Amended Quarterly Report
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
Amendment
No. 1
(Mark
One)
x
QUARTERLY
REPORT PURSUANT TO SECTION 13, 15(d), OR 37 OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2007
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____ to ____
Commission
file number 000-52313
TENNESSEE
VALLEY AUTHORITY
(Exact
name of registrant as specified in its charter)
|
A
corporate agency of the United States created by an act
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62-0474417
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of
Congress
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(I.R.S.
Employer Identification No.)
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(State
or other jurisdiction of incorporation or organization)
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|
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400
W. Summit Hill Drive
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37902
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Knoxville,
Tennessee
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(Zip
Code)
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(Address
of principal executive offices)
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(865) 632-2101
(Registrant’s
telephone number, including area code)
None
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13, 15(d), or 37 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
x
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Smaller
reporting company
o
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o
No
x
Explanatory
Note
In this
Amendment to the Quarterly Report on Form 10-Q/A for the three months ended
December 31, 2007 (“Form 10-Q/A”), the Tennessee Valley Authority (“TVA”) is
restating the financial statements for the three months ended December 31, 2007,
and 2006, primarily to restate revenue associated with an accounting error in
the financial statements included in the original Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2007 (the “Original
10-Q”). The error was discovered during TVA’s review of its unbilled
revenue estimation process.
TVA is
primarily a wholesale provider of power to distributor customers
(“distributors”) that resell the power to end users at retail
rates. Under TVA’s end-use billing arrangements with distributors,
TVA relies on distributors to report their end-use sales. Because of
the delay between the wholesale delivery of power to the distributor and the
report of end-use sales to TVA, TVA must estimate the unbilled revenue at the
end of each financial reporting period. In September 2006, TVA
implemented a change in methodology for estimating unbilled revenue for
electricity sales which resulted in an increase of $232 million in unbilled
revenue (2.6 percent of operating revenue) for 2006.
The
estimation process implemented in September 2006 utilized the distributors’
average rates and an estimate of the number of days of revenue outstanding to
reflect the delay in reporting the end-use sales to TVA (“days
outstanding”). The number of days outstanding was derived using a
procedure similar to a cross-correlation calculation that compared the monthly
retail load to the monthly wholesale load. The intent was to reflect
in the unbilled estimate the end-use sales that would be reported that month by
distributors plus any remaining sales that would not be reported until the
following month due to the delay between wholesale delivery and end-use
reporting.
TVA has
determined that the process implemented in September 2006 overestimated the days
outstanding and that this overestimation resulted in an error in recording
unbilled revenue and unbilled receivables. The previous unbilled
process also failed to consider the annual true-up of each distributor’s
reported distribution losses. The annual true-up reconciles total end-use
kilowatt-hour (“kWh”) sales and revenue reported by each distributor with the
kWh sales recorded for each distributor at wholesale.
TVA has
used a new process for estimating unbilled revenue for the three months ended
December 31, 2007, and 2006 in this Form 10-Q/A. This process carries
over only the portion of sales from the distributor’s meter read date to the
month-end. Those sales, along with the current month sales, are then
priced at rates based on each distributor’s customer and product
mix. Additionally, the true-up component has been added to the
unbilled calculation to reflect any timing differences that occur between the
retail and wholesale billing cycles. Due to the new process, an
adjustment was made to increase revenue for the three months ended December 31,
2007, by $8 million (less than one percent of quarterly operating revenues) and
to increase revenue for the three months ended December 31, 2006, by $21 million
(approximately one percent of quarterly operating revenues).
The
restatement of unbilled revenue also affected TVA’s fuel cost adjustment (“FCA”)
calculation. The FCA is a mechanism by which TVA collects the direct
cost of fuel used in its generating facilities and also the energy costs of
purchased power used to serve power demand. Implementation of the FCA
occurred in October 2006 as a joint effort between TVA and its
customers. The goal of the FCA is timely recovery of fuel-related
expenses to reduce the volatility driven by fuel and purchased power
markets. Under TVA’s FCA methodology, adjustments to rates are based
primarily on the difference between forecasted and actual expenses for the
upcoming quarter, as well as the difference between forecasted and actual
revenues for the upcoming quarter. Because the FCA adjustments are
forward-looking, there is typically a difference between what is collected in
rates and what actual expense is realized over the course of the
quarter. This difference is added to or subtracted from a deferred
account on TVA’s balance sheet.
The
restatement of unbilled revenue changed TVA’s forecasted revenues, and since
forecasted revenues are a major component of the FCA calculation, the change in
forecasted revenues required a restatement of the amounts in TVA’s deferred FCA
account. In the Original 10-Q, TVA reported a FCA deferred balance of
$151 million at December 31, 2007, which was restated to a deferred balance of
$117 million. Of the $117 million, $15 million is a deferred asset
and $102 million is a current receivable.
The
unbilled revenue error also affected the application of distributor
prepayments. The balance in the distributors’ unbilled accounts
receivable is offset by a reduction in the advance collections of those
distributors who make prepayments for their power. As a result of the
change in unbilled revenue, the balances in the unbilled receivable and advance
collections accounts were also adjusted. The adjustment related to
distributor prepayments increased the balance in the receivable and advance
collections accounts by less than $1 million as of December 31,
2007.
In light
of the need for this restatement, TVA has identified a material weakness in its
internal control over financial reporting related to its unbilled revenue
calculation, and has concluded that its disclosure controls and procedures were
not effective as of December 31, 2007, solely because of this material
weakness. To rectify the material weakness, the new method of
calculating the unbilled revenue estimate described above was used for periods
presented in this Form 10-Q/A. See Part 1, Item 4, Controls and
Procedures, for additional information regarding controls and procedures related
to this material weakness.
TVA has
also included in the appropriate periods in its restated consolidated financial
statements other miscellaneous adjustments that were deemed to be not material
by management, either individually or in the aggregate, and therefore were
corrected in the period in which they were originally
identified These adjustments are described in more detail in Note
2.
The
effects of these restatements and miscellaneous adjustments on TVA's
consolidated financial statements as of and for the quarters ended December 31,
2007, and 2006, are described in Note 2. The restatements had no
impact on TVA’s cash or cash equivalents.
For the
convenience of the reader, TVA is refiling its entire Quarterly Report on Form
10-Q/A for the three months ended December 31, 2007, by means of this Form
10-Q/A. However, except for the information affected by the
restatement, TVA has not materially updated the information contained herein for
events or transactions occurring subsequent to the date the Original 10-Q was
filed with the SEC. TVA recommends that this Form 10-Q/A be read in
conjunction with the reports and any amendments thereto TVA has filed with the
SEC subsequent to the filing date of the Original 10-Q.
The
following items have been amended principally as a result of, and to reflect,
the restatement, and no other information in the Original 10-Q is amended hereby
as a result of the restatement:
Part I –
Item 1 – Financial Statements
Part I –
Item 2 – Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part I –
Item 4 – Controls and Procedures
Part II –
Item 1 – Legal Proceedings
TVA is
also filing updated certifications by the Chief Executive Officer and Chief
Financial Officer as exhibits to this Form 10-Q/A.
This Form
10-Q/A is not superseding or restating financial statements contained in TVA’s
quarterly reports on Form 10-Q for the quarter ended March 31, 2008, or any
current report on Form 8-K filed subsequent to September 30,
2007. However, the financial statements for the three months and six
months ended March 31, 2008, and March 31, 2007, which are contained in the
quarterly report on Form 10-Q for the three months and six months then ended,
have also been restated in an amended quarterly report on Form 10-Q/A being
filed as soon as practicable after this Form 10-Q/A. Accordingly, the
information in the quarterly report on Form 10-Q for the three months and six
months ended March 31, 2008, should be considered in light of the information in
this Form 10-Q/A.
