TVA Board Approves Rate Adjustment, $8.7 Billion Budget for 2006
July 22, 2005
Faced with rising costs for fuel and purchased power, the TVA Board today approved a 7.5-percent increase in firm wholesale electric rates along with a 2006 budget that projects total revenues of $8.7 billion.
The 2006 fiscal year budget, approved by TVA Chairman Bill Baxter and Director Skila Harris at a meeting in Knoxville, Tenn., also projects a 16-percent increase in fuel and purchased power costs compared to 2005. The budget includes $340 million to reduce TVA’s total financing obligations and provides $1.6 billion to continue clean air improvements, the restart of Browns Ferry Nuclear Plant Unit 1 and other capital projects.
The percentage of the rate increase in retail prices will vary among TVA’s distributor customers. The wholesale portion of monthly bill increases for distributors’ residential customers with average usage will range from approximately $3.50 to $6.50.
The rate increase is effective Oct. 1, the beginning of the 2006 fiscal year. It is expected to provide $524 million in additional revenue in 2006.
“The Board approved a rate increase two years ago to help fund clean-air improvements for 10 years, but since then coal and natural gas prices have soared, in effect eating into the revenue we gained,” said Baxter. “We can no longer absorb these costs. We need this rate adjustment to pay the rising costs of fuel to run our generating plants, while we continue our aggressive program to improve air quality in the Tennessee Valley.”
Since the beginning of the 2004 fiscal year, TVA’s fuel costs have increased an average of 9 percent a year. TVA’s purchased power costs, which are driven primarily by natural gas prices, have increased an average of 39 percent a year since 2004.
“We have been able to hold increases in our fuel and purchased power costs below the increases in market prices, and we’ve work hard to hold our operating and maintenance costs down,” said Harris. “However, dealing with the rising cost of fuel and purchased power is an industry-wide issue, and most utilities around us have also adjusted rates to recover these costs.”
In presenting the 2006 budget to the Board, TVA Chief Financial Officer Mike Rescoe said TVA management took several cost mitigation measures to reduce expenses for 2006 by nearly $100 million, including reducing operating and maintenance costs by $30 million and cutting capital expenditures by $26.5 million.
TVA expects to reduce total financing obligations by $280 million this year, 24 percent more than projected at the beginning of the fiscal year. The projected amount of statutory debt reduction for 2006 has been increased from $10 million to $200 million with a reduction in total financing obligations of $340 million.
“Our cost-cutting efforts and emphasis on increasing debt reduction are steps in the right direction toward improving TVA’s financial flexibility in the future, but we must continue to thoroughly examine all options to hold down expenses,” Baxter said.
Additionally, the Board has approved a staff recommendation to amortize into income the $3.91 billion investment in the Bellefonte Nuclear Plant over a 10-year period beginning in 2006. This non-cash accounting transaction will amortize the investment at a rate of approximately $391 million a year.
The action will not limit TVA’s ability to use the Bellefonte site in the future. The site is currently under consideration as a future site for a new advanced technology nuclear plant. Construction on Bellefonte, located near Scottsboro, Ala., was stopped in 1988.
TVA is the nation’s largest public power provider and is completely self-financed. TVA provides power to large industries and 158 power distributors that serve approximately 8.5 million consumers in seven southeastern states.
Media Contact
John Moulton, (865) 632-8048
TVA News Bureau, Knoxville, (865) 632-6000
