Dive Brief:

• The Tennessee Valley Authority (TVA) authorized a rate increase last week, the second in as many years.
• TVA's board of directors approved a $10.7 billion budget for fiscal 2015 that included the "modest" 1.5% rate increase.
• The budget includes $500 million in savings related to operational spending and a record $3.5 billion in capital investment in generating plants and system improvements

Dive Insight:

A push to modernize the generating fleet and comply with 2011 Clean Air Agreements with the Environmental Protection Agency (EPA) has TVA making changes to its generating mix. Even with the operating savings, the rate increase was necessary to upgrade and diversify "our generating fleet with cleaner and more efficient technology, continuing our stewardship activities, and growing jobs and capital investment in the region,” TVA President and CEO Bill Johnson said in a statement.

TVA pointed out that the rate increase is below the cost of inflation and will amount to about $1.70 more per month for the average customer using 1,000 kilowatt-hours. The increase will take effect with the new financial calendar year beginning Oct. 1, 2014. The rate increase "is necessary to meet revenue requirements for 2015," Johnson said.

TVA reduced its debt by $1.2 billion in fiscal year 2014 while continuing to invest in its power system, according to the utility. The 2015 capital budget includes about $1 billion in base capital to fund continued operation of current assets, TVA said, with the rest funding the completion of Watts Bar Nuclear Unit 2, a new gas plant at Paradise, environmental controls at Gallatin Fossil Plant, new generation at Allen Fossil Plant, significant transmission work, and other items.