News Release

TVA Board Approves Rate Adjustment

February 13, 2006

Citing coal, natural gas and purchased power costs that are significantly higher than budgeted for 2006, the TVA Board of Directors has approved an increase of 9.95 percent in firm wholesale electric rates.

The rate adjustment will be applied to April billing cycle for customers of Huntsville Utilities, and is necessary to offset more than $500 million in increased fuel and purchased power costs TVA has incurred since last July. The TVA Board approved the last rate increase of 7.5 percent in October of last year.

"Obviously, rate increases of any magnitude are never welcome news," said utility spokesman, Bill Yell. "But TVA's need to increase wholesale power rates is due to a period of high price volatility in the coal, natural gas and purchased power markets since last summer."

While TVA generates very little power from natural gas, most of their purchased power comes from gas-fired generation.

The overall affect on customer's bills will be slightly less than the 9.95 percent because this is just a wholesale increase. There will not be an increase in the amount Huntsville Utilities charges to deliver power to customer's homes.

Yell stated that it take a few days before the utility is able to determine what the residential customer's retail rate will be.

Huntsville Utilities charges residential customers $0.06183 per kilowatt-hour (kWh) for the first fourteen hundred (1,400) kilowatt-hours and $0.06984 for everything above fourteen hundred.

Over the past four years, the average Huntsville Utilities customer uses fourteen hundred and sixty (1,460) kilowatt-hours of power per month. The average monthly electric bill is $96.52, which includes a $5.77 month customer fee.

TVA said the rate adjustment will provide an estimated $276 million in additional cash at the end of fiscal year 2006. Reductions in costs and cash reserves are expected to save another $240 million.

"Last summer when we approved the 2006 budget recommendation, no one could have possibly predicted the events that have affected our nation's coal and natural gas markets," TVA Chairman Bill Baxter said. "Our forecasts show that by the end of this fiscal year, costs for fuel and purchases power will have increased $1.1 billion since 2004. That's a 52-percent increases in two years."

Baxter said TVA has absorbed a significant percentage of the increases costs and worked very hard to hold the rate increase below 10 percent.

Power distributors across the Tennessee Valley are united in the belief that TVA must remain vigilant in its efforts to implement cost-containment measures and maximize resources for the benefit of all consumers.

The TVA Board also directed TVA staff to proceed with testing a Fuel Cost Adjustment mechanism that could adjust TVA's rates up and down as fuel and purchased power costs rise and fall.

"The Fuel Cost Adjustment is a solution that would keep TVA's rates more closely aligned to costs and help reduce the need for large rate adjustments in the future," said Baxter. "Most utilities across the nation already have this type of mechanism in place to recover these costs."

Yell said that prior to its implementation, power distributors want TVA to continue a dialogue with them in order to test and fine-tune the mechanism so that when implemented it will be effective.

"Obviously, this is a new concept for Tennessee Valley power distributors, and we want to give any proposal from TVA due diligence to ensure that any possible rate impact on our customers will be as little as possible," said Yell.