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The Tennessee Valley Authority building (TVA) is lit Wednesday, Nov. 2, 2016.
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Flat Effective Wholesale Rate

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What’s next?

The TVA board will vote on the fiscal 2020 budget and adopt its rates for next year at its Aug. 22 board meeting at TVA’s West Tower Knoxville headquarters. A public listening session at the same place is scheduled at 3:30 p.m. on Aug. 21. The fiscal year starts Oct. 1

The Tennessee Valley Authority is suspending its plans to boost electric rates next year, and its new CEO is pledging to try to hold the line on the price of power for the next decade.

Jeff Lyash, who became president of TVA in April, said the federal utility has improved its balance sheet over the past six years and, with ongoing operational improvements, should be able to avoid any wholesale rate hikes — and could even cut some electric rates — over the next 10 years.

Lyash will recommend to the TVA board next week that rates remain unchanged in fiscal 2020 — the first time in six years that TVA will not increase its base rates. The new TVA president also will outline a new 10-year spending plan designed to keep electric prices relatively stable through 2030.

"Our previous debt reduction plan had rate increases planned for four more years, but I think we can set that aside now," Lyash said in an interview with the Chattanooga Times Free Press last week. "What I see here is the ability to be able to deliver a decade of stable rates for the Valley."

Lyash credits his predecessor, Bill Johnson, who now heads Pacific Gas & Electric in California, for helping to shore up TVA's finances during the six years that Johnson headed TVA.

When Johnson came to TVA in 2012, the agency's debt exceeded $28 billion and was increasing close to the $30 billion cap set for it by Congress.

some text Tennessee Valley Authority President Jeffrey Lyash speaks with the Times Free Press from the TVA Chattanooga Office Complex on Tuesday, April 23, 2019 in Chattanooga, Tenn.

"TVA was essentially using debt to finance its operating and maintenance costs, which were in the top quartile of all utilities," Lyash said. "That's not a sustainable position."

Under Johnson, TVA cut annual operating and maintenance expenses by more than $800 million, spent $15 billion on finishing new power plants and cleaning up old ones, and adopted and implemented the first six years of a 10-year plan to cut the debt by nearly $7 billion by 2023.

TVA's operating costs now rank the utility among the top 25% of U.S. electricity producers, but Lyash wants TVA to be among the top 10% in its costs of operations.

"We've made real improvements, but we're not done yet," he said.

Since 2013, when TVA launched plans to cut its debt to below $21.8 billion by 2023, the utility has pared its borrowings by more than 15% to only $23.4 billion in debt as of June 30. With less debt and no plans to build major new power plants, TVA is poised to return to the rate stability it offered its customers through most of its first half century of existence, Lyash said.

TVA customers, who talked with the utility's top leaders last week, welcomed the plans for level rates in coming years.

"We were pleased to hear that TVA felt it had turned the corner on the need for additional rate increases," said Rob Hoskins, executive director of the Tennessee Valley Industrial Committee, the association that represents TVA's direct-served industrial customers. "Our members anticipate that this development should improve their competitive position which supports prosperity in the Valley, including more and better-paying jobs."

Doug Peters, president of the Tennessee Valley Public Power Association, which represents the municipalities and power co-ops that distribute TVA power, said the local power companies support the proposal to the board to both suspend the 2020 scheduled rate increase and adopt a 10-year plan for stable rates.

"These recommendations come just three months into Mr. Lyash's tenure, but they demonstrate he is listening to the needs of the 154 local power companies in the Tennessee Valley, and we find that very encouraging," Peters said.

David Callis, general manager of the Tennessee Electric Cooperative Association, said TVA's wholesale rates comprise most, but not all, of what homeowners and businesses pay each month for electricity, and keeping rates flat will help keep power prices in check.

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Tennessee Valley Rate Competitiveness

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"We are pleased that TVA is listening to our concerns, and we look forward to working with them to provide safe, reliable and affordable energy," Callis said in a statement over the weekend.

TVA's financial condition has rebounded since the government auditors in 2011 warned Congress that the federal utility was in danger of exceeding its $30 billion congressionally set borrowing cap. The Government Accountability Office said TVA initially failed to meet a debt reduction plan proposed in 2006 to cut borrowings by $7.1 billion and was forced to make deeper cuts to bring down its debt.

"TVA's financial condition leaves it with difficult decisions to make in order to meet electricity demand while keeping its debt within the statutory limit," the GAO warned at the time.

But Lyash said TVA has since exceeded its debt reduction targets and, with lower fuel costs and extra hydro generation, its delivered cost of power has remained fairly constant over most of the past decade as cheaper fuel has offset annual base rate hikes.

Among the 100 biggest U.S. electric utilities, the Tennessee Valley Authority had the seventh-lowest industrial rates and the 23rd-lowest residential rates last year, according a report to the agency's board last year.

"We rank pretty well among all utilities, but we're in a tough neighborhood," Lyash said, noting that other southern utilities, in some instances, have lower rates. "Our goal is to be in the top 10% and that's what we're working to do."

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

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