY10 FY11 FY12 FY13F FY14P FY15P FY16P Transmission *Allowance for funds used during construction
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 58 FISCAL YEAR 2014 SPEND: CAPACITY EXPANSION AND ENVIRONMENTAL Nuclear $956 Clean Air $642 Transmission $208 Ash $115 Kingston $102 Totals = $1,164 $859 0 100 200 300 400 500 600 700 800 900 1000 $ millions
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 59 MANAGING CASH AND DEBT Increasing productive assets with cash generated from operations 3,500 3,000 2,500 2,000 $12 B Capital (Gross PP&E) $10 B Capital (Gross PP&E) 1,500 $2.1B 1,000 500 $1.2B Change in Total Financing Obligations* Change in Total Financing Obligations - (500) FY07 FY08 FY09 FY10 FY11 FY12 FY13F FY14P FY15P FY16P *TFO net of cash Effective Interest Rate 5.4% 5.5% 5.4% 5.2% 5.2% 5.3% 5.6%
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 60 LONG-TERM DEBT REDUCTION PLAN $ Billions Statutory Debt 30 25 Statutory Debt 20 15 10 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Based off current load projections (32,366 MW in FY23)
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 61 FISCAL YEAR 2014 FINANCING NEEDS DRIVEN BY NUCLEAR CAPACITY FY 14 Beginning Balance - Total Financial Obligations ($ Billions) New FY 14 Debt: Issuance Nuclear Expansion $ 1.0 Maturing/ Reduction $ 27.5 New Debt to Replace Maturing Debt 02 0.2 Converting Short Term Debt 2.8 Total FY 14 Financing Shelf $ 4.0 (3.1) 0.9 FY 14 Ending Balance - Total Financing Obligations $ 28.4 FY14 Ending Statutory Debt balance is $25.9 billion.
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 62 RISKS AND CHALLENGES Weather Commodity Prices Sales: Economy/Customer Impacts New Regulations Asset Risk Management: Material Condition Sustainable Productivity Improvements
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN FISCAL YEAR 2014 FINANCIAL PLAN RATE OUTLOOK
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2013: BUDGET AND BUSINESS PLAN RATE OUTLOOK 64 FY14 SUMMARY INCOME STATEMENT $ millions Operating Revenue $ 10,468 Fuel & Purchased Power 3,498 Operations, Maintenance 3,437 Depreciation, Amortization, Accretion 1,791 Tax Equivalents 513 Operating Expenses 9,239 Other Income 41 Interest Expense 1,269 Net Income $ 1
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2013: BUDGET AND BUSINESS PLAN RATE OUTLOOK 65 FY14 SUMMARY CASH FLOW $ millions Cash From Operations $ 2,230 Cash (Used in) Investing (3,282) Cash From Financing 952 Net Change in Cash (100) Beginning Cash Balance 1,287 Ending Cash Balance $ 1,187
FINANCE, RATES, AND PORTFOLIO COMMITTEE FISCAL YEAR 2014 FINANCIAL PLAN 66 RECOMMENDATION Approve the 2014 budget: Revenues of $10.5 billion Operating Expenses of $8.7 billion Capital Expenditures of $3.3 billion Approve Contracting Plan for Fuel and Purchased Power Fuel & Purchased Power of $3.5 billion (In Operating Expenses) Rate actions effective October 1 Extension of Environmental Adjustment Effective retail rate increase of 1.5% A Fi i l Sh lf f i f t $4 billi f l t b d Approve Financial Shelf for issuance of up to $4 billion of long-term bonds New debt of $0.9 billion
FINANCE, RATES, AND PORTFOLIO COMMITTEE 67 FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO-MODERNIZATION CONTRACT AUGUST 22, 2013
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 68 FOR BOARD CONSIDERATION Approval to enter into hydromodernization contracts with Voith Hydro, Andritz Hydro and any future supplier meeting similar minimum requirements to improve reliability and provide additional hydroelectric capacity
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 69 BACKGROUND TVA s hydro-modernization (HMOD) program began in 1992 to address the reliability issues of an aging fleet and to provide additional hydroelectric capacity 55 conventional units have been completed for a gain of 421.9 megawatts All four Raccoon Mountain Units have been completed with a gain of 109.4 megawatts Currently Voith Hydro is the sole supplier for HMOD Services to TVA
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 70 GOING FORWARD HMOD program will address 51 units with an average age of 70 years A total capacity increase of 184 megawatts Contracts would carry an initial five-year term with option to extend up to an additional five years Total requested dollar amount for all contracts is $350 Million
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 71 CONTRACTING STRATEGY Proposed HMOD contracting strategy will expand the supplier base of these services, thereby ensuring availability of suppliers and encouraging competition, resulting in lower costs to TVA TVA would, at its option, award managed tasks using any combination of the following pricing methods Fixed Price Time and Material Target pricing / Cost reimbursable Awards would be based on: Contractor task cost estimates and proposals; Schedule and Contractor availability; and Contractor experience and capabilities No minimum amount of work is guaranteed
