TVA's PR Coup

So how does TVA reduce electricity rates when they are selling less electricity and owe a billion dollars for ash clean-up, another billion to the pension fund, and hundreds of millions to retrofit coal-burning plants to satisfy a court order? Well, they aren't. It was just another masterful TVA PR coup.

TVA announced last week an increase in its basic rates of 8 percent, but a reduction in its fuel-adjustment charge of 11 percent. So that's a 3 percent decrease in electricity costs, right?

Well, not exactly. Fuel costs are a major component in the basic rate, but not all of it. TVA had collected more money for fuel costs over the last several quarters with a rate that didn't foresee that demand would tank due to the recession. Commodity prices, primarily coal and natural gas, have declined. TVA over-collected by millions of dollars. So they have to give it back. They will be giving it back in the form of a reduced fuel-adjustment cost over the next nine months. But the reduction in fuel charges will decline each month. It is likely that after October and November the fuel-charge savings will be less than the 8 percent base-rate increase.

In other words, the flow-back of overcharged fuel costs will fade away. The basic-rate increase will stay—forever. A more accurate summation of the TVA board meeting would be: TVA to give back millions in overcharges, but offsets it with higher rates.