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Fitch Rates Tennessee Valley Auth's $1B Global Power Bonds 2008 Series B 'AAA'

Posted on: Thursday, 6 March 2008, 15:01 CST

Fitch Ratings assigns an 'AAA' rating to the Tennessee Valley Authority's (TVA) $1 billion global power bonds 2008 series B. Fitch also affirms the 'AAA' rating on TVA's outstanding global power bonds. The bonds are due April 1, 2018. Net proceeds will be used to refinance existing debt. The bonds priced today March 5, 2008. The Rating Outlook is Stable.

Fitch's rating primarily reflects TVA's status as a wholly owned corporation of the U.S. government and Fitch's assessment of the likelihood and degree of government support for TVA and similarly rated institutions. The rating also takes into account TVA's strong historical operating and financial performance, its solid competitive position (compared to other highly rated public power utilities in the 'AA' category), and its integral role in developing and supporting the regional economy. The TVA board of directors is appointed by the President of the United States and the board sets the rates TVA charges for power.

TVA's outstanding debt is not a full faith and credit, or limited obligation of the U.S. Government. However, Fitch believes that U.S. authorities would use extraordinary efforts to support their operations and senior debt obligations in the unlikely event that TVA encountered financial difficulties. This analysis takes into account TVA's ownership by the U.S. government, the sizeable role that TVA plays in the Tennessee Valley and broader economies, and the level of its obligations that are held by domestic and other foreign based investors (similar to that of government sponsored entities [GSE]).

TVA is the nation's largest public power utility overseeing a substantial power generation and transmission (G&T) system, serving a territory approximating 80,000 square miles located in Tennessee, northern Alabama, northeast Mississippi, southwestern Kentucky, and a small parts of Virginia, Georgia and North Carolina. TVA is a wholesale electric provider with 159 distribution members, and 58 direct industrial companies and federal customers, for a total retail customer base of about 8.8 million. The TVA also manages the nation's 5th largest river system and provides non-power services including navigation, flood control, agricultural, and industrial development. TVA has a total dependable power system capacity of about 36,900 megawatts (MW). In August 2007, TVA met an all-time TVA record peak summer load of 33,482 MW. TVA had total power sales of 175 billion kilowatt-hours (kWh) in 2007, comprising 156 billion kWh generated by TVA, with the balance from purchases. TVA's fuel mix is diverse with energy generation consisting of 64% fossil, 30% nuclear, and 6% hydro.

Browns Ferry nuclear unit 1 was restarted in May 2007 and started commercial operation on Aug. 1, 2007. In August 2007, the TVA Board also unanimously approved the staff recommendation to complete the second unit at Watts Bar nuclear plant at an estimated cost of $2.5 billion. Additionally, In October 2007, TVA and Nu Start Energy (NuStart) submitted an application for a combined operating license for a new nuclear power plant. The two new advanced nuclear reactors would be located at TVA's Bellefonte site in North Alabama. NuStart is a limited liability company formed in 2004 with 10 member companies.

Incorporating a new strategic plan, the TVA Board has approved a 2008 budget that includes $9.7 billion to cover total expenses and $2 billion in capital spending. Within the capital budget is $1 billion for new power plants. The Board also directed TVA staff to work with power distributors to develop a single-digit rate increase proposal that would provide additional revenue during the 2008 fiscal year, which began Oct. 1. In Feb. 2008, the TVA Board approved a 7% rate increase, which will take affect on April 1, 2008.

In developing the budget, TVA followed guiding principles of the strategic plan, which include paying down existing debt before assets are fully depreciated, using new debt to help finance new generation, and holding growth in operating and maintenance costs to less then the growth in electricity sales.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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