TVA, LGW could deliver 1-2 rate punch

TVA, LGW could deliver 1-2 rate punch

Year ahead holds increases for cleanup, aid to poor

By Tom Charlier
charlier@gomemphis.com
February 8, 2003

The costs of helping the poor and cleaning up the air soon could add up to a double-barreled electric-rate shock for Memphis-area house holds.

After years of stable charges in the area, both the wholesale and retail suppliers of power are weighing rate hikes.

The Tennessee Valley Authority this month is expected to give formal notice of a proposed restructuring of wholesale electric rates that would boost residential bills 8.1 percent and slightly reduce charges for industrial customers.

The three-member TVA board likely will vote on the rate plan in August. If approved, the new rates would take effect in October.

The TVA hike could come in addition to an increase by the Memphis Light, Gas & Water Division. LG&W is assessing whether it needs to increase its retail electric charges in 2004 - a measure that would have to be approved by the LG&W board of commissioners and the City Council.

Local customers haven't had to pay more for power since late 1997, when TVA imposed a 6.1 percent increase. LG&W hasn't raised its rates in 10 years and in fact slightly reduced them in 2000.

The two utilities give varying reasons for the possible increases.

For TVA, it's the equipment and engineering required to clean up emissions from coal-fired power plants. LG&W officials, on the other hand, cite inflationary pressures and the $9.5 million annual cost of new policies sought by City Council members to provide a safety net for low-income customers.

LG&W president and CEO Herman Morris said no decision has been made as to whether the utility will seek a rate increase.

"That's like blood pressure. We take that reading, or pulse, continuously," he said.

Morris, however, said the low-income assistance policies, which included a monthlong deferral on service cutoffs and reduced reconnection fees, are having a "definite and marked" impact on the utility's revenues.

The prospect of a TVA increase could make a rate hike by LG&W even more unpalatable.

"We operate with a very tight relationship with TVA. If they sneeze, we get a cold," Morris said.

TVA chairman Glenn McCullough called LG&W "one of the best utilities in the country."

Residential customers in Memphis and elsewhere in the TVA region enjoy some of the lowest power rates in the nation, he added. The rates will remain comparatively low even with the TVA increase, McCullough said.

The TVA increase averages 5.9 percent when the decrease for industrial customers is figured in.

The industrial reduction is needed, McCullough said, because factories in the region generally pay higher rates for power than those in most surrounding states. Manufacturing jobs have been declining, he said, and "we have got to stem that trend."

McCullough said TVA needs more revenue to cover pollution-control projects that in "almost every case exceeded what we originally estimated."

TVA is under intensified pressure to meet the requirements of the federal Clean Air Act and orders from the U.S. Environmental Protection Agency to reduce emissions that cause acid rain, ozone pollution, haze and other problems.

The agency is spending $538 million on air pollution cleanup work this year alone. By the end of this decade, the total spent on the clean air program will hit $5.6 billion.

At the Allen Fossil Plant in southwest Memphis, TVA has shelled out $147 million for three selective catalytic units that slash emissions of smog-causing nitrogen oxides.

But an environmental group often critical of TVA said the agency is being "misleading and disingenuous" in blaming the rate hike solely on air pollution controls.

Stephen A. Smith, executive director of the Southern Alliance for Clean Energy, noted that TVA is pursuing other costly projects, including the $1.8 billion restart of a nuclear unit in Alabama during the next few years.

"It doesn't take a rocket scientist to do the math," Smith said.

Smith acknowledged that the air pollution reductions are creating significant budget pressures for TVA. But he said the agency could have minimized the pain by beginning the cleanup earlier.

"It's the cost of doing business if you're operating old, dirty power plants," Smith said.

• Tom Charlier: 529-2572