CENTRE — Citing rising costs for oil, coal and natural gas, TVA officials gave notice last week that customers can expect to see already soaring electricity rates raised “significantly” beginning October 1.

The increased costs for rural utilities such as Cherokee Electric Cooperative, which purchases its power from TVA, ultimately mean higher monthly bills for local homes and businesses, said Cherokee Electric General Manager Randal Wilkie.

According to a cost assessment analysis obtained from Wilkie, TVA plans to raise the Fuel Cost Adjustment (FCA) it first began attaching to local power bills in October 2006. Estimates indicate the increase will be fairly substantial.

“The FCA cost changes quarterly based on a group of factors, including the cost of the fuel and how much electricity they have to purchase on the open market,” Wilkie said. “They're expecting anywhere from 10 to 20 percent on the fuel cost adjustment.”

Wilkie said the new FCA will not be added to the charge customers currently pay. The amount will be reset to zero before the new calculation is applied.

"So if you were paying 6 percent now and the new number was 15 percent, that would only be a 9 percent increase," he explained.

Wilkie also said he learned late last week that TVA plans to raise the Cooperative's base cost of electricity.

“The base rate, or wholesale rate, is what TVA charges the cooperative for power,” he said. “That cost went up 7 percent in April, and they are going to meet on Aug. 20 to determine if an additional increase is needed. Cherokee Electric will have to pass that on to our customers.”

Wilkie said he doesn't have any idea how much the increase will be, but noted that the TVA document indicated some systems have seen rates rise by as much as 30 percent.

“I wouldn't say that number is out of the range of possibility, but at this point my guess would be no better than yours,” he said. “I know TVA seldom makes an increase of any less than 5 percent on their base rates.”

A graph included in the 18-page TVA document showed that fuel charges for crude oil, natural gas and composite coal, all of which the TVA uses to generate electricity, are up as much as 128 percent since January. The document attributed the rising costs to several factors, including growing worldwide demand for electricity, tightening supplies, and rising prices for coal delivery that TVA passes along to its customers.

“Oil prices make national news, but market prices for coal have increased twice as much as oil in the same period,” read one page.

Another graph showed that as global demand has increased, worldwide prices for coal have risen sharply. In Europe, coal prices are up 92 percent, and in Japan costs are 124 percent higher than in January.

Locally, increased demand for electricity and a three-year drought have reduced the TVA's ability to generate low-cost hydroelectric power. TVA estimates hydro-power generation is down 50 percent in Fiscal Year 2008. As a result, TVA has had to purchase significant amounts of electricity on the open market, where prices have risen by 75 percent since December 2007.

“This summer TVA is buying more than 1,000 megawatts of power on a daily basis – the equivalent of one nuclear unit – to replace the loss of hydro power,” the document stated.

The TVA document also laid out a plan for helping to combat rising fuel costs, including increased gas storage space to reduce spot market purchases, anticipating gas needs in 2009, and securing more long-term coal and power contracts in the future – all strategies, the document said, that TVA has used effectively in the past.

“While TVA's coal costs are up 43 percent over the past five years, if TVA had purchases that coal on the spot market, costs would be up 240 percent.”

In the document's final pages, TVA warned of the likelihood of future FCA increases due to the continuing drought and anticipated increases in fuel costs.

Wilkie said his best advice to Cherokee Electric customers is to conserve energy any way they can.

“I think this is just the beginning, I really do,” he said.