Independent power providers resisting proposed TVA rate hike

By Thomas Wilson

BLOUNTVILLE -- A proposed rate hike by the Tennessee Valley Authority to fund federal clean air regulations is drawing fire from the 157 independent power providers that purchase wholesale electricity from TVA.
Representatives of the Tennessee Valley Public Power Association, Inc., spoke in opposition to the structure of the rate increase at a press conference held at the Tri-Cities Regional Airport on Monday.
"We think everybody ought to pay when it comes to clean air," said Harold DePriest, TVPPA chairman of the board and executive director of the Chattanooga Utilities Board. "They are saving a small group of industrial customers that don't have to pay."
TVA has proposed a rate increase to fund the estimated $365 million to fund compliance with federal air quality standards. The agency's modified rate actions would result in a 7.4 percent average wholesale increase to residential and commercial customers and a 2 percent decrease to about 2,500 manufacturing industries.
"We feel like by trying to make those rates more competitive, we will help them retain jobs and create jobs," John Moulton, TVA spokesman, said Monday afternoon.
DePriest and other TVPPA brass said while they do not oppose a rate increase, the rate structure should be established as an across-the-board for all electricity consumers to fund environmental compliance.
"We believe that any rate reduction offered to a specific number of manufacturers inappropriately shifts the industries' portion of the environmental cost to all other businesses and residential customers," he said.
For a residential customer using 1,000 kwh per month, TVA's revised proposal would be an increase of $3.76 per month. The effect of TVPPA's proposal on a typical residential customer's bill would be an increase of $2.54 per month. TVA reports the average residential consumer's bill today (for 1,000 kilowatt hour's monthly usage) is $67 per month.
In its original proposal, TVA suggested a fixed rate increase of 8.1 percent. Following debate with TVPPA members, TVA revised the proposal, lessening the number of manufacturers receiving the two percent rate cut, and reduced the rate increase to 7.4 percent.
"Residential rates currently are 11 percent below the average of neighboring utilities, while industrial prices are 12 percent above the average of neighboring utilities," TVA Executive Vice President Mark Medford said in a statement last week about the rate increase. The proposal would be the second rate increase of firm power rates in 16 years, according to TVA.
"It will probably be a pass through at the residential level," said Doyle Walters, executive director of the Johnson City Power Board and member of the TVPPA board of directors.
While touting the low residential rate, TVA reports that power rates for manufacturing customers are higher in the Tennessee Valley than in the neighboring areas. The 2 percent cut back is designed to make TVA more competitive in drawing industrial citizens to the Valley.
"Our manufacturing industries and in industry as a whole, the firm power rates they pay to have electricity are much higher than the region," said Moulton. "That is why we are making a 2 percent reduction in those rates."
A TVA report submitted to the Government Accounting Office (GA)) in May 2002 indicated the agency's industrial rates were substantially lower than the national average and the average of competitors in 10 of the 12 surrounding utilities.
"We trust TVA," said DePriest. "We just don't know which set of TVA numbers to trust."
Moulton said industrial customers receive two types of electricity: firm power, which guarantees energy at all times at a higher rate; and interruptible power. With interruptible power, large industries are willing to pay a lower rate knowing that on a high use period such as a hot summer day, their power supply may be interrupted by TVA to augment firm power demands.
"In the GAO, we included both distributor served industrial customers with a combination of firm and interruptible power," Moulton said. "That would drag the number down because our directly served customers use interruptible power." The proposed rate increase would affect firm power rates only.
The proposed decrease in industrial rates will help retain manufacturing jobs in the Tennessee Valley. The agency cites a report issued by the Bureau of Labor Statistics finding a decline of 100,000 manufacturing jobs (12.5 percent) in the TVA region from 2000 to 2002.
TVPPA contends that more than two-thirds of industrial customers in the Valley would not qualify for TVA's proposed two percent industrial rate reduction. They also believe the increase puts an undue burden on residential and non-qualifying industries to fund environmental upgrades, but leaves the largest power users free from funding pollution control.
"We think everybody should pay for cleaning the air," said Mike Browder, executive director of Bristol Tennessee Electric System. Approximately 56 industries are served directly by TVA, most of those companies operated with purely interruptible power.
TVPPA is the nonprofit company that represents the interests of consumer-owned electric utilities operating within the TVA service area. Association members include both municipal and electric cooperatives, and they serve more than 8.5 million customers in Alabama, Georgia, Tennessee, Mississippi, Kentucky, North Carolina and Virginia.
Moulton said TVA did not dispute the company's industrial power rates were lower than the national average, but added industrial rates were 12 percent higher than that of neighboring utilities. He said TVA opposed an across-the-board increase because the agency had raised interruptible rates on several occasions over the past several years.
TVA's Board of Directors are scheduled to vote on the rate increase at their August meeting. If approved, the rate increase would take effect on October 1.