trending Market Intelligence /marketintelligence/en/news-insights/trending/ac6vgwakh7lx_uyeny3-ea2 content esgSubNav
In This List

TVA CEO dismisses rate structure criticisms

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


TVA CEO dismisses rate structure criticisms

SNL Image

The Tennessee Valley Authority's coal-fired Cumberland plant in Cumberland City, Tenn.

Source: TVA

The Tennessee Valley Authority's CEO on Feb. 2 defended the agency's rate structure, dismissing as "completely inaccurate" a report that contends the authority has shifted recent rate increases from industrial users to residential customers.

President and CEO Bill Johnson also confirmed the withdrawal of a major transmission project on the Tennessee Valley Authority's, or TVA's, fiscal quarter earnings call and discussed the agency's upcoming integrated resource plan.

Three days earlier, former TVA board chairman David Freeman publicly criticized the agency, citing a report commissioned by the Southern Alliance for Clean Energy, which asserts the TVA has shifted the burden of recent rate increases to residential customers and away from industrial and direct-serve users in an effort to encourage economic development.

When asked about the assertions by Freeman and SACE, Johnson called it "completely inaccurate," citing the agency's effective wholesale rate being down 2% from when TVA started a round of rate increases in 2013. According to the CEO, residential rates in the Tennessee Valley are among the best in the country, adding that "the rate picture is good for everybody here."

Industrial rates are generally lower than residential rates because it is more cost-effective to serve large industrial load, Johnson said, adding that the agency's industrial-residential cost differential is lower than the national average.

"All we have done over the last couple years is stick to traditional cost-of-service to figure out how much each class costs and charge them that, so I think we are charging people the right amount," the CEO said. "I will say 70% of Americans pay a higher price for electricity than people in the Valley, so I think everybody is paying close to what they should pay in terms of the cost they impose on the system."

In the SACE report, the consultants who wrote it said they did not have the cost-of-service figures to draw upon and instead relied on information publicly available elsewhere. TVA spokesman Jim Hopson disputed that, and told S&P Global Market Intelligence the agency did indeed provide them. He added that TVA was not contacted to verify figures used in the report.

Executive Vice President and CFO John Thomas said TVA is working on the next step in its strategic pricing plan and is in discussions with the local power companies it supplies.

"The general discussion at this point is around looking at a fixed charge, or a way to more appropriately align the energy with the marginal cost and give the appropriate price signal," Thomas said. "So that's generally the direction that we're in discussion with the customers about."

Clean Line, IRP updates

Johnson confirmed a December report by the Chattanooga Times Free Press that Clean Line Energy Partners LLC dropped its interconnection agreement with TVA for the proposed Plains & Eastern transmission project.

"We read in the paper they have sold the enterprise to someone; they have withdrawn their request from the transmission queue," he said. "So we're not exactly sure what the future of the project is, but they have sold the enterprise and removed themselves from the queue."

Management also described the agency's upcoming integrated resource plan, or IRP, initiated in response to flat demand, technological advances and distributed energy.

Johnson said the IRP will take about 18 months to be completed and that TVA is currently in the early stages. The agency's reserve margin of 15% to 17% is "adequate," he said, but added that "we think it's time to start refreshing and updating the IRP."

One of TVA's underlying assumptions is that it will lose 12% of its load over the next 20 years. "The challenge that is facing the industry, that I think we've responded well to," Thomas said, "is to align the infrastructure and the cost that you have internally with the reality of what's happening in the marketplace, and what we have seen is a decline in load and revenue."

The reason why TVA is focused on debt reduction, the CFO explained, is to reduce customers' debt burden, which will result in lower rates. "I think we've done good progress in terms of the cost component of that, and now we focus on deleveraging and rates," Thomas said.