Table
of Contents
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5
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6
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Part I - FINANCIAL
INFORMATION
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7
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7
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8
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9
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10
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11
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33
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33
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36
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39
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43
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43
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44
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44
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45
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46
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46
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50
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51
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51
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51
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51
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Part II - OTHER
INFORMATION
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52
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52
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52
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52
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52
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52
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53
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54
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55
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FORWARD
-LOOKING INFORMATION
This
Quarterly Report on Form 10-Q/A (“Quarterly Report”) 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,” or other similar
expressions.
Examples
of forward-looking statements include, but are not limited to:
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•
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Statements
regarding strategic objectives;
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•
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Projections
regarding potential rate actions;
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•
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Estimates
of costs of certain asset retirement
obligations;
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•
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Estimates
regarding power and energy
forecasts;
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•
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Expectations
about the adequacy of TVA’s funding of its pension plans, nuclear
decommissioning trust, and asset retirement
trust;
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•
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Estimates
regarding the reduction of bonds, notes, and other evidences of
indebtedness, lease/leaseback commitments, and power prepayment
obligations;
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•
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Estimates
of amounts to be reclassified from other comprehensive income to earnings
over the next year;
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•
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TVA’s
plans to continue using short-term debt to meet current obligations;
and
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•
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The
anticipated cost and timetable for placing Watts Bar Unit 2 in
service.
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Although
the Tennessee Valley Authority (“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. These factors include, among other things:
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•
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New
laws, regulations, and administrative orders, especially those related
to:
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–
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TVA’s
protected service area,
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–
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The
sole authority of the TVA Board to set power
rates,
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–
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Various
environmental and nuclear matters including laws, regulations, and
administrative orders restricting carbon emissions and preferring certain
fuels over others,
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–
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TVA’s
management of the Tennessee River
system,
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–
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TVA’s
credit rating, and
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–
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TVA’s
debt ceiling;
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•
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Loss
of customers;
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•
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Performance
of TVA’s generation and transmission
assets;
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•
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Availability
of fuel supplies;
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•
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Purchased
power price volatility;
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•
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Events
at facilities not owned by TVA that affect the supply of water to TVA’s
generation facilities;
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•
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Compliance
with existing environmental laws and
regulations;
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•
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Significant
delays or cost overruns in construction of generation and transmission
assets;
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•
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Significant
changes in demand for electricity;
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•
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Legal
and administrative proceedings;
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•
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Weather
conditions, including drought;
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•
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Failure
of transmission facilities;
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•
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Events
at any nuclear facility, even one that is not owned by or licensed to
TVA;
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•
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Catastrophic
events such as fires, earthquakes, floods, tornadoes, pandemics, wars,
terrorist activities, and other similar events, especially if these events
occur in or near TVA’s service
area;
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•
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Reliability
of purchased power providers, fuel suppliers, and other
counterparties;
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•
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Changes
in the market price of commodities such as coal, uranium, natural gas,
fuel oil, electricity, and emission
allowances;
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•
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Changes
in the prices of equity securities, debt securities, and other
investments;
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•
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Changes
in interest rates;
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•
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Creditworthiness
of TVA, its counterparties, or its
customers;
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•
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Rising
pension costs and health care
expenses;
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•
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Increases
in TVA’s financial liability for decommissioning its nuclear facilities
and retiring other assets;
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•
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Limitations
on TVA’s ability to borrow money;
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•
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Changes
in the economy;
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•
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Ineffectiveness
of TVA’s disclosure controls and procedures and its internal control over
financial reporting;
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•
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Changes
in accounting standards;
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•
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The
loss of TVA’s ability to use regulatory
accounting;
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•
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Problems
attracting and retaining skilled
workers;
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•
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Changes
in technology;
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•
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Changes
in the market for TVA securities;
and
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•
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Unforeseeable
events.
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Additionally,
other risks that may cause actual results to differ from the predicted results
are set forth in Part I, Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations in this Quarterly Report, in Item
1A, Risk Factors and Item 7, Management’s Discussion and Analysis of Financial
Conditions and Results of Operations in TVA’s Annual Report on Form 10-K, as
amended, for the fiscal year ended September 30, 2007 (the “Annual Report”), and
in other filings TVA makes from time-to-time with the Securities and Exchange
Commission (“SEC”). 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.
GENERAL
INFORMATION
Fiscal
Year
Unless
otherwise indicated, years (2008, 2007, etc.) in this Quarterly Report refer to
TVA’s fiscal years ended September 30.
Notes
References
to “Notes” are to the Notes to Financial Statements contained in Part I, Item 1,
Financial Statements in this Quarterly Report.
Available
Information
TVA's
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and all amendments to those reports are made available on TVA's web
site, free of charge, as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. TVA's web site is
www.tva.gov. Information contained on TVA’s web site shall not be
deemed to be incorporated into, or to be a part of, this Quarterly
Report. In addition, the public may read and copy any reports or
other information that TVA files with the SEC at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. TVA's SEC reports are also available to the public
without charge from the web site maintained by the SEC at
www.sec.gov.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
TENNESSEE
VALLEY AUTHORITY
STATEMENTS OF INCOME
(UNAUDITED)
For the
three months ended December 31
(in
millions)
|
2007
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2006
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|||||||
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As
Restated
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As
Restated
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|||||||
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Operating
revenues
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||||||||
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Sales
of electricity
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||||||||
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Municipalities
and cooperatives
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$ | 1,913 | $ | 1,763 | ||||
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Industries
directly served
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392 | 302 | ||||||
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Federal
agencies and other
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25 | 25 | ||||||
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Other
revenue
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30 | 36 | ||||||
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Total
operating revenues
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2,360 | 2,126 | ||||||
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Operating
expenses
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||||||||
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Fuel
and purchased power
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922 | 749 | ||||||
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Operating
and maintenance
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580 | 550 | ||||||
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Depreciation,
amortization, and accretion
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390 | 361 | ||||||
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Tax equivalents
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120 | 108 | ||||||
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Loss
on asset impairment (Note 7)
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– | 17 | ||||||
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Total
operating expenses
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2,012 | 1,785 | ||||||
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Operating
income
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348 | 341 | ||||||
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Other
income
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3 | 18 | ||||||
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Unrealized
gain on derivative contracts, net (Note 1)
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– | 15 | ||||||
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Interest
expense
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||||||||
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Interest
on debt and leaseback obligations
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341 | 348 | ||||||
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Amortization
of debt discount, issue, and reacquisition costs, net
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5 | 5 | ||||||
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Allowance
for funds used during construction and nuclear fuel expenditures (Note
1)
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(3 | ) | (49 | ) | ||||
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Net
interest expense
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343 | 304 | ||||||
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Net
income
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$ | 8 | $ | 70 | ||||
The
accompanying Notes are an integral part of these financial
statements.