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 72 RECOMMENDATION Approval to enter into hydro-modernization contracts with Voith Hydro, Andritz Hydro and any future supplier meeting similar minimum requirements to improve reliability and provide additional hydroelectric capacity
FINANCE, RATES, AND PORTFOLIO COMMITTEE 73 FINANCE, RATES, AND PORTFOLIO COMMITTEE TRANSMISSION CONSTRUCTION CONTRACT AUGUST 22, 2013
FINANCE, RATES, AND PORTFOLIO COMMITTEE TRANSMISSION CONSTRUCTION CONTRACT 74 FOR BOARD CONSIDERATION Approval to enter into transmission system construction and modification services contracts
FINANCE, RATES, AND PORTFOLIO COMMITTEE TRANSMISSION CONSTRUCTION CONTRACT 75 BACKGROUND Suppliers perform baseline transmission line and substation construction work along with TVA Employees Work-load based on project needs as well as outage seasons
FINANCE, RATES, AND PORTFOLIO COMMITTEE TRANSMISSION CONSTRUCTION CONTRACT 76 GOING FORWARD L. E. Myers Company, Henkels & McCoy, Asplundh Construction Corporation and Service Electric Company were selected after a competitive solicitation Requested contracts would carry an initial five-year term with options to extend up to five additional years Combined spend of $400 million
FINANCE, RATES, AND PORTFOLIO COMMITTEE HYDRO MODERNIZATION CONTRACT 77 CONTRACTING STRATEGY Proposed contracting strategy solidifies the supplier base of these services, thereby ensuring availability of suppliers and encouraging competition, resulting in lower costs to TVA TVA would, at its option, award managed tasks using any combination of the following pricing methods Fixed Price Time and Material Target pricing / Cost reimbursable Awards would be based on: Contractor task cost estimates and proposals; Schedule and Contractor availability; and Contractor experience and capabilities No minimum amount of work is guaranteed
FINANCE, RATES, AND PORTFOLIO COMMITTEE TRANSMISSION CONSTRUCTION CONTRACT 78 RECOMMENDATION Approval to enter into transmission system construction and modification services contracts
FINANCE, RATES, AND PORTFOLIO COMMITTEE 79 FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY AUGUST 22, 2013
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 80 FOR BOARD CONSIDERATION Request Board approval of short-term actions to attract, retain, and expand industry through TVA Valley Commitment Program and Small Manufacturing Program.
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 81 INDUSTRIAL RATE COMPETIVENESS Electricity is a significant cost for industry in the Valley Many industrial customers within the Valley compete with sister facilities and competitors outside the Valley
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 82 INDUSTRY IN THE VALLEY 10,000 manufacturing companies 527,000 direct jobs $32 billion direct wages
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 83 PRESERVING VALLEY INDUSTRY Long-term actions Cost Management Long-Term Pricing Strategy Near-term actions Valley Commitment program Small manufacturing rate schedule
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 84 VALLEY COMMITMENT PROGRAM Voluntary program for all industrial and manufacturing customers Requires two-year commitment Two-year program with CEO option to extend up to an additional two years
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 85 SMALL MANUFACTURING PROGRAM Optional rate schedule Applies to industrial customers with contract demands from one megawatt to five megawatts Aligns customer s bill with Local Power Company s cost to serve Provides incentive for customers to operate outside of Local Power Provides incentive for customers to operate outside of Local Power Company s peak-demand period
FINANCE, RATES, AND PORTFOLIO COMMITTEE ECONOMIC GROWTH STRATEGY 86 RECOMMENDATION 1) Approve the Valley Commitment Program for two years with a delegation to the CEO to extend the program for two years 2) Approve the Optional Manufacturing Service Rate and the Direct 2) Approve the Optional Manufacturing Service Rate and the Direct Service Manufacturing Power Rate for small industrial and manufacturing customers under 5MW
87 NUCLEAR OVERSIGHT COMMITTEE AUGUST 22, 2013
PEOPLE AND PERFORMANCE COMMITTEE 88 PEOPLE AND PERFORMANCE COMMITTEE NUCLEAR SAFETY POLICY AUGUST 22, 2013
89 PEOPLE AND PERFORMANCE COMMITTEE AUGUST 22, 2013
PEOPLE AND PERFORMANCE COMMITTEE 90 PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS AUGUST 22, 2013
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 91 FISCAL YEAR 2014 PERFORMANCE GOALS Adopt design changes to TVA Performance Goal Programs and approve scorecards for FY14 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) Executive Long-Term Incentive Plan (ELTIP) Designed to support achievement of long-term strategic goals
