Thursday, September 1, 2005

Electric rate increase passes

By SUE WATSON
Staff Writer

The Holly Springs Board of Aldermen passed an electricity rate hike unanimously following a presentation of a financial study by TVA Tuesday evening of last week.

This is the third utility service to be granted a local rate hike in several weeks, with gas rate increases looming.

TVA, the provider of electric power to Holly Springs Utility Department, will get a mandatory 4.5 percent rate increase for electricity and the HSUD’s electricity department will get a 6.31 percent increase overall, with residential customers seeing a 4.86 percent increase in their electric bills. Commercial and industrial customers and some residential customers with extra meters for barns, shops and other uses separate from their homes will see slightly greater rate increases. Some categories like outdoor lighting will be exempt from a rate increase.

TVA advised the utility it has to collect enough revenue to meet the minimal threshold in reserves mandated by TVA to be held for emergency situations. That amounts to one month’s operating expenses.

The new rates will also build in revenues for building a $3 million substation at Mt. Pleasant to help ease pressure on the Slayden substation and Ashland customers and to provide for long-term growth in the northern end of the county.

Dawn Best explained some details of the financial study before handing over rate analysis to Anthony Crutcher, a TVA economist stationed in Chattanooga.

The detailed financial analysis, which is required when a utility company requests a revenue increase of over $200,000 annually, showed some positives for HSUD’s management and staff.

Best said the utility has some “really qualified and great management, staff and employees.”

On the negative side, the utility has a high rate of turnover of trained employees, Best said, due to competing utilities, particularly Northcentral Electric Power Association.

HSUD director Tom Boone and Don Hollingsworth with public works said salaries are too low at the electric department to retain fresh employees. HSUD is serving as a training ground, they said.

“Competing utilities are taking your people,” Best said. “Training is very important, but you also need to retain them as well.”

A third concern of TVA was the price of underground versus overhead transmission.

Best said customers who pay for overhead transmission should not have to pay for underground lines. Under the new rate structuring customers who request underground transmission lines will have to pay the difference in the cost of the two, Best said.

TVA economist Anthony Crutcher discussed some details and assumptions he used to support the argument that HSUD’s electric department needs a rate increase now.

He projects growth in sales over five years to be about 2 percent.

Line loss over a three-year period averaged 7.87 percent, due to the miles of lines that reach far outside the City of Holly Springs that serve rural areas.

Best explained that HSUD looks more like a cooperative than a municipal utility because the service area has no high industrial load and because the customer base per mile is much greater than a city like Columbus.

Line loss (of electricity) is higher in Holly Springs than true municipalities because the system provides service out to rural areas, Crutcher said. Line loss has to be paid for by the utilities customer base.

Crutcher said he expects a 3.9 percent growth in line loss.

Capital expenses related to the planned addition of a substation in Mt. Pleasant, a three percent increase yearly due to inflationary pressures also justify rate increases for the utility, he said.

“If trends go as projected, by 2007, without a rate action you will be operating at a negative income,” he said. “A rate increase of 4.5 percent on October 1 will keep you in a positive rate.”

The city would be getting into trouble in the first quarter of 2006 if it made no rate increase of its own, Crutcher said.

The financial study also assumes the utility would have debt service for capital projects.

Mayor Andre’ DeBerry asked how TVA looks at marginal increases each year as opposed to a less frequent but higher rate increase.

Crutcher said TVA has guidelines for covering system growth (expansion) and normal growth and rates can be adjusted annually in much smaller increments with a 30-day notice to TVA.

“This 4.5 percent is just a rate increase to get us to where we need to be,” said DeBerry after alderman Garrie Colhoun argued for a gradual implementation of the 4.5 percent rate increase.

“We don’t have to do this,” Colhoun said.

“No, this is very serious - a tool we use to determine your financial stability,” said Best. “Looking into your future, financial stability declines and we can’t let you do that.

“We won’t let you do that,” added John Reid, a rate and regulatory specialist with TVA in Nashville.

Crutcher said the utility could take all or part of the 4.5 percent and use a three-year rolling total to determine subsequent yearly increments that will be needed.

He added that the increase will be used to build a cash reserve - any unrestricted funds that are not encumbered by debt or loans.

“That’s basically the level of cash and reserves you would have after all expenditures including capital projects,” Crutcher said.

HSUD’s rate increase will be balanced to shift more of the increase to commercial and industrial customers and those residential customers operating with extra meters to barns and sheds.

Best said large electricity users “don’t feel the brunt as bad” as residential customers.

In recommending the rate action TVA supports, Best said, “We’d like you to consider this seriously to maintain your good financial position you are in.”

She added that TVA can provide consumer tips to the utility to help customers who will be impacted by the increases to manage their energy usage.

A very important statistic that came out of the study, according to Hollingsworth, is that average residential electric use is at 1300 kilowatts hours rather than 1000kwh.

“Our customers’ don’t do a good job of conservation,” he said. “One day we may need to do more conservation. We need to notify the public to conserve.”

HSUD accounts manager D. Miller suggested energyright website (www.energyright.com) which she said has good advice on energy conservation.

Best said customers can get a free energy audit but she does not think consumers are doing a bad job of conserving because they are using more power.

“We want them to use energy,” she said.

She added that technologically advanced customers expect reliable service but “it’s not free.”

Customers who live in an area where the power goes off a lot are more accepting of it and don’t protest outages as often, she said.

She said the Mt. Pleasant substation which is being built in to the rate increase as a capital project, should provide reliable service for 50 years.

Miller added that raises for employees are added into the rate increase. She said HSUD needs to be able to recruit the best and most trainable people it can get.

Best added that about half the electric department employees can qualify for a 25-year retirement in the next seven years.

“So, retention is very important and I think you can accomplish that in this budget,” she said.

“It is a very tight budget,” she reminded.

Alderman Nancy Hutchens asked about Holly Springs’ pay scale.

“Is our pay scale that much below average?” she asked.

Best said TVA can do a survey of the utility’s chief competitor.

“You train ’em, they hire ’em,” said TVA’s John Reid.

Alderman Tim Liddy asked if the electric department requires “a more skilled employee?”

“Yes, it does,” said Boone. “They have to accept schooling, absorb it and step up to a higher level. Northcentral is not out there ready to pounce on every employee we’ve got. These people are looking out for themselves and North central is looking for employees.

“You can’t buy trained employees,” he said. “You can buy trainable ones.”

Best cautioned the board of aldermen that training is important to avoid employee injury or death and potential liability for the board.

Residential customers who use 1500 kwh will see their bill go up from $100.87 to $110.96, or about $10 dollars a month. A commercial customer who paid $116.37 for 1500 kwh will pay $131.35, or about $15 more a month. Those new bills include both TVA’s rate increase and the electric department increase.

GSA1 class customers (those with meters to out buildings) with a bill of $11.40 a month will see the bill go up to $17.50, or about $6.10 more a month.

Higher commercial customers (GSA2 class) who have been paying $30 a month will see the bill go up to $46 a month.

Big commercial users (GSA3 class) will see a bill go from $60 to $100 a month.

A gas rate increase is also in the works, with the Board of Aldermen voting unanimously to restructure gas rates and adjust the price monthly as opposed to estimating the price.

Holly Springs Utility Department will bill customers based on an operating cost factor plus the cost of gas and sales tax. The minimum gas bill is set at $10.

DeBerry said the old method of estimating the price of gas over a 12 month period has been unpredictable now that gas prices are trending upward.

“If we miss the estimate, the gas company comes up short,” he said.

Residential customers will not notice a significant increase in monthly gas bills until cold weather sets in.


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