First Quarter Fiscal Year 2018 Conference Call February 2, 2018
Agenda First Quarter Fiscal Year 2018 Review Bill Johnson, President and Chief Executive Officer Review of Financial Performance John Thomas, Executive Vice President and Chief Financial Officer Question and Answer Session Closing Remarks 2
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 such as may, will, should, expect, anticipate, believe, intend, project, plan, predict, assume, forecast, estimate, objective, possible, probably, likely, potential, speculate, or other similar expressions. Although TVA believes that the assumptions underlying the forward-looking statements are reasonable, TVA does not guarantee the accuracy of these statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements. For a discussion of these factors, please see the annual, quarterly, and periodic reports that TVA files with the Securities and Exchange Commission. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the extent to which any factor or combination of factors may impact TVA s business or cause results to differ materially from those contained in any forward-looking statement. TVA undertakes no obligation to update any forward-looking statement to reflect developments that occur after the statement is made. 3
Bill Johnson President and Chief Executive Officer
Meeting Energy Needs of Winter Weather 706,000,000 kilowatt-hours delivered on January 17, 2018 - an all-time TVA record of energy supply in a 24-hour period Three of TVA s top 12 winter peak demand records set in January 2018 Six consecutive days of 600-plus gigawatt-hours delivered 5
Our Mission and Strategic Imperatives Energy Delivering affordable, reliable power Maintain low rates Environment Caring for our region s natural resources Meet reliability expectations & provide a balanced portfolio Be responsible stewards Economic Development Creating sustainable economic growth Live within our means 6
Fiscal Year 2018 Priorities RATES / DEBT PEOPLE ASSET PORTFOLIO STEWARDSHIP Maintain low rates and align O&M spending with revenues Effectively manage debt to ensure long-term financial health Work safely and effectively Embrace continuous improvement Develop employees and leadership for sustained optimal performance High performance, diverse workforce Focus on values, competencies and behaviors Pursue operational excellence Successfully implement strategic asset projects Balance the portfolio to provide cleaner, efficient, and affordable energy Stimulate economic development and investment in the Valley Strengthen customer loyalty and stakeholder relationships Maximize potential of the Tennessee River System Protect and improve the natural resources and the use and enjoyment of public lands 7
Successfully Implementing Strategic Projects Allen Combined Cycle: Commercial Operation in Spring 2018 Browns Ferry Nuclear Plant: Power Uprates Ongoing Gallatin / Shawnee Fossil Plants: All Scrubbers & SCRs in Service More Renewables & Investment in Transmission 8
Greater Power System Diversity FY07 179 TWh FY18 159 TWh FY27 157 TWh Gas 10% Hydro 6% Nuclear 26% Wind & Solar 3% Gas 20% Hydro 10% TVA EE 1% Nuclear 40% Wind & Solar 5% Hydro 10% Gas 19% TVA EE 1% Nuclear 43% Coal 58% Coal 26% Coal 22% FY18 and FY27 are based on FY18 Budget. TVA EE includes TVA Energy Efficiency Program impacts on a Net Cumulative Realized at System basis, 2007 base year, and excludes energy efficiency effects from external factors. 9
Capital Investments Support Strategy $ in billions $3.4 $2.7 $3.0 $2.2 $2.2 $2.1 $2.1 $1.9 Environmental/Other Capacity Expansion Base FY13 FY14 FY15 FY16 FY17 FY18P FY19P FY20P Capital Expenditures include Allowance for Funds Used During Construction, Ash Asset Retirement Obligations, Kingston Ash Cleanup, and Bellefonte Regulatory Asset Spending 10
Continuing Economic Development First Quarter FY 2018 Results Recent Announcement 20,600 JOBS Attracted or Retained $5.0 billion Capital Investment Locating on a certified TVA Megasite 2,200 acres in Limestone County 11
