Understanding TVA's Fuel Cost Adjustment

The Fuel Cost Adjustment (FCA) was created so that TVA could recover largely uncontrollable fuel and purchased power costs. 

Customers have experienced higher than normal adjustments for the last three quarters.  TVA explains why.

• Similar to the way you feel the affects of the current market each time you fill up your car with gas, TVA is paying higher costs for the fuel it uses to generate electricity for nearly 9 million consumers in the Tennessee Valley.
• TVA’s least expensive form of generation - hydro power - is in very short supply due to a severe drought in the Tennessee Valley, which also increases costs.
• The FCA for July-Sept. represented a two-percent increase over the previous quarter, but did not reflect dramatic increases in market prices for fuels over the past few months.

Other utilities are experiencing dramatic cost increases as well.  Neighboring Virginia is looking at proposed increases totaling anywhere from 18 to 35%.  To the south, Mississippi's latest fuel cost adjustment increased rates by 28%.

Coal, Natural Gas, and Purchased Power Increases

• Since December 2007, coal prices have more than doubled and continue to rise due to global coal production and transportation challenges.
• Global coal consumption has grown rapidly.  In 2007 alone, China added the equivalent of one new coal plant every seven to 10 days.
• Transportation of coal continues to be an issue.  About half of TVA's coal supply comes from west of the Mississippi River.  Recent flooding in the Midwest stopped or slowed some of these deliveries.
• Natural gas prices have risen by more than 65% since December 2007.  This pushes electricity prices up because the bulk of the power for sale in the market today is generated with natural gas.