A mild summer has forced EPB to make substantial cutbacks, and more good weather ahead could be bad news for the company's planned projects, executives of the city-owned power utility told their board on Friday.
EPB makes most of its money during the hot months, when consumers run their air-conditioning full blast, and cold months, when residents are forced to turn up the heat. Nice weather means not-so-nice profits, because a ratepayer may simply choose to open the window instead of turning up the thermostat.
"You can divide the fiscal year up into three things: Summer, winter, and in-between. You make no money in-between," said Harold DePriest, president and CEO of EPB. "We've already lost the whole summer, and we've already lost $9 million. If the winter were just as mild, we'd be looking at something close to that."
The utility has already begun cutting back its $4.3 million tree-trimming operation, which removes limbs that could fall on power lines during a storm. But trimming those costs for too long could result in additional expenses from fallen limbs and power disruptions long-term, DePriest said.
TVA, which generates electricity and then sells it to distributors like EPB across a 7-state region, isn't helping the issue with its demand-based pricing, said EPB chief financial officer Greg Eaves. Demand-based pricing charges distributors each month based upon the peak amount of power used. So just one or two hot days per month in the summer send EPB's own power bill into the stratosphere, while an overall mild month takes away its ability to recover those costs.
"We just haven't had enough kilowatt sales to make up for the demand sales that occur during the month," Eaves said.
Down the road, smart meters like those installed by EPB are designed to pass those variable costs onto customers, rewarding ratepayers with cheaper rates for using power during off-peak hours, and charging them extra, as an example, when they run their air conditioning during the hottest parts of the day.
EPB leaders take some solace in the fact that their relatively new fiber-optic business is immune to such seasonal changes. Nearly $4.8 million has flowed from the fiber business into the electric system in the first three months of the company's fiscal year, partially offsetting the utility's losses. EPB's electric system will rake in a total of $20 million during the entire year. Another $700,000 has been saved by using the smart grid to throttle down voltage during peak hours, and more savings can be achieved by delaying $5 million in capital projects such as several automation initiatives.
"Hopefully we'll have a long, consistently cold winter," Eaves said."We're still financially healthy, but we don't want to get behind the 8-ball."
Some soothsayers say Eaves' wish for a colder winter could come true. The Farmer's Almanac calls for a colder November than average in Chattanooga, a overall colder-than-normal winter, and a hotter-than-average summer in 2014, all of which would warm the hearts of EPB's accountants.
But the National Oceanic and Atmospheric Administration doesn't agree, forecasting above-average temperatures this winter. Accuweather, a trusted weather website, says that winter will begin mildly, with a long period of above-average temperature.
"December could yield daily record-breaking warmth for the Tennessee Valley, where monthly temperatures departures could average as much as [four to six] degrees above normal," the site foretold.
EPB has to prepare for the worst, DePriest said, buckling down until it can bring expenses into line with revenues.
"I understand the Farmer's Almanac and the wooly worms are predicting bad weather, but that's not good information to use in making a business decision," DePriest said. "What we're seeing is well outside of the norm."
-- Contact staff writer Ellis Smith at email@example.com, or 423-757-6315.