EES considers how to handle TVA rate increase

By Abby Morris
Star Staff
amorris@starhq.com

   Members of the Elizabethton Electric System Board held a workshop Thursday afternoon to discuss possible avenues the system can take in order to deal with pending rate increases by the Tennessee Valley Authority.
   "I wanted us to go ahead and make sure we have our ducks in a row before the TVA Board meets next week," said EES Board Member Phil Isaacs. "Basically, I need to let you folks know what the impact of this wholesale rate increase is going to be for us."
   The rate increase Isaacs is referring to is a proposal the TVA Board will vote on at a meeting next week. The rate increase would result in a 7.4 percent average wholesale increase to residential and commercial customers and a 2 percent decrease in firm prices to approximately 1,500 manufacturers in the TVA service region, according to information from the TVA.
   Officials with TVA have cited the increased cost of keeping up with environmental laws and standards as the main reason behind the rate increase. "The prevailing reason (for the increase) is that we need to meet Clean Air regulations and we've been struggling to meet those costs," said TVA spokesperson Lucha Ramey. "We're spending roughly $1 million a day which translates into $365 million a year which is how much revenue we're going to generate with the rate increase."
   According to a released statement from TVA, evolving regulations under the Clean Air Act or additional new clean air legislation could possibly drive TVA's costs higher to meet those requirements. "The mounting costs of TVA's clean air compliance will push TVA into a position where its expenditures are projected to exceed its revenues," a statement from TVA said. "The prospect of raising electric rates is not taken lightly by TVA, and this action, if approved by the TVA Board, would be only the second rate increase by TVA in 16 years. The driving force for this potential rate increase is the public mandate for cleaner air -- a goal that TVA fully supports but also one that is by and large outside of TVA's control."
   By instituting a rate increase, TVA has created a situation for local energy providers that is now out of their control. In order to meet the increased cost for energy purchased from TVA, many local energy providers, such as Elizabethton Electric System, are going to be forced to pass on that increased cost to their customers.
   "It's going to increase our costs $1.7 million dollars," Isaacs said. "Our recommendation to the board will be to make this up on the retail side in order to meet our day-to-day margins."
   In addition to changing the rate for wholesale energy, TVA is also proposing a change in the entire rate structure. "We've got to be careful that we look at all angles because, not only are they raising the wholesale rate, they are also redoing the rate structure," Isaacs said.
   Part of the new rate structure would include a two percent rate decrease for certain manufacturing facilities in the Tennessee Valley region. The rate change would affect approximately 1,500 manufacturing facilities in the region.
   According to information released by the TVA, the Tennessee Valley lost approximately 100,000 manufacturing jobs between the end of 2000 and the end of 2002. "Many factors contributed to this situation. One that can't be overlooked is that electrical rates for manufacturing customers are higher in the Tennessee Valley than in the neighboring areas," a released statement from TVA states. "To that end, the TVA staff is exploring a separate action that would result in a two percent decrease for large manufacturing industries. This decrease would help keep manufacturing jobs in the valley."
   According to Isaacs, five manufacturing industries serviced by the Elizabethton Electric System would be eligible for the decreased rate from TVA.
   The effort by TVA to keep manufacturing jobs in the Tennessee Valley would not be without its adverse affects. "In order to make this possible, other consumers will need to pay more. Residential customers who use an average of 1,000 kilowatt hours per month would pay about $3.76 or more for their electricity," the statement from the TVA said. "Even with this increase, residential rates will continue to be among the lowest in the country.
   "No one wants to raise rates. But everyone benefits when there are jobs in the Valley."
   Another change which would take affect if the TVA Board votes to approve the new rate increase is a reduction in credits which the TVA gives to local distributors of energy.
   Currently, the Elizabethton Electric System charges a fee of $8.73 to each customer for service and maintenance on energy meter boxes at their residences or places of business. TVA had been giving a credit of $2.48 to local energy providers for each customer they service. Due to the credit, customers of Elizabethton Electric System only saw a charge of $6.25 on their bill noted as a customer service charge.
   Under the new rate plan, TVA will reduce the credit it gives to local energy providers to $1.71, which will automatically increase the amount the customer pays to $7.02 on their bill. To offset the amount of revenue they will lose in other areas of the new TVA rate plan, members of the Elizabethton Electric System Board discussed possibly raising the customer service charge to $7.25, which they estimated will generate approximately $20,000 in additional revenue each year for the system.
   Even with the additional 23 cent increase on the customer service charge, the new rate would still be in line with what other area energy companies charge, according to Isaacs.
   Members of the Elizabethton Electric System Board also discussed the possibility of an increase on the energy rate as well.
   The board will meet again on Tuesday to further discuss the possibility of a rate increase from TVA.