At its Board meeting on August 24, 2024, TVA requested and the Board approved a 5.25% increase to rates, which increases TVA’s expected revenues by nearly $500 million in Fiscal Year 2025. The rate increase starts in October 2024.
Rates Increased Without Public Scrutiny
Outside of the details of what that rate increase means to customers and how those additional funds are being spent, the process that TVA went through to raise rates on 10 million people lacked transparency and accountability. As we’ve said before, TVA operates like a monopoly business with no regulation. This is evident when TVA sets its own process for future resource planning, prioritizing opinions it agrees with and minimizes any potential criticism.
Most large utilities, those TVA considers its peers, must go through a months long process at a public service commission before a regulator decides whether to approve, deny, or modify a rate increase. Thousands of pages of documents are presented so that consumer advocates and the public can see how the utility has spent money in the past and how it plans to spend additional funds. Appointed or elected regulators use specific state laws to determine what utility costs are prudent, and only approve a rate increase if it reflects those prudent costs. That way, since electric utilities in the Southeast are monopolies, the regulators provide a check on the utilities overcharging customers. As long as regulators are independent and state laws are clear about regulators’ mandate, they can act as that kind of check on utilities.
However, TVA’s rate increase was approved without anything resembling this process. If the TVA Board of Directors reviewed TVA’s costs and proposed spending, it was behind closed doors at Committee meetings. The fact that there was any proposed rate increase at all was only made public a week before it was approved, as a single line item on the TVA Board’s August meeting agenda. That line item listed it as a 5.25% rate increase, but provided no additional information. TVA posted a 23 page resolution and memo on the rate increase a week after it was approved, which mostly consisted of its updated rate schedules. TVA also published the 39 page resolution and memo to the Board on its fiscal year 2025 budget a week after it was approved. While it is a small step toward more transparency, as in the past this document would only be attained after a months long records request, it is still not enough.
TVA Revenues Largely Fund New Fossil Gas
Let’s do a quick comparison to last year’s revenue requirements. TVA expects to spend less on fuel, operations and maintenance but more on interest on its debt, tax equivalents to states and counties, and debt paydown. For TVA’s fiscal year 2024 it budgeted $2.725 billion for capacity expansion and environmental capital, already large compared to total revenues of $12.36 billion. But for fiscal year 2025 TVA expanded that spending for capacity expansion and environmental capital to $4.663 billion.
In FY2024 79% of TVA’s capital spending on projects over $200 million went toward new fossil fuel power plants and pipelines. In FY2025, under the budget the Board just passed, that is expected to increase to about 89%. This is massive compared to just 3% of this capital spending going toward renewables. Note that this is based on very limited data. TVA has not released how much it intends to spend on new renewable PPAs in FY2025, nor does it release its spending on projects less than $200 million in this budget.
All in all, it appears that TVA is struggling. The federal utility is struggling to transition to clean energy and is instead plowing forward with costly, risky, and unreliable fossil gas power plants and pipelines. It is also struggling to implement its fossil fuel bonanza while staying within its $30 billion debt limit and not shocking customers through sharp rate increases.
TVA’s $1.5 billion over 5 year investment in energy efficiency will help some customers manage energy bills, but a change in strategy away from risky, outdated fossil fuels and toward resilient renewables and flexible demand is needed immediately. TVA’s Board and execs must understand what is at stake. Why is it taking the utility so long to change TVA’s direction?
Last Rate Increase for awhile?
TVA has captured most of its distribution utility customers in forever contracts. However, those contracts have a clause that allows the customer to renegotiate if either of two conditions are met:
- TVA raises rates more than 5% before September 30, 2024
- TVA raises rates more than 10% in any rolling consecutive five fiscal years.
Remember that TVA raised rates 4.5% last August. So the start date of this rate increase just misses the cutoff date for condition number 1. Since this rate increase means that TVA has now raised rates nearly 10%, TVA cannot raise rates again for the next 3 years without triggering the potential renegotiation of these forever contracts. Will TVA take that risk? Only time will tell. But TVA’s fossil fuel bonanza isn’t coming cheap. TVA is already projecting it will go over its $30 billion debt limit in fiscal year 2027, so it will have to figure out something. Our recommendation? Pull back the gas, and lean into clean energy and demand-side options that can improve reliability and resilience while mitigating the cost and environmental risks of new fossil gas.