TVA Announces Fuel Cost Decrease in January 2009

Because the fuel cost adjustment is a per kilowatt-hour charge, the amount that consumers will save depends on the amount of energy they use.  While savings will vary across the Tennessee Valley, residential consumers can expect a decrease ranging from about $4 to $8 in their monthly power bills. 
“We are glad for the relief this decrease will bring to rate payers across the Valley,” said TVA Chief Financial Officer Kim Greene. “Recent reductions in purchased power and natural gas prices have helped reduce our actual costs and forecast for the second quarter of 2009.  Unfortunately, coal prices remain
significantly higher than they were a year ago, and sustained drought conditions across the Tennessee Valley have cut TVA’s hydro generation by more than 50 percent, preventing TVA’s fuel costs from dropping further.”
Greene said economic conditions led to a decrease in wholesale power sales July through September, which also helped lower the FCA by reducing TVA’s reliance on its most expensive power sources.  About 60 percent of TVA’s power supply comes from fossil fuels – primarily coal, along with oil and natural gas.  When fuel prices increase, TVA’s cost to produce electricity for the 9 million consumers across the seven-state Valley region increases as well. 
Overall, the decrease represents about a 6-percent reduction on total average wholesale rates, and is a 25-percent reduction from the current quarter’s FCA amount.  The second quarter FCA will decrease from 1.8 cents per kilowatt-hour to just over 1.3 cents per kilowatt-hour or 1.329 cents.  
TVA began using a fuel cost adjustment mechanism in October 2006 after experiencing a spike in fuel costs caused by Hurricanes Katrina and Rita.  Utilities across the country use such mechanisms to help recover the costs they must pay for fuel and purchased power.  The adjustment is part of consumer power bills and can go up or down, depending on quarterly increases or decreases in these costs.