TVA Likely to Boost Rates 6 Percent to 9 Percent in 2008

By Dave Flessner, Chattanooga Times/Free Press, Tenn.

Sep. 28–HUNTSVILLE, Ala. — The cost of electricity will increase again next year in the Tennessee Valley under a $9.7 billion budget adopted Thursday by the TVA board.

Tom Kilgore, president of the Tennessee Valley Authority, said he expects power rates probably will rise between 6 percent and 9 percent next April. The specific amount and timing of the increase still must be worked out after discussions with TVA distributors, Mr. Kilgore said.

More money is needed for TVA to buy higher-priced coal and purchase power and to finance construction of both another nuclear reactor and a new gas-fired turbine, Mr. Kilgore said.

“We’re trying to get off this roller coaster and paying everybody else for our power,” he said.

TVA’s costs for purchased power from other utilities and generators have doubled in the past three years, Mr. Kilgore said. To meet its growing demand, TVA directors on Thursday voted to construct a combined-cycle gas plant near Brownsville, Tenn., in the next three years and authorized a license application to build a new type of nuclear reactor at the Bellefonte Nuclear Plant site as soon as 2016.

The fiscal 2008 budget adopted by TVA doubles the capital budget from the current year, providing $423 million to build and buy more gas-fired plants and $317 million for the first part of a five-year program to finish a second reactor at the Watts Bar Nuclear Plant. TVA also is increasing what it spends on its transmission network to $190 million next year and making another $383 million in investments in air pollution controls on its coal plants.

The extra TVA generation was endorsed Thursday by TVA distributors and Alabama political leaders.

Jack Simmons, president of the Chattanooga-based Tennessee Valley Public Power Association, applauded the decision to move ahead with reactors at both the Watts Bar and Bellefonte plants.

“TVA is already in a deficit capacity position, and we think that Bellefonte will be a good, reliable and economical way to fill that gap,” he said. “Nobody likes a rate increase, but there are two parts of the public power mission — low costs and reliability. And to maintain that reliability, you’ve got to build more capacity and that has a cost.”

U.S. Sen. Jeff Sessions, R-Ala., sent a message to the TVA board Thursday in support of TVA’s application planned next month for the first combined operating licenses from the Nuclear Regulatory Commission for the AP-1000-design reactors at Bellefonte.

“This project has the overwhelming support of the community as well as local and federal officials,” Sen. Sessions said.

If the NRC grants a license for the new type of plant design at Bellefonte as expected by 2012, TVA could build the one of the new reactors as soon as 2016 and the other reactors two to three years later, according to TVA Senior Vice President Ashok Bhatnagar.

TVA projects it will sell 2.5 percent more electricity in the fiscal year that begins Monday. To help stem some of the continuing growth in electricity consumption, TVA’s new budget also allocates $22 million to establish a new business unit to study ways to encourage conservation.

“We want to look at the best way practices for demand-side management,” TVA Executive Vice President Ken Breeden said.

By next October, TVA hopes to introduce more time-of-day pricing schemes to discourage power usage during peak periods of the day, Mr. Breeden said. But the rate increase planned in fiscal 2008 will be across the board for all consumers, he said.

For the typical Chattanooga homeowner, such a rate increase would boost power bills by $5 to $7 a month, TVA spokesman John Moulton said. Next year’s rate increase comes after EPB already raised Chattanooga electric rates in July by nearly $4 a month for the typical residential customer. A fuel cost adjustment from TVA will boost the monthly light bill for the average Chattanoogan by a similar amount again on Monday.

Since 1985, TVA rates have risen by more than 53 percent. But adjusted for inflation, electric rates in the TVA region still are about 20 percent lower in real dollars than they were in 1985. Mr. Kilgore said Tennessee now ranks 12th among the 48 states for the lowest cost retail electric rate and third lowest among the nine major utilities in the Southeast.

“We might move closer to the middle of that pack with this increase,” Mr. Kilgore said.

But TVA’s strategic plan suggests that any rate increase next year should be the only base rate increase in the next decade and that over time TVA rates should be in or near the cheapest quartile among all electricity utilities, he said.

TVA also adjusts rates every three months based on the costs of the coal, nuclear, natural gas and purchased power it must use to generate or buy power. In the past year, TVA has increased its fuel cost adjustment each quarter, but Mr. Breeden said the fuel cost adjustment could drop prices slightly in January before the base rate increase later in the year.

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