John Thomas Chief Financial Officer
Summary of Financial Results For Fiscal Quarter Ended December 31, 2017 - Comparison to Prior Year Sales volume 2% higher on weather effects Revenues flat as lower fuel cost offset base rate action O&M 4% lower primarily due to lower outage expense Interest expense 5% lower due to lower average rates Net Income $186 million higher due to overall lower expenses 13
First Quarter FY18 Weather Closer to Normal Heating Degree Days 2,000 Q1 FY 2018 Heating Degree Days 1,800 1,600 1,400 1,200 1,000 800 600 400 200 2016 2017 2018 Colder Winter 1977 Normal: 1,302 First Quarter Fiscal Years 1965 through 2018 Ranked by Heating Degree Days 14
Sales and Revenue Three Months Ended December 31 2017 2016 Change Percent Change Power Sales (GWh) 37,283 36,497 786 2% Total Operating Revenues ($ millions) $ 2,549 $ 2,546 $ 3 0.1% Base Revenue 1,837 1,716 121 7% Fuel Cost Recovery 670 791 (121) (15)% Average Base Rate ( /kwh) 4.9 4.7 0.2 5% Average Fuel Rate 1.8 2.2 (0.4) (17)% Total Effective Rate (1) 6.7 6.9 (0.2) (2)% (1) Excludes other revenue and off-system sales impact; percent change based on rates before rounding 15
Hydro Generation Helps Lower Fuel Expense 4.00 Henry Hub Monthly Average Price $/mmbtu Power Supply by Source (First quarter ended December 31) 3.00 Q1 FY17: $2.99 Q1 FY16: $2.09 Q1 FY18: $2.87 Nuclear Coal fired Q1 FY18 Q1 FY17 20% 27% 42% 41% 2.00 Hydro & other renewables (incl. purchases) 14% 9% 1.00 Oct Jan Apr Jul Oct Jan Apr Jul Oct Natural gas and/or oil fired 16% 14% Purchased power (non renewable) 8% 9% 16
Expenses and Net Income Benefiting from lower expenses Three Months Ended December 31 2017 2016 Change Percent Change Total Operating Revenues $ 2,549 $ 2,546 $ 3 0.1% Fuel & Purchased Power $ 695 $ 810 $ (115) (14)% Operating & Maintenance 709 741 (32) (4)% Depreciation & Amortization 423 437 (14) (3)% Tax Equivalents 124 129 (5) (4)% Interest Expense 322 339 (17) (5)% Net Income $ 288 $ 102 $ 186 182% 17
Cash Flow & Balance Sheet Metrics Completing Key Projects and Ensuring Long-Term Financial Health Three Months Ended December 31 Net Cash Provided by / (Used in) ($ millions) 2017 2016 Change Operating Activities $ 613 $ 617 $ (4) Investing Activities (628) (707) 79 Financing Activities 15 90 (75) Net Change in Cash and Cash Equivalents - - - Select Balance Sheet Metrics (1) Dec. 31 Sept. 30 ($ millions) 2017 2017 Change Property, Plant & Equipment, gross $ 62,090 $ 61,789 $ 301 Total Debt and Other Financing Obligations (2) 26,021 26,022 (1) (1) See Appendix - Regulation G Reconciliation (2) Bonds and notes outstanding subject to $30 billion statutory limit totaled $24.2 billion at Dec. 31, 2017 18
Summary of Financial Results For Fiscal Quarter Ended December 31, 2017 Maintaining O&M efficiencies Net Income higher due to overall lower expenses Investments in cleaner and diverse asset portfolio Lower rates for customers due to lower fuel expense 19
Questions
Appendix Regulation G Reconciliation December 31, 2017 September 30, 2017 Property, Plant & Equipment, gross $ 62,090 $ 61,789 (Completed Plant plus Construction in Progress) Accumulated depreciation (28,587) (28,404) Nuclear fuel 1,370 1,401 Capital leases 158 161 Total property, plant and equipment, net $ 35,031 $ 34,947 Total Debt and Other Financing Obligations, gross $ 26,021 $ 26,022 Energy prepayment obligations (85) (110) Notes payable (120) (122) Leaseback obligations (339) (339) Membership interests of variable interest entity subject to mandatory redemption (32) (32) Debt of variable interest entities (1,211) (1,211) Bonds and Notes, gross $ 24,233 $ 24,208 Exchange loss / (gain) (118) (125) Unamortized discounts, premiums, issue costs and other (160) (163) Notes payable 120 122 Debt of variable interest entities 1,211 1,211 Total outstanding debt $ 25,286 $ 25,253 Note: Numbers shown may be adjusted for rounding 21