TVA customers to see big rate hike

Published 4:27 pm Thursday, August 7, 2008

Tennessee Valley Authority customers could be facing their largest electric rate increase in decades this fall because of rising fuel costs and a drought that makes it difficult to produce cheap hydroelectric power.

“I don’t personally like to go out in times of rising gasoline prices and rising food prices and say your electric bill is going up too,” TVA Chief Executive Officer and President Tom Kilgore said during a media teleconference Wednesday. “But that is what is happening.”

TVA directors will decide later this month exactly how much to raise the utility’s quarterly fuel adjustment charge on Oct. 1. “It has been going up in smaller increments,” Kilgore said. “We expect this increment to be large.”

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Kilgore said the charge could boost a consumer’s monthly bill by 10 percent to 20 percent — meaning a jump of $12 to $25 a month in the typical residential bill. An average 15 percent boost would be TVA’s biggest rate jump since 1977. The typical TVA household uses 1,320 kilowatt hours a month costing $120 to $125, depending on the distributor.

Since TVA adopted fuel adjustment charges in 2007, the add-on fee has gone down only once. The cumulative effect has been a 12.2 percent increase.

And TVA is not alone. Kilgore noted that most utilities are raising rates by similar increments.

“Prices for fuels commonly used to make electricity are skyrocketing” as a result of growing demand and global supply, Kilgore said. “The TVA region is not immune to these cost pressures.”

Knoxville-based TVA — the nation’s largest public utility — provides wholesale electricity to 159 distributors serving 8.8 million consumers in Tennessee and parts of Alabama, Mississippi, Kentucky, Georgia, North Carolina and Virginia.

TVA gets most of its energy from burning coal, and coal prices have more than doubled in the United States since December, according to TVA. The utility spent more than $2 billion last year on coal.

Meanwhile, natural gas prices have risen by more than 65 percent since December. TVA expects to spend $750 million on natural gas this year, compared with $493 million in 2007.

Natural gas fuels TVA’s peak-power stations. It also is the primary fuel source for power sold on the open market. TVA is buying 12 percent more power from other providers than a year ago and is paying more for it — $701 million during the first half of 2008, up $220 million from the same period last year.

TVA is having to buy more power from others because of falling hydroelectric production from its Tennessee River dam network, which is suffering from the third year of a prolonged drought.

Kilgore said TVA anticipates power sales will be flat in the new fiscal year beginning Oct. 1 because “we think everybody will start to conserve.”

TVA has traditionally offered some of the lowest electric rates in the country. Though fuel cost pressures have been “staggering even to us on the inside,” Kilgore said, “relatively speaking, we are still in pretty good position. In the valley and at TVA we think we are still going to be below most everybody else.”