TENNESSEE
VALLEY AUTHORITY
BALANCE
SHEETS
(in
millions)
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ASSETS
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||||||||
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December 31
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September 30
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|||||||
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2007
|
2007
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|||||||
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As
Restated
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||||||||
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Current
assets
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(Unaudited)
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|||||||
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Cash
and cash equivalents
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$ | 158 | $ | 165 | ||||
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Restricted
cash and investments (Note 1)
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127 | 150 | ||||||
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Accounts
receivable, net (Note 1)
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1,181 | 1,458 | ||||||
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Inventories
and other
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768 | 663 | ||||||
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Total
current assets
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2,234 | 2,436 | ||||||
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Property,
plant, and equipment
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||||||||
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Completed
plant
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38,918 | 38,811 | ||||||
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Less
accumulated depreciation
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(1 6 , 204 | ) | (15, 937 | ) | ||||
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Net
completed plant
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22,714 | 22,874 | ||||||
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Construction
in progress
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1,487 | 1,286 | ||||||
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Nuclear
fuel and capital leases
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708 | 672 | ||||||
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Total
property, plant, and equipment, net
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24,909 | 24,832 | ||||||
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Investment
funds
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1,132 | 1,169 | ||||||
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Regulatory and other long-term
assets
(Note 1)
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||||||||
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Deferred
nuclear generating units
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3,032 | 3,130 | ||||||
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Other
regulatory assets
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1,924 | 1, 790 | ||||||
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Subtotal
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4,956 | 4,920 | ||||||
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Other
long-term assets
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404 | 375 | ||||||
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Total
regulatory and other long-term assets
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5,360 | 5, 295 | ||||||
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Total
assets
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$ | 33, 63 5 | $ | 33, 732 | ||||
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LIABILITIES
AND PROPRIETARY CAPITAL
|
||||||||
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Current
liabilities
|
||||||||
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Accounts
payable and accrued liabilities
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$ | 940 | $ | 1,205 | ||||
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Collateral
funds held
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144 | 157 | ||||||
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Accrued
interest
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305 | 406 | ||||||
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Current
portion of leaseback obligations
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43 | 43 | ||||||
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Current
portion of energy prepayment obligations
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106 | 106 | ||||||
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Short-term
debt, net
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1,565 | 1,422 | ||||||
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Current
maturities of long-term debt (Note 4)
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2,090 | 90 | ||||||
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Total
current liabilities
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5,193 | 3,429 | ||||||
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Other
liabilities
|
||||||||
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Other
liabilities
|
2,141 | 2,067 | ||||||
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Regulatory
liabilities (Note 1)
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145 | 83 | ||||||
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Asset
retirement obligations
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2,219 | 2,189 | ||||||
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Leaseback
obligations
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1,028 | 1,029 | ||||||
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Energy
prepayment obligations (Note 1)
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1, 006 | 1, 032 | ||||||
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Total
other liabilities
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6,539 | 6,400 | ||||||
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Long-term debt, net
(Note
4)
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19 ,1 05 | 21 , 099 | ||||||
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Total
liabilities
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30, 83 7 | 30, 928 | ||||||
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Commitments and
contingencies
|
||||||||
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Proprietary
capital
|
||||||||
|
Appropriation
investment
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4,738 | 4,743 | ||||||
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Retained
earnings
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1,768 | 1,763 | ||||||
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Accumulated
other comprehensive (loss)
|
(23 | ) | (19 | ) | ||||
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Accumulated
net expense of nonpower programs
|
(3,685 | ) | (3,683 | ) | ||||
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Total
proprietary capital
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2, 79 8 | 2, 804 | ||||||
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Total
liabilities and proprietary capital
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$ | 33, 63 5 | $ | 33, 732 | ||||
The
accompanying Notes are an integral part of these financial
statements.
TENNESSEE
VALLEY AUTHORITY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the
three months ended December 31
(in
millions)
|
2007
|
2006
|
|||||||
|
As
Restated
|
As
Restated
|
|||||||
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Cash
flows from operating activities
|
||||||||
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Net
income
|
$ | 8 | $ | 70 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
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Depreciation,
amortization, and accretion
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395 | 365 | ||||||
|
Nuclear
refueling outage amortization
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25 | 21 | ||||||
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Loss
on asset impairment
|
– | 18 | ||||||
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Amortization
of nuclear fuel
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44 | 27 | ||||||
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Non-cash
retirement benefit expense
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35 | 50 | ||||||
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Net
unrealized gain on derivative contracts
|
– | (15 | ) | |||||
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Prepayment
credits applied to revenue
|
(26 | ) | (26 | ) | ||||
|
Fuel
cost adjustment deferral
|
34 | 6 | ||||||
|
Other,
net
|
(2 | ) | (18 | ) | ||||
|
Changes
in current assets and liabilities
|
||||||||
|
Accounts
receivable, net
|
247 | 192 | ||||||
|
Inventories
and other
|
(103 | ) | (78 | ) | ||||
|
Accounts
payable and accrued liabilities
|
(200 | ) | (56 | ) | ||||
|
Accrued
interest
|
(100 | ) | (107 | ) | ||||
|
Pension
contributions
|
(19 | ) | (19 | ) | ||||
|
Refueling
outage costs
|
(36 | ) | (41 | ) | ||||
|
Net
cash provided by operating activities
|
302 | 389 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Construction
expenditures
|
(365 | ) | (398 | ) | ||||
|
Combustion
turbine asset acquisitions
|
– | (98 | ) | |||||
|
Nuclear
fuel expenditures
|
(137 | ) | (33 | ) | ||||
|
Change
in restricted cash and investments
|
23 | (8 | ) | |||||
|
Purchases
of investments, net
|
(2 | ) | (1 | ) | ||||
|
Loans
and other receivables
|
||||||||
|
Advances
|
(4 | ) | (1 | ) | ||||
|
Repayments
|
3 | 4 | ||||||
|
Proceeds
from sale of receivables/loans
|
– | 2 | ||||||
|
Other,
net
|
– | (1 | ) | |||||
|
Net
cash used in investing activities
|
(482 | ) | (534 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Long-term
debt
|
||||||||
|
Issues
|
41 | 9 | ||||||
|
Redemptions
and repurchases
|
– | (77 | ) | |||||
|
Short-term
issues, net
|
143 | 190 | ||||||
|
Payments
on leaseback financing
|
(1 | ) | (1 | ) | ||||
|
Payments
to U.S. Treasury
|
(10 | ) | (10 | ) | ||||
|
Net
cash provided by financing activities
|
173 | 111 | ||||||
|
Net
change in cash and cash equivalents
|
(7 | ) | (34 | ) | ||||
|
Cash
and cash equivalents at beginning of period
|
165 | 536 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 158 | $ | 502 | ||||
The
accompanying Notes are an integral part of these financial
statements.
