Tennessee Valley Authority boosts rates 20 percent

KNOXVILLE — TVA electricity rates will jump another 20 percent in October, a move Tennessee Valley Authority officials say is necessary to absorb more than $2 billion of increased costs for coal, natural gas and purchased power in the next year.

TVA directors approved a $12.6 billion budget Wednesday that includes its biggest single-rate increase in more than three decades, reflecting both a fuel-cost adjustment and an increase in TVA’s base rates.

The Oct. 1 rate increase will cost the typical residential electricity user from $15 to $20 extra each month, according to TVA and EPB estimates. Combined with other TVA rate increases this spring and summer, power rates will be up this fall by nearly 35 percent from a year ago and make this fall’s monthly power bills about $25 to $30 more expensive than they were a year ago.

“I don’t like this at all,” TVA President Tom Kilgore said. “The fact is we have to pay our fuel bill, and that’s what is causing all of this increase.”

Bobby Glenn, general manager of a 300-employee Panasonic aluminum foil operation in Knoxville, told the TVA board that the increases will add about $3 million to his plant’s annual power bill and “threatens the very survival of our business.”

TVA is suffering from a 3-year-old drought that has dried up more than half of its hydroelectric generation — its cheapest power source — and from soaring coal prices that have more than doubled in the past year. Natural gas and purchased power costs also are up by more than 60 percent this year, Mr. Kilgore said.

The agency has delayed and lessened much of the impact of soaring coal and fuel prices with five-year purchase contracts signed when prices were much lower. But as those contracts are renewed, coal costs “are not just increasing, they are skyrocketing,” Mr. Kilgore said.

TVA officials said they hope the worst of the rate shock is behind them, but consumers still could see more electricity rate increases in 2009.

“We’re going to continue to see upward pressure in each of the years going forward,” TVA Chief Operating Officer Bill McCollum said. “If market prices stay where they are today, our average price of coal is going to continue to go up as our long-term contracts roll off.”

Under a fuel-cost adjustment program that began two years ago, TVA adjusts its rates every three months based upon what it pays for fuel and purchased power. That fuel-cost adjustment will increase 17 percent on Oct. 1, but TVA directors said that still didn’t relieve all the price pressure for the utility.

Despite an appeal from its biggest customer — Memphis Light, Gas & Water — to delay any base-rate increase, the TVA board voted to add another 3 percent base-rate hike on its 17 percent fuel-cost adjustment to make up for a $375 million shortfall this year.

Jerry Collins, president and chief executive of Memphis Light, Gas & Water, appealed to the TVA board to hold off on the increase to give consumers more time to adjust to the jump in rates from the fuel-cost adjustment. He said that in the past three years, including the new rate increase, the average Memphis residential customer has been forced to pay $43 more a month for electricity than what he or she paid in 2005.

“I’m concerned about the haste with which this has proceeded,” Mr. Collins said, noting that TVA publicly announced the staff’s recommendation for a 20 percent rate increase only minutes before the TVA board adopted the increase. “We have not had adequate time to examine TVA’s proposal in detail and engage TVA in any discussion about possible alternatives to the rate increase.”

But Mr. Kilgore said TVA “would end up getting deeper and deeper in the hole” if it didn’t raise base rates to make up for a $375 million shortfall caused this year by unexpectedly high inventory, gasoline and contract costs not covered in the fuel-cost adjustments.

The higher electricity rates paid to buy fuel from other states will drain more than $1.3 billion out of Tennessee, where 70 percent of TVA’s power is sold.