Tom Kilgore

Electricity users in the Tennessee Valley could get hit with a double-whammy of rate increases in October that may add more than $15 a month to the average homeowner’s electricity bill.

Staff Photo by Tim Barber
Steam rises from three separate stacks into a cold north Alabama sky at the TVA Widows Creek coal fire power plant near Bridgeport in this file photo from December 2000.

Faced with soaring prices for coal and natural gas needed to stoke its power plants, the Tennessee Valley Authority will add its biggest fuel-cost adjustment ever to power bills starting Oct. 1, and utility directors also are looking this week at raising TVA’s base rates.

The combined impact could boost TVA electric rates in the next year by nearly $2 billion across the agency’s seven-state region and drain more than $1 billion out of the Tennessee economy.

“The crunch on TVA and its customers is very, very tough in this economic environment,” said John Van Mol, staff director for the Tennessee Valley Industrial Committee, a Nashville ratepayer group that represents the biggest industrial customers of TVA.

In briefings with TVA distributors and major industrial customers last week, TVA officials estimated that the quarterly fuel allowance will boost rates about 17 percent this fall for most customers. The rate increase is in response to coal prices, which have more than doubled, and natural gas prices, which are up by more than 60 percent this year.

But even that rate hike may not be enough to keep an adequate cash flow for TVA, agency officials said last week in briefings with distributors and major customers. TVA is having to spend more for fuel inventory and for hedge contracts to limit future fuel-rate increases, and those growing costs are not included in the quarterly calculation of TVA’s fuel-cost adjustment, according to those who were at the meetings.

TVA directors will gather in Knoxville today to consider how much, if any, in a base-rate increase to add to the projected 17 percent fuel-cost adjustment, effective Oct. 1. The TVA board will vote on its fiscal 2009 budget — and a possible base rate increase for next year — in a meeting at TVA’s headquarters in Knoxville on Wednesday.

“The budget and rate adjustments are on the agenda for Wednesday, but no decision has yet been made,” TVA spokesman Gil Francis said Monday.

Jack Simmons, president of the Tennessee Valley Public Power Association in Chattanooga, said Monday that the fuel-cost adjustment “is going to be fairly substantial, and I think at this point the jury is still out if there is also going to be an increase in base rates or not.”

Regardless of the amount of any base-rate increase, the dollar value of the pending fuel-cost adjustment is likely to make the Oct. 1 increase in rates the biggest in TVA’s 75-year history.

Tennessee electricity users consume more than 70 percent of TVA’s power and are projected to pay at least another $1.2 billion in higher rates over the next year under the new rate schedule.

If coal prices don’t moderate over the next year, TVA will be forced to raise its fuel cost adjustments even more in 2009 when existing contracts expire and the agency signs new coal purchase agreements, TVA officials said.

Statewide, the higher TVA rates will put an additional pinch on consumers and the state’s economy, according to Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee.

“Tennessee continues to be hurt by the general increase in energy and food costs, and certainly this kind of an increase in electricity prices is going to be another negative for the economy,” Dr. Fox said.

One of Tennessee’s most abundant resources — water — also is in short supply this year. After the driest year on record in 2007, rainfall so far this year in Chattanooga is nearly 9 inches below normal.

The three-year-old drought has cut hydroelectricity production from TVA’s 29 power-generating dams — the utility’s cheapest source of power — to only 48 percent of normal this year, Ms. Herrin said.

Without as much hydro generation, TVA is having to spend an average of $3.3 million a day buying power from other utilities and power producers, according to TVA President Tom Kilgore.