You may see a line on your power bill referring to Total Monthly Fuel Costs. What is this?
In short, it refers to the cost of the fuel it takes to generate your power—the uranium, coal, oil, and natural gas that TVA must purchase to run its nuclear, fossil, combined cycle, and combustion turbine plants to keep the energy flowing affordably and reliably throughout the Tennessee Valley. It is the cost of the raw materials used to generate electricity.
There are over 100 local power companies in the Tennessee Valley—some choose to have a separate line item on the bill, and others choose to add it to the energy charges or to the total bill. Regardless of how it is displayed on consumer invoices, all customers in the Tennessee Valley pay for the cost of fuel.
Like every other such commodity, the price of these fuels rises and falls through the cycles of the year—impacted by the weather, regional and global economic conditions, supply and demand, etc. As such, the Total Monthly Fuel Cost will vary from month to month, but TVA’s diversified generation mix serves to mitigate significant volatility among commodity fluctuations. There are exceptions to that rule, such as the polar vortex in January of 2014, where severe cold across the country caused the demand for electricity to far to exceed forecasts and therefore anticipated fuel expenses. This fuel cost fluctuation was not a local or regional issue; it was felt across the country.
Since fuel and purchase power constitute a third of TVA’s total budget, and a third of the cost of wholesale power, TVA works hard to manage fuel expenses that ultimately show up on your bill.
These fuels constitute about a third of TVA’s total budget and a third of the cost of wholesale power.
TVA’s mission is to provide rates as low as feasible, so we dispatch our generation fleet based on least-cost principles. Each month, TVA determines the hourly forecast of energy needed and then determines the least cost manner to serve that energy. Recognizing that forecasts are never perfect, there is a true-up mechanism that collects or refunds the difference between the forecast and actual fuel expenses and spreads that difference out over a couple of months. By managing the fuel costs in this manner, TVA is able to remove the volatility of commodity markets and provide a more stable environment for our customers.
Changes in the Total Monthly Fuel Cost can be favorable for the consumer sometimes. For example, 2013 was a good year for ratepayers. Because there was so much more rainfall than normal, TVA was able to increase its rates of hydro production—the cheapest form of generation. And Total Monthly Fuel Costs went down.
Total Monthly Fuel Costs are real costs, but they are only part of your bill. Your bill is impacted by both usage and cost. So by controlling your usage, you control your bill and your cost. You pay for only what you use.
If you’re interested in lowering your electricity bill, consider scheduling an In-Home Energy Evaluation through EnergyRight®, an energy efficiency program brought to you by TVA working in conjunction with your local power company. You may qualify for incentive payments to help you make energy efficiency upgrades in your home.