The Tennessee Valley Authority building in Chattanooga is shown on Wednesday, Nov. 2, 2016.

TVA rates study


The Tennessee Valley Authority is shifting more of the cost of its electricity from industrial to residential customers, keeping power rates relatively stable for homeowners while giving the biggest businesses in the Valley rate reductions of 20 percent or more over the past six years, according to a new study of TVA rates.

A review of government rate information by Synapse Energy Economics found that TVA shifted more than $1.4 billion from industry to homeowners and commercial customers from 2011 to 2016, costing the typical homeowner in Chattanooga nearly $14 more a month than what they would have paid without the rate realignment.

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S. David Freeman

TVA and its customer groups said the rate changes were made to bring rates more in line with TVA's costs, to make the Tennessee Valley more competitive for industry and to respond to changing patterns of energy use.

But environmental and consumer advocates Tuesday said the rate changes are contrary to the founding purposes of the New Deal agency started in 1933 to help electrify and develop the impoverished Appalachia.

Former TVA Chairman S. David Freeman, a Chattanooga native who served on the TVA board from 1977 to 1984, said TVA's current management is not focused enough upon the individuals TVA serves in its seven-state region and accused the utility of forcing poor people to pay higher power bills to subsidize industrial customers.

"Franklin Roosevelt and countless others would be turning over in their graves at what TVA is doing today," Freeman said. "TVA is in violation of its contract with the people of the Tennessee Valley."

Freeman said TVA is shifting its fixed costs to its captive customers in homes and local businesses while lowering rates for industrial users which are most apt to relocate or shift to other power sources.

"Instead of power for the people, it's running rampant as the largest unregulated power company in America, with its CEO as the highest paid federal employee," Freeman said, referring to the $6.45 million of compensation paid last year to TVA CEO Bill Johnson.

Melissa Whited, principal associate at Synapse Energy Economics, said the rate study showed industrial customers benefited by economic incentives, fuel cost adjustments and other rate realignments more than residential and commercial customers.

"While TVA's industrial rates have fallen steeply in recent years, other industrial rates in the region have remained relatively flat," she said. "These trends raise many questions about what is driving TVA's rate-making process."

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Stephen Smith

The Southern Alliance for Clean Energy, which commissioned the rate study by Synapse Energy, urged TVA to do more to disclose the contracts it negotiates with its 55 direct-served industrial customers and called upon Congress to do more to oversee TVA's rate-making process.

"TVA is hiding the ball on how it's manipulating rates to the advantage of big industrial customers at the expense of families and small business," said Dr. Stephen A. Smith, executive director of the Southern Alliance for Clean Energy.

Industrial customers of TVA complained in the past that power rates in the Valley were not competitive and that industrial customers were paying too big of a share of TVA's overall costs since industrial customers generally cost far less in transmission expenses and usually generate a more stable, consistent load.

Residential customers are served by the 154 municipalities and power cooperatives that collectively buy 90 percent of TVA's power and they typically cost more to serve by demanding the most power during peak demand periods during hot summer afternoons or cold winter mornings when power generation costs are the highest.

TVA has cut more than $600 million in annual operating expenses over the past four years since Johnson became CEO to trim the average cost of power by about 2 percent over the past five years. The biggest share of those savings has been enjoyed by direct-served industrial customers, which paid an average last year of 5.23 cents per kilowatt hour, or less than half the average delivered cost to residential customers by TVA distributors such as Chattanooga's EPB of 10.84 cents per kwh.

TVA's industrial rates last year dropped to the 8th lowest among the top 100 utilities in America, down from No. 29 the previous year, according to data from the Energy Information Administration.

Residential customers of TVA also were more favorable, moving up to the 29th best utility rate last year from No. 32 the previous year.

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Doug Peters

"Industrial rates are lower because the cost to serve their loads is lower," TVA spokesman Scott Brooks said, noting that many industrial customers have interruptible power contracts that allow TVA to cut their power during peak demand periods. "We also have made an effort in the last five years to improve industrial rates to attract more industries to the region."

TVA said it has helped attract or retain $41 billion of business investment in the past five years, generating more than 400,000 jobs in the Valley.

"Rate making is not an exact science and there are great challenges for all utilities to adapt to the changing world of electricity demand in which consumers want reliable electricity available at all times whether the sun shines or the wind blows and yet the demand for power is no longer growing and in many cases is declining," said Doug Peters, president and CEO of Tennessee Valley Public Power Association. "There is a balance that has to be struck among all rate classes and for the most part I think TVA and its customers do a good job. This model has served the Valley very well for more than 80 years."

Peters said industrial customers help stabilize TVA's power load and without such major industries residential customers would need to pay more to  make up for the power use and sales generated by such industrial consumers.

But Jimmie Garland, vice president of the Tennessee NAACP, said the shift in costs from industrial to residential customers is aggravating problems in paying higher electric bills this month due to the cold weather in January.

"Many citizens, in particular citizens of color, in cities and rural areas across Tennessee are having to choose between paying utilities bills rather than acquiring necessary food and medicines," Garland said. "It is wrong for any organization to have total autonomy on how residents are assessed, especially when the assessor is acting as the chief oversight authority over both the formulation of their policies and its execution."

Contact Dave Flessner at or at 757-6340.

This story was updated Jan. 30, 2018, at 11:59 p.m. with more information.