trending Market Intelligence /marketintelligence/en/news-insights/trending/bfuotylhwd5rk5w4cydgiw2 content esgSubNav
In This List

TVA fixed rate charge will stifle renewables, critics say


Japan M&A By the Numbers: Q4 2023


See the Big Picture: Energy Transition in 2024


IR in Focus | Episode 10: Capital Markets Outlook


Infographic: The Big Picture 2024 – Energy Transition Outlook

TVA fixed rate charge will stifle renewables, critics say

The Tennessee Valley Authority's board of directors on May 10 approved a new rate structure to address declining demand, a move critics say will raise bills and stifle proliferation of renewable energy.

Starting in October, the U.S. government-owned utility will implement a wholesale fixed rate equal to 6% of the wholesale rate, which is the equivalent of about 0.5 cents/kWh. TVA will simultaneously reduce the variable portion of its wholesale rate by 6%, which the company said will make the change revenue neutral.

TVA President and CEO Bill Johnson said in a statement that the utility is "evolving our pricing structure to ensure rates remain as low as feasible and are fairly distributed to everyone who benefits from the safe, reliable energy Tennessee Valley public power providers deliver while supporting increased customer interest in renewable and dispersed energy sources."

The utility cited energy-efficient appliances and residential solar panels as driving down demand and prompting the need for sustained revenue to service its power grid. With the variable costs portion of customer bills decreasing and fixed costs remaining the same, TVA determined a need to create a grid access charge.

On a website created to explain its proposal to ratepayers, the utility acknowledged that low-energy users will see a "slight bill increase." The bills of high-energy users, on the other hand, will slightly decrease, while average-energy users will see little to no change on their bills.

Environmentalists and other stakeholders seized on this divergence. Solar power advocates say the grid access charge will disincentivize the installation and use of photovoltaic panels, and characterize new rate as punishment of families and small businesses, along with people of color or low-income, that work to conserve energy.

Critics also asserted the charge will encourage continued reliance on fossil fuels, as sources more likely to power commercial and industrial operations due to their larger size and energy usage.

Opponents of the charge include Nashville, Tenn., Mayor David Briley; the Tennessee Small Business Alliance; several chapters of the NAACP; the Sierra Club; the Southern Alliance for Clean Energy; and individual members of AARP. Dozens of people spoke out against the measure at a TVA board meeting in Muscle Shoals, Ala., with many driving several hours from various cities in Tennessee to attend.

"TVA's intent all along has been to use its self-regulated federal monopoly rate authority to negatively distort the market for energy efficiency and customer-owned solar power and shift a greater share of the perceived risk for lower demand growth on to its captive [local power company] servants," Stephen Smith, executive director of the Southern Alliance for Clean Energy, said in a statement.

The utility maintains its board members exercise proper oversight of TVA, and that it has a unique mission compared to investor-owned utilities in the southeast United States. TVA is congressionally mandated to pursue the lowest-cost generation option, regardless of source, while for-profit utilities may be required by states to invest in zero-emission power.

"We don't get to make the value judgment," Johnson told reporters after the utility's February board meeting. That "makes the task at hand easier to describe, but not any easier to carry out," he said.

Johnson announced May 4 that more than half the power supplied by the TVA over the past six months came from carbon-free sources after recently retiring two coal plants and boosting capacity at a nuclear plant. The utility is also updating its integrated resource plan, the process for which TVA said began sooner than originally planned due to flat demand, technological advances, and the growth of distributed generation and renewable resources.