TVA Fuel Cost Adjustment
What is a fuel cost adjustment?
How does it affect member bills?
How does it work and how is it calculated?
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?
Does "fuel" refer to gasoline?
Why has the Fuel Cost Adjustment been going down during 2009?
Why is the October 2009 FCA a negative amount?
What's TVA's forecast for the FCA?
| What is a fuel cost adjustment? |
| It is the mechanism TVA uses to help recover largely uncontrollable fuel and purchased power costs. A variety of factors affect these costs, including weather and global supply and demand issues. |
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| How does it affect member bills? |
| The FCA, which started Oct. 1, 2006, appears as a separate line item on member bills. It adjusts up or down monthly (prior to October of 2009, it was adjusted quarterly) depending upon global shifts in fuel costs, such as coal and natural gas. |
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| How does it work and how is it calculated? |
| The FCA calculation works by capturing the difference between the amount that TVA forecasts to pay for fuel and the amount that is collected through rates. This formula has two main components: the first is a forecast of anticipated fuel and purchased power costs; the second is a reconciliation of any fuel costs TVA under or over collected. The FCA can be a charge or a credit depending on these differences. It is included on consumers’ bills as a per kilowatt-hour charge or credit. |
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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 is purchased power? |
| Purchased power is electricity TVA buys on the open market when it cannot produce adequate power to meet customer demand or 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. Most utilities across the nation use similar mechanisms to adjust their rates. 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. October 2008 - Increased to 1.88 cents. January 2009 - Decreased to 1.383 cents. April 2009 - Decreased to .843 cents. July 2009 - Decreased to .548 cents. October 2009 - Decreased to -0.219 cents. November 2009 - Decreased to -0.322 cents. |
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| Does "fuel" refer to gasoline? |
| This is not about recouping increased gasoline charges for TVA vehicles. The fuel costs this adjustment addresses are the fuels TVA uses to generate electricity, which are primarily coal and natural gas. The prices of both coal and natural gas have grown increasingly volatile. Additionally, when TVA cannot generate enough electricity to supply the power demand of Valley customers, it has to purchase electricity on the open market. That is necessary but expensive, and the associated costs can be recovered through the Fuel Cost Adjustment. |
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| Why has the Fuel Cost Adjustment been going down during 2009? |
| Not long after the FCA peaked in October of 2008, fuel prices began to fall and the 2007-2008 drought began to subside. Now, TVA's ability to generate hydropower through its dams is fully restored. Hydropower is TVA's cheapest generation source. |
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| Why is the October 2009 FCA a negative amount? |
| For the past four quarters, TVA’s forecast for fuel was higher than actual costs. TVA's reconciliation of those costs resulted in an FCA credit beginning with the October 2009 FCA. |
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| What's TVA's forecast for the FCA? |
| TVA expects the monthly FCA to begin to increase slightly from its October 2009 low. |
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