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 92 WINNING PERFORMANCE DESIGN CHANGE Adjust board modifier to a corporate multiplier between 0 and 1.0 Board defines key strategic imperatives to be included in multiplier Board / CEO assess performance above or below the target to determine final multiplier CEO establishes operational scorecards Multiplier applied to operational scorecard results Board continues to use judgment in all aspects of corporate j g p p performance
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 93 CORPORATE MULTIPLIER Operating Cash Flow Net Income Business Unit Scorecards Jobs Created / Retained Safe Workplace Board Level Significant Events TFO Level TVA must be successful. Corporate Multiplier Aligns to Financial and Stewardship Strategic Imperatives Outlined by Board Manage the Business to enable business unit payouts Business Measures Align to Operational Plans & Benchmarks Demonstrated Improvement Run the Business Corporate Measures include only a target CEO / Board will assess performance Business Measures include a threshold, target, and stretch performance (formulaic) for line of sight
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 94 MULTIPLIER MEASURES Rates Corporate Multiplier Aligns to Financial and Stewardship Strategic Imperatives Outlined by Board Manage the Business Asset Portfolio Serve the citizens of the Tennessee Valley Stewardship Debt Target Safe Workplace 0 Operating Cash Flow Budget Net Income Budget TFO Level 50,000000 Jobs Created / Retained 0 Board Level Significant Events Budget Corporate Measures include only a target CEO / Board will qualitatively assess performance
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 95 CHANGES TO EXECUTIVE LONG-TERM INCENTIVE PLAN Organizational Health Survey 2013 use Pulse Organizational Health Survey Retail Rate (2014-2015) Change measure to wholesale rate less fuel Align targets t to Board-approved dfinancial i plan Adopt External Measures indicator Approve 2016 Executive Long-term incentive plan cycle scorecard
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 96 CORPORATE MEASURES ALIGNED TO MISSION er nce) porate Multipli ning Performan Corp (Winn g an Executive Long m Incentive Pl E Ter Measure Low-Cost Reliable Power Economic Development TVA Mission Environmental Stewardship Technological Innovation River Management Operating Cash Flow Net Income TFO Level Jobs Created & Retained Safe Workplace Board Level Significant Events Wholesale Rate excluding Fuel Load Not Served External Measures: INPO Index Stakeholder Survey Media Tone Customer Loyalty
PEOPLE AND PERFORMANCE COMMITTEE ANNUAL AND LONG-TERM GOALS 97 RECOMMENDATION Winning Performance Approve change to corporate multiplier Approve multiplier measures and targets Executive Long-term Incentive Plan 2013 Cycle Approve use of Pulse Survey for Organizational Health goal 2014 and 2015 Cycle Approve changes to Rates and Organizational Health measures Approve External Measures indicator 2016 Cycle Approve scorecard and targets
PEOPLE AND PERFORMANCE COMMITTEE 98 PEOPLE AND PERFORMANCE COMMITTEE COMMITTEE CHARTER AMENDMENTS AUGUST 22, 2013
99 AUDIT, RISK, AND REGULATION COMMITTEE AUGUST 22, 2013
AUDIT, RISK, AND REGULATION COMMITTEE 100 AUDIT, RISK, AND REGULATION COMMITTEE FISCAL YEAR 2014 EXTERNAL AUDITOR SELECTION AUGUST 22, 2013
AUDIT, RISK, AND REGULATION COMMITTEE 102 AUDIT, RISK, AND REGULATION COMMITTEE AMENDMENT TO RATE REVIEW PROCESS AUGUST 22, 2013
103 EXTERNAL RELATIONS COMMITTEE AUGUST 22, 2013
EXTERNAL RELATIONS COMMITTEE 104 EXTERNAL RELATIONS COMMITTEE NONCONFORMING LOADS POLICY AMENDMENT AUGUST 22, 2013
EXTERNAL RELATIONS COMMITTEE NONCONFORMING LOADS 105 FOR BOARD CONSIDERATION Allow nonconforming loads to participate in TVA incentive programs provided they participate in TVA s Instantaneous Response product and meet guidelines
EXTERNAL RELATIONS COMMITTEE NONCONFORMING LOADS 106 NONCONFORMING LOADS Industrial loads greater than 50 megawatts that use power intermittently and subject the system to extreme fluctuations Require extra generation assets to be allocated to follow their load Require extra generation assets to be allocated to follow their load swings
EXTERNAL RELATIONS COMMITTEE NONCONFORMING LOADS 107 PILOT PROGRAM January 2012 pilot program using instantaneous response product Pilot demonstrates that it is cost effective for TVA to incentivize these companies to locate and grow in the valley
EXTERNAL RELATIONS COMMITTEE NONCONFORMING LOADS 108 RECOMMENDATION Allow nonconforming loads to participate in TVA incentive programs provided they participate in TVA s Instantaneous Response product and meet guidelines
EXTERNAL RELATIONS COMMITTEE 109 EXTERNAL RELATIONS COMMITTEE STAKEHOLDER GROUP MEMBERSHIP AUGUST 22, 2013
TVA BOARD MEETING AUGUST 22, 2013