August 27, 2003
AUB DIRECTORS CONSIDER POWER RATE INCREASE
;PROTEST TVA RATE PROCESS
ATHENS, Tenn. - Athens Utilities Board (AUB) directors executed at their Aug. 26 meeting the first reading of a resolution that will allow electric power rates to be increased pursuant to a TVA rate change and AUB operational needs.
But the five-member AUB board of directors also has informed TVA in writing that the board will not sign the most recent TVA wholesale power contract forwarded to AUB last week. The AUB board informed TVA of the decision in a protest letter signed by all five AUB directors. The letter protests the process by which TVA forced the most recent wholesale increase.
When rate actions are under consideration, our board takes them very, very seriously because they know that their decisions will affect every family in our service area, said AUB spokesman Wayne Scarbrough.
In the letter, AUB directors criticize TVAs recent rate-setting process with arguments cited widely in recent months by the Tennessee Valley Public Power Association, which represents 157 TVA power distributors, including AUB.
It is our strongly held view, the letter states, that TVA has failed to enter into real, meaningful negotiations with distributors and their representatives on the proposed rate changes. The letter calls the current TVA process a major and troublesome departure from past rate change negotiation processes
that could be viewed as a violation of certain statutes, contract provisions, rules and regulations, and other requirements established by and for TVA.
Our board understands that TVA faces environmental compliance mandates that will cost nearly $4 billion over the next ten years, Scarbrough said. What is in serious question by our board is the way TVA has moved through the process of setting, announcing, and ultimately enacting this rate action.
In January, TVA publicly announced plans to enact a wholesale rate increase effective Oct. 1 that would raise residential and small commercial rates while lowering rates for some large manufacturers. The need for the rate action, said TVA, was to fund the $365 million needed annually to meet environmental compliance standards set by EPA regarding pollution controls at TVA's coal-fired power plants.
TVPPA members were taken by surprise, Scarbrough said, by the abrupt public announcement. Historically, TVA has held in-depth planning meetings and negotiations with distributors prior to any rate actions. The process allowed distributors to fully investigate TVAs reasoning, rate allocations, and the effects on retail customers, such as homeowners and small businesses, Scarbrough said. This time it was different. We distributors found out about TVA's plans via the news media. The usual process of fact finding, negotiations, and mutual consideration of all affected customers was abandoned by TVA.
That, Scarbrough said, is at the heart of the AUB directors decision to forego signing the current TVA rate change contract and to formally protest the process. We also believe that if TVAs rate action is necessary for environmental compliance, all rate payers should be treated equally in shouldering the cost, Scarbrough said. TVAs proposal places the burden only on residential and small business customers. We feel that we, as distributors, should have been brought into the process by TVA earlier, as is the norm, to discuss the impact on our communities and possible alternatives.
Our boards decision does not mean that AUB will not get power from TVA. The contract provisions will still go into effect even if our board does not sign, and TVA has assured us that no punitive actions or penalties will be levied on AUB for its position and action on this matter, Scarbrough said.
Owing to the fact that the TVA rate increase will go into effect whether or not the contract is signed, AUB has been working to determine how the TVA action will affect the local utilitys bottom line and its customers.
None of the revenue from the TVA rate increase will stay with AUB, Scarbrough said. Thats why AUB needs to put in place a rate that will net three percent additional revenue for the power division.
For the average residential AUB power customer using 1,160 kilowatt hours of electricity a month the result will be an increase of $7.55 cents per month on the power portion of their AUB bill, Scarbrough said.
No one welcomes a rate increase. AUB would rather not pay more to TVA, and our customers would rather not pay more to us. We absolutely understand that, Scarbrough said. But occasionally increases are necessary to maintain a healthy power distribution system for the community and a healthy business.
AUBs last power rate increase came in 1997. Since that time the cost of doing business, for things such as labor, insurance, materials, fuel, has risen every year, Scarbrough said.
Additionally, Scarbrough points out, the utility needs to strengthen its cash position and reserves to fund critical projects in support of a growing community. We spent more than $1.5 million out of cash flow and reserves building the new transmission line to Englewood. Soon, we will break ground on a new substation near the I-75/Highway 30 interchange. We are continually replacing old, substandard equipment with new. And we must to upgrade the old four kilovolt system downtown. This work makes for a more robust and reliable system for all of our customers, he said.
The rate increase will affect only residential and small commercial customers as mandated by TVA, Scarbrough said.
For our average residential customer, the increase in power rates comes to about 25 cents a day, with 14 cents of this going to TVA and 11 cents going to AUB as revenue for business operations, Scarbrough said.
The change in rates also involves the way rates are structured, Scarbrough said, explaining that the billed amount for power each month is the combination of a fixed customer availability charge and an energy charge.
For residential and small commercial customers, the availability charge will be most affected by the proposed TVA and AUB rate increase. The energy charge-cost per kilowatt hour-will change very little, Scarbrough said.
A cost of service study revealed that AUB is losing ground on its customer availability charge and subsidizing the loss with energy charge revenues. Therefore, this rate change will focus on getting the monthly availability charge in line with the business needs, Scarbrough said.
Our overall goal is to minimize subsidization between customer classes and between customer charges and energy charges. This is the fair and equitable way to ensure that we minimize subsidization between customers based on financial analysis, not emotion said AUB General Manager Eric Newberry. We understand that this fundamental change in our rate structure may not be popular with some of our customers, but it is the right thing to do and will result in fair allocation of cost for all AUB customers, he said.
The AUB Board will have a second reading of the rate change resolution at its September board meeting with plans for the rate schedule changes to take effect concurrent with the TVA rate changes on Oct. 1.