Electric rates are heating up with the summertime temperatures.

The Tennessee Valley Authority said Tuesday that it will raise its wholesale power rates in July by another 3 percent, boosting the typical residential electric bill for most Chattanoogans by $2.80 a month, and 2.3 percent at the retail level.

Next month's increase will be the fifth consecutive monthly hike in TVA's fuel-cost adjustment, reflecting the end of credits accumulated when fuel prices plummeted during the recent recession.

"Part of this increase reflects the end of the credits we built up last year, and part of it is due to our expectation of higher fuel prices this year during the summer months," TVA spokesman Scott Brooks said.

With the July increase, TVA electric rates this summer will be slightly higher than they were a year ago.

TVA cut its fuel cost adjustment by nearly 25 percent before March when the fuel-cost adjustment began moving higher again after a year of falling prices. TVA also implemented an 8 percent base rate increase last October, although the initial impact of that jump was offset by an 11 percent drop in the fuel-cost adjustment.

Donald Huffman, executive director of Associated Valley Industries, a Chattanooga-based trade group, said any rate increase will be difficult for some commercial and industrial customers in the current economic environment.

"None of us like a rate increase, but we understand that the fuel-cost adjustment passes along the fuel costs that neither TVA nor us can influence in the production of electricity," he said.

Mr. Huffman said industrial rates for TVA are about average in the Southeast, while residential rates remain about 20 percent below the U.S. average.

TVA residential rates are lower because residential customers enjoy most of the benefits of TVA's cheapest generation - hydroelectricity - from 29 power-producing dams.

• 

  UCA signing class

• 

  ASU signing class

• 

  Live blog and list of UA signees

• 

  Signing classes for all Arkansas schools

• 

  Get the latest from Recruiting Guy Richard Davenport

• 

  Video from in-state signees going to UA

The agency adjusts its wholesale rates each month to reflect the actual costs of fuel and purchased power bought by the federal utility compared with budget expectations.

Natural gas and coal prices spiked in 2007, then fell during the recession in the next two years and now are trending higher again as energy demand rebounds, TVA President Tom Kilgore said.

In his quarterly report to the TVA board last month, Mr. Kilgore conceded that TVA's favorable electric rates "are slipping a bit" and may not achieve the relative advantage the agency established in its corporate goal.

Mr. Huffman said he expects the fuel cost adjustment from TVA will rise further in the second half of 2010.

"But hopefully, it will be less of an increase than what we have been experiencing," he said.

Click here to vote in our daily poll: Do you worry about paying your energy bill in the summer?