Electricity rates in the Tennessee Valley could jump this fall by more than 15 percent because of the rising costs of coal and the lingering effects of the drought.

TVA President Tom Kilgore said today that power rates for most consumers will increase for the third time this year on Oct. 1 under the automatic fuel cost adjustment made every three months by the federal utility.

In a briefing for reporters today, Mr. Kilgore said TVA is still calculating how much of a fuel-cost adjustment it will add to consumer rates in October. But similar to other utilities, TVA is looking at a possible rate increase from 15 percent to 22 percent. That will be the biggest rate hike for TVA consumers since the utility added its quarterly fuel-cost adjustment program two years ago.

Staff File Photo by Tim Barber
Steam rises from three separate stacks at the TVA Widows Creek coal fire power plant near Bridgeport, Ala. Due to increased cost of production and rising fuel costs, TVA is expected to raise rates by as much as 15 percent in October.

Mr. Kilgore said spot coal prices have more than doubled so far this year and natural gas prices on the spot market are up 65 percent since December 2007.

“Prices are not just going up they are skyrocketing,.” Mr. Kilgore said. “When supply and demand gets out of balance, prices go up and that is what is happening.”

About two thirds of TVA’s power is fueled by fossil fuels hit by the higher fuel prices. TVA has limited some of the impact with long-term contracts and hedge pricing contracts. But if prices don’t come back down over time TVA is going to have to pay higher fuel costs.

TVA is being hit by the same forces as other U.S. electric utilities also raising their rates, Mr. Kilgore said.

Georgia Power Co., for instance, raised its rates by $222 million, or $2.93 a month for the typical Georgia electric user, to offset forecasted fuel prices for the next fiscal year and to recover fuel costs that have been undercollected in the past year. Alabama Power Co. is asking the Alabama Public Service Commission for a similar rate increase due to rising costs for coal and natural gas.

TVA also is being hit by a 3-year-old drought, which has cut production of hydropower from its 29 power-generating dams. To replace hydro power -- TVA’s cheapest power source -- TVA is spending about $3.3 million a day to buy power this year, Mr. Kilgore said.

Read more in tomorrow’s Chattanooga Times Free Press

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