Executive Summary

FY14 delivered materially higher profitability: net income rose to $469M (+$198M YoY) on $11.14B operating revenues, as colder winter-driven demand lifted base revenues and cost actions reduced O&M; interest expense also fell with lower debt balances .
Base revenues were $314M above plan, O&M ran $97M below plan, and interest expense was $100M below plan; fuel expense was $326M above plan as higher sales and elevated fuel rates flowed through .
TVA accelerated its portfolio transition: environmental compliance and strategic decisions increased coal unit idling/retirements and raised depreciation in FY14, while nuclear performance improved to baseline NRC oversight; the Board also approved a 2.61% non‑fuel base rate increase effective FY15, expected to add ~$199M base revenues .
Balance sheet and cash actions: statutory debt decreased by $1.2B (≈$2.3B below plan), but FY14 net change in cash was -$1.10B vs -$0.10B budget; FY15 capex is planned at a record $3.5B (from $2.5B in FY14) .

What Went Well and What Went Wrong

What Went Well

“FY14 Results show progress toward our long‑term plan: Exceeded our $300 million target on O&M savings – on track to achieve $500 million (17%) reduction for FY15.” – CFO Board presentation .
Base revenues outperformed plan by $314M as colder weather (10% more heating degree days) boosted demand; O&M was $97M favorable and interest expense $100M favorable due to reduced debt .
Nuclear fleet performance improved; “With improvements at its Browns Ferry Nuclear Plant, the NRC has reported that oversight for TVA's six nuclear units is now at baseline levels.” .

What Went Wrong

Fuel expense ran $326M above plan on higher sales and fuel rates; hydro output fell 25% YoY as runoff dropped to 90% of normal, requiring more expensive generation and purchased power .
Depreciation and amortization increased $163M YoY, driven by accelerated depreciation for coal units slated to be idled/retired (e.g., Paradise Units 1–2) .
Liquidity optics: FY14 net change in cash was -$1.10B vs a -$0.10B budget and +$0.73B prior year, reflecting higher financing outflows despite stronger operating cash flows .

Financial Results

Annual performance and plan comparison (FY)

Metric ($USD Millions)	FY 2013	FY 2014	YoY Δ	FY14 vs Plan
Total Operating Revenues	10,956	11,137	+181	+669 vs budget (10,468)
Operating Income	1,453	1,589	+136	—
O&M Expense	3,428	3,341	-87	-97 vs plan
Interest Expense (net)	1,226	1,169	-57	-100 vs plan
Net Income	271	469	+198	+468 vs budget (1)

(1) CFO presentation “FY14 Income Statement (Prelim Unaudited): Net Income $469, +$468M vs budget” .

Quarterly trend (prior two quarters)

Metric ($USD Millions)	Q2 FY2014 (3 months ended Mar 31, 2014)	Q3 FY2014 (3 months ended Jun 30, 2014)
Total Operating Revenues	2,938	2,651
Net Income (Loss)	295	(81)

Note: TVA does not disclose standalone Q4 results; FY totals are provided in the 10‑K and board presentation . No S&P Global consensus estimates are available for TVA (see Estimates Context).

Generation mix and reliance on purchased power (annual)

Source	FY 2012	FY 2013	FY 2014
Coal-fired (GWh, % of TVA-operated)	58,584 (41%)	62,519 (43%)	62,525 (44%)
Nuclear (GWh, % of TVA-operated)	55,244 (38%)	52,100 (36%)	53,778 (38%)
Hydroelectric (GWh, % of TVA-operated)	12,817 (9%)	18,178 (12%)	13,228 (9%)
Gas/Oil (GWh, % of TVA-operated)	16,650 (12%)	13,102 (9%)	12,615 (9%)
Renewables non-hydro (GWh, % of TVA-operated)	25 (<1%)	9 (<1%)	5 (<1%)
Purchased Power (GWh, % of total supply)	25,294 (15%)	18,848 (11%)	18,740 (12%)

Key operating and financial KPIs

KPI	FY 2012	FY 2013	FY 2014
Heating Degree Days	2,598	3,333	3,699
Cooling Degree Days	2,116	1,762	1,898
Combined Degree Days	4,714	5,095	5,597
Conventional Hydroelectric Generation (GWh)	12,817	18,178	13,228
Construction Expenditures	2,119	2,051	2,384
Total Debt Outstanding	25,078	26,120	24,887
Base Rate Change (for FY2015)	—	—	2.61% base rate increase approved; +~$199M base revenues expected in FY2015