TENNESSEE
VALLEY AUTHORITY
STATEMENTS OF CHANGES IN PROPRIETARY
CAPITAL
For the
three months ended December 31
(in
millions)
|
Appropriation
Investment
|
Retained
Earnings
(Restated)
|
Accumulated
Other Comprehensive Income (Loss)
|
Accumulated
Net Expense of Stewardship Programs
|
Total
(Restated)
|
Comprehensive
Income (Loss)
|
|||||||||||||||||||
|
Balance at September 30, 2006
(as restated)
|
$ | 4,763 | $ | 1,349 | $ | 43 | $ | (3,672 | ) | $ | 2,483 | |||||||||||||
|
Net
income (loss) (as restated)
|
– | 72 | – | (2 | ) | 70 | $ | 70 | ||||||||||||||||
|
Return
on Power Facility Appropriation
Investment
|
– | (5 | ) | – | – | (5 | ) | – | ||||||||||||||||
|
Accumulated
other comprehensive loss (Note 3)
|
– | – | (15 | ) | – | (15 | ) | (15 | ) | |||||||||||||||
|
Return
of Power Facility Appropriation Investment
|
( 5 | ) | – | – | – | (5 | ) | – | ||||||||||||||||
|
Bal
ance at December 31, 2006
(unaudited) (as restated)
|
$ | 4,7 58 | $ | 1,416 | $ | 28 | $ | (3, 674 | ) | $ | 2, 5 28 | $ | 55 | |||||||||||
|
Balance at September 30,
2007
(as restated)
|
$ | 4,743 | $ | 1,763 | $ | (19 | ) | $ | (3,683 | ) | $ | 2,804 | ||||||||||||
|
Net
income (loss) (as restated)
|
– | 10 | – | (2 | ) | 8 | $ | 8 | ||||||||||||||||
|
Return
on Power Facility Appropriation Investment
|
– | (5 | ) | – | – | (5 | ) | – | ||||||||||||||||
|
Accumulated
other comprehensive loss (Note 3)
|
– | – | (4 | ) | – | (4 | ) | (4 | ) | |||||||||||||||
|
Return
of Power Facility Appropriation Investment
|
( 5 | ) | – | – | – | (5 | ) | – | ||||||||||||||||
|
Balance at
December 31
, 200
7
(unaudited) (as
restated)
|
$ | 4,738 | $ | 1, 76 8 | $ | (23 | ) | $ | (3,685 | ) | $ | 2, 79 8 | $ | 4 | ||||||||||
The
accompanying Notes are an integral part of these financial
statements.
NOTES
TO FINANCIAL
STATEMENTS
(unaudited)
(Dollars
in millions except where noted)
1.
Summary of Significant Accounting Policies
General
The
Tennessee Valley Authority (“TVA”) is a wholly-owned corporate agency and
instrumentality of the United States. TVA was created by the U.S.
Congress in 1933 by virtue of the Tennessee Valley Authority Act of 1933,
as amended
, 16 U.S.C.
§§ 831-831ee (as amended, the “TVA Act”). TVA was created to
improve navigation on the Tennessee River, reduce flood damage, provide
agricultural and industrial development, and provide electric power to the
Tennessee Valley region. TVA manages the Tennessee River and its
tributaries for multiple river-system purposes, such as navigation; flood damage
reduction; power generation; environmental stewardship; shoreline use; and water
supply for power plant operations, consumer use, recreation, and
industry.
Substantially
all TVA revenues and assets are attributable to the power
program. TVA provides power in most of Tennessee, northern Alabama,
northeastern Mississippi, and southwestern Kentucky, and in portions of northern
Georgia, western North Carolina, and southwestern Virginia to a population of
approximately 8.8 million people. The power program has historically
been separate and distinct from the stewardship programs. The power
program is required to be self-supporting from power revenues and proceeds from
power financings, such as proceeds from the issuance of bonds, notes, and other
evidences of indebtedness (“Bonds”). Although TVA does not currently
receive congressional appropriations, it is required to make annual payments to
the U.S. Treasury in repayment of, and as a return on, the government’s
appropriation investment in TVA power facilities (the “Power Facility
Appropriation Investment”). Until 2000, most of the funding for TVA’s
stewardship programs was provided by congressional
appropriations. These programs are now funded with power revenues,
except for certain stewardship activities that generate various revenues and
user fees. These activities related to stewardship properties do not
meet the criteria of an operating segment pursuant to Statement of Financial
Accounting Standard (“SFAS”) No. 131,
“Disclosures About Segments of an
Enterprise and Related Information.”
Accordingly, stewardship
assets and properties are included as part of the power program, TVA’s only
operating segment.
Power
rates are established by the TVA board of directors (“TVA Board”) as authorized
by the TVA Act. The TVA Act requires TVA to charge rates for power
that will produce gross revenues sufficient to provide funds for operation,
maintenance, and administration of its power system; payments to states and
counties in lieu of taxes; debt service on outstanding indebtedness; payments to
the U.S. Treasury in repayment of and as a return on the Power Facility
Appropriation Investment; and such additional margin as the TVA Board may
consider desirable for investment in power system assets, retirement of
outstanding Bonds in advance of maturity, additional reduction of the Power
Facility Appropriation Investment, and other purposes connected with TVA’s power
business. In setting TVA’s rates, the TVA Board is charged by the TVA
Act to have due regard for the primary objectives of the TVA Act, including the
objective that power shall be sold at rates as low as are
feasible. Rates set by the TVA Board are not subject to the prior
approval of or subsequent review by any state or federal regulatory
body.
Basis
of Presentation
TVA prepares its interim financial
statements in conformity with generally accepted accounting principles (“GAAP”)
accepted in the United States for interim financial
information. Accordingly, TVA’s interim financial statements do not
include all of the information and notes required by GAAP for complete financial
statements. Because the accompanying interim financial statements do not include
all of the information and footnotes required by GAAP for complete financial
statements, they should be read in conjunction with the audited financial
statements for the year ended September 30, 2007, and the notes thereto, which
are contained in TVA’s Annual Report on Form 10-K, as amended, for the fiscal
year ended September 30, 2007 (the “Annual Report”).
The amounts included in the
accompanying interim financial statements are unaudited but, in the opinion of
TVA management, reflect all adjustments, which consist solely of normal
recurring adjustments, necessary to fairly present TVA’s financial position and
results of operations for the interim periods. Due to seasonal
weather variations and the timing of planned maintenance and refueling outages
of electric generating units, the results of operations for interim periods are
not necessarily indicative of amounts expected for the entire
year.
Use
of Estimates
In
preparing financial statements that conform to GAAP, management must make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the amounts of revenues and expenses reflected
during the reporting period. Actual results could differ from those
estimates.
Fiscal
Year
TVA’s
fiscal year ends September 30. Unless otherwise indicated, years
(2008, 2007, etc.) refer to TVA’s fiscal years.
Restricted
Cash and Investments
As of
December 31, 2007, and September 30, 2007, TVA had $127 million and $150
million, respectively, in Restricted cash and investments on its Balance Sheets
primarily related to collateral posted with TVA by a swap counterparty in
accordance with certain credit terms included in the swap
agreement. This resulted in the funds being reported in Restricted
cash and investments.
Accounts
Receivable
Accounts
receivable primarily consist of amounts due from customers for power
sales. The table below summarizes the types and amounts of
receivables:
|
Accounts
Receivable
|
||||||||
|
At
December 31
2007
|
At
September 30
2007
|
|||||||
|
As
Restated
|
||||||||
|
Power
receivables billed
|
$ | 254 | $ | 316 | ||||
|
Power
receivables unbilled
|
804 | 986 | ||||||
|
Fuel
cost adjustment unbilled
|
102 | 132 | ||||||
|
Total
power receivables
|
1,160 | 1,434 | ||||||
|
Other
receivables
|
23 | 26 | ||||||
|
Allowance
for uncollectible accounts
|
(2 | ) | (2 | ) | ||||
|
Net
accounts receivable
|
$ | 1,181 | $ | 1, 458 | ||||
Cost-Based
Regulation
Regulatory
assets capitalized under the provisions of SFAS No. 71, “
Accounting for the Effects of
Certain Types of Regulation,”
are included in Accounts receivable,
Deferred nuclear generating units, and Other regulatory assets on the December
31, 2007, and the September 30, 2007, Balance Sheets. Components of
Other regulatory assets include certain charges related to the closure and
removal from service of nuclear generating units, debt reacquisition costs,
deferred outage costs, deferred capital lease asset costs, deferred losses
relating to TVA’s financial trading program, FCA, unrealized losses on certain
swaps and swaptions contracts, and unfunded benefit costs. All
regulatory assets are probable of recovery in future
revenues. Components of Regulatory liabilities include unrealized
gains on coal purchase contracts, a reserve for future generation, and capital
lease liabilities.
