On TVA's Fuel Cost Adjustment Increase

In July 20 edition of The Commercial Appeal, an article forewarns customers to watch their MLGW bills because TVA “electric rates” will increase in August. The article notes that TVA announced this week that “it would be raising its electric rates another 1.5 percent, the sixth consecutive month that they have risen.”

There's some clarity needed on what is taking place.

• TVA’s announcement pertained to its Fuel Cost Adjustment (FCA) rate, not to its basic electric rates.

• Memphis Light, Gas and Water Division is not seeking nor has it approved any increase for its electric rates.

• The Fuel Cost Adjustment (FCA) is the mechanism TVA uses to help recover fluctuating fuel and purchased power costs. The FCA ensures TVA recovers costs as they occur, helping TVA better match its revenues to expenses. FCA is assessed to all of TVA’s customers, including MLGW, who in turn must pass on the cost to their ratepayers.

• The FCA rate varies monthly and is clearly noted on MLGW bills.

• TVA’s August FCA could impact MLGW residential bills by $1.10, based on 1,000 kWh of usage. That’s the change from July 2010 to August 2010.

• The August FCA impact for MLGW customers would be approximately the same (19 cents lower based on 1,000 kWh of usage) compared to the same month a year ago.

• TVA’s FCA rate has increased for six consecutive months. However, June was the first month that FCA was positive since Sept. 30, 2009.

• July and August are just the second and third positive months for the FCA rate in the past year.

• In July 2010, based on 1,000 kWh of usage, the FCA impact on MLGW bills was likely $2.16 compared to June 2010. However, it was still $1.29 lower than the same month a year ago based on 1,000 kWh of usage.

• In other words, the FCA impact on MLGW customers remains lower than it was a year ago.