Cheaper fuel cuts TVA power bills, but base rate hike expected by October

The Tennessee Valley Authority will cut its electricity charges again next month due to lower fuel and purchased power costs.

TVA said Thursday that its monthly fuel cost adjustment for September will cut the fuel-cost portion of monthly power bills by 7.9 percent from the current month and next month's fuel costs portion of the light bill will be 6.4 percent lower than in September 2014.

Due to higher base rates by both TVA and its local power distributor, however, electricity rates for September in Chattanooga will still be nearly 4.3 percent higher than a year ago.

TVA directors also are expected next Friday to adopt a fiscal 2016 budget that will likely boost TVA rates similar to the 1.5 percent base rate adopted a year ago. TVA is changing its rate structure and setting new base rates as part of its budget plan for the fiscal year that begins Oct. 1.

"We expect there may be a modest rate increase, but we applaud TVA President Bill Johnson for working to control those costs that TVA can and to keep rates as low and fair as possible," said Don Huffman, executive director for the Chattanooga-based Associated Valley Industries, which represents industrial customers across TVA's 7-state region.

During a board meeting scheduled for next Friday in Knoxville, TVA directors are expected to approve a new rate structure to better reflect costs of service and shift a bigger share of costs on to the fixed portion of power bills and for power during peak periods.

Before the new rates and schedules begin in October, however, TVA will cut rates in September, reflecting cheaper natural gas and more abundant hydroelectric generation, TVA spokesman Scott Brooks said.

Brooks said next month's fuel costs will be about 9 percent below the three-year average for September. The drop in the fuel cost adjustment next month is the sixth so far in the current fiscal year and will cut fuel costs to the lowest level since February.

"The decrease is driven by lower forecasted natural gas and purchased power rates than in prior years," Brooks said. "The cost of fuel passed on to TVA customers has remained steady (around 2 cents per kilowatt-hour) this entire calendar year."

Fuel costs comprise about one third of the average electricity bill. The drop in the September fuel cost adjustment is expected to save the typical Chattanooga residential electric users $2.59 next month.

But electric rates in Chattanooga are still up from a year ago due to rate increases by both TVA and EPB in the past year. TVA raised its base rates 1.5 percent on Oct. 1, 2014. EPB added another 3.5 percent to rates on July 1, 2015.

TVA adjusts its rates each month on a portion of its bills to reflect changes in the costs for natural gas, coal, and purchased power.

Jack Simmons, executive director for the Tennessee Valley Public Power Association, said separating the cost of fuel TVA buys from other fixed and operating expenses that TVA better control has helped spur TVA to do more to control some expenses and hold down rates.

Johnson has pushed TVA over the past three years to reduce annual operating and maintenance expenses by $500 million to help bring TVA rates more in line with some of its low-cost Southern neighboring utilities. Johnson has pledged to try to keep TVA rate increases at or below the general rate of inflation each year.

"The important thing in my mind is that we're seeing TVA making fewer and lesser rate increases in the base rates it can control," said Simmons, whose trade group represents the local power companies that distribute TVA-generate power across the Tennessee Valley. "It's easy to take TVA's fuel bill, which is huge, and start disguising inefficiencies or higher costs. I think most of our members are happier now that we've separated the base rates that TVA can control from the fuel expenses that they can't do as much to control and now can pass along, as needed."

Fuel is about one third of TVA's expenses. Natural gas futures for October delivery dipped Thursday to $2.87 per million BTU. A year ago, the price for a million BTUs was around $3.90.

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