The price of TVA electricity will increase an average 20% in wholesale power rates on Oct. 1. TVA said the increase is needed in order to cover increased fuel costs and related expenses. While amounts will vary across the Tennessee Valley, consumers will see an average increase of $12 to $15 per 1,000 kilowatt-hours.

 “We recognize that the increased costs TVA is experiencing are also driving up costs for the families and businesses we serve,” said TVA President and CEO Tom Kilgore. “The last thing we want to do is tell customers that our product is going up in price, but we have no alternative for paying for fuel.”

Most of the increase, $11.20 per 1,000 kilowatt-hours, will go toward the escalating costs of fuels used to generate electricity. That part of the increase is the quarterly Fuel Cost Adjustment and is necessary to cover dramatic increases in the cost of fuels, particularly coal and natural gas. The Fuel Cost Adjustment portion of the bill is adjusted quarterly, depending on the costs of fuels.

 “We must generate and deliver the electricity that our customers depend on, and we must maintain our generating and transmission equipment so we can continue to provide a reliable power supply,” said Kilgore. “Unfortunately, the cost of providing fuel to operate the power system reliably has increased sharply.”

Price increases for fuel, including coal and natural gas, and purchased power are driving TVA’s costs up by more than $2 billion in FY 2009, compared to FY 2008.

In addition, continuing drought conditions mean that TVA has been able to generate only about half as much inexpensive hydropower this year as it would generate in an average year. When TVA cannot generate that hydropower, it must buy replacement power at market prices. Those power prices are much greater than hydropower costs and were even higher this summer, averaging 63 percent higher than last summer.

The rest of the increase, about $2.05 per 1,000 kilowatt-hours, is an increase in firm wholesale electric rates to cover higher costs in several related areas.

These include the cost of working capital, costs related to fuel inventory that are not covered in the Fuel Cost Adjustment, the cost of reserving power for future purchase to get better prices, and investments in TVA’s work to reduce the rate of growth in the region’s power demand. That effort is designed to reduce the amount of money TVA must invest in the future in additional generating capacity.

One area of cost that is not going up is TVA’s non-fuel operating and maintenance costs, which include labor and administrative costs. TVA is holding these costs essentially flat from 2008 to 2009.

Kilgore urged consumers to go to TVA’s Web site at www.tva.com for information on how they can use energy more efficiently and stretch their energy dollars further.

TVA is working to slow the current rate of growth in the region’s power demand by providing opportunities for residential, business and industrial consumer groups to use energy more efficiently. In the short term, TVA’s goal is to reduce the growth in peak demand by up to 1,400 megawatts – more than the amount generated by one nuclear power unit – by the end of the 2012 fiscal year.

The 2009 budget includes $232 million in clean-air projects to reduce emissions at six TVA coal-burning plants and $325 million in the TVA transmission system. Investments to expand generating capacity total $1.056 billion, including work on Watts Bar Nuclear Unit 2.