Thursday, November 15, 2012
TVA representatives speak for the record
By SUE WATSON
The South Reporter interviewed Cynthia Herron, director of retail regulatory affairs for TVA, and Duncan Mansfield, TVA spokesman in Knoxville, Tenn., to obtain answers about the authority’s regulatory role with power distributors such as the Holly Springs Utility Department.
The interview is in Q.& A. format for purposes of brevity and to provide to-the-point answers. At the end of the interview, Herron and Mansfield make summary statements.
Q. Is TVA subsidized by the federal government?
A. Mansfield: No. The federal government stopped subsidies for the power side in 1959 and in 1999 for the non-power side such as flood control and stewardship. TVA relies on power sales revenue to operate. TVA is a not-for-profit federal corporation with annual revenues of more than $11 billion. The federal government does regulate TVA through congressional oversight committees.
Q. Does TVA charge all distributors the same wholesale rate for electricity?
A. Herron: Yes. TVA charges all distributors the same wholesale rate for electricity. Distributors then add their own costs of doing business to the retail rate charged consumers. Examples of these costs include payroll, benefits, operation and maintenance costs, debt service, tax equivalent, etc.
I understand that there have been some questions around the city concerning paying a tax equivalent payment. The TVA power contract with local utilities allows for the distributor to pay a tax equivalent payment which covers a portion of city government.
The tax equivalency is not TVA’s issue of concern with HSUD. TVA has a contract with 155 local distributors. In that contract, TVA has parameters that say that distributors must be fair and equitable with all customers and must keep rates as low as feasible for its retail customers.
TVA is concerned that HSUD is disconnecting and reconnecting delinquent customers in a way that forces paying customers to subsidize non-paying customers, which increases rates for everyone.
Q. Does TVA set policies for HSUD on when and how customers will pay their bills and how many reconnects a customer may have annually?
A. Herron: The city proposes its retail rates and its policies associated with those rates to TVA. As the regulator of HSUD, TVA reviews and approves those rates and policies to be sure they do not conflict with the power contract.
The Public Service Commission does not regulate HSUD’s electric power side of the utility.
TVA is the regulatory authority. TVA is required by Congress to make sure TVA electricity is “sold and distributed to the ultimate consumer (HSUD’s customers, for instance) without discrimination as between consumers of the same class.” The TVA Act says there can be no discriminatory rate, rebate or special concession given to any consumer.
TVA has been working the last three years to try to resolve these issues. TVA is asking the city of Holly Springs to follow its own policies the board of aldermen has already approved. Our goal is to ensure rates for all customers are fair, equitable, and that rates are as low as feasible.
Q. Does TVA work with distributors such as HSUD to help communities find ways to assist customers who cannot pay their bills?
A. Herron: TVA supports the efforts of distributors to work with customers who have difficulty paying their bills. These include working with churches and community agencies to find ways to help customers who owe past due electricity bills.
TVA cannot support a local power company forcing paying customers to subsidize customers who fail to pay their bills. People who are working hard (to pay their bills) should not be required to pay someone else’s utility bill.
Section 12 of the TVA Act provides that all customers are treated equally.
Mansfield: The TVA Act of 1933 requires that TVA regulate wholesale power that is resold by utilities. It is repeated in our contract and part of our agreement with Holly Springs.
Q. Did the environmental cleanup of a coal-ash retention pond in the Kingston, Tenn., coal-fired facility cost TVA $1.2 billion to clean up? If so, who pays for that cleanup and how much?
A. Mansfield: The $1.2 billion cost of cleanup at the Kingston plant added 69 cents a month to each customer’s bill for 15 years across the entire TVA system. The assessment of 69 cents a month was begun in October 2009 and will end in October 2024.
Q. How does the fuel cost adjustment (FCA) work and how much does it cost customers?
A. Mansfield: TVA’s Fuel Cost Adjustment is a monthly charge to account for price decreases or increases in the fuel TVA uses to make power. The changes are usually up or down around one to two dollars a month for the typical residential bill. While the FCA was $1.94 more in October 2012 than in October 2011, our fuel cost for the entire year to date is actually 1 percent less than a year ago.
Q. Is TVA asking the city to follow its already approved policy of fairness to customers and is that the main reason TVA wants HSUD to come into compliance?
A. Herron: Yes. We received an external audit report that Holly Springs was not following its own policy of connect/disconnect/reconnect.
As a result, TVA proposed a compliance agreement to the board of alderman which will bring them back into compliance with the power contract. Our approach in the compliance agreement with HSUD is the very same approach that TVA takes with any distributor that is out of compliance with their power contract with TVA.
Q. How do you calculate the tax equivalency and does TVA pay state taxes?
A. Herron: TVA does not pay a state tax. But we do pay an in-lieu-of tax payment to states where TVA does business based mainly on TVA power sales and acquired power assets. In 2011, TVA’s payment to the State of Mississippi was $33 million. The state decides how to use and distribute the money.
Holly Springs calculates its tax equivalent for local taxes to the municipality based on HSUD’s net plant value. The amount of the tax equivalent is a portion of what HSUD adds to its retail rate to consumers. HSUD’s tax equivalent for 2012-2013 is $1.7 million.
Mansfield: TVA’s only role in that is to watch that Holly Springs assigns the appropriate tax equivalent to its retail rate. There are two parts to the customer’s bill – the cost of power purchased from TVA and Holly Springs’ cost of operations. That is how the consumer’s bill is figured.
Q. Does the Public Service Commission get involved in a regulatory fashion in electricity rates HSUD charges its customers? If not, who does?
A. Herron: No, TVA is the regulator of HSUD’s electric rates and associated policies. HSUD’s policies, which are consistent with their TVA power contract, do closely track the Public Service Commission’s Bill of Rights.
The policies approved by the board of aldermen outline the customer’s rights and how to treat customers in extreme weather, those who have medical conditions, and connect/disconnect policies, etc.
Herron said TVA wants to ensure that rates for all customers are equitable and fair and that rates for all customers remain as low as feasible.
Mansfield added, “This is all about Holly Springs Utility Department’s customers.”
TVA has been working with the city for the past three years to resolve this issue, Herron said.
“No one wants someone’s electricity disconnected because we know how valuable electricity is to everyday life,” she said. “TVA supports the appropriate efforts to assist customers with their electric bills, including voluntary billing programs that let customers donate to a fund to help neighbors keep their lights on.
“What TVA cannot support is a local power distributor forcing customers to subsidize the electricity of those who fail to pay. This is unfair and discriminatory. Customers who work hard to pay their bills should not be required to pay for those who don’t. This isn’t fair and it results in higher rates for the vast majority of folks who work hard to meet their obligations to the local utility.”
Herron said, “Our role is in protecting those customers.”
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