TVA’s
regulatory assets and liabilities are summarized in the table
below.
In the
first quarter of 2008, TVA began using regulatory accounting treatment to defer
the unrealized mark to market gains and losses on certain swap and swaption
contracts to better match the income statement recognition of gain and loss with
the economic reality of when these transactions actually settle. The
value of the swap and swaptions will still be recorded on TVA’s balance sheet,
and any interest expense impacts will continue to be reflected in TVA’s income
statement. The deferred loss on the value of the swaps and swaptions
was $99 million for the first quarter of 2008 and is included as a Regulatory
asset on the December 31, 2007, Balance Sheet. See
Swaps and Swaptions
in this
Note 1.
TVA
established a reserve for future generation funded by power customers which is
also classified as a regulatory liability. Because of the nature of
the reserve, it is considered as an offset to Property, plant, and equipment on
the December 31, 2007, and September 30, 2007, Balance Sheets. See
Reserve for Future
Generation
in this Note 1.
Reserve
for Future Generation
During
the first quarter of 2007, TVA began collecting in rates amounts intended to
fund future generation based on the need for additional generating capacity to
meet future power demand in TVA’s service area. Because these amounts
were intended to fund future costs, they were originally deferred as a
regulatory liability. The funds were based on a predetermined rate
applied to electricity sales approved as part of TVA’s 2007
budget. Collections for the three months ended December 31, 2006,
amounted to $13 million, and total collections for the year ended September 30,
2007, amounted to $76 million. These amounts were recorded as a
regulatory liability on the December 31, 2006, and September 30, 2007, Balance
Sheets, respectively, as a component of Completed plant. Following
the purchase of two combustion turbine facilities, these funds are being applied
as credits to Completed plant and are reflected on the September 30, 2007,
Balance Sheet. These funds collected for future generation are being
amortized to revenue in order to match revenue with the corresponding
depreciation expense of the facilities on the Statement of
Income. This revenue recognition process began when the facilities
were placed into service. The reserve for future generation was not
extended beyond 2007. The balance of the reserve for future
generation was $73 million at December 31, 2007, and $74 million at September
30, 2007. TVA recognized revenue of $1 million during the first
quarter of 2008 consistent with the manner in which the related assets are being
depreciated.
Energy
Prepayment Obligations
Prior to
2005, TVA entered into sales agreements with 36 customers for 54.5 discounted
energy units totaling $54.5 million. Total credits applied to power
billings on a cumulative basis from these arrangements through December 31,
2007, exceeded $27.2 million. Of this amount, over $1 million was
recognized as revenue for each of the quarterly periods ended December 31, 2007
and 2006.
In
November 2003, TVA, Memphis Light, Gas, and Water Division (“MLGW”), and the
City of Memphis entered into agreements whereby MLGW prepaid a portion of its
power requirements for 15 years for a fixed amount of
kilowatt-hours. The amount of the prepayment was $1.5
billion. The prepayment credits are being applied to reduce MLGW’s
monthly power bill on a straight-line basis over the same 15-year
period. Total credits applied to power billings on a cumulative basis
through December 31, 2007, exceeded $415 million. Of this
amount, $25 million was recognized as revenue for each of the quarterly periods
ended December 31, 2007 and 2006. These amounts were based on the
ratio of kilowatt-hours of electricity delivered to the total kilowatt-hours
under contract.
At
December 31, 2007 and September 30, 2007, obligations for these energy
prepayments were $1,112 million and $1,138 million,
respectively. These amounts are included in Energy prepayment
obligations and Current portion of energy prepayment obligations on the December
31, 2007, and September 30, 2007, Balance Sheets.
Asset
Retirement Obligations
In
accordance with the provisions of SFAS No. 143,
“Accounting for Asset Retirement
Obligations,”
TVA recognizes the fair value of legal obligations
associated with the retirement of certain tangible long-lived
assets. The fair value of the liability is added to the book value of
the associated asset. The liability increases due to the passage of
time (accretion expense), based on the time value of money, until the
obligations settle. Subsequent to the initial recognition, the future
liability is adjusted for any periodic revisions to the expected cost of the
retirement obligation (changes in estimates to future cash flows) and for
accretion of the liability due to the passage of time.
During
the first quarter of 2008, TVA’s total asset retirement obligation (“ARO”)
increased $30 million due to accretion expense. The nuclear accretion
expense of $23 million was deferred and charged to a regulatory asset in
accordance with SFAS No. 71
.
The remaining
accretion expense of $7 million, related to coal-fired and gas/oil combustion
turbine plants, asbestos, and polychlorinated biphenyls (“PCBs”), was expensed
during the first quarter of 2008. During the first quarter of 2007,
TVA’s total ARO liability increased $22 million due to accretion
expense. The nuclear accretion expense of $15 million was deferred
and charged to a regulatory asset in accordance with SFAS No. 71. The
remaining accretion expense of $7 million, related to coal-fired and gas/oil
combustion turbine plants, asbestos, and PCBs, was expensed during the first
quarter of 2007.
Allowance
for Funds Used During Construction
TVA
capitalizes interest, as an allowance for funds used during construction
("AFUDC"), based on the average interest rate of TVA’s outstanding
debt. The allowance is applicable to construction in progress related
to certain projects and certain nuclear fuel inventories. TVA will
continue to capitalize a portion of current interest costs associated with funds
invested in most nuclear fuel inventories, but interest on funds invested in
construction projects will be capitalized beginning in 2008 only if (1) the
expected total cost of a project is $1 billion or more and (2) the
estimated construction period is at least three years.
Swaps
and Swaptions
From time
to time TVA has entered into call monetization transactions using swaptions to
hedge the value of call provisions on certain of its Bond issues. A
swaption essentially grants a third party an option to enter into a swap
agreement with TVA under which TVA receives a floating rate of interest and pays
the third party a fixed rate of interest equal to the interest rate on the Bond
issue whose call provision TVA monetized. Selling such an option
creates a liability for TVA until such time as TVA buys back the option or until
the option matures.
These
call monetization transactions result in long-term liabilities which are marked
to market each quarter. In accordance with the accounting policy that
was in effect on September 30, 2007, the changes in the value of these
liabilities were reported as unrealized gains or losses through TVA’s income
statement in accordance with SFAS No. 133,
“Accounting for Derivative
Instruments and Hedging Activities.”
The volatility of the valuations
resulted in the recognition of sizable amounts of non-cash expense or income,
which affected net income.
The TVA
Board approved, beginning in 2008, the utilization of regulatory accounting
treatment for swaps and swaptions related to call monetization transactions in
order to better match the income statement recognition of gain and loss with the
economic reality of when these transactions actually settle. This treatment
removes the non-cash impacts to TVA’s earnings that result from marking the
value of these instruments to market each quarter. The value of the swaps and
swaptions will still be recorded on TVA’s balance sheet, and any interest
expense impacts will continue to be reflected in TVA’s income
statement. The deferred loss on the value of the swaps and swaptions
for the first quarter of 2008 was $99 million and is included as a Regulatory
asset on the December 31, 2007, Balance Sheet.
