Rate changes that cut the price of electricity for major industry in the Tennessee Valley also helped to hold the line on the cost of power for homeowners and small businesses, according to the top officials for TVA and its biggest customer groups.
TVA and the Tennessee Valley Industrial Committee on Friday dismissed claims by TVA's former chairman and environmental and consumer group leaders that TVA was favoring its industrial customers at the expense of residential and commercial power users.
"The notion that residential electricity rates are subsidizing industrial rates is just flat wrong," said Rob Hoskins, executive director for the Tennessee Valley Industrial Committee, the trade group that represents the 55 major industrial customers directly served by TVA. "Large industries are helping to keep electric rates lower than they would otherwise be for all customers."
TVA has cut the average cost of its electricity for its industrial customers by about 20 percent over the past five years while reducing residential rates by about 2 percent, according to TVA.
TVA President Bill Johnson said Friday that such savings have come from TVA cutting its own costs by more than $600 million a year in operating expenses, by building a more balanced portfolio for power generation and by offering incentives and flexible contracts for industry to encourage more economic growth and to shift industrial demand off the peak when power is most expensive.
"Our first priority is maintaining low rates and this depends upon having a fair and effective rate structure," Johnson said. "The rate picture here is good for everybody but industrial rates are generally lower than residential rates because it is more cost effective to serve large industrial loads."
TVA's residential rates have declined over the past five years and are now, on average, the 29th lowest among the 100 biggest U.S. utilities, down from the 37th place ranking in 2013.
But earlier this week, former TVA Chairman S. David Freeman and environmental and civil rights groups such as the Southern Alliance for Clean Energy and the NAACP charged that TVA was violating the founding principles of the government agency by giving bigger price breaks to major industry than for ordinary individual homeowners.
Residential customers in the Tennessee Valley paid an average of more than 10.8 cents per kilowatt-hour last year, or more than twice as much as the average rate of 5.23 cents per kilowatthour paid by direct-served industrial customers.
But such disparities are common among U.S. electric utilities, which on average have a retail rate of about 13 cents per kilowatt-hour for residential customers, compared with 6.8 cents per kilowatthour for industrial power rates.
Freeman insists that TVA should be different from investor-owned utilities.
"TVA promised to make power available to the people of the Tennessee Valley at the lowest possible rates, but has instead raised their rates to give a break to industrial customers," the former TVA chairman said, claiming the power shift by the current TVA management violates the TVA Act.
The Southern Alliance for Clean Energy charged that poor people are subsidizing big business and warned this week that the problem will get even worse if TVA goes through with another strategic pricing plan change later this year to impose higher fixed costs, and lower variable charges, on electric bills.
TVA has been working with its customer groups for nearly five years to revamp its pricing to better reflect the actual costs of service and to send the right price signals to help maintain a balanced demand at all times to lower overall costs.
"The general discussion at this point is looking at a fixed charge or another way to more appropriately align the energy consumed with its marginal costs and to send the appropriate price signals," TVA Chief Financial Officer John Thomas said, predicting that the TVA board will consider some rate realignment and a strategic pricing plan later this year, perhaps as early as May.
As distributed energy becomes more popular, more consumers are expected to turn to the sun, wind or other sources for renewable power when it is available. But such customers will still need the reliability of an electric utility to give them as much other power when they need it.
The higher fixed charge is designed to help pay for the transmission capability for serving each customer, regardless of whether or not they buy enough power to pay for such transmission assets.
Doug Peters, president of the Tennessee Valley Public Power Association which represents the 155 municipalities and power co-ops that buy TVA power, said he thinks TVA has generally struck a good balance among different classes of power users.
"I don't think it is a case of industrial versus residential customers since both classes of customers benefit from the TVA model and I think we've done a pretty good job with rates over more than 80 years," Peters said.
Hoskins and TVA officials said industrial customers use significant amounts of power at night when other customers don't and provide an interruptible load that can be managed to help TVA even out its power deliveries to be more efficient using its power plants.
"When the TVA system operates efficiently and reliably, this helps lower the electricity costs of all of TVA's customers," Hoskins said.
But some TVA distributors have objected to TVA's approach.
Wayne Scarbrough at the Athens Utility Board said he continues "to push back on (rate changes by TVA) in this era of record TVA revenues" and bonuses for executives and other employees.
"TVA announces record revenues, insists on handing out $100 million in year-end bonuses every November as if it were an investor owned utility, and yet continues to squeeze our customers with another rate increase? We consider that unacceptable on behalf of our customers," he said.
David James, a board member for the Southeast District Power Distributors Association, said he is increasingly upset by TVA's approach to raising executive pay and making annual rate increases.
"I used to like the fact that we have TVA here, but it seems like every year they're going up, plus they're paying these higher-ups tremendous bonuses," James said.
Contact Dave Flessner at email@example.com or at 423-757-6340.