Executive Summary

Strong FY16 finish: Net income of $1.233B, up $122M YoY and $641M above budget, on lower fuel costs, tight O&M, and lower interest expense; effective rate declined to 6.7¢/kWh from 6.9¢, reflecting customer rate relief .
Q4 (implied) was the earnings driver after a weather‑impacted first half: revenue ~$3.29B and net income ~$661M, lifting FY margins; Q2–Q3 benefited from low gas prices and generation mix shift .
Structural transition advancing: coal retirements on plan, Paradise CCGT online spring 2017, Allen CCGT 2018, and Watts Bar Unit 2 in commercial service Oct 19, 2016—supporting cleaner, lower‑cost fleet and reliability .
FY17 setup: TVA Board approved ~2.4% wholesale base rate adjustment targeting ~$200M revenue uplift; continued cost discipline and portfolio mix expected to offset muted load growth and rate headwinds .

What Went Well and What Went Wrong

What Went Well
- Fuel tailwinds and portfolio mix: Fuel & purchased power expense fell by $304M YoY to $3.090B, driven by favorable natural gas prices and a generation mix shift .
- Cost control: O&M finished $77M favorable to budget and essentially flat YoY ($2.842B vs $2.838B), contributing to $1.233B FY net income .
- Financing discipline: Interest expense was $229M favorable to budget; Ending Debt and Financing Obligations were $26.202B, $776M better than budget (statutory debt $24.175B) .
What Went Wrong
- Volume/price pressure: FY operating revenue declined to $10.616B from $11.003B on mild winter and lower fuel recovery, despite a rate structure update; effective rate declined to 6.7¢ from 6.9¢ .
- Weather drag in 1H: TVA cited an “extremely mild winter” and lower degree days that reduced energy sales and revenue in Q1–Q2 .
- Continued environmental and regulatory spend: Ongoing CCR compliance and environmental agreements require capital and O&M; TVA estimates further clean‑air costs through 2025 and is executing coal unit retirements and retrofits .

Financial Results

Quarterly performance – FY2016

Metric	Q1 FY16	Q2 FY16	Q3 FY16	Q4 FY16 (Implied)
Revenue ($USD Billions)	$2.28	$2.57	$2.48	$3.29 (FY $10.616 − 9M $7.330)
Net Income ($USD Millions)	$(37)	$318	$291	$661 (FY $1,233 − 9M $572)
Net Income Margin %	(1.6%) (−37/2,280)	12.4% (318/2,571)	11.7% (291/2,479)	20.1% (661/3,286)

Notes: Q4 figures are implied by subtracting nine‑month results reported in Q3 10‑Q from FY totals disclosed in the 8‑K/10‑K .

Full‑year results vs prior year

Metric ($USD Billions unless noted)	FY2015	FY2016	YoY
Operating Revenue	$11.003	$10.616	(3.5%)
Fuel & Purchased Power	$3.394	$3.090	(9.0%)
Total O&M Expense	$2.838	$2.842	~Flat
Interest Expense	$1.133	$1.136	~Flat
Net Income ($USD Billions)	$1.111	$1.233	+$0.122B
Effective Rate (¢/kWh)	6.9¢	6.7¢	(0.2¢)

Customer mix – FY2016

Customer Type	Revenue ($USD Millions)	Mix
Local power companies	$9,696	91.4%
Industries directly served	$649	6.1%
Federal agencies and other	$134	1.3%
Other revenues	$155	1.5%
Total Operating Revenues	$10,616	100%

Additional KPIs – FY2016 highlights

KPI	FY2016	Context
Effective rate	6.7¢/kWh	Down from 6.9¢ prior year on favorable fuel and mix
Ending Debt & Financing Obligations	$26.202B	$776M better than budget
Cash from Operating Activities	$3.042B	+$410M vs budget

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Wholesale base rate adjustment (revenue impact)	FY2017	n/a	Targeting +~$200M revenue (~2.4% wholesale adjustment)	New
Paradise CCGT in‑service	Spring 2017	n/a	On track	Maintained
Allen CCGT in‑service	2018	n/a	On track	Maintained
Watts Bar Unit 2	Oct 19, 2016	Pre‑commercial testing	Commercial operations commenced	Achieved

TVA typically does not provide formal revenue/EPS guidance. Guidance here reflects rate actions and project timelines disclosed by management .