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
O&M savings target	FY2014→FY2015	FY14: exceed $300M target	On track for $500M (17%) reduction in FY15	Raised
Capital investment	FY2014→FY2015	FY14: ~$2.5B provided	FY15: record ~$3.5B	Raised
Cash balance target	FY2014→Target	—	Reduce cash to ~$500M en route to ~$300M ending target	New/maintained target
Statutory debt	FY2014	—	Lowered by $1.2B; $2.3B below plan	Improved vs plan
Base rate (non-fuel)	FY2015	—	+2.61% approved; +~$199M expected base revenues in FY2015	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 and Q3 FY2014)	Current Period (Q4 FY2014 context)	Trend
Cost reductions/O&M	Targeting $500M O&M reduction by FY2015; severance accruals recorded in restructuring	Exceeded $300M FY14 O&M target; “on track to achieve $500M (17%) reduction for FY15”	Positive execution
Nuclear operations	Multiple planned outages in FY2013 impacted fuel; ongoing Watts Bar Unit 2 schedule	NRC oversight returned to “baseline” for 6 units; WBN2 on schedule/budget for Dec 2015 commercial operation	Improving performance; milestone clarity
Portfolio transition (coal retirements/compliance)	Environmental agreements drive idling/retirements; depreciation acceleration	Board actions continue (Allen, Paradise, Colbert, Widows Creek); non-coal additions via CCGTs	Structural shift to cleaner mix
Weather/hydro variance	Cold winter boosted revenues; Q3 saw loss with lower revenues	FY14 degree days +9.9% vs FY13; hydro output -25% YoY, pushing cost mix up	Weather tailwind; hydro headwind
Rates/Regulatory	Wholesale rate structure (TOU/SDE) in place; no base change noted	+2.61% base rate approved Aug 2014 for FY2015; +~$199M base revenues	Pricing action taken

Management Commentary

CFO presentation: “FY14 Results show progress toward our long-term plan: Exceeded our $300 million target on O&M savings – on track to achieve $500 million (17%) reduction for FY15… Provided $2.5 billion for new capital investment – increasing to a record $3.5 billion in FY15… Lowered debt by $1.2 billion – $2.3 billion lower than plan.” .
MD&A strategic note: “With improvements at its Browns Ferry Nuclear Plant, the Nuclear Regulatory Commission has reported that oversight for TVA's six nuclear units is now at baseline levels.” .

Q&A Highlights

TVA did not publish an earnings call transcript for Q4 FY2014; disclosures were provided via the Board meeting Item 2.02 8‑K and the FY2014 10‑K. No sell‑side Q&A was available in company documents .

Estimates Context

Wall Street consensus estimates (S&P Global) for TVA are not available; TVA is a federally owned corporation without common equity EPS reporting. We attempted retrieval via S&P Global but found no mapping for TVC; therefore, no estimate comparison is provided.*

Key Takeaways for Investors

Profitability inflected: net income rose to $469M in FY14 (+73% YoY), with operating income up $136M and revenues up $181M, driven by colder weather demand and cost discipline .
Structural cost-out continues: FY14 exceeded the $300M O&M savings target; management targets $500M (17%) O&M reduction in FY15, underpinning margin resilience amid fuel volatility .
Portfolio transition is accelerating: depreciation rose on accelerated retirements of coal units as TVA pivots toward gas and nuclear; regulatory exposure shifts from coal capex to nuclear and gas reliability .
Rate action in place for FY15: the +2.61% base rate increase approved in Aug 2014 is expected to add ~$199M to base revenues, partially offsetting hydro/fuel headwinds .
Balance sheet strengthened: statutory debt reduced by $1.2B (≈$2.3B better than plan), helping lower net interest expense by $57M YoY; however, FY14 net cash declined by ~$1.1B driven by financing flows and capex .
Weather and hydro variability remain swing factors: FY14 degree days were up ~10% vs FY13, but hydro output fell 25%, increasing reliance on higher-cost generation and purchased power .
FY15 will be capex-heavy: planned record ~$3.5B capital investment aims to advance fleet modernization and reliability; execution discipline and funding mix will be key to maintaining leverage and interest expense improvements .

Additional details

Documents read: TVC 8‑K (Item 2.02) Nov 6, 2014 with Exhibit 99.1 (CFO board materials) ; FY2014 10‑K (filed Nov 17, 2014) et al.; Q3 FY2014 10‑Q (Aug 5, 2014) ; Q2 FY2014 10‑Q (May 6, 2014) .
No separate press releases or earnings call transcripts were found for Q4 FY2014 in company documents .
Weather and hydro context:
- Combined degree days (normal 5,223): 2012=4,714; 2013=5,095; 2014=5,597 .
- Hydroelectric generation: 2013=18,178 GWh; 2014=13,228 GWh (−27% YoY) .
Rate and guidance references:
- Base rate increase of 2.61% on wholesale rates approved Aug 21, 2014; anticipated to add ~$199M base revenues for FY2015 .
- CFO targets: FY15 O&M reduction to $500M, capex to $3.5B, debt reduced $1.2B in FY14, cash reduction trajectory .
Fuel/power markets:
- Purchased power expense increased on ~10% higher average purchased power price (largely natural gas driven) .
Legal/environmental note (context in FY14):
- Kingston ash spill claims were globally resolved by agreed order on Aug 4, 2014, with a $28M payment to the court for disbursement (case administration continued for remaining plaintiffs) .

* Estimates disclaimer: We attempted to retrieve S&P Global consensus for “TVC” but no mapping exists for TVA in the S&P CIQ system; consequently, consensus estimates are unavailable for comparison.

Tennessee Valley Authority (TVC)·Q4 2014 Earnings Summary