Beginning in April, TVA will change the way it charges distributors like Middle Tennessee Electric. However, that won’t mean members of the electric cooperative will see much change in their bills.
“The average member will see little difference between the total amount of their March and April bills,” said MTEMC President Frank Jennings. “The biggest changes, at this point, are