Earnings Call Themes & Trends

(Company did not file a Q4 earnings call transcript; themes derived from 10‑K/10‑Qs and the Q4 Board presentation.)

Topic	Previous Mentions (Q1–Q2)	Q3 FY16	Current Period (Q4/FY16)	Trend
Weather/load	“Extremely mild winter” reduced sales; volume and base revenue lower	Cooling degree days up modestly; QoQ revenue slightly lower; net income improved on lower expenses	FY revenue down; Q4 implied strong rebound supporting FY margin	Improving into summer/Q4
Fuel costs & mix	Lower gas prices and mix shift reduced fuel and purchased power	Continued benefit; operating expenses -15% YoY in Q3	FY fuel & purchased power down $304M YoY	Positive tailwind sustained
Portfolio transition	Coal retirements/controls, CCGTs at Paradise/Allen proceeding	Execution continues; WBN2 initial criticality May 2016	WBN2 in commercial service Oct 2016; transition on plan	On track
Pricing/rates	2015 rate restructuring; effective rates smoothed; base rates revised	Rate smoothing continues	FY17 +2.4% wholesale base rate approved (+$200M)	Moderate pricing action
Regulatory/environment	CCR, clean air compliance, retirements and controls	Ongoing execution	Continued spend/activities; costs expected through 2025	Ongoing requirement

Management Commentary

“Fiscal Year 2016 Net Income: $1,233M $641M more than budget and $122M above last year … Operating Revenues: Effective rate of 6.7¢ v. 6.9¢ last year … Operating & Maintenance Expenses: $77M favorable to budget … Interest Expense: $229M favorable to budget … Total Financing Obligations (TFO): $776M less than budget.”
“TVA’s service territory experienced an extremely mild winter in 2016… As a result, energy sales were… lower… Total operating expenses decreased… primarily because of lower fuel and purchased power expense [from] lower natural gas prices [and] changes in TVA's generation mix.”
“TVA continues to support its goal of having a diversified, cleaner portfolio… Watts Bar Unit 2… commercial operations commenced on October 19, 2016… Paradise [CCGT] is expected to be online in the spring of 2017… Allen [CCGT]… in 2018.”

Q&A Highlights

No Q4 earnings call transcript was available in company filings; thus no Q&A disclosures to report.

Estimates Context

Sell‑side Wall Street consensus (EPS/Revenue/EBITDA) was unavailable via S&P Global for TVA/TVC, and no estimate mapping was found; therefore, no beat/miss analysis versus consensus can be provided.

Key Takeaways for Investors

Cost/mix tailwinds are material: lower gas prices and a cleaner fleet reduced fuel costs and boosted margins in FY16; tailwinds likely to persist with CCGTs and WBN2 online .
Strong finish to the year: Q4 implied margin ~20% underpins the FY earnings outperformance versus budget despite earlier weather headwinds .
FY17 revenue uplift: a modest ~~2.4% wholesale base rate increase (~~$200M) supports stability amid low growth in load .
Balance sheet discipline continues: ending debt/financing obligations ran $776M favorable to budget, aided by cash generation and rate design; watch capital needs for environmental compliance and grid upgrades .
Execution risk manageable: coal retirements and environmental mandates remain a multi‑year spend, but project timing (Paradise/Allen) and WBN2 COD reduce generation risk and improve flexibility .
Trading lens: TVA has no common equity; catalysts for TVC (debt) holders include continued cost execution, rate actions, and completion of major generation projects that support credit metrics and interest coverage .

Citations: All figures and statements are sourced from TVA’s Q4 FY2016 8‑K Board presentation , FY2016 10‑K , and FY2016 Q1–Q3 10‑Qs .

Tennessee Valley Authority (TVC)·Q4 2016 Earnings Summary