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Balanced Fuel Portfolio Helps Reduce Ratepayer Costs

With holiday shopping stretching many household budgets, January’s electric bill can be lower because of TVA’s balanced generating portfolio and lower monthly fuel cost.

DECEMBER 19, 2016—TVA announced that its monthly fuel cost has dropped below this summer’s peak. That is good news for consumers as winter temperatures drop and shoppers race to complete their holiday spending.

TVA balances its energy portfolio not only to reduce carbon emissions but to respond to fluctuating coal and natural gas prices to keep customers’ bills as low as possible.

Sustainability Pie Charts

TVA balances its generating portfolio to reduce carbon emissions and manage fuel costs to keep rates low.

According to TVA spokesperson Scott Brooks, TVA’s January 2017 total monthly fuel cost declined five percent month-over-month to 2.143 cents per kilowatt-hour for residential customers served by TVA and local power companies.

The monthly fuel cost is below this year’s summer peak rate of 2.688 cents per kilowatt-hour for residential customers by about 20 percent.

“Just like your retirement portfolio, you avoid putting all of your eggs in one basket if you want safe, reliable returns over the long haul,” says Brooks. TVA applies the same principle to electricity generation. “We want the ability to switch between the cheapest fuels to keep power bills as low as possible.”

Fuel Flexibility

A more balanced fuel portfolio for TVA’s generating assets is providing flexibility—and that enhances TVA’s ability to provide the lowest-feasible cost energy to ratepayers across the Valley. That flexibility is especially apparent this winter season.

Brownsville CT

Pictured above: Brownsville Combustion Turbine Plant in Haywood County, Tenn.

TVA continually monitors fuel prices. This summer, coal was less expensive than natural gas so that meant the utility used more coal-fired plants to generate energy. When natural gas prices started to decline in November (as low as 2.08 dollars per million BTU), TVA increased gas-fired generation.

As December’s cold weather arrived, gas prices rebounded abruptly (to a high of 3.80 dollars per million BTU on Dec. 7) making coal a more favorable fuel. Since fuel costs are a factor in consumer’s monthly bills, TVA’s capability to switch between fuels is good financial news.

Planning for Peaks

There are many factors that enter into generation decisions, not just the price of the fuel, although it is a major contributor.

“It will be an interesting winter for us, since this will be the first year that we have Watts Bar 2 and its generation,” says Greg Nunley, director of Coal Services at TVA. “We’ll probably see all the nuclear units running, plus hydro generation and some gas and some coal.”

Nuclear units run most efficiently when they’re kept at a high output level. That being the case, the 1,150 megawatts that Watts Bar 2 brings to the fleet—enough to power 650,000 homes—will result in less generation from other sources.

“How much we run our plants really depends on the weather,” Nunley explains.

TVA is forecasting a moderate winter. Electricity demand in the Tennessee Valley normally peaks in winter, but with relatively mild weather the utility is not seeing as much energy demand now as in the summer. Nunley says this “means we’ll be running fewer units [coal and natural gas plants] to provide the required megawatts for the system.”

Right Fuel, Right Time

Jeff Avery, director of Natural Gas at TVA, says that coal and gas generation constantly compete for low-cost generation.

”Natural gas pricing tends to change more frequently than coal, which can create volatility,” he says. “We have contracted for approximately 40 percent of the projected natural gas needs for the winter. The balance will be purchased on a day-ahead or monthly basis. This provides us with the flexibility to increase or decrease our needs in order to capture the best economics between gas and coal.”

TVA has plenty of coal on hand to get through this winter, even if that set of plants is called on more than currently anticipated.

“Keeping a balanced energy portfolio and managing fuel costs is all about saving you money on your monthly power bill," Brooks concludes. “Rest assured that we will generate electricity with the right fuel, at the right time, at the lowest cost possible.”