TVA boosts rates as it moves to add more nuclear, gas and renewables, cut coal generation

Cooling towers for Unit 1, right, and Unit 2, left, are shown at the Watts Bar Nuclear Plant near Spring City, Tenn., in this April 29, 2015 photo.
Cooling towers for Unit 1, right, and Unit 2, left, are shown at the Watts Bar Nuclear Plant near Spring City, Tenn., in this April 29, 2015 photo.
photo Cooling towers for Unit 1, right, and Unit 2, left, are shown at the Watts Bar Nuclear Plant near Spring City, Tenn., in this April 29, 2015 photo.

By the numbers

* $10.7 billion - TVA budget for next year* 1.5 percent - Average base rate increase planned next year* 9.03 cents - Average retail price for kilowatthour of TVA-generated electricity, 7 percent less than U.S. median* 5.68 cents - Average industrial price for kilowathour of TVA-generated electricity, 18 percent less than U.S. medianSources: TVA, Electric Information Administration

KNOXVILLE - The average household in the Tennessee Valley will pay about $1.50 more a month for electricity next year as TVA shifts to more nuclear, natural gas and renewable power to replace aging coal plants it is shutting down.

TVA directors on Friday adopted a $10.7 billion spending plan for fiscal 2016 that will raise electricity rates by 1.5 percent. The rate hike, the same as in each of the past two years, will raise an extra $200 million from customers in TVA's seven-state territory.

TVA President Bill Johnson said the rate increase is less than the average of most utilities but still will allow TVA to stick to its plan to reduce debt more than $6 billion over eight years and cut carbon emissions by 40 percent from 2005 levels by 2020 to comply with EPA's new Clean Power Plan requirements.

But even with better profits this year and a projected 1 percent increase in power sales next year, Johnson said higher rates are needed in fiscal 2017 to absorb the expense of adding the first new nuclear reactor to America's grid in the 21st century.

TVA expects to begin producing power later this year at the Unit 2 reactor at the Watts Bar Nuclear Plant in Spring City, Tenn. The plant will generate enough power to serve about 650,000 homes but will add $450 million a year in depreciation and operating expenses. And while it will save about $200 million in fuel costs by replacing other plants, Watts Bar will still add $250 million a year in net new costs in the next year.

"When you put a capital-intensive asset into operation like Watts Bar, your embedded costs go up," Johnson said. "But over the 40 to 60 years this plant will operate, you will generate consistent fuel savings and over the life of the plant, it is a very good investment."

But anti-nuclear activists question the savings from the Watts Bar, which TVA began building in 1973. The twin-reactor plant was originally expected to be built in five years and cost less than $700 million. Instead, the first reactor wasn't finished until 1996 at a cost of more than $6 billion, and TVA has spent another $4.2 billion just in the past five years building the second unit.

Shifting power

TVA’s power plan for the next 20 years will:* Cut coal generation at Widows Creek, Colbert, Johnsonville, Allen and Paradise plants* Build new gas-fired power plants in Memphis, Kentucky* Finish Watts Bar Unit 2, up-rate power output at Browns Ferry, consider small modular reactors* Increase spending on energy efficiency to limit growth in power use* Buy more solar, wind and other renewable powerSource: TVA Integrated Resource Plan

"I don't know how it can be a good deal when a project takes 37 years longer to build than it was supposed to and is more than $10 billion over its original budget," said Stephen Smith, executive director of the Southern Alliance for Clean Energy.

Watts Bar will be the last major baseload plant TVA will build under the 20-year power plan adopted Friday after nearly two years of discussion and analysis. The Integrated Resource Plan doesn't project a need for a major new power plant until after 2033, with power demand growing at the slowest pace in the utility's 82-year history.

TVA is building or buying power from natural gas plants and will buy more solar, wind and other renewable energy over the next decade and cut coal generation.

Environmental groups applauded the move away from coal but urged the utility to do more with energy efficiency and renewables.

"TVA's plan will reduce carbon based on pre-existing commitments to retire coal plants, but with climate effects getting worse nobody can afford to rest on their laurels, let alone the sixth largest carbon-polluting utility in the nation," said Amanda Garcia, staff attorney at the Southern Environmental Law Center. "For the sake of public health, our climate, and electricity bills for families in the Valley, TVA can and should be doing more."

The Integrated Resource Plan will boost spending on promotion of energy efficiency from $104 million this year to $110 million next year and $126 million by fiscal 2018. TVA also is considering such energy-efficiency programs on a level playing field with other forms of power for the first time.

Johnson told the board that efficiency now is about 5 percent of the utility's portfolio, and he expects that to rise to 10 percent by 2025. By that time, the utility projects that 60 percent of its electricity will come from non-carbon-emitting sources, including nuclear and hydro generation.

"We are making significant investments to balance our asset portfolio further in order to keep rates affordable and stable for our customers under a variety of conditions," Chief Financial Officer John Thomas said.

TVA recently bought the Ackerman Combined Cycle Plant in Mississippi - the sixth combined cycle gas-fired facility it has built or purchased since 2007. The utility also has agreed to buy power generated by the first utility-size solar farm in the region. That is being built by NextEra Energy Resources, which plans to build an 80-megawatt facility in Lauderdale, Ala.

The utility also will continue to reduce operating and maintenance expenses. At Johnson's urging, TVA cut more than 2,000 jobs and $500 million in annual operating expenses over the past three years. The new budget calls for another $178 million of operating cost reductions.

"We applaud Bill Johnson and his staff for bending down the cost curve and helping to make TVA rates more competitive," said Don Huffman, executive director of the Chattanooga-based Associated Valley Industries.

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

photo TVA directors, from left, are Pete Mahurin, Mike McWherter, Gina Lodge, Richard Howorth, Joe Ritch, Ronald Walter, Marilyn Brown, Eric Satz and Lynn Evans.

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