Tennessee Valley officials this fall will raise the base electricity rate for the first time in four years, ending a credit program that helped EPB and other local utilities limit rate increases during the pandemic.
Faced with inflation, interest rates and rising electricity demand, TVA directors on Thursday voted to raise electricity prices by 4.5% from 1 October.
Under a $12.5 billion budget plan approved by TVA directors at their quarterly meeting in Chattanooga, TVA’s typical residential customer electricity bills will increase by $3.50 per month. Many local utilities are likely to add more rate hikes after TVA ends its three-year pandemic credit program.
The EPB has already approved a rate increase for electricity customers this fall, which is expected to increase the typical household electricity bill in Chattanooga by about $5 per month. Together, the price increases from EPB and his TVA are expected to increase typical household electricity bills in Chattanooga by more than $8 a month this fall.
TVA’s chief financial officer, John Thomas, said TVA’s wholesale rate hikes would collectively raise an additional $450 million to offset rising inflation, interest rates and electricity demand. . The TVA rate hike was the largest by a federal power company in more than a decade, and officials acknowledged that more rate hikes are likely in the coming years.
The price hike is only halfway through the 10-year period of stable electricity base rates that TVA had hoped. The TVA is raising power prices to reflect rising fuel costs, but the Federal Power Company adopted a long-distance power plan four years ago, and officials at the time said they would cut the base rate for the next decade. expected to avoid a price increase.
“What’s changed is inflation and interest rates, which has driven up costs,” TVA Chairman Jeff Lyash said in an interview. “However, there is also pressure to expand to meet the increased demand that we are seeing and expect to continue to grow.”
In the past, TVA has been able to offset rate increases to keep rates constant. But even as it says it’s doubling down on its cost-containment program, that’s no longer possible, Reich said.
Federal power companies currently pay about 5% on most bonds, despite TVA’s highest bond rating, AAA, Thomas said. TVA has an old bond that matures next year that previously paid interest at 2.875%.
“Our refinancing rates are almost double what they were in the past, and we will also need to lend more to a new generation,” he said.
Thomas said the cost of goods and services has risen about 7% in the past year at TVA, while employee salaries (which TVA has to pay typical wages in the industry) have increased from 4% to 6% in the past year. said to have risen to .
“TVA is no stranger to rising costs, inflation and supply chain challenges,” Reich said at the TVA board meeting.
Base rate goes up, fuel costs go down
While TVA’s base rate has risen, the fuel portion of electricity bills is still below the all-time highs set last summer when fuel prices soared after the Russo-Ukrainian war. With fuel prices falling this year and expected to do the same next year, TVA expects power supply costs, which jumped more than 15% last year, to be about the same in 2024.
“We expect fuel prices to continue to fall next year,” Thomas told the TVA board. “Effective interest rates will be virtually flat.”
(Read more: TVA’s plan to build a natural gas plant sparks heated debate)
Even if the pandemic credit ends and wholesale rates rise, the lower fuel portion of the electricity bill will allow the TVA to lower its effective electricity price this year from an average of 7.61 cents per kilowatt-hour to 7.59 cents per kilowatt-hour, Thomas said. I predict. per kilowatt hour next year.
The forecast for next year’s electricity prices is 15% higher than in 2021, when fuel and electricity costs fell due to the pandemic.
Throughout the pandemic, TVA has provided $680 million in credits to 153 local utilities that distribute electricity, but those credits expire next month.
Doug Peters, president of the Tennessee Valley Public Electricity Association, which represents the local power companies that distribute TVA power to seven state areas, said the growing demand for power has forced the TVA to prioritize resource planning and capital investment to meet power demand. need,” he said. future.
In a statement after the Board voted to raise rates, Peters said, “This economy will have the generation resources it needs to respond reliably, resiliently and sustainably to an increasingly electrified economy. So the TVA needs to raise rates,” he said. “We expected the rate hike to be necessary, but we didn’t expect it to come into effect so soon.”
Peters said he hopes the long-term power forecasts being prepared for the TVA’s new Integrated Resource Plan will set a cost-effective and reliable power strategy through 2050. .
excite the ballet
Electricity demand in the TVA has been relatively stable and even declined during the pandemic, but has increased as gas-powered vehicles are replaced by electric vehicles and the TVA region continues to attract new industries and migrating Americans. has started and is projected to double by 2050.
TVA’s growing demand for electricity will require the utility to build as many new power plants in the next 30 years as it has in its entire history, Riash said. Electricity demand is growing three times the US average, driven by industrial growth and immigration to the Tennessee Valley.
New industries are popping up across the Tennessee Valley, requiring an additional 3,000 megawatts of power, but “there is still a pipeline of future industrial growth,” Riash said.
“It took us 90 years to build the current electricity system,” Riash said. “Over the next 30 years, he will need to double or triple the current system at a rate never seen before in TVA history.”
TVA has invested approximately $25 billion in power systems over the past decade. TVA plans to invest an additional $15 billion in generation expansion and upgrades over the next three years. It is working on a new generation of natural gas generators, small modular nuclear reactors, pumped-storage hydroelectric storage plants and other new generations, Riash said.
Next fiscal year, TVA will increase its capital budget to a record $4.2 billion and will spend $6 billion on utilities in fiscal 2025.
TVA is also budgeting an additional $100 million for programs that provide incentives and assistance to reduce both residential and industrial electricity use. TVA Vice President Buddy Eller said TVA hopes to offset 30% of future load increases through efficiency and maintenance programs.
TVA launched a cost optimization initiative to offset the increased expenses and reduce costs by $950 million over the next three years. But Riash acknowledged that there is “sustained price pressure” that could require additional tariff increases in the future as TVA invests more in building new power plants.
Utility comparison
Even with the tariff hike, TVA’s electricity bill will still be lower than most other utilities, Lyash said. According to the latest data from the U.S. Energy Information Administration, TVA’s service area home power bills are lower than his more than 70% of other power companies. The neighboring Georgia Power Company, owned by Southern Power Company, raised its rates by 12 percent in June.
Utilities in the TVA’s neighborhood have either received approval or have already implemented $6.6 billion in rate hikes from February 2022 onwards, Thomas said.
“Even with this price increase, we believe we will still be in the top quartile (at least 25% of the national electricity price),” Thomas said.
According to Energy Information Administration data, TVA’s industrial rates are in the bottom 10% of all utilities.
Please contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.