Critic expects TVA increases if deregulated

Critic expects
TVA increases
if deregulated
By Jerry Dean
News-Sentinel staff writer

TVA is basing its long-range planning on the
wrong study, and the likely result will be a big hike
for ratepayers, according to TVA critic Stephen
Smith.
Smith, executive director of the Tennessee Val-
ley Energy Reform Coalition, plans a news confer-
ence today to outline his contentions.
At the heart of Smith's argument is a study by
Burns & McDonnell, a Kansas City, Mo., engineer-
ing consultant that compared recent TVA studies.
Burns & McDonnell found one, by Palmer Bel-
levue, less realistic than a 1995 study by the Gen-
eral Accounting Office, Congress' watchdog agency.
Burns & McDonnell, in a letter to the Tennessee
Valley Power Producers Association, which commis-
sioned the study, said removing the "fence" or
"wall" between TVA and competitors would not
"enhance TVA's competitive position" because of
"stranded investments," like the Bellefonte and
Watts Bar nuclear plants.
Smith, a Knoxville, said Burns & McDonnell
indicates TVA erred in discounting GAO in favor of
findings in the Palmer Bellevue report. TVA used
the Palmer Bellevue findings as a basis for planning
TVA deregulation strategy.
Palmer Bellevue depicts TVA as ready to com-
pete in deregulated wholesale power markets.
But the Burns analysis, unlike Palmer Bel-
levue's, considers fixed costs and variable produc-
tion costs, according to Burns' report: "Deprecia-
tion cost is omitted, and interest expense is given
passing mention."
"TVA's fixed-costs burden makes it almost im-
possible for TVA to lower rates to meet competition
and would likely make it necessary to raise rates to
remaining customers if some left and TVA was not
able to recover stranded investment charges."
Palmer Bellevue said TVA's major industries —
0.25 percent of ratepayers — account for nearly half
of TVA sales. Many, according to Burns, have non-
TVA transmission-line access and can buy power
elsewhere if TVA rates aren't competitive.
Smith said TVA industrial customers are prepar-
ing for rising rates. So are distributors.
But absent any TVA regulator, Smith said, no
one looks after TVA residential ratepayers who may
bear the brunt of a rate rise.
TVA prides itself in its ninth year without a rate
rise, and it seeks a 10th. But Smith said a 1995
decline in TVA revenues indicates a 10th year may
prove impossible. He predicts a major rate increase
within two years.
On the matter of TVA deregulation, Palmer Bel-
levue calls for two phases to let TVA compete for
wholesale power sales. Phase one, Palmer Bellevue
recommended, lets TVA sell power to adjacent utili-
ties. Phase two removes the "wall" entirely, allowing
utilities to "cherry-pick" — lure major select
customers to their systems.
But Burns engineer David Geschwind wrote Aus-
tin Carroll of Hopkinsville, Ky., chair of a the power
producers association's "Wall Study Team," of
"reservations about TVA ability to compete, when
the rate impacts of the $14 billion in non-rate-based
expenditures" are considered.
In a Jan. 12 letter, Geschwind wrote Burns
"does not believe a two-phased approach is likely.
... We are not convinced phase one removal
would afford TVA enough opportunities for off-sys-
tem sales."
Burns said GAO's 1995 report "paints a differ-
ent picture" by emphasizing TVA's debt and risk of
default.
TVA Chairman Craven Crowell has long main-
tained that TVA's debt, partly refinanced, is "man-
ageable."
Burns told the power producers "We believe de-
fault risk is low, given the prospect of stranded cost
(inoperable nuclear plants) recovery, but TVA will
have less flexibility than competitors in meeting fi-
nancing obligations because of leverage."
"Of five (GAO) options" for reducing debt,
Burns said privatizing TVA "may most benefit dis-
tributors."