Electricity Forum

NASHVILLE, TENNESSEE - The nation's biggest public utility is raising its chief executive's compensation by nearly a half million dollars, a month after its largest electric rate increase in three decades took effect.

Tennessee Valley Authority President and CEO Tom Kilgore told board members meeting in Nashville that the rate could go down in January because fuel costs have decreased. He didn't say how much the rate may decrease.

At the meeting, board members approved raising Kilgore's bonus-driven compensation package from a potential $2.7 million to $3.27 million, effective the next fiscal year.

Kilgore's base salary of $650,000 has remained the same since he became CEO in 2006. He said after the meeting that he would not decline the board's offer to raise it to $850,000.

On October 1, the TVA put a 20 percent electricity rate increase into effect, raising average residential bills by $15.80 to $19.80 a month. It's the TVA's biggest rate boost since 1974 and its second this year, following a 7 percent increase in April - all because of ballooning costs for fuel and purchased power.

Kilgore, hired in 2005 as president and chief operating officer from North Carolina-based Progress Energy, was named the TVA's first CEO in 2006.

Virginia-based consultants Watson Wyatt & Co. recommended a $900,000 base salary and a total package worth nearly $4.12 million. Comparable investor-owned utilities pay their CEOs around $5 million to $6 million, the consultants said, based on a review of some 27 utilities.

Most of Kilgore's pay package - around $2.1 million - will hinge on meeting annual and long-term performance goals for the TVA. The self-supporting government corporation has $12.6 billion in revenues, about 12,000 employees and 8.8 million customers in seven Southeastern states.

The TVA supplies 159 distributors across Tennessee and in parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina and Virginia.

Kilgore declined a base salary increase last year to send a message to employees, who were being asked to conserve and cut budgets, that it was appropriate to start at the top.

But Kilgore said that the board "finally overruled me. I tell them to pay me conservatively. I hope you see that's what they've done. They've even come in under the market."

Board Chairman Bill Sansom said he realized Kilgore's pay increase was coming as rates are at an all-time high, but said "we have to do this."

"We need to be about the business of what we are," Sansom said. "We hope rates come back down."

TVA Director Denny Bottorff said hiring "quality people is what ultimately delivers better service and lower costs for the public. Compensation for TVA leadership is a very small but necessary portion of the TVA's total budget."

Kilgore said with oil and natural gas costs down significantly, electricity markets lowered and the cost of coal flattening, he expects an electricity rate decrease in January. The TVA adjusts rates every three months based on fuel costs.

At the meeting, the board also approved establishing incentive payment programs for businesses and institutions willing to reduce electricity use during peak periods by dimming lights and turning down cooling systems. The Real Time Pricing program aims to shift energy use from when power demand and prices are high to lower-cost, off-peak periods.

Meanwhile, the board also approved paying state and local governments almost $455 million in lieu of taxes in 2008, an increase of 1.7 percent from the previous year.

The TVA will pay an estimated $495 million in lieu of taxes in 2009. The board approved the final payment for 2008 and the 2009 estimated payments. The TVA makes tax equivalent payments to eight states based on power sales revenue and TVA-owned power property in each state.

Total payments by the TVA to each state, including payments directly to local governments, for fiscal year 2008 are: Tennessee $64.8 million; Alabama $112.4 million; Georgia $6.9 million; Illinois $425,029; Kentucky $42,936,785; Mississippi $24.2 million; North Carolina $2.6 million; and Virginia $222,906.