TVA rates, FCA and local utility billing to be restructured

The TVA Board last week approved a 2010 budget of $10.2 billion for operating expenses and $2.3 billion in capital investments.

The Board also took several actions to reduce the impact on consumers of a projected $7.2 billion shortfall for the period 2010 through 2012, including $1.9 billion in budget cuts and $2.8 billion in additional borrowing primarily to fund capital projects.

Along with the approval of the 2010 budget, the TVA Board also approved an 8 percent increase in the average wholesale electric rate for the Tennessee Valley. To offset the rate increase initially, TVA is decreasing the quarterly Fuel Cost Adjustment by 11 percent for the October billing period.

The TVA Board also approved to change the Fuel Cost Adjustment mechanism from a quarterly to a monthly calculation. This should result in more frequent and more accurate forecasting of fuel and purchased power costs, as well as less dramatic swings in the FCA amount each time it is passed along to consumers through TVA distributors like Fayetteville Public Utilities.

The Fayetteville Public Utilities' Board met twice last week in special called work session and board meetings to discuss what changes Fayetteville Public Utilities should make based on the recent cost of service study done by Patterson and Dewar Engineers, Inc., and to prepare for the future of the electric industry.

"When TVA announced the changes in their rates and plans to strengthen their own financial situation by changing the way the fuel cost is passed on to consumers, we felt compelled to look at ways to help our customers locally," says Fayetteville Public Utilities CEO and General Manager Britt Dye.

"As part of the overall rate adjustment, TVA also gave Fayetteville Public Utilities a two-percent guideline allowance for a local rate increase if needed," says Dye. "This is standard practice to all power distributors in the Valley. At this time, Fayetteville Public Utilities will not be taking the two-percent allowance for an additional increase on local rates. This decision alone has saved local rate payers over $855,000 in additional costs."

"What will happen as a result of the cost of service study is that Fayetteville Public Utilities' fixed, monthly customer charge will increase and the residential energy charge per kilowatt-hour will change," says Dye. "The study recommended to us that we increase our fixed residential customer charge from $13.77 to $22.10 per month. We have approved the residential customer charge to increase to $18.00 per month. All other classes of electric customers will also see an increase in their monthly fixed customer charge."

The customer charge is used by the utility to recoup its fixed operational costs.

"What we plan to do in looking forward at our own rate structure is to ‘flatten' our residential rates. For many years, Fayetteville Public Utilities has had a declining block rate for electric customers which means that a higher charge was billed to those customers using 800 kilowatt-hours or less each month. Customers using over 800 kilowatt-hours were billed a slightly lower amount for that portion of their electricity."

"For the utility, the change from a declining block rate to the flat rate will have no change in our total revenue," says Dye. "For residential customers, it simply means kilowatt-hours are priced the same no matter how many are used."

"We just received the information about the TVA rate changes last week, so at this time, we do not have the final figures on how the TVA rate increase and FCA decrease will affect our customers on their utility bills. As soon as we have that information, we will pass it along."

At this time, the flat rate billing and increase in the monthly customer charge by Fayetteville Public Utilities are contingent on TVA's approval. Once approval is received, the utility will announce the flat rate effective date for local customers.

"Each day brings new challenges to the utility industry, and we, at Fayetteville Public Utilities, will meet those challenges head-on and do the right thing with our customers' best interests in mind."

"Doing nothing is not an option for us," says Dye. "We must position Fayetteville Public Utilities to be strong financially in each utility department. This recent move by TVA has placed us in a situation to have more local control over how we bill our customers and how much we bill our customers."