TVA approves 1.5 percent rate increase, boosts pension contribution

TVA approves 1.5 percent rate increase, boosts pension contribution

Utility rates still 2 percent below 2013 levels

August 23rd, 2017 by Dave Flessner in Local - Breaking News

The TVA board, from left, includes Marilyn Brown, Lynn Evans, Richard Howorth, Virginia Lodge and Ronald Walters, along with TVA President Bill Johnson, right.

Photo by Dave Flessner /Times Free Press.

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KNOXVILLE - Electric rates will increase by 1.5 percent in October under a $10.37 billion budget adopted today by directors of the Tennessee Valley Authority.

The rate increase for fiscal 2018 marks the third year in which TVA is raising its base retail rates less than the rate of inflation and will leave rates below where they were five years ago due to a drop in TVA's average fuel costs since 2013.

"This modest rate increase recognizes the need for TVA to continue to to build on the financial and operational performance improvements we have made over the past three years, while still providing an effective retail rate below 2013 levels that remain among the lowest in the region," TVA President Bill Johnson said.

TVA's new rates, which were approved by the 6-member TVA board today in a unanimous vote, will still be 2 percent lower than they were in 2013, TVA Chief Financial Officer John Thomas said. TVA estimates it will be 9th lowest priced utility for retail rates among the top 100 utilities in the country.

The increase, which will generate an extra $195 million of additional revenue, will cost the typical residential customer in Chattanooga that uses 1,292 kilowatt-hours of electricity a month, nearly $2 more on his or her monthly power bill.

The extra funds are helping TVA boost its annual contribution to its underfunded employee pension fund by an extra $500 million above the $300 million TVA has agreed to put in the retirement fund each year. The one-time contribution is designed to help TVA improve its retirement fund, which the U.S. General Accounting Office said earlier this year was $6 billion short of what it needs to meet all of its future obligations. 

 TVA's pension fund is only 54 percent funded since it adjusted downward its expected to rate of return, but Thomas said better earnings and the extra contributions should boost the funding status to nearly 65 percent of the required level by the end of fiscal 2018.

"I believe this will put us in a better position to implement the 20-year improvement plan (for the pension) that we adopted last year," said TVA Director Eric Satz, a member of the finance and rates committee.

TVA also expects to reduce its long-term debt under the new budget, which reduces capital spending after TVA completed its Watts Bar Nuclear Plant near Spring City, Tenn., last year and a new natural gas combined cycle plant in Paradise, Ky.

Thomas said TVA's debt and long-term financial obligations, which was more than $26 billion in TVA's most recent financial report, should drop below $20 billion in another five years. Thomas said.

 "A major focus on TVA's financial health has been to attend to long-term liabilities, especially related to debt and pension," Johnson said.

The TVA president said dealing with the pension and paying down debt "becomes more important as the utility industry faces significant change and uncertainty" in an era in which TVA does not forecast further growth in power demand.

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