Price of power drops in the Tennessee Valley

Price of power drops in the Tennessee Valley

Cheaper fuel, leaner staff pare TVA electric rates

September 29th, 2017 by Dave Flessner in Business Around the Region

The John Sevier Combined Cycle natural gas plant near Rogersville, Tenn., replaced TVA's aging coal plant and helped cut TVA fuel costs. TVA estimates its fuel costs for its electricity have dropped from 2.4 cents per kilowatt-hour five years ago down to 1.9 cents per kilowatt-hour today.

Photo by Contributed Photo /Times Free Press.

Shifting power at TVA

In the past five years, TVA has cut its annual fuel bill from about $4 billion to $3 billion by:

* Shutting down 4,500 megawatts of coal-fired generation

* Adding 3,000 megawatts of natural gas generation

* Adding 1,200 megawatts of nuclear power

Source: TVA

Power rates are going up in the Tennessee Valley on Sunday, but cheaper fuel costs are offsetting the base rate increase by the Tennessee Valley Authority for fiscal 2017, cutting the effective price of electricity in Chattanooga by 4.4 percent next month compared with a year ago.

TVA is raising its wholesale base rates by 1.5 percent, effective Sunday, to help generate another $195 million for the federal utility in the next year. But the fuel cost portion of electric bills continues to drop and will offset the higher base rates to keep power rates at the lowest September level since 2012.

"We've been adjusting our base rates each year to pay for our capital plan and debt reduction, but we have more than offset those increases with the reductions we've achieved in our fuel expenses," TVA Chief Financial Officer John Thomas said Thursday. "As a result, our wholesale costs have declined in the past five years by about 2 percent (from an average 6.9 cents per kilowatt-hour down to 6.7 cents per kilowatt-hour) even while we have invested $16 billion in capital improvements and paid down on our long-term financial obligations by a billion dollars. I think it's been outstanding what we've been able to achieve in making our rates more competitive."

Adjusted for inflation, TVA rates are nearly 9 percent cheaper than they were prior to 2013 when Bill Johnson was named TVA's CEO and developed a 10-year plan to control TVA costs and rates while improving the utility's balance sheet.

Cheaper power bills

For the typical Chattanooga household that uses 1,295 kilowatthours of electricity, EPB’s monthly bill will be:

* $137.77 for October 2017

* $135.89 for September 2017

* $142.10 for October 2016

Source: EPB, TVA

TVA has also improved it relative ranking for the price of electricity among similar utilities. For residential and commercial customers, TVA has moved up from the 37th lowest among the top 100 utilities to No. 30 in price today, Thomas said. Among the 19 utilities in the Southeast that surround TVA, the federal utility had the 12th highest rates five years ago and now has edged into the better half of utilities for price, ranking No. 8 for residential and commercial power users.

The gains were even more impressive for industrial customers, especially those who take advantage of TVA's interruptible power or time-of-day pricing options

Since 2013, TVA moved up from the fourth lowest to the second lowest in the Southeast and improved from 21st lowest to 11th lowest among the top 100 utilities for its industrial rates.

"I think this is what has had a tremendous impact on the economic development success that we've had in the Valley with record years for new investment in each of the past three years," Thomas said.

TVA has been named by Site Selection magazine as a top utility for economic development for 12 consecutive years.

TVA officials said about half of the cost reductions in fuel have come from rebalancing its generation fleet away from coal and more toward natural gas and nuclear, which use cheaper fuel.

Over the past five years, TVA has shut down about 4,500 megawatts of coal-fired generation by shuttering coal-fired units at its John Sevier, Widows Creek, Colbert and Paradise fossil plants in Alabama, Tennessee and Kentucky. Within the next year, TVA will idle more than 1,100 megawatts of additional coal-fired generation at its Allen and Johnsonville plants in Tennessee.

While shifting away from coal, TVA spokesman Scott Fiedler said the utility has spent $16 billion over the past five years in capital spending to finish its Watts Bar Unit 2, build new combined cycle natural gas plants at John Sevier, Allen, Paradise and other sites, and to install pollution improvements and transmission upgrades across its seven-state region.

The other half of the fuel cost reductions have come through improved productivity of the plants it operates by limiting outage and boosting output, Thomas said.

TVA has cut its workforce by more than 2,000 jobs and trimmed annual operating expenses by about $800 million.

Even with more than $3 billion a year of capital spending, TVA also has managed to trim its long-term debt obligations from $27 billion in 2013 to $26 billion today, including a statutory debt of about $24 billion. (Congress caps TVA's borrowing authority at $30 billion).

Thomas said with no baseload power plants being built, TVA should reduce its debt to $21.8 billion by 2023.

"The first five years of our long-range plan was about reducing costs, which we did by taking out $1 billion a year out of our fuel costs and another $800 million a year out of O&M (operations and maintenance) expenses," Thomas said. "The next five years is where you will see more debt reduction because we will be spending less in capital for large construction projects."

The fuel cost portion of TVA's bill has dropped from about 2.4 cents per kilowatt-hour five years ago to about 1.9 cents per kilowatthour next month.

EPB estimates that the average Chattanooga household will pay about $1.88 more for power in October than they would have paid for the exact same amount of electricity this month due to the TVA base rate increase. But EPB residential customers, on average, should still save $4.33 on next month's power bill compared with a year ago if they use the same amount of electricity, based upon the ongoing drop in fuel cost adjustments.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.