This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.

Guest Blog | February 1, 2018 | Energy Policy, Utilities

Two days ago, SACE released a report by Synapse Energy Economics detailing evidence that the Tennessee Valley Authority (TVA) changed its electricity prices to favor industrial customers to the tune of $1.4 billion over the past several years. TVA made one public disclosure in 2015 that prices were being cut for industry and raised for residential customers – and privately boasted about the industrial rate cut to its “direct serve” customers.

One reason few customers noticed is that TVA’s overall rates were not rising very fast. Considering all customers of TVA and its local power companies, TVA’s rates increased only 2% from 2011 to 2016. The 5% average rate hike for residential customers, or about 1% per year, may have seemed like normal inflation to most customers.

TVA Challenged by Local Power Companies

TVA has an exclusive agreement to provide electricity to over 150 local power companies in the Valley – most people will pay a bill to local companies like Memphis Light, Gas and Water, Nashville Electric Service, Knoxville Utility Board, Electric Power Board of Chattanooga, or some other entity. But those companies are required to purchase power from TVA, at rates set by TVA.

Yet a few local power companies were already sounding the  alarm and expressing their discontent publicly. In a press release regarding routine rate adjustments, Athens Utility Board’s Assistant General Manager Wayne Scarbrough publicly scolded TVA, writing:

“TVA announces record revenues, insists on handing out $100 million in year-end bonuses every November as if it were an investor owned utility, and yet continues to squeeze our customers with another rate increase?  We consider that unacceptable on behalf of our customers.”

By October, Athens Utility Board staff frustration had reached a new level. Its General Manager, Eric Newberry, wrote to the TVA Board President to, “stop this madness of continual annual rate increases and rate change proposals … These actions put an undue financial burden on the citizens of the Valley … throttle economic growth, and are unjustified …” The letter is well worth reading in its entirety.

Elsewhere, Volunteer Energy Cooperative President Rody Blevins wrote, “… the leadership of VEC has debated TVA at every turn concerning their plans to increase the rate. … I pledge to you that VEC will continue challenging TVA on their plan to increase and alter the residential rate.”

Similarly, a public exchange at an Etowah Utilities Board meeting was reported as follows:

“Those, typically, we pass through (to the ratepayers),” EUB General Manager John Goins said. “We’re not certain what effect it’ll have on our customers.”

Those rate hikes occur routinely, and Board member Gene Keller asked if that has been questioned by Goins.

“We as the Southeast District Power Distributors Association have attended several meetings and expressed our feelings about the rate increases,” Goins said. “About the way it’s structured and that we aren’t happy with TVA and what they’re trying to do.”

Board member David James said it’s led him to question the benefit of the presence of TVA.

“I used to like the fact that we have TVA here, but it seems like every year they’re going up, plus they’re paying these higher-ups tremendous bonuses,” James said.

“It just sends the wrong message,” Keller added. “It’s a monopoly – it’s a no-lose proposition.”

Although sharing a common frustration, these three utilities have responded differently to TVA’s pressure to raise rates. While the average residential customer served by TVA has seen rate increases of 5% from 2011 to 2016, Athens Utility Board has held its price increase to only 2% and Volunteer Electric Cooperative has held its price increase to under 4%. However, Etowah Utilities Board has raised electricity prices by over 15%.

Regardless of whether utilities find that they can hold the line for now, or have had to raise electricity prices, reactions to TVA are clearly very passionate. If that’s how some utility executives are reacting, even with direct access to TVA decision-makers and full briefings, imagine how actual customers feel.

Angry Customers

Customers of some local power companies experienced even higher price hikes. The average TVA residential customer paid $110 extra in 2016 due to TVA’s industrial price cuts. But at Glasgow Electric Power Board – where TVA endorsed new residential billing practices that unleashed a firestorm of customer anger – the average residential customer paid $213 extra in 2016.

One angry Glasgow Electric Power Board customer has launched a GoFundMe campaign to raise $200 for a disabled couple that want to switch to monthly electricity billing. Coincidentally, that’s just about equal to the $213 price increase that an average Glasgow customer paid to enable TVA’s industrial price cuts. Sort of like a GoFundMe for TVIC member company GerdauAmeristeel.

In April 2016, Huntsville Utilities proposed a $5 increase in the mandatory fee for residential customers. Through 2016, Huntsville’s electricity prices had already increased by almost 6% as compared to 2011. After strong protests, the City Council rejected the proposed fee increase. Soon after this failed rate change, Huntsville Utilities CEO Jay Stowe was hired by TVA, and he is now directing TVA’s overall strategy with regard to rates and weakening the economics for customers who wish to choose to install solar power and invest in energy efficiency.

Then-CEO Stowe explained Huntsville Utilities’ strategy as, “What we’re trying to do is bring in more of our revenue on a fixed basis that will allow us to encourage people using less of their energy …” What I think he meant is “now that you’ve used energy efficiency to reduce your power bill, we need to increase it back up again.”

Then, in January 2018, Memphis citizens protested a proposed 7.1% electric rate hike – which was rejected by the Memphis City Council. According to MLGW budget documents, the utility was seeking to increase its mandatory service fee by an unspecified amount. Memphis is one of the few utilities that – up until now – had largely refrained from any significant rate increase in response to TVA’s rate structure changes.

But from TVA’s perspective, Glasgow, Huntsville and (perhaps) Memphis represent the future of rate design. As Cass Larson, TVA’s Vice President of Pricing and Contracts has explained, “If we look at those who are pursuing energy efficiency and solar technology, they are the companies and people who can most afford it—and current electricity pricing is providing too large an incentive for them to do so.” Contrast this statement with TVA’s actions: cutting electricity prices for large industrial companies who can afford (and should) pursue energy efficiency.

TVA Has No Real Explanation

In response to our report, and knowing of the objections by some of its local power company executives, TVA essentially acknowledged that our report was correct. As reported in the Chattanooga Times Free Press,

“Industrial rates are lower because the cost to serve their loads is lower,” TVA spokesman Scott Brooks said, noting that many industrial customers have interruptible power contracts that allow TVA to cut their power during peak demand periods. “We also have made an effort in the last five years to improve industrial rates to attract more industries to the region.”

As reported in this story and others, Brooks did not distinguish between lower rates for all industrial customers, and special incentives to attract more industrial facilities to the TVA region.

Two days ago, our blog noted trends in industrial electricity prices across the Southeast. Everywhere, industrial electricity prices are lower because, indeed, the cost to serve large customers is lower. Yet as the Synapse report notes, TVA is the only large Southeastern utility that is systematically changing rates to favor its industrial customers even more.

As we also noted, TVA offers additional benefits to new industries opening facilities on its system. Neither the Synapse report nor any of our materials challenge the mission of TVA to promote economic development with its targeted programs for new or expanding facilities that result in investment and jobs.