Fuel and purchased power expenses jumped by more than 50% in the first quarter of the fiscal year for the Tennessee Valley Authority, pushing up electricity prices as the winter heating season began by 11% to the highest rate in three years.
In its quarterly financial report for the three months ended Dec. 31, TVA said the price of natural gas late last year was up 92% from the previous year. The jump in natural gas prices, combined with higher prices for coal, boosted TVA's costs of fuel and purchased power by $260 million in the final three months of calendar year 2021 compared with the depressed levels a year earlier during the pandemic slowdown.
TVA expects winter heating bills this year for electric-heated homes to average $5 to $15 more than last year for the typical homeowner, but such increases are well below the projected 30% increase forecast by the Energy Information Administration for homes heated with natural gas. Only about 40% of TVA's power is derived from the burning of fossil fuels affected by the recent jump in fuel prices.
"The average spot price of natural gas was 92% higher in the first quarter than a year ago, but 59% of TVA's power came from nuclear, hydroelectric and renewables – resources that do not fluctuate with fuel prices," TVA Chief Financial Officer John Thomas said in a report released Tuesday. "That is a powerful advantage that helps insulate our customers from such volatility and keeps costs more stable."
While TVA increased its fuel cost adjustments this winter to compensate for the higher fuel expenses, the utility's base rates were unchanged from a year ago and TVA continued its pandemic relief program for the local power companies that distribute TVA-generated power in the seven-state Tennessee Valley. Even with the jump in its fuel cost adjustments in recent months, TVA's delivered price of power was comparable to what it was nearly a decade ago in 2013 at about 6.9 cents per kilowatt-hour.
TVA has pledged to keep its base rates unchanged for the next decade and its fuel cost adjustments are decreasing as TVA moves away from the burning of fossil fuels with plans to phase out all of its coal-fired generation by 2035.
In spite of the price hikes at the end of last year, TVA President Jeff Lyash said TVA power prices are below most of the nation.
"Our consumers served in the areas served by TVA and its local power companies pay lower rates than 80% of the nation," Lyash said during an earnings call Tuesday.
But Democratic Congressional leaders claim TVA isn't doing enough to help hold down energy costs, especially for many low-income households where home insulation and energy efficiency measures are not in place. TVA has cut back its budget for energy efficiency, although it continues to help fund the Home Uplift program and other energy assistance targeted in low-income neighborhoods.
The Democratic leaders of the House Energy and Commerce Committee and three of its subcommittees sent a letter to Lyash last month expressing concerns "that Tennessee Valley residents pay too much for electricity, which particularly impacts low-income households in Tennessee." The Democratic lawmakers want TVA, the nation's biggest public utility, to do more to encourage energy conservation, hold down costs and decarbonize its power generation.
TVA plans to formally respond to the Congressional letter on Wednesday, but Lyash insisted Tuesday that TVA's power is getting cleaner, greener and more reliable than most of the country and that is helping to attract new industry into TVA's seven-state region. In the final three months of 2021, TVA recorded one of its best quarters ever for economic development, luring another $5.1 billion of new business investment that is projected to add 24,500 jobs in the future.
"We had great success in keeping energy costs low and stable while helping to attract or retain a record-setting number of jobs for our region, even while dealing with the continuing pandemic recovery," Lyash said in a statement Tuesday. "Even during periods of fuel cost volatility, our customers benefit from TVA's diverse power system and the rate stability made possible by our strong results."
Economic growth in the Tennessee Valley and the migration of more workers to the region helped keep power demand up even with milder temperatures at the end of last year. TVA said December 2021 was one of the mildest Decembers on record and resulted in 16% fewer heating degree days than the same period of the prior year. But the weather impact was largely offset by increased economic activity and extra power demand from more factories, schools and businesses being open compared with the previous year.
Degree days measure the difference between the average daily temperature for that date and what the actual mean temperature was on that date. Because temperatures were relatively mild in December 2021 compared with the previous year, demand for electricity to power furnaces and other heaters was less in the past quarter than a year ago.
TVA's net income in the first fiscal quarter dropped from $184 million last year to $11 million this year. The decline was primarily due to TVA's decision to increase its depreciation expenses on its remaining coal plants after its decision last year to phase out its remaining coal generation by 2035. Depreciation and amortization expenses increased by $132 million because TVA is accelerating its schedule to shut down its Kingston, Bull Run, Cumberland, Shawnee and Gallatin coal plants over the next 13 years.
From its 2005 peak, TVA has already cut its carbon emissions by over 60% and is on pace to reduce carbon output by 70% by 2030 and by 80% by 2035. The federal utility has set what Lyash called "an aspirational goal" to be carbon-free within the next three decades. But Lyash said achieving that target while helping to electrify transportation and other industries will require new technologies for carbon sequestration, new nuclear generation or improved energy storage to accompany more wind and solar power production.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.