TVA Fuel Cost Adjustment
What is a fuel cost adjustment?
How does it affect member bills?
What will the FCA do for the long term condition of the volatile market?
Do any other utilities use this method to offset these fluctuating prices?
What have been the changes to the fuel cost adjustment charges since January 2007?
| What is a fuel cost adjustment? |
| A mechanism to help TVA deal with the volatility of fuel cost shifts that began appearing on MTEMC member bills Oct. 1, 2006. |
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| How does it affect member bills? |
| The FCA can be adjusted up or down quarterly by TVA depending upon global shifts in fuel costs, such as coal and natural gas, which are both used in the production of electricity. |
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| How does it work? |
| The FCA mechanism is a fluctuating rate based on the forecasted difference in fuel and purchased power costs from a baseline amount. The baseline amount was established from TVA’s 2007 budget, and the fuel cost adjustment will be updated quarterly - every January, April, July and October. |
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| If the FCA is to be used to help TVA offset these costs, why is the money collected on Middle Tennessee Electric bills? |
| Middle Tennessee Electric distributes the power TVA produces. In fact, MTEMC operates on about 18 cents of every dollar that comes into the cooperative, with the remaining 82 cents going back to TVA to pay for the power MTEMC distributes. The FCA will also go back to TVA to help them counter the fluctuating market prices. |
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| What will the FCA do for the long term condition of the volatile market? |
| The FCA will help reduce the need for large rate actions in the future by better matching revenues to unpredictable changes in the cost of fuel and purchased power. |
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| What is purchased power? |
| Purchased power is electricity TVA buys on the open market when it can be purchased cheaper than TVA can produce it. |
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| Do any other utilities use this method to offset these fluctuating prices? |
| Yes. Many utilities across the nation and most of TVA’s neighboring utilities use similar mechanisms to adjust their rates. In fact, fuel adjustments have been used for quite some time across the country to help the utility industry better align cash flow with fluctuations in fuel and purchased energy costs. TVA actually had a monthly fuel expense adjustment in the mid-1970s. |
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| What have been the changes to the fuel cost adjustment charges since January 2007? |
| Jan. 2007 - Started as an increase of one hundredth of a cent per kilowatt hour, or (.010 cents). April 2007 - Increased to .087 cents. July 2007 - Increased to .091 cents. Oct. 2007 - Increased to .450 cents. Jan. 2008 - Decreased to .278 cents. April 2008 - Increased to .572 cents. July 2008 - Increased to .714 cents. |
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