NASHVILLE — Electricity users who have had to absorb three rate increases in the past year will get a reprieve in January in what they have to pay for power, TVA officials said Thursday.
The recession-induced drop in the price of natural gas and oil and stabilizing coal prices should allow the Tennessee Valley Authority to lower its electricity prices next year.
TVA President Tom Kilgore told utility directors he is still calculating the potential savings from the recent decline in some fuels used to generate electricity for TVA and other power producers that supply electricity to TVA.
“We don’t know the exact amount yet, and I don’t want to speculate yet,” Mr. Kilgore told reporters following a board meeting here Thursday. “But natural gas prices have fallen below their January levels, and coal prices have stabilized after rising substantially in the past year.”
Mr. Kilgore said TVA expects to announce the amount of its price reduction in electric rates in mid-November.
Natural gas prices on the spot market are now about half of the peak reached this summer prior to the economic slowdown and credit crunch which has helped to cut demand and price expectations for most fuels.
TVA Chief Operating Officer Bill McCollum said coal prices, which more than doubled earlier this year, have stabilized and TVA doesn’t expect coal prices to head higher in the near term.
“There is far less volatility in the price of coal, but we’re no longer seeing the increases that we were earlier in the year,” he said.
Rate and fuel-price cost adjustments in April, July and October by TVA combined to boost electricity prices by nearly 35 percent in the past year for the nearly 8 million residents in the Tennessee Valley who get their electricity from TVA. For the typical Chattanooga household, the three rate increases have added more than $25 to the monthly light bill.
The January price break is expected to offset only a small portion of those increases, officials said. TVA still benefits by long-term contracts for its coal, which fuels nearly 60 percent of its power generation. The spot price of coal, even though it has stabilized, is still priced about 40 percent above the contracted rate TVA pays, Vice President Van Wardlaw said.
Most of the 45 million tons of coal burned by TVA each year is bought under five-year contracts that were priced before the recent run-up in prices.
TVA has been hit in the past year by a perfect storm of rising fuel prices, declining hydroelectricity production and increased peak demand. As a result, the utility has had to buy more of its power from other generators and at higher rates because of the jump in coal and natural gas used to produce most of its electricity.
Mr. Kilgore said the 3-year-old drought has reduced TVA’s cheapest power source — power generated from its 29 hydroelectric dams along the Tennessee River and its tributaries.
Rainfall in the past year was 24 percent below normal, and runoff into TVA’s reservoirs was down by 53 percent below normal.
TVA estimates the lost hydroelectric generation because of the drought cost $568 million in higher costs to buy replacement power, often during the most expensive peak-demand periods.