Rising fuel prices and the costs of cleaning up coal ash with potentially less power sales will likely force the Tennessee Valley Authority to raise its electricity prices in coming years despite TVA's pledge to try to freeze electric rates for the next decade, according to a new study.
An environmental group urging TVA's biggest customer to replace TVA power with its own renewable energy warns that sticking with TVA could be costly as customers absorb increases in natural gas, coal and other carbon fuels and TVA is potentially forced to make more costly cleanups and closures of its coal plants.
The study by Synapse Energy Economics for Friends of the Earth estimates Memphis, Light, Gas and Water — TVA's biggest customer — could see TVA rates go up between 8% and 22% by 2026 and up to 31% by 2031 – if the city utility continues to buy its power from TVA. Although the study is focused on Memphis, other local power companies in TVA's 7-state region will see similar impacts.
"The TVA is almost certain to see increases in their costs for fossil fuels, coal ash clean up, repairs to 40 year old power plants and many more financial liabilities over the next decade," said Dave Freeman, a Chattanooga native and former TVA chairman who is now an advisor to Friends of the Earth. "If the TVA cannot keep its rate level it will pass on those increased costs to consumers by driving up their electric bills by as much as a third."
In the past 12 years before this year, TVA electricity rates rose nearly 30%, Freeman said.
"The TVA's rates have increased substantially over the last decade and this new report illustrates they are likely to increase substantially over the next decade, even if the TVA claims they won't," said Herman Morris, a former president of MLGW and another advisor to Friends of the Earth. "TVA will pay the price for its outdated, dirty power and pass that cost on to Memphis families and small businesses if we don't make a change to alternative power sources."
But with less debt and improved efficiency, TVA CEO Jeff Lyash wants to end the trend of rising wholesale rates and expects TVA's base rates to remain constant through 2026. But Lyash is making no guarantees and admits that new environmental rules or a jump in interest rates or fuel costs could cause rates to rise.
TVA officials said the areas of higher expenses identified in the Synapse study were largely considered in a long-range power plan the board adopted in August, which foresees stable base rates through 2028, pending unexpected market or regulatory changes.
TVA's chief financial officer, John Thomas, said "virtually all the risks identified by the Synapse Energy Economics study were already incorporated into TVA's new 10-year financial plan." TVA is already anticipating spending $2.4 billion more an environmental cleanup of coal ash and $1.3 billion on annual maintenance of its aging infrastructure and still holding the line on rates.
TVA earned a record $1.4 billion in fiscal 2019 — the fourth year in the past five years TVA's net income topped $1 billion — and TVA cut its debt to a 25-year low.
With improved earnings and lower debt, TVA directors voted in August not to raise its base wholesale rates in the current fiscal year and TVA is offering a 3.1% rebate to lower power charges to local power companies that sign 20-year service agreements with TVA. So far, about 85% of the 154 local power companies have signed such long-term contracts, although EPB in Chattanooga is still studying whether to commit to such a long-term power arrangement with TVA.
In Memphis, MLG&W is developing a new Integrated Resource Plan to determine whether to continue taking wholesale power from TVA or to procure electricity from elsewhere. Memphis must give TVA a 5-year notice before it could buy most of its power from another source.
"We are confident that, after a thorough and accurate review, TVA is still the best option for the people of Memphis and Shelby County," TVA spokesman Jim Hopson said.