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.
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.
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.
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.
The 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 hydropower—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.
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 by 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.
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.
TVA’s low electric rates and our environmental and economic development efforts drive jobs and investments in the Valley. Eighty-five percent of the top 100 utilities in America charge their industrial customers more for electricity than we do here in the Tennessee Valley.
Competitive industrial electric rates helped TVA attract $6.5 billion in capital investments from businesses who chose to relocate into the Valley and attract or retain at least 53,700 jobs to the Valley in the first part of the current fiscal year.
As for the environment, TVA has one of the lowest carbon footprints among Southeast utilities. Nearly 55 percent of our generating sources are carbon-free, and we are on track to reduce carbon dioxide emissions by 40 percent below 2005 levels by 2020. We have invested more than $6 billion in emission control equipment, leading to the Valley’s best air quality in 30 years.
In addition to economic development and environmental stewardship, TVA’s mission is to provide power at the lowest feasible cost. As a public power provider, we serve the people; we don’t have shareholders. This means every dollar we receive is put back into the business to best serve the people of the region.
Rest assured, this management team watches costs and rates carefully. I want you to be confident that when you pay your power bill each month, you know TVA is using your money as judiciously and wisely as possible.