The Tennessee Valley Authority priced $1.25 billion of power bonds Tuesday. It was the utility’s fifth offering of bonds and other long-term funding in the past year. Those funding efforts have raised $5.8 billion.
The proceeds of the latest transaction will support construction of new power plants and refinance debt that’s coming due, the federal utility said in a press release.
(READ MORE: TVA touts ‘great financial position’ as sales grow $1 billion)
TVA had $22.9 billion of total debt as of June 30. That debt was composed mostly of long-term power bonds it sells on financial markets. As a fully owned corporation of the U.S. government, TVA does not have shareholders.
There was high demand from investors in the bonds, TVA’s third debt transaction larger than $1 billion in the past six months, said Brian Child, TVA vice president, treasurer and chief risk officer.
“We have not been this active in the new issue markets in decades,” Child said in the press release. “The great reception is helping us finance TVA’s capital needs at the most favorable interest rates.”
TVA will pay interest on the new five-year bonds until Aug. 1, 2030, when the principal is paid back to investors. The utility has applied to list the bonds on the New York Stock Exchange.
TVA will get the $1.25 billion at a 3.875% interest rate, its lowest borrowing cost for recent major bonds and a full percentage point lower than interest on its $1.5 billion issue of 10-year bonds in May.
It priced $1.25 billion of 30-year bonds in February and $1 billion of 10-year bonds in August 2024.
The nation’s largest public power provider has seen its peak power demands grow by 500 megawatts since last summer. That’s enough electricity to power around 300,000 average homes.
TVA generates and distributes power for 10 million people in seven Southeast states and is self-funded from electricity revenue.
TVA invested $3.6 billion in cash in its power system between October and June, mostly for new construction, TVA Chief Financial Officer Tom Rice told investors July 28 on a quarterly call.
It has 3,750 megawatts of new power generation under construction, primarily at the Cumberland and Kingston natural gas-fired plants in Tennessee.
“We remain focused on maintaining financial discipline in all aspects of our spending,” Rice said on the call. “We’re on track with our extensive capital plan.”
The utility is midway through a $16 billion spending campaign focused on meeting growing power demand by bringing new megawatts online and juicing more electricity out of existing plants.
Its $19.2 billion of power bonds as of June 30 had an average maturity of 14.62 years and an average interest rate of 4.92%.
Though the U.S. government does not guarantee payments of TVA bonds, the federal utility has the implied backing of the U.S. in the eyes of credit agencies. Its stellar bond ratings help it access low interest rates.
But government ownership comes with a significant limitation for TVA. Its debt ceiling was set at $30 billion by Congress in 1979 and has not been raised since.
TVA may seek third-party private funding for major projects like a small modular reactor in Oak Ridge, TVA CEO Don Moul said on the investors call. The first small modular reactor could cost more than $5 billion, according to TVA estimates.
The utility can also use lease-purchase agreements for new power plants, where debt is paid with rent payments and doesn’t count toward TVA’s overall debt.
Contact business reporter Daniel Dassow at ddassow@timesfreepress.com or 423-757-6318.
