TVA Board Approves 7-percent Rate Increase Effective April 1

March 17, 2008

The TVA Board recently approved a 7-percent increase in firm wholesale electric rates effective April 1 to help fund new power generation and energy efficiency initiatives needed to meet the growing power demand of the Tennessee Valley.

Smithville Electric System must pass along the rate hike to customers, but will not attach any local increase.

The rate adjustment will provide an estimated $300 million in additional revenue during fiscal year 2008. While amounts will vary across the Valley, residential customers may expect an increase of about $4 to $7 on monthly retail electric bills, depending on their individual energy use.

“We certainly recognize the financial challenges that consumers face as we make a recommendation to the Board on the need to increase power rates,” TVA President and CEO Tom Kilgore said. “TVA is taking steps to reduce its non-fuel operating and maintenance costs by more than $400 million over the next three years. However, additional revenue is needed for long-term investments to keep the power system reliable and lessen our dependence on volatile energy markets. That will help us keep electricity reliable and affordable in the years to come.”

At its public meeting last May, the Board recognized the need for a rate adjustment to fund the implementation of the Strategic Plan. In approving the fiscal year 2008 budget in September, the Board directed TVA staff to work with local power distributors to develop a rate adjustment proposal for consideration early in 2008.

The 2008 budget includes $2 billion in capital expenditures for the addition of new power plants and work to complete Unit 2 at Watts Bar Nuclear Plant. TVA needs the additional power plants to meet power demand that is growing by about 2 percent a year during peak periods.

TVA met three all-time winter records for electricity consumption in the Valley since Jan. 1. Last summer, TVA met 13 all-time summer records for power demand during the record-breaking August heat wave. When power demand is at its peak, TVA often pays four or five times normal costs for additional power from other energy suppliers.

Kilgore also reported on the lingering effects of the drought and its continued impact on reduced hydro generation – TVA’s least expensive generation source – and increases in purchased power costs. These and all other fuel-related costs are recovered through TVA’s Fuel Cost Adjustment mechanism. The FCA, which is part of monthly consumer power bills, is adjusted quarterly and can be a charge or a credit. The amount of the FCA that will take effect April 1 is expected to be available Feb. 20 and is expected to be an increase because of continuing impacts of the drought.

The 2008 budget also includes $22 million for the first phase of expanded energy efficiency initiatives and development of a plan to help make the delivery of power to consumers more efficient. As part of this initiative, the Board appointed an Ad-Hoc energy efficiency oversight committee and announced that the Board plans to hold a public listening session at the Knoxville Convention Center in early March to get public input and learn more about energy efficiency, demand reduction and renewable energy from panels of experts.

Meeting at TVA’s Chattanooga Office Complex, the Board also approved an agreement that will allow distributors of TVA power to share ownership of new TVA generation facilities. The Board elected Bill Sansom to continue as Chairman of the TVA Board.

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