Sixty-nine percent of the top 100 utilities charge more for electricity than we do in the Tennessee Valley. Why? Here’s the lowdown from TVA Chief Financial Officer and Executive Vice President John Thomas.
TENNESSEE VALLEY-After a mild winter, the southern summer heat is in full force across the Tennessee Valley. Rising temperatures mean your air conditioner is running more and electricity must be used wisely to avoid electric bill sticker shock. To understand how TVA affects power rates, we caught up with TVA’s Chief Financial Officer and Executive Vice President John Thomas to get his thoughts. Here’s what he had to say.
Why do power bills increase during the summer?
The simple answer is Mother Nature. When the thermometer rises in the Valley, electricity usage increases as more power is used for air conditioning, as well as for running all the appliances and devices in our homes and businesses.
Electricity is just like any other commodity; prices fluctuate on an hourly basis. That’s why our team looks at the power prices 24 hours a day, 365 days a year, to make sure we are getting the best deal to keep your power bill as low as possible. Electricity prices change mainly due to two factors: the type of generating source used and the cost of fuel.
Generating Source
Each TVA power plant has a different cost structure that is appropriate for the amount of electricity we need in the Valley. That is why TVA has a diverse generating portfolio—to manage cost changes. We use a mix of hydro, nuclear, coal, natural gas, solar, wind and biomass to generate electricity. Our power plants can generally be categorized by their use as shown below. As demand increases—or “peaks”—the system needs are met with assets that are higher in operating costs.
Peaking Resources—Highest operating costs; designed to be used only when loads are highest and other resources are already committed. Example: combustion turbine natural gas plants
Intermediate Resources—Moderate operating costs; has the ability to “swing” with changes in load. Examples: smaller coal plants or combined cycle natural gas plants
Baseload Resources—Lowest overall operating costs; designed to remain online virtually around the clock. Examples: nuclear power plants and hydro power plant
The Fuel
Cost price of fuel to generate electricity is another factor affecting electricity prices. Fortunately, our diversified generating portfolio helps us reduce the impact fuel has on costs by allowing us to switch between fuel sources to take advantage of market situations. This year, the drought is affecting our ability to generate hydro power—our lowest cost energy. So that means we are using more natural gas and coal, which have higher costs. Our diverse portfolio helps us flex between highest- and lowest- cost generating sources to keep rates as low as possible.
What effect does TVA have on power bills?
For the past three years, TVA’s base rate increases have been equivalent to 1.5% of retail rates per year—near the cost of inflation. We’ve accomplished this through reducing costs by $600 million over the past three years. Moving forward, we’re keeping our operating budget fairly flat, even as we make huge investments in our facilities and new generating assets.
To ensure these cost controls are sustainable, we must continue investing in our assets. Over the next three years, we will invest $2 to $3 billion per year to make sure that when you flip the light switch you have safe, clean, reliable electricity. And, we are doing this without increasing our operating budget.
How do Tennessee Valley electric rates rank among other parts of the country?
Tennessee Valley Authority has some of the lowest electric rates in the country. Sixty-nine percent of customers of the top 100 utilities in the United States pay more for electricity than we do. Right now, our retail rate for electricity is about 9 cents per kilowatt hour.
To put what electricity costs you into perspective, the Department of Energy says that 9 cents worth of electricity allows you to watch about six hours of TV or play a computer game for around 12 hours. Think about everything that is running in your home: if you kept it all on, your bill could add up over the full month—especially if you’re running the air conditioner around the clock.
Media Release/Scott Fiedler
Public Relations & Corp. Info.
Tennessee Valley Authority
