TVA Approves Small Rate Increase, Budget

KNOXVILLE, Tenn. ― The Tennessee Valley Authority board of directors approved today a $10.7 billion budget for fiscal 2015 that achieves a sustainable $500 million savings in operations spending and a record $3.5 billion in capital investment in generating plants and system improvements.

“This budget reflects our continuing efforts to reduce our O&M spending while modernizing and diversifying our generating fleet with cleaner and more efficient technology, continuing our stewardship activities, and growing jobs and capital investment in the region,” TVA President and CEO Bill Johnson said.

Even with the $500 million reduction in O&M spending, a small rate increase is necessary for new power capacity and environmental enhancements. This will ensure TVA’s power system meets the current and future needs of the 9 million residents of the Tennessee Valley.

The budget contains a 1.5 percent rate increase, slightly below the rate of inflation in the Consumer Price Index, amounting to about $1.70 more a month for the average Valley resident using 1,000 kilowatt-hours a month. The increase will take effect with the FY2015 budget year that begins Oct. 1, 2014.

“We have carefully considered the impact this might have on our customers and the businesses, industries and people of the region,” said Johnson. “This small rate adjustment – in addition to our internal cost reductions – is necessary to meet revenue requirements for 2015.”

TVA reduced its debt by $1.2 billion in FY2014 while continuing to invest in its power system to deliver reliable, lower-cost and cleaner electricity. The 2015 capital budget includes about $1 billion in base capital to fund continued operation of current assets, with the rest funding the completion of Watts Bar Nuclear Unit 2, a new gas plant at Paradise, environmental controls at Gallatin Fossil Plant, new generation at Allen Fossil Plant, significant transmission work, and other items.

As part of TVA’s efforts to move to a more diverse, flexible and cleaner generation fleet, the board approved replacing the Allen coal-fired plant with a new combined-cycle gas plant (link to Allen Press Release). Under TVA’s 2011 Clean Air Agreements with the Environmental Protection Agency and others, TVA must either retire the Memphis-area coal plant or put on environmental controls by December 2018.

“Replacing the existing plant with a gas unit is more economical than retrofitting it with environmental controls,” said Johnson. He cited the age of the existing plant, the cost of complying with existing or foreseeable environmental regulations, and the uncertainty of the cost of future regulation as reasons for choosing an alternative technology at Allen.

TVA considered a range of generation sources for the site, including wind, solar, biomass, and various natural gas configurations. “The gas combined-cycle option was the best match to TVA’s statutory standards that call for us to achieve the lowest system cost, and deliver power reliably at the lowest feasible cost to consumers, while also meeting system-wide needs,” Johnson explained.

During Johnson’s report to the board, he touched on several topics including TVA’s continued emphasis on cleaner energy sources, stewardship and economic development. As of 2013, nearly half of TVA’s electricity was from clean energy sources and carbon emissions are more than 30 percent below 2005 levels. Last fiscal year, 16 percent of TVA’s power supply came from renewable energy sources including solar, wind and hydro.

“As we achieve top quartile in industrial rates in the Valley, we’re seeing record capital investment of nearly $8 billion dollars,” Johnson said. This has helped create and retain 52,000 jobs so far this year and helped foster economic opportunity across the region.”

The Tennessee Valley Authority is a corporate agency of the United States that provides electricity for business customers and local power distributors serving 9 million people in parts of seven southeastern states. TVA receives no taxpayer funding, deriving virtually all of its revenues from sales of electricity. In addition to operating and investing its revenues in its electric system, TVA provides flood control, navigation and land management for the Tennessee River system and assists local power companies and state and local governments with economic development and job creation.