HSUD joins TVA partnership
The mayor and board of aldermen approved Tennessee Valley Authority’s offer to provide long-term support for the maintenance and reliability of local power distributors, specifically Holly Springs Utility Department.
The bill credit on monthly wholesale payments to TVA will provide a fund to upgrade infrastructure in order to improve system reliability.
TVA is offering this bill credit to all its distributors, subject to approval of the Long-Term Partnership Agreement, said Bill Stone, HSUD general manager.
So far, 132 of the 154 Local Power Companies (LPCs) across the Valley have signed up, including 27 of 28 in Mississippi. Most of the LPCs that haven’t signed the agreement are “on the fence” meaning on the periphery of the Valley (Memphis being one of those), he said. All HSUD neighbors have signed, including North-Central and Tallahatchie Valley, which are between Holly Springs and “the fence.”
Stone explained the partnership agreement.
The bill credit comes from a reduction of costs to TVA (primarily interest costs on debt) due to the stability of having long-term power-supply commitments with local power companies, Stone said.
The credits that accrue each month can be used as a reserve fund for emergencies. However, Holly Springs’ plan, as approved by the aldermen, is to dedicate the money to upgrades and improvements in the electric system that will specifically improve reliability of the electric system. Some examples would be replacing worn infrastructure and upgrades to the system, a SCADA (control) system. It is an outage management system which uses computer models to help locate the causes of outages and expedite repairs. It can be used also for rights-of-way clearing projects.
“Our plan specifically says that it can be used for debt service for those types of projects as well,” Stone said.
SCADA is an acronym for supervisory control and data acquision – a computer system for gathering and analyzing real-time data.
Stone provided examples of capital improvements and maintenance needs that do not get done routinely because of lack of money.
“We just finished the Ashland Substation upgrade,” he said. “We don’t have any major capital projects going on in the electric side at HSUD at this time, other than if you count the improvements we are making in our service fleet (it is considered capital for budget purposes).”
The two biggest items that are cost-prohibitive, and in some ways go hand-in-hand, are SCADA-related, estimated to cost roughly $600,000. The other is an outage management system.
“We did include some of the basic SCADA project in this year’s budget,” Stone said. “We are hoping that the reliability fund will allow us to move forward faster and increase the scope of the project to include automated switching and breakers on the lines with the goal of giving the system the capability to at least partially ‘self-heal’ through that automation.”
Stone said the bill credit is projected to provide $477,000 the first year. Over 10 years the fund is expected to provide almost $5 million for improvements.
Although TVA recaptures and returns money to the distributors, ultimately the money comes from customers.
“But,” Stone said, “if it was passed along to the customer as a rate reduction, it would be equivalent to about 2 percent at retail (customer level),” he said.
For example, if a customer has a $200 bill, of that, $115 (1,000 kwh) is electric (the rest being water, gas, sewer and sanitation). That customer would save $2.30 on that monthly bill.
Stone believes it is in the customers’ best interest to dedicate the credit to system improvements rather than get a miniscule rate reduction.
“A nearly $5 million investment over 10 years on a system our size will do a world of good in creating reliability and stability of electricity service,” he said.
Stone said the bill credit fund could keep HSUD from having to raise customers’ rates. But HSUD has not raised its retail rates much historically.
“The local portion of our retail rates has not changed since 2011 and overall, even after six years of TVA base-rate increases,” he said, adding that “cost to customers has remained essentially flat.”
The rates have been offset by lower fuel costs. The residential customer is paying within 1-2 percent of what he or she was in 2011.
TVA prepared a comparison of the cost of a 1,000 kwh residential bill dating back to 2011 and found the bill to be in the $115 range, within pennies of what it was then.
“More to the point, part of the Long-term Partnership Agreement includes a commitment by TVA for no base-rate increases for the next 10 years,” Stone said. “Total rates could go up if fuel costs escalate, but barring something crazy happening in the natural gas markets, that seems unlikely.”
Natural gas usually costs less to operate electricity generators than most other fuels because it is plentiful.
Stone said HSUD’s debt is estimated to be $4 million to $4.5 million for the electric department. That includes a loan for the December 23, 2015, tornado repair costs. HSUD plans to reduce that debt.
“Our goal is to eventually operate debt-free,” he said.
But on the plus-side of the ledger, the electric department has around $5.2 million in cash reserves, he said. That includes obligated debt coverage reserves, so not all of it can be considered a true reserve fund available for emergencies.
TVA requires distributors to hold in reserve money for catastrophic events such as the tornado of 2015, Stone said.
The amount of the reserve required is determined by a TVA formula.
“Our internal goal is to have reserves sufficient to cover three-month operating expenses, which, based on our annual budget, would be about $5 million in unobligated funds,” Stone said.
He said the HSUD has not completely recovered from the tornado of December 2015.
“Just within the last month, we completed the repair work from the tornado,” he said. “We have moved into the process of compiling our documentation to submit to MEMA for FEMA for reimbursements. Since we still have debt remaining, I would have to say that, financially, we have not fully recovered.”