Economy slows Tennessee Valley Authority sales

The slowing economy is cutting power consumption in the Tennessee Valley, requiring TVA managers to look at more budget and staff cuts in the next year to keep the agency’s operating costs down, TVA President Tom Kilgore said Wednesday.

Electricity consumption, which had been growing in the TVA region at a 2 percent annual pace from 2001 to 2007, slowed in the past year to only an 0.2 percent gain during 2008. In the next year, TVA forecasters expect power usage to remain flat and perhaps even decline for one of the few times in the 75-year history of the federal utility.

“Obviously, that concerns us, and we’ll have to reduce some costs to match the loss in revenue,” Mr. Kilgore said. “That’s hard to do because we think we’re already getting pretty lean. But the challenges are what the challenges are.”

TVA already is midway through a three-year effort to cut $400 million in operating expenses from its budget, and Mr. Kilgore said the utility may have to make tens of millions of dollars in additional cuts over the next year if power sales continue to slump.

“When things get bad, we have programs identified that we can delay, and we’re certainly watching our staffing levels very closely,” Mr. Kilgore said.

The federal utility has raised its electric prices and boosted revenues in the past couple of years, but most of those increases have gone to pay for higher-priced fuel and increased capital costs for pollution controls and new power plants, TVA officials have said.

TVA boosted its rates by 20 percent on Oct. 1 after smaller rate increases in April and July. Although TVA will cut its rates by 6 percent in January to reflect the recent drop in fuel prices, the higher power rates in the past year already have spurred many consumers to conserve.

Despite higher electricity sales, TVA cut its full-time staff in fiscal 2007 by 587 employees and cut another 429 jobs in fiscal 2008 to reach an employment level of 11,584 as of Sept. 30, according to TVA annual reports.

Most of those reductions have come from leaving vacancies unfilled, and Mr. Kilgore said he expects most future cuts also will come through attrition.

TVA’s experience is similar to other utilities that have raised rates to cover higher fuel expenses and are hit with stagnant or even declining sales as a result.

“We’re in a period where growth is going to be challenged,” Duke Energy Corp. CEO Jim Rogers said recently.

Despite the slowdown in consumption, however, TVA is not backing off either its plan to finish a second nuclear reactor at the Watts Bar Nuclear Plant by 2012 or its conservation program to encourage consumers to limit power consumption during peak demand periods.

TVA plans to spend $649 million in fiscal 2009 and another $681 million the next year toward building the Unit 2 reactor at Watts Bar. At the same time, the agency will spend $99 million in the current fiscal year to provide energy audits and educational programs to help consumers limit their power use in peak periods.

“We think that nuclear power and our energy efficiency programs are still good strategies even in the face of this downturn, because the incoming Obama administration has said they are going to be very concerned about climate change, and nuclear and conservation help us limit our carbon footprint,” Mr. Kilgore said.

Anti-nuclear critics complain that TVA hasn’t done enough to consider alternative energy sources such as solar, wind and other renewable sources. In an 18-page complaint filed this week with the U.S. Nuclear Regulatory Commission, three environmental groups charged that TVA provided incorrect cost estimates about alternatives to proposed new reactors at the Bellefonte Nuclear Plant in Hollywood, Ala.

“TVA’s failure to estimate costs accurately spells trouble for its customers in seven states,” said Louis Zeller, the science director for the Blue Ridge Environmental Defense League, which filed the complaint with the NRC. “We’ve been through enough bailouts already; let’s not continue the nuclear one.”

Mr. Kilgore said the agency carefully is weighing all of its energy options, but the fuel costs at nuclear plants are only a fraction of those at comparable coal or gas-fired plants.

TVA continues to buy nearly 10 percent of the electricity it sells from other fossil-fuel producers, so even without any increased demand, the agency still would benefit from more low-cost generation, he said.