TVA rates drop, debt increases

PDF: TVA budget proposal for 2011

The rain and snow may have been a hardship for some Chattanoogans over the past year, but it is helping to cut what they pay for electricity.

The Tennessee Valley Authority, flush with 45 percent more generation from its rain-swollen hydroelectric-producing dams, cut its power rates Monday for the eighth time in the past year. In Chattanooga, EPB spokeswoman Lacie Newton said the fuel cost adjustment should save the average household about a dollar in February compared with what consumers would have paid under the previous rate schedule.

TVA President Tom Kilgore said the abundance of hydro generation -- TVA's cheapest power source -- and the recession-induced drop in gas and coal prices have combined to cut TVA rates from the record highs reached during 2008.

"Our hydro generation is like free fuel for us and, combined with cheaper fuel prices, has helped us to be able to lower our fuel cost adjustment," Mr. Kilgore said in January.

Since TVA boosted its rates by 20 percent in October 2008 to respond to higher fuel and operating costs, the utility has cut rates through its fuel cost adjustments eight times to offset nearly all of that increase.

"But we're probably approaching the end of those cuts," Mr. Kilgore said.

At the end of 2009, TVA customers paid 15 percent less for electricity than the average for the 23 neighboring utilities to TVA.

As a federal utility, TVA enjoys the ability to borrow at lower rates than most investor-owned utilities. TVA disclosed in the federal budget released Monday that it plans to boost its debt and debtlike obligations by $779 million next year to pay for new power generation.

In the White House budget proposal for next year, TVA said it will borrow another $635 million next year for continued construction of a second reactor at its Watts Bar plant and borrow another $916 million for other new generating capacity, including much of the cost of an $810 million gas-fired plant being built at the John Sevier Fossil Plant near Rogersville, Tenn.

TVA plans to complete construction and start power generation at its Watts Bar Unit 2 reactor in 2012.

The fiscal 2011 budget plan released by the White House estimates TVA's total debt obligations, which were at $25.2 billion last fall, will rise to $26.9 billion by September 2010 and to $26.9 billion by September 2011.

TVA's debt is edging closer to the $30 billion cap set for TVA by the U.S. Congress in 1979. But according to the Office of Management and Budget, $2.3 billion of TVA's debt obligations included in the $26.9 billion total involve long-term leases and prepaid power purchase agreements that are not counted against the statutory debt cap.

TVA's long-term debt peaked at the end of fiscal 1996 at $27.7 billion.