Impact
of New Accounting Standards and Interpretations
Accounting for Defined
Benefit Pension and Other Postretirement Plans
. On September
30, 2007, TVA adopted the provisions contained within SFAS No. 158,
“Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements
No. 87, 88, 106, and 132(R).”
This standard requires employers
to fully recognize within their financial statements the obligations associated
with single-employer defined benefit pension, retiree healthcare, and other
postretirement plans. Specifically, the new standard requires an
employer to recognize in its statement of financial position an asset for a
plan’s overfunded status or a liability for a plan’s underfunded status; measure
a plan’s assets and its obligations that determine its funded status as of the
end of the employer’s fiscal year (with limited exceptions); and recognize
changes in the funded status of a defined benefit postretirement plan in the
year in which the changes occur. Such changes are to be reported
within comprehensive income of a business entity (except that regulated entities
may report such changes as regulatory assets and/or liabilities in accordance
with the provisions of SFAS No. 71), and within changes in net assets of a
not-for-profit organization.
TVA’s
2007 adoption of SFAS No. 158 resulted in the recognition of the following
amounts on its Balance Sheet at September 30, 2007: additional regulatory assets
of $475 million (including the reclassification of $246 million in unamortized
prior service cost previously classified as intangible assets) resulting in
post-SFAS No. 158 benefit regulatory assets of $973 million; and additional
pension and postretirement obligations of $330 million and $143 million, and $2
million classified as accumulated other comprehensive gain, resulting in
post-SFAS No. 158 benefit obligations of $1,128 million. The net
amount of recognizing such amounts increased total assets and liabilities by
$475 million at September 30, 2007.
Fair Value
Measurements
. In September 2006, Financial Accounting
Standards Board (“FASB”) issued SFAS No. 157,
“Fair Value Measurements.”
This standard provides guidance for using fair value to measure assets
and liabilities that currently require fair value measurement. The
standard also responds to investors’ requests for expanded information about the
extent to which companies measure assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair value
measurements on earnings. SFAS No. 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value
but does not expand the use of fair value in any new
circumstances. SFAS No. 157 establishes a fair value hierarchy that
prioritizes the information used to develop measurement
assumptions. The provisions of SFAS No. 157 are effective for
financial statements issued for fiscal years beginning after November 15, 2008,
and interim periods within those fiscal years. At this time, TVA is
evaluating the requirements of this standard and has not yet determined the
impact of its implementation, which may or may not be material to TVA’s results
of operations or financial position.
Fair Value
Option
. In February 2007, FASB issued SFAS No. 159,
“The Fair Value Option for Financial
Assets and Financial Liabilities — Including an amendment of FASB Statement No.
115.”
This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. The fair value
option established by SFAS No.159 permits all entities to choose to measure
eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. Most of the provisions in this statement are
elective. The provisions of SFAS No. 159 are effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of the previous
fiscal year provided that the entity makes that choice in the first 120 days of
that fiscal year and also elects to apply the provisions of SFAS No. 157
.
At this time, TVA is
evaluating the requirements of this standard and has not yet determined the
potential impact of its implementation, which may or may not be material to
TVA’s results of operations or financial position.
Offsetting
Amounts
. On April 30, 2007, FASB issued FASB Staff Position
(“FSP”) FIN No. 39-1,
“Amendment of FASB Interpretation No. 39,”
which addresses certain
modifications to FASB Interpretation No. 39,
“Offsetting of Amounts Related to
Certain Contracts.”
This FSP replaces the terms “conditional contracts”
and “exchange contracts” with the term “derivative instruments” as defined in
SFAS No. 133,
“Accounting for
Derivative Instruments and Hedging Activities.”
The FSP also permits a
reporting entity to offset fair value amounts recognized for the right to
reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) against fair value amounts recognized for derivative
instruments executed with the same counterparty under the same master netting
arrangement. The guidance in the FSP is effective for fiscal years
beginning after November 15, 2007, with early application
permitted. At this time, TVA is evaluating the requirements of this
guidance and has not yet determined the potential impact of its implementation,
which may or may not be material to TVA’s financial position.
2. Restatement
The
accompanying financial statements as of December 31, 2007, and 2006, and
September 30, 2007, have been restated. TVA determined that the method
implemented to estimate unbilled revenues in September 2006 had resulted in
errors in unbilled revenue presented in TVA’s financial statements for the
fiscal years ended September 30, 2006, and 2007, and the quarterly periods ended
December 31, 2006, March 31, 2007, June 30, 2007, December 31, 2007, and March
31, 2008. There was no effect on periods prior to the three months
ended September 30, 2006.
Under
TVA’s end-use billing arrangements with its distributors, TVA relies on the
distributors to report their end-use sales. Because of the delay
between the wholesale delivery of power to the customer and the report of
end-use sales to TVA, TVA must estimate the unbilled revenue at the end of each
financial reporting period. In September 2006, TVA implemented a change in
methodology for estimating unbilled revenue for electricity sales which resulted
in an increase of $232 million in unbilled revenue (or 2.6 percent of operating
revenues) for 2006.
The
estimation process implemented in September 2006 utilized the distributors’
average rates and an estimate of the number of days of revenue outstanding to
reflect the delay in reporting the end-use sales to TVA (“days
outstanding”). The number of days outstanding was derived using a
procedure similar to a cross-correlation calculation that compared the monthly
retail load to the monthly wholesale load. The intent was to reflect
in the unbilled estimate the end-use sales that would be reported that month by
distributors plus any remaining sales that would not be reported until the
following month due to the delay between wholesale delivery and end-use
reporting.
TVA has
determined that the process implemented in September 2006 overestimated the days
outstanding and that this overestimation resulted in an error in recording
unbilled revenue and unbilled receivables. The previous unbilled
process also failed to consider the annual true-up of each distributor’s
reported distribution losses. The annual true-up reconciles total end-use
kilowatt-hour (“kWh”) sales and revenue reported by each distributor with the
kWh sales recorded for each distributor at wholesale.
TVA has
used a new process for estimating unbilled revenue for the three months ended
December 31, 2007, and 2006. This process carries over only the
portion of sales from the distributor’s meter read date to the
month-end. Those sales, along with the current month sales, are then
priced at rates based on each distributor’s customer and product
mix. Additionally, a true-up component has been added to the unbilled
calculation to reflect any timing differences that occur between the retail and
wholesale billing cycles. Due to the new process, an adjustment was
made to increase revenue for the three months ended December 31, 2007 and 2006,
by $8 million and $21 million, respectively.
The
restatement of unbilled revenue also affected TVA’s fuel cost adjustment (“FCA”)
calculation. The FCA is a mechanism by which TVA collects the direct cost
of fuel used in its generating facilities and also the energy costs of purchased
power used to serve power demand. Implementation of the FCA occurred
in October 2006 as a joint effort between TVA and its customers. The
goal of the FCA is timely recovery of fuel-related expenses to reduce the
volatility driven by fuel and purchased power markets. Under TVA’s
FCA methodology, adjustments to rates are based primarily on the difference
between forecasted and actual expenses for the upcoming quarter, as well as the
difference between forecasted and actual revenues for the upcoming
quarter. Because the FCA adjustments are forward-looking, there is
typically a difference between what is collected in rates and what actual
expense is realized over the course of the quarter. This difference
is added to or subtracted from a deferred account on TVA’s balance
sheet.
