Consumers may be hurting, but those higher electric rates from the Tennessee Valley Authority will end up helping their state and local governments.

The nation’s largest public utility doesn’t pay income taxes and is exempt from property taxes, but under the TVA Act, it must return 5 percent of its revenues to state and local governments in its territory.

In the current fiscal year, TVA will pay $495 million in lieu of taxes to state and local governments, up from $455 million last year. Depending upon what rates and power sales do in the next year, TVA could boost such tax-equivalent payments to nearly $600 million by 2010.

TVA President Tom Kilgore said the money helps operate schools, build roads and fund local government services.

TVA director Dennis Bottorff of Nashville says, those payments “are going up.”

Knoxville-based TVA will pay out 8.8 percent more in the next year than it did during fiscal 2008, largely because of rate increases implemented during fiscal 2007.

Rate increases implemented this summer and fall, which combined have boosted wholesale electric rates by more than one-third, will swell payments even more in fiscal 2010, according to TVA estimates.

In the current economy, the increase in TVA tax-equivalent payments will provide one of the few sources of extra money, economists say.

“The economic slowdown is cutting sales, corporate earnings and investment earnings and higher gas prices have reduced the amount of fuel taxes paid in Tennessee,” said Matt Murray, associate director at the Center for Business and Economic Research at the University of Tennessee. “TVA payments represent only a tiny fraction of state and local budgets, but it is one of the few growing sources of money.”

TVA has made tax-equivalent payments since its founding in 1933. Most of the money goes directly to state governments. However, much of it is redistributed to local governments according to formulas in each state.

Total payments by TVA to each state for fiscal year 2008 are: Alabama, $112.4 million; Georgia, $6.9 million; Illinois, $425,029; Kentucky, $42.9 million; Mississippi, $24.2 million; North Carolina $2.6 million; Tennessee, $264.8 million, and Virginia, $222,906.