While overall electric rates have gone up in the past year, the Tennessee Valley Authority has cut the average bill for its biggest industrial customers by an average 6.8 percent.
The industrial power savings have come through cheaper fuel and a variety of incentive programs TVA created a couple of years ago to help it regain its competitive standing and attract more jobs to the Tennessee Valley. TVA is on pace this year for a record high of business investment and job creation, which utility officials say was boosted by new industrial incentives adopted two years ago.
To sustain such growth, TVA is preparing to launch a major pricing study to revamp its charges for electricity by fiscal 2016.
"We recognized a couple of years ago that our industrial rates were not as competitive as what we would like them to be so we made some changes that made a real difference for a lot of businesses," said Gary Harris, TVA's vice president of industrial marketing and services. "The idea behind these programs is that we wanted to recognize and give those companies that are willing to make a commitment to the valley for the long term an extra incentive to stay or to come here and invest."
Harris said by keeping and increasing businesses in the Valley, the incentives helped to create more jobs and to spread TVA's costs over a bigger base. Although TVA lost its largest customer last year when U.S. Enrichment Corp. shut down its uranium enrichment plant in Paducah, Ky., TVA has boosted other business investment in its 7-state region this year by more than 40 percent over last year's total.
For all of fiscal 2013, TVA attracted $5 billion of new investment and 52,000 jobs. With a couple months left in the current fiscal year, TVA already has attracted a record $7 billion of business investment this year and recruited or retained more than 50,000 jobs.
"We've seen a lot industry either coming in or expanding in the Valley and we expect we'll have a record year this year for new investments," TVA Chief Financial Officer John Thomas said.
One of TVA's key programs is the the Valley Commitment Program adopted two years ago give TVA credits to industries that stay or expand in the Valley. That program expires in 2015. When it does, TVA hopes to have a new strategic pricing plan in place to revamp how power is priced.
TVA has begun a study and will soon formally launch a rate revision process, which requires at least six months notice before it can be implemented. Thomas said TVA wants to have a new rate structure in place by Oct. 1, 2015.
The pricing change will be the biggest since April 2013 when TVA replaced its previous end-use pricing approach with its current pricing mechanism that charges customers for both monthly peaks, or demand charges, along with charges for the total energy consumed.
According to a survey released this spring by the Energy Information Administration, TVA's overall rates rank as the 35th lowest among the top 100 utilities.
TVA's industrial rate fares better, ranking 16th lowest among the top 100 utilities. Thomas said four years ago, TVA industrial rates were only about average, ranking 47th among the 100 biggest utilities.
TVA barely raised its rates for nearly a decade but boosted its charges more than most other utilities from 2008 through 2012, Thomas said.
Despite the recent improvement in TVA's manufacturing rates, industrial groups want TVA to do better to align its charges with its costs and to reward activity that stimulates economic growth.
"We appreciate the changes that TVA has made with its industrial rate incentives and we recognize that TVA is more competitive than it was in the past," said John Van Mol, a spokesman for the Tennessee Valley Industrial Committee, which represents the 58 biggest industrial customers directly served by TVA. "But we look forward to additional review of TVA's pricing approach to better align charges and costs and to better recognize the advantages of having more industrial load."
Because industrial customers tend to use power around the clock and in greater amounts, such customers help TVA cover its base operating expenses without pushing up the peak power demand as much as residential customers do on very hot or very cold days. Electricity becomes more expensive during peak demand periods when TVA and other utilities turn to more expensive forms of generation.
But any restructuring of rates necessarily has winners and losers.
"Industrial rates have to be competitive because you can't afford to freeze out growth and jobs," said EPB President Harold DePriest, a former chairman of the Tennessee Valley Public Power Association. "But you are always doing a balancing act between your residential, commercial and industrial customers and getting that right balance is always going to produce some disagreement among different customers. TVA seems headed in the right direction in controlling its costs and making sure rates are competitive. But how you want to price power depends upon where you sit."
Contact Dave Flessner at email@example.com or 757-6340.