The
restatement of unbilled revenue changed TVA’s forecasted revenues, and since
forecasted revenues are a major component of the FCA calculation, the change in
forecasted revenues required a restatement of the amounts in TVA’s deferred FCA
account. In the Original 10-Q, TVA reported a FCA deferred balance of
$151 million at December 31, 2007, which was restated to a deferred balance of
$117 million. Of the $117 million, $15 million is a deferred asset and $102
million is a current receivable.
The
unbilled revenue error also affected the application of distributor prepayments.
The balance in the distributors’ unbilled accounts receivable is offset by a
reduction in the advance collections of those customers who make prepayments for
their power. As a result of the change in unbilled revenue, the balances in the
unbilled receivable and advance collections accounts were adjusted upward by
less than $1 million as of December 31, 2007.
TVA has
evaluated these errors and determined that the impact was an overstatement of
net income for the fiscal year ended September 30, 2006, and an understatement
of net income for the fiscal year ended September 30, 2007, and the three months
ended December 31, 2007. The changes to the financial statements as of or
for the respective periods primarily involves accounts receivable and retained
earnings on the balance sheets, and operating revenues and net income on the
statements of income. The errors and restatements have no impact on cash and
cash equivalents.
In
addition to the unbilled revenue and FCA adjustments, there were certain
miscellaneous items that were previously deemed to be immaterial by management
which have been corrected in the period in which they were originally
identified. Summary restatements tables are presented below.
References in the “Note” column correspond to lines on the Statements of Income
and Balance Sheets following these tables. Accordingly, previously
reported amounts are being restated to properly reflect the accounting for these
items as follows:
Statements
of Income
Summary
of Restatements
For
the Three Months Ended December 31
|
Description
of Adjustment
|
2007
|
Note
|
2006
|
Note
|
||||||||||||
|
Operating
revenues
|
Unbilled
revenue adjustments
|
$ | 8 | $ | 21 | |||||||||||
|
Reclassification
of expenses previously netted with revenue
|
2 | 1 | ||||||||||||||
| 10 |
I08-1
|
22 |
I07-1
|
|||||||||||||
|
Operating
expenses
|
Fuel
cost adjustment
|
(14 | ) | 6 | ||||||||||||
|
Change
in period for depreciation expense
|
– | 5 | ||||||||||||||
|
Change
in loss on asset impairment
|
– | (5 | ) | |||||||||||||
|
Additional
legal expense
|
(3 | ) | – | |||||||||||||
|
Financing
cost interest reclassification
|
(12 | ) | (12 | ) | ||||||||||||
|
Reclassification
of expenses previously netted with revenue
|
3 | 3 | ||||||||||||||
| (26 | ) |
I08-2
|
(3 | ) |
I07-2
|
|||||||||||
|
Operating
income
|
36 | 25 | ||||||||||||||
|
Other
income
|
Additional
legal expense
|
– | 4 | |||||||||||||
|
Reclassification
of other income previously reported as revenue
|
1 | 2 | ||||||||||||||
| 1 |
I08-3
|
6 |
I07-3
|
|||||||||||||
|
Interest
expense
|
Financing
cost interest reclassification
|
12 |
I08-4
|
12 |
I07-4
|
|||||||||||
|
Net
income
|
$ | 25 | $ | 19 | ||||||||||||
Balance
Sheet
Summary
of Restatements
December
31, 2007
|
Description
of Adjustment
|
Amount
|
Note
|
||||||
|
Current
assets
|
||||||||
|
Accounts
receivable
|
Unbilled
revenue adjustments
|
$ | (118 | ) | ||||
|
Accounts
receivable
|
Fuel
cost adjustments
|
(46 | ) | |||||
| (164 | ) |
B08-1
|
||||||
|
Regulatory
and other long-term assets
|
||||||||
|
Regulatory
assets
|
Fuel
cost adjustments
|
12 |
B08-2
|
|||||
|
Total
restatement of assets
|
$ | (152 | ) | |||||
|
Current
liabilities
|
||||||||
|
Accrued
liabilities
|
Unbilled
revenue adjustments
|
$ | (1 | ) |
B08-3
|
|||
|
Proprietary
capital
|
||||||||
|
Retained
earnings
|
Unbilled
revenue adjustments
|
8 | ||||||
|
Retained
earnings
|
Fuel
cost adjustments
|
14 | ||||||
|
Retained
earnings
|
Legal
reserve adjustment
|
3 | ||||||
|
Retained
earnings
|
Beginning
retained earnings adjustment
|
(176 | ) | |||||
| (151 | ) |
B08-4
|
||||||
|
Total
restatement of liabilities and proprietary capital
|
$ | (152 | ) | |||||
Accordingly,
previously reported amounts are being restated to properly reflect the
accounting for these items as follows:
The
following table summarizes the statements of income for the periods
indicated, giving effect to the restatement adjustments described above and
showing previously reported amounts and restated amounts for the three months
ended December 31, 2007, and 2006.
Statements
of Income
Three
Months Ended December 31
|
2007
|
2006
|
|||||||||||||||||||||||||||||
|
As
Previously Reported
|
Increase
(Decrease)
|
Note
|
As
Restated
|
As
Previously Reported
|
Increase
(Decrease)
|
Note
|
As
Restated
|
|||||||||||||||||||||||
|
Operating
revenues
|
||||||||||||||||||||||||||||||
|
Sales
of electricity
|
||||||||||||||||||||||||||||||
|
Municipalities
and cooperatives
|
$ | 1,905 | $ | 8 | $ | 1,913 | $ | 1,742 | $ | 21 | $ | 1,763 | ||||||||||||||||||
|
Industries
directly served
|
392 | – | 392 | 302 | – | 302 | ||||||||||||||||||||||||
|
Federal
agencies and other
|
25 | – | 25 | 25 | – | 25 | ||||||||||||||||||||||||
|
Other
revenue
|
28 | 2 | 30 | 35 | 1 | 36 | ||||||||||||||||||||||||
|
Total
operating revenues
|
2,350 | 10 |
I0
8
-1
|
2,360 | 2,104 | 22 |
I0
7
-1
|
2,126 | ||||||||||||||||||||||
|
Operating
expenses
|
||||||||||||||||||||||||||||||
|
Fuel
and purchased power
|
935 | (13 | ) | 922 | 739 | 10 | 749 | |||||||||||||||||||||||
|
Operating
and maintenance
|
592 | (12 | ) | 580 | 563 | (13 | ) | 550 | ||||||||||||||||||||||
|
Depreciation,
amortization, and accretion
|
390 | – | 390 | 356 | 5 | 361 | ||||||||||||||||||||||||
|
Tax
equivalents
|
121 | (1 | ) | 120 | 108 | – | 108 | |||||||||||||||||||||||
|
Loss
on asset impairment
|
– | – | – | 22 | (5 | ) | 17 | |||||||||||||||||||||||
|
Total
operating expenses
|
2,038 | (26 | ) |
I0
8
-2
|
2,012 | 1,788 | (3 | ) |
I0
7
-2
|
1,785 | ||||||||||||||||||||
|
Operating
income
|
312 | 36 | 348 | 316 | 25 | 341 | ||||||||||||||||||||||||
|
Other
income, net
|
2 | 1 |
I0
8
-
3
|
3 | 12 | 6 |
I07
-3
|
18 | ||||||||||||||||||||||
|
Unrealized
gain on derivative
contracts,
net
|
– | – | – | 15 | – | 15 | ||||||||||||||||||||||||
|
Interest
expense
|
||||||||||||||||||||||||||||||
|
Interest
on debt and leaseback obligations
|
329 | 12 | 341 | 336 | 12 | 348 | ||||||||||||||||||||||||
|
Amortization
of debt discount, issue, and
reacquisition
costs, net
|
5 | – | 5 | 5 | – | 5 | ||||||||||||||||||||||||
|
Allowance
for funds used during
construction
and nuclear fuel expenditures
|
(3 | ) | – | (3 | ) | (49 | ) | – | (49 | ) | ||||||||||||||||||||
|
Net
interest expense
|
331 | 12 |
I0
8
-
4
|
3 43 | 292 | 12 |
I07
-
4
|
304 | ||||||||||||||||||||||
|
Net
(loss) income
|
$ | (17 | ) | $ | 25 | $ | 8 | $ | 51 | $ | 19 | $ | 70 | |||||||||||||||||
Balance
Sheet
The
following table sets forth the balance sheet giving effect to the restatement
and other adjustments described above and showing previously reported amounts
and restated amounts as of December 31, 2007.
Balance
Sheet
|
December 31,
2007
|
|||||||||||||||
|
As
Previously Reported
|
Increase
(Decrease)
|
Note
|
As
Restated
|
||||||||||||
|
ASSETS
|
|||||||||||||||
|
Current
assets
|
|||||||||||||||
|
Cash
and cash equivalents
|
$ | 158 | $ | – | $ | 158 | |||||||||
|
Restricted
cash and investments
|
127 | – | 127 | ||||||||||||
|
Accounts
receivable, net
|
1,345 | (164 | ) | 1,181 | |||||||||||
|
Inventories
and other
|
768 | – | 768 | ||||||||||||
|
Total
current assets
|
2,398 | (164 | ) |
B08-1
|
2,234 | ||||||||||
|
Property,
plant, and equipment
|
|||||||||||||||
|
Completed
plant
|
38,918 | – | 38,918 | ||||||||||||
|
Less
accumulated depreciation
|
(16,204 | ) | – | (16,204 | ) | ||||||||||
|
Net
completed plant
|
22,714 | – | 22,714 | ||||||||||||
|
Construction
in progress
|
1,487 | – | 1,487 | ||||||||||||
|
Nuclear
fuel and capital leases
|
708 | – | 708 | ||||||||||||
|
Total
property, plant, and equipment, net
|
24,909 | – | 24,909 | ||||||||||||
|
Investment
funds
|
1,132 | – | 1,132 | ||||||||||||
|
Regulatory
and other long-term assets
|
|||||||||||||||
|
Deferred
nuclear generating units
|
3,032 | – | 3,032 | ||||||||||||
|
Other
regulatory assets
|
1,912 | 12 | 1,924 | ||||||||||||
|
Subtotal
|
4,944 | 12 | 4,956 | ||||||||||||
|
Other
long-term assets
|
404 | – | 404 | ||||||||||||
|
Total
regulatory and other long-term assets
|
5,348 | 12 |
B08-2
|
5,360 | |||||||||||
|
Total
assets
|
$ | 33,787 | $ | (152 | ) | $ | 33,635 | ||||||||
|
LIABILITIES
AND PROPRIETARY CAPITAL
|
|||||||||||||||
|
Current
liabilities
|
|||||||||||||||
|
Accounts
payable and accrued liabilities
|
$ | 941 | $ | (1 | ) | $ | 940 | ||||||||
|
Collateral
funds held
|
144 | – | 144 | ||||||||||||
|
Accrued
interest
|
305 | – | 305 | ||||||||||||
|
Current
portion of leaseback obligations
|
43 | – | 43 | ||||||||||||
|
Current
portion of energy prepayment obligations
|
106 | – | 106 | ||||||||||||
|
Short-term
debt, net
|
1,565 | – | 1,565 | ||||||||||||
|
Current
maturities of long-term debt
|
2,090 | – | 2,090 | ||||||||||||
|
Total
current liabilities
|
5,194 | (1 | ) |
B08-3
|
5,193 | ||||||||||
|
Other
liabilities
|
|||||||||||||||
|
Other
liabilities
|
2,141 | – | 2,141 | ||||||||||||
|
Regulatory
liabilities
|
145 | – | 145 | ||||||||||||
|
Asset
retirement obligations
|
2,219 | – | 2,219 | ||||||||||||
|
Leaseback
obligations
|
1,028 | – | 1,028 | ||||||||||||
|
Energy
prepayment obligations
|
1,006 | – | 1,006 | ||||||||||||
|
Total
other liabilities
|
6,539 | – | 6,539 | ||||||||||||
|
Long-term
debt, net
|
19,105 | – | 19,105 | ||||||||||||
|
Total
liabilities
|
30,838 | (1 | ) | 30,837 | |||||||||||
|
Commitments
and contingencies
|
|||||||||||||||
|
Proprietary
capital
|
|||||||||||||||
|
Appropriation
investment
|
4,738 | – | 4,738 | ||||||||||||
|
Retained
earnings
|
1,919 | (151 | ) | 1,768 | |||||||||||
|
Accumulated
other comprehensive (loss) income
|
(23 | ) | – | (23 | ) | ||||||||||
|
Accumulated
net expense of stewardship programs
|
(3,685 | ) | – | (3,685 | ) | ||||||||||
|
Total
proprietary capital
|
2,949 | (151 | ) |
B08-4
|
2,798 | ||||||||||
|
Total
liabilities and proprietary capital
|
$ | 33,787 | $ | (152 | ) | $ | 33,635 | ||||||||
Statements
of Cash Flows
The
following table summarizes the statements of cash flows for the periods
indicated, giving effect to the restatement adjustments described above and
showing previously reported amounts and restated amounts for the three months
ended December 31, 2007, and 2006.
|
Statements
of Cash Flows
For
the Three Months Ended December 31
|
||||||||||||||||||||||||
|
2007
|
2006
|
|||||||||||||||||||||||
|
As
Previously Reported
|
Increase
(Decrease)
|
As
Restated
|
As
Previously Reported
|
Increase
(Decrease)
|
As
Restated
|
|||||||||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||||||||||
|
Net
(loss) income
|
$ | (17 | ) | $ | 25 | $ | 8 | $ | 51 | $ | 19 | $ | 70 | |||||||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||||||||||||||||||
|
Depreciation,
amortization, and accretion
|
395 | – | 395 | 360 | 5 | 365 | ||||||||||||||||||
|
Nuclear
refueling outage amortization
|
25 | – | 25 | 21 | – | 21 | ||||||||||||||||||
|
Loss
on asset impairment
|
– | – | – | 22 | (4 | ) | 18 | |||||||||||||||||
|
Amortization
of nuclear fuel
|
44 | – | 44 | 27 | – | 27 | ||||||||||||||||||
|
Non-cash
retirement benefit expense
|
35 | – | 35 | 50 | – | 50 | ||||||||||||||||||
|
Net
unrealized gain on derivative contracts
|
– | – | – | (15 | ) | – | (15 | ) | ||||||||||||||||
|
Prepayment
credits applied to revenue
|
(26 | ) | – | (26 | ) | (26 | ) | – | (26 | ) | ||||||||||||||
|
Fuel
cost adjustment deferral
|
47 | (13 | ) | 34 | – | 6 | 6 | |||||||||||||||||
|
Other, net
|
1 | (3 | ) | (2 | ) | (15 | ) | (3 | ) | (18 | ) | |||||||||||||
|
Changes
in current assets and liabilities
|
||||||||||||||||||||||||