published Monday, May 31st, 2010

TVA delays change in pricing schedule


* End use pricing. TVA now bills the 155 municipalities and power cooperatives that distribute its power based upon total power used priced at the rate charged to those who use the power.

* Demand and energy pricing. TVA used this approach before 1992 and may return to it next April. Under this approach, TVA charges its distributors a monthly demand charge based upon the peak amount of power used, plus the total amount of electricity sold to the distributor.

* Time-of-use pricing. EPB and other distributors installing "smart meters" may use this pricing approach to charge consumers different rates for electricity during different seasons and times of day to reflect the differing costs of generating more power based upon overall demand. During peak periods, TVA spends more to generate or buy power from more expensive sources than it does during slow demand periods.

The Tennessee Valley Authority is preparing to change the way electricity is priced to help cut the peak demand for its power.

But before any of the long-discussed changes are made in wholesale power rates, TVA has agreed to give its distributors more time to try out the proposed new payment system.

After months of negotiations over how best to price its power, TVA agreed last month to put off changes originally planned for October until next April.

For now, the federal utility will continue to use a single rate for power regardless of when it is used or its wholesale cost. But next spring, TVA plans to restore a demand charge previously imposed upon distributors for meeting peak power periods and move toward time-of-day pricing options in two years to align rates better with production costs.

Like other wholesale power producers, TVA is eager to charge more for power during peak demand periods when it costs more to generate or buy from other power producers. By adding a demand charge or time-of-day method of pricing, power utilities in other states have encouraged consumers to limit consumption during high-demand periods and shift their energy consumption to low-demand periods, such as the middle of the night.

TVA Senior Vice President John Trawick said new pricing schedules should encourage more consumers to shift energy use for heating, cooling, water heating and clothes drying to non-peak periods.

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"We want to move in this direction to try to encourage more demand-response, energy efficiency and to discourage energy consumption during our peak demand periods," he said.

The proposed pricing changes, for now, will affect only distributors of TVA power and not homeowners or businesses who ultimately use TVA-generated power. But eventually, TVA is likely to move to price power differently at different times of the year or times of the day.

During summer months, for instance, the marginal cost of electricity ranges from $30 per megawatthour during low-demand periods to $150 per megawatthour during the afternoon peaks, Mr. Trawick said.

"At the present time, there are not the incentives to use electricity at the most appropriate times," said Jack Simmons, president of the Tennessee Valley Public Power Association, the Chattanooga-based trade group for TVA's 155 distributors. "We think if you begin to send the right price signals, it might change behavior and change when power is used."

Making those changes for the nearly 8 million people served by TVA electricity, however, is difficult, Mr. Simmons said. Distributors want to make sure that changes in TVA pricing schedules don't end up costing them significantly more or creating short-term cash flow problems.

In Chattanooga, EPB President Harold DePriest said he still hopes to negotiate an arrangement with TVA to allow the Chattanooga distributor to use its new "smart meters" and try out some time-of-day pricing schedules. In such arrangements, consumers could cut their electricity bill by shifting more of their use to non-peak periods of the day.

Mr. Trawick said a few distributors who already had planned to use the new demand-and-energy approach may be allowed to do so in October. But the changes won't begin for most distributors until next April.

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