Utilities weigh TVA alternatives

BOWLING GREEN, KENTUCKY - With another Tennessee Valley Authority rate increase surging through the region April 1, area power distributors say they're considering alternatives.

TVA's latest 9.95 percent increase for April comes after a 7.5 percent hike in July 2005.

The Warren Rural Electric Cooperative Corp., which blankets all or parts of eight counties, is the only one surveyed to officially sign a contract with a new supplier, but the Glasgow Electric Plant Board and others may follow suit.

Warren RECC becomes the 17th member of the East Kentucky Power Cooperative in April 2008, according to its vice president, Gary Dillard.

He said the decision was made in 2004 before TVA's rate increases and should allow the burgeoning provider - with most of Edmonson and Butler in its stable - more input in its future direction.

Dillard said utilities in Glasgow, Paducah, Hopkinsville and other parts of Kentucky have notified TVA of their intentions to leave the system but don't necessarily have another contract lined up.

William Ray, president of Glasgow's Electric Plant Board, said other providers are probably waiting to see if Glasgow and about six others receive better deals before making decisions.

Ray said Glasgow's board recently received an updated offer from Houston-based EnviroPower. The deal includes a minimum of $20 million to $30 million in savings and the installation of more transmission lines than TVA was unable to provide.

"The offer that we got was the one we asked for several months earlier when we decided to factor TVA out of the picture," Ray said.

Previously, Ray said the company's investment bankers would not provide capital for a 20-year contract with Glasgow until a lawsuit filed by the Sierra Club over a proposed coal plant in Illinois was resolved. He said he isn't sure why EnviroPower changed course.

"We're just the customer that asks for the price and the underlying reasons for that price were not revealed," Ray said. "I think they have some strategic moves that they're involved with."

Meanwhile, TVA's April increase hasn't changed the Russellville Electric Plant Board's wait-and-see approach. The board has an evergreen contract with TVA containing a five-year notification provision for companies that want to switch suppliers.

"We have been considering our options for the last two years or so," said Larry Wilcutt, the board's superintendent.

Although distributors' knowledge of the situation is limited, Wilcutt said, researchers from the Tennessee Valley Public Power Association have verified the impact of rising natural gas costs on TVA's power costs.

Because power rates in other states have been rising as much as 80 percent, Larry Musick, general manager of the Franklin Electric Plant Board, said the board could take a few years to make any decisions because it wants to wait until the pricing climate settles.

"We've got to compare it with what's happening with the whole industry, not just TVA," Musick said. "We're viewing it as a large laboratory."

He said Franklin's board, which serves nearly 5,000 customers, is conservative and hesitant to end a 60-year relationship with TVA.

"It all depends on what it is when they get through jockeying around," Musick said.

Commenting on TVA's price increases, TVA spokesman Gil Francis said April's hike is to recover coal, natural gas, and purchased power costs that were significantly higher than anticipated.

After TVA's 2006 budget was prepared in July 2005, Francis said a number of serious events transpired, from hurricanes Rita and Katrina to multiple production and transportation problems with coal fields out west.

Compounding matters, Francis said, "TVA experienced record- breaking electricity demand for six straight months."

Factors like these, he said, increased coal and natural gas expenses $283 million and the forecast for purchased power increased $199 million.

"Only as a last resort did TVA consider a rate increase," Francis said.

"What we're doing is cutting internal expenditures $129 million this fiscal year."

TVA has 158 suppliers and operates in seven states with an 8.6 million customer base. Francis said seven Kentucky suppliers dropped TVA, but two (including Bowling Green Municipal Utilities) have since rescinded.

Francis said his company is interested in keeping its Kentucky distributors, some of which have been doing business with TVA for 40 or 50 years.

"Some may sign with other suppliers, but we believe TVA offers products and services that will prove to be the best choice," Francis said.

Pennyrile Rural Electric Cooperative, which serves 8,000 customers in Butler, Logan and Simpson counties, has been with TVA since 1937, said Eston Glover, the cooperative's president and CEO.

Glover said the average Pennyrile consumer who uses 1,230 kilowatt hours per month will see their rate jump $7.30 to account for TVA's April increase.

Despite the increase, Glover said Pennyrile will stick with TVA.

"We have visited other suppliers over the past four or five years," Glover said, but it looks like "our best option is to stay where we are."

No one from Tri-County Electric, which uses TVA to serve Allen County, was available to comment on its future power plans.