By the numbers
* $10.7 billion - Budget for fiscal 2015, down from the $11.2 billion budget in the current fiscal year when cold winter pushed up sales
* $199 million - Increase from 2 percent wholesale rate increase (1.5 percent at the retail level)
* $3.5 billion - Capital budget, the highest in TVA history
* $1.02 billion - Increase in TVA debt
* $500 million - Amount of annual operating expenses cut from TVA's budget compared with three years ago
*$594 million - Projected net income
Source: Tennessee Valley Authority
KNOXVILLE - For the second consecutive year, the Tennessee Valley Authority is raising electric rates less than inflation.
Most consumers may not even notice the higher base rate charge since next month's drop in fuel costs will be even bigger than the planned October price increase.
TVA directors Thursday approved a $10.7 billion budget for fiscal 2015 that will raise wholesale electric rates by nearly 2 percent, effective Oct. 1. For most consumers, the end use price of electricity, when combined with what local power distributors charge, will go up by only 1.5 percent, or about $1.70 per month.
"This is a relatively modest increase, below the rate of inflation," TVA President Bill Johnson said, noting that the consumer price index has grown by nearly 2 percent in the past year. "What is driving this increase is the amount of capital spending we're making to add more capacity and to keep what we have in good condition."
Despite a reduction in spending for operations and maintenance next year, TVA will spend $3.5 billion on new projects in fiscal 2015 -- the highest capital budget in the utility's 81-year history. TVA plans to finish construction on its Unit 2 reactor at the Watts Bar Nuclear Plant, install scrubbers to cut air pollution on its Gallatin Fossil Plant near Nashville and start construction of new natural gas-fired, combined-cycle plants to replace aging coal units at the Paradise Fossil Plant in Kentucky and the Allen Fossil Plant in Memphis.
The capital spending will push up TVA's debt by more than $1 billion next year and boost TVA's total debt obligations above $28 billion -- less than $2 billion shy of TVA's statutory debt ceiling of $30 billion. But TVA expects to reduce its debt in future years once it completes Watts Bar and the new gas-fired plants.
"TVA needs to run its finances so that we don't run into our debt ceiling and make sure we live within our means," said TVA Director Peter Mahurin, chairman of the board's finance committee.
Johnson said the fiscal 2015 budget represents an 18 percent reduction in operating expenses from what TVA spent on staff, maintenance and operating costs only three years ago. TVA is eliminating more than 2,000 jobs by the end of September by not filling vacancies, encouraging early retirements "and not doing some things we want but don't have to do," Johnson said.
One area of cuts by TVA drew criticism from TVA Director Marilyn Brown, although she did agree to vote for the overall 2015 budget. Dr. Brown, a Georgia Tech professor who has studied energy efficiency programs across the country, complained that a 25 percent reduction in TVA's energy efficiency programs next year "is penny wise and pound foolish" because it could limit consumer energy savings and force TVA to build new and more expensive generation in the future.
"Energy efficiency provides a significant benefit to TVA and its customers and I believe this cut is a reflection of a false economy," she said.
But Johnson said TVA will still spend about $100 million on energy efficiency programs, including energy audits, demand-response programs and other incentives to limit energy and demand use of TVA electricity.
"That is more than what many utilities spend," he said, "and all areas of TVA have had to adjust to make do with less money."
TVA Chairman Joe Ritch said the cuts in jobs and energy efficiency "were painful to do but something I think we needed" to help avoid the need for a bigger rate increase.
In the near term, the rate increase in the new budget could be offset for many consumers by the drop in the fuel cost portion of monthly electric bills. In September due to the relatively mild summer and continued low natural gas and other fuel prices, TVA is cutting its fuel costs portion of electric bills by more than 11 percent from the 3-year average for September.
In Chattanooga, EPB estimates residential electric rates will end up dropping by 3.4 percent from August to September because of the lower fuel cost adjustment. TVA spends about a third of is budget on coal, natural gas, nuclear fuel and purchased power. Those fuel costs are adjusted each month based upon what TVA must spend for fuel expenses and purchased power.
The base rate increase planned for fiscal 2015 is the same percentage increase adopted a year ago and follows two previous years without a base rate increase.
But while TVA rates have increased only about half the rate of inflation over the past four years, its industrial rates are still higher than some neighboring utilities -- even with special incentives TVA began two years ago to help lower the rates on direct-served customers.
TVA said estimates by the Energy Information Administration put TVA industrial rates 14th lowest among the 100 biggest U.S. electric utilities.
In the past year, TVA estimates that its Valley Advantage and Valley Commitment programs developed to keep or encourage expansion of existing industries cut overall industrial rates by an average 6.8 percent. Such incentive programs also helped TVA land an estimated $8 billion of new business investment and attract or retain $52,000 jobs.
The recent cost-cutting was applauded by industrial representatives during Thursday's board meeting.
"Rates were trending up at an alarming rate prior to a few years ago and we applaud what TVA has tried to do in recent years," said Matthew Chance, operations manager for sodium chlorate manufacturer Tronox in Hamilton, Miss.
But TVA still needs to do more to compete with some of its neighboring utilities to the south.
Charles Chapman, group manager of energy and reliability at the Dalton, Ga.,-based Shaw Industries, said TVA rates are higher for Shaw than those of Southern Co. or Duke. Shaw operates about 50 plants nationwide, including more than 30 in the Southeast. Three years ago, Shaw moved a plant three miles to relocate from TVA to Southern's territory to save more than 25 percent on its energy costs.
"In the past, TVA had more competitive rates, but we've seen a substantial ebb up over the past eight or nine years," Chapman said. "Bill Johnson has done a great job, but we'd like to see more."
A new survey by Associated Valley Industries of 40 industrial companies served by municipalities and coops in the Tennessee Valley found that TVA rates were above average in the region.
Contact Dave Flessner at email@example.com or at 757-6340.