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Staff photo by John Rawlston / The TVA building is seen in downtown Chattanooga.

Cheaper fuel and a leaner staff are helping TVA cut the cost of electricity in the Tennessee Valley.

Despite higher power bills for many homeowners last month due to the July heatwave, the average cost of TVA power in its seven-state region has declined by more than 8 percent in the past five years. Although TVA has adopted nominal base rate increases every year for the past three years — and is likely to do so again when the TVA board meets on Aug. 25 in Knoxville to set its fiscal 2017 budget — the overall price of delivered power has continued to decline.

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TVA rates and headcount

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The drop in natural gas, coal and purchased power costs reflected in TVA's monthly fuel cost adjustments have more than offset TVA base rate hikes and cut the delivered price of power to an average 6.6 cents per kilowatthour — down 2.9 percent from the 6.8 cents-per-kilowatthour price of a year ago and and 8.3 percent below TVA's price of 7.2 cents per kilowatthour in 2011.

"The cost efficiencies we've achieved in the past few years, combined with our diversified power fleet, are keeping power prices lower for our customers," TVA President Bill Johnson told analysts Tuesday during the utility's quarterly financial report. "TVA was able to take advantage of lower fuel prices and lower-price generation sources during the first nine months of the year, resulting in lower fuel and purchased power expenses compared with last year."

A milder winter cut the amount of electricity most consumers used in early 2016, although power sales were more normal in the spring period, TVA reported Tuesday in its quarterly report filed with the U.S. Securities and Exchange Commission.

In the spring period, TVA cut its operating expenses by more than 15 percent from a year ago, which helped TVA to book $291 million in net income in the three-month period — or nine times the $32 million in net income earned in the same period in 2015. So far this year, TVA has cut its fuel costs by $406 million compared with the previous year.

In the three months ended June 30, TVA's operating expenses were down by 15.1 percent, or $339 million, compared with a year ago. The drop in operating expenses more than offset the 3.1 percent decline in revenues due to a drop in electric rates due to the decline in TVA's fuel cost adjustments.

TVA has shifted more of its energy generation from coal to natural gas and nuclear power over the past decade and in the past three years the utility has cut its staff by 15 percent, eliminating 1,825 jobs from its payroll, as part of a $600 million reduction in TVA's annual operating expenses. TVA's current staff of 10,792 is the lowest since 1934, just a year after TVA was established as part of Franklin Roosevelt's New Deal.

TVA's staffing levels are expected to decline even more in the next couple of months in its 3,500-employee nuclear power division.

Johnson said TVA has largely completed the construction and startup testing for the Unit 2 reactor at its Watts Bar Nuclear Power Plant near Spring City, Tenn. Watts Bar was generating more than 700 megawatts of power this week on its way toward 100 percent of its 1,150 megawatt potential later this month. With the $4.7 billion Watts Bar project complete and no plans for any additional major power plants for the next two decades, TVA plans to trim much of the engineering and design staff it has employed to build its seven operating nuclear reactors over three decades.

TVA is offering a week's pay in severance for every year of employment for those who volunteer to retire or resign. Workers had until last Friday to sign up for the voluntary reduction in force, but Johnson said Tuesday it is still too early to talk about how many employees will be leaving TVA this fall.

TVA has cut its staff and is phasing out operations at nearly two dozen coal-fired units to help limit costs and meet federal pollution standards.

"TVA has positioned its generation fleet to benefit from lower fuel prices," TVA Chief Financial Officer John Thomas said. "In addition, TVA's efforts to reduce operating and maintenance costs in recent years are helping us provide the Tennessee Valley with power rates among the lowest in the nation."

Despite the improvement in the spring quarter, however, TVA's net income for the first three quarters of the current fiscal year was still below last year's results. For the first nine months of its fiscal year, TVA power sales were down 5 percent from a year ago due to the milder winter this year compared with the record-setting cold temperatures in 2015. As a result, net income so far this year for TVA totaled $572 million, down $37 million from the same period a year ago.

"Even though the Tennessee Valley experienced a warm spring, it was not enough to offset a very mild winter in terms of revenue," Johnson said.

Johnson said with consumers replacing incandescent light bulbs and old furnaces, dryers and air conditioners with LED lights and more energy-efficient appliances, household demand for electricity is stagnate, or in some instances, declining.

"Most of the decline we've seen in power sales this year is weather related, but there is a long-term trend of declining usage due to energy efficiency," Johnson said. "We've seen essentially flat loads over the last five years and we don't expect to see a lot of growth over the next decade."

The completion of Watts Bar Unit 2 will add enough generating capacity for about two cities the size of Chattanooga. That should be sufficient for TVA's power load for the next two decades, according to TVA's long-range power forecasts.

Once it is declared commercial later this year, TVA will begin to amortize what it has spent on Watts Bar since construction began in 1973. That could push up the average cost of power, but not significantly, Johnson has said.

The $4.7 billion price tag to finish Watts Bar Unit 2 over the past seven years was more than originally forecast but still less than half the cost of other new nuclear reactors being built in Georgia and South Carolina.

TVA also is building new natural gas-fired facilities at the Paradise site in Kentucky and the Allen site in Tennessee, and clean air equipment at TVA's Gallatin, Tenn., fossil plant.

The Paradise project is approximately 75 percent complete and is expected to be online in the spring of 2017. TVA plans to install two selective catalytic reduction ("SCR") devices at its Gallatin coal plant by next spring and install the final two SCRs in the fall of 2017.

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

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