| Guest Commentary: Rising fuel costs impact electricity |
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By: P. D. Mynatt, Controller, Murfreesboro Electric Department
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Posted: Sunday, August 17, 2008 8:10 am
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No one wants higher electricity prices, including those of us at Murfreesboro Electric Department (MED). That’s why we continually work to control our costs without affecting the service and reliability that customers expect from us.
We are committed to keeping the price of electricity as low as possible, and our rates remain among the lowest in this region and the nation.
Unfortunately, utilities are subject to the same increases in energy costs that other businesses and individuals are seeing every day, at the gasoline pump and elsewhere. Fuel costs, whether for gasoline, coal or natural gas, are climbing in the U.S. and worldwide as the demand for energy increases.
At MED, we buy the electricity we deliver to our customers from the Tennessee Valley Authority (TVA), and almost all of our revenue goes to buy that electricity. TVA bases its prices on the cost of the fuel, operations, maintenance and capital it needs to invest in power plants, emission controls and transmission equipment to serve our region’s growing demand for electricity.
About 56 percent of TVA’s power supply is fueled by coal, oil and natural gas. Coal prices have gone up more than 100 percent during the past year; natural gas prices have increased more than 65 percent since December; and the price of oil is more than 30 percent higher than last year.
When the prices of these fuels increase, it costs TVA more to generate electricity. TVA is keeping MED and its other power distributors up to date about the impacts of these cost increases and what they mean for consumers.
Two years ago, MED and others worked with TVA to develop a cost adjustment mechanism to help TVA manage fluctuations in the cost of fuels, especially in the volatile market for natural gas.
The result was a Fuel Cost Adjustment (FCA) charge that TVA began including in its monthly rates. Nearly every utility nationwide utilizes this kind of fuel-cost recovery to manage the price swings in the costs of fuel and purchased power.
TVA’s FCA is calculated every three months as generation fuel costs and the cost of power TVA purchases from other suppliers rise and fall. The FCA can be a charge or a credit depending on whether fuel costs go up or down. But as you know, today’s prices are dominated by increased fuel costs.
TVA’s FCA is passed on directly to MED customers without any additional margin. It appears on consumers’ bills as a per-kilowatt-hour charge or credit.
At this point, we know that the next adjustment will be a significant increase necessary to account for the higher costs that TVA and other power providers nationwide are experiencing. This amount will go into effect in October.
We will continue to work with the leadership of TVA and the Tennessee Valley Public Power Association to limit as much as possible the impact of the higher energy costs that are occurring nationally and regionally. We will continue to communicate changes in these conditions as warranted.
For now, just as all of us are taking steps to reduce our gasoline consumption as prices have gone up, MED encourages our customers to visit the TVA Web site at www.tva.com. The simple steps offered there can help keep monthly power bills as low as possible by using electricity more efficiently. We urge all power consumers to do this soon so the improvements that can be made are in place when cold weather returns. Today, all of us have to stretch our energy dollars as far as possible.
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