In restructuring rates, TVA breaks ranks with its distributors

In restructuring rates, TVA breaks ranks with its distributors
By KATHY CARLSON
Staff Writer

KNOXVILLE — The Tennessee Valley Authority's three directors raised residential and commercial electric rates by 7.4% yesterday but cut rates for 1,500 industrial users by 2%.

The unanimous vote will raise $365 million in annual revenue earmarked for air pollution-abatement equipment. It also exposed rifts between TVA and many of its immediate customers over how the rate package was developed. The customers are TVA distributors that buy power from the giant federal utility.

The rate changes go into effect Oct. 1 and will stay in place for 10 years. TVA estimates that the changes will add about $3.76 to the monthly bill of a residential customer purchasing power from a distributor and using 1,000 kilowatt hours per month. Unlike investor-owned utilities, TVA does not have to present a rate case to regulators to raise rates.

TVA officials, as well as groups representing industrial customers, also said the 2% rate cut will help make industrial rates more competitive. That, in turn, will improve the ability of TVA's seven-state region to attract new industry and stem the loss of industrial jobs.

In approving the new rate package, TVA broke from a longstanding practice of changing its rate structure only after forging a consensus with distributors, said Harold DePriest, chairman of the Tennessee Valley Public Power Association. The group is made up of the 157 distributors, including Nashville Electric Service, who buy power from TVA and resell it locally.

DePriest, president and chief executive officer of the Chattanooga Electric Power Board, acknowledged that some TVPPA members differ with him on the new rates.

Most members, however, "are far more troubled with TVA's deviation" from the process of seeking consensus with distributors on new rate structures, he said in a public hearing held during the TVA board meeting. In past years, he said, TVA and its distributors worked for months or years as needed to reach agreement.

Another speaker agreed. Herbert Sanger, a former TVA general counsel who now represents a group of electric co-operatives, questioned whether TVA followed the process that says that when either TVA or its distributors want to restructure rates, they must "endeavor to reach agreement." That requires negotiations in the "utmost good faith," he said, noting it was required in an earlier contract.

"I think there is substantial question about whether the process that's been followed meets the process that's required," he said.

TVA's directors unanimously disagreed.

"I really think this process has worked very well," Director Skila Harris said earlier in the three-hour discussion. She added that she backed off an earlier rate package in response to concerns from distributors.

TVA Chairman Glenn McCullough cited "hundreds of meetings" over the proposal, adding, "This was not done in an uninformed way."

Criticism of TVA for moving too fast "doesn't go far with me," said Director Bill Baxter, a former Tennessee Economic Development commissioner. If anything, he said, TVA needs to move faster, and two to three years' work on a rate restructuring is unacceptable.

In addition to the rate package, the TVA board also approved a budget for its 2004 fiscal year, which begins in October. The budget allots $418 million for air-pollution controls, $251 million for transmission system improvements, and $225 million for debt reduction. It also forecasts about $7.6 billion in revenue.

The 19 speakers at the public hearing included TVA retirees and distributors, as well as members of environmental groups. About half backed the rate package, and half opposed it.

Larry Fleming, president of the Knoxville Utilities Board, a TVA distributor, called the restructuring a "prime example of balancing the system." Although higher rates will "hit people hard," his organization thinks the package is in the best interests of TVA and its customers, he said.

Stephen Smith, executive director of the Southern Alliance for Clean Energy, blasted the package for what he called "special deals" for some customers. He and others charged TVA with a lack of accountability for its decisions.

"You are in a class by yourselves — (you) don't have to answer to anyone," said David Orr, a Knoxville resident who said his group, Citizens for Utility Reform in Knoxville, started out of concern about TVA accountability. To paraphrase the 1950s television character Ricky Ricardo's frequent admonition to wife Lucy on the I Love Lucy show, Orr told the directors, "you've got a lot of 'splaining to do."

Before the vote, McCullough acknowledged "there are relationships that are strained." He pledged to "personally reach out to make sure relationships are what they should be."

After the vote, DePriest stood in the midday sun outside TVA's downtown Knoxville high-rise complex.

"They have never implemented a rate (restructuring) before over the objections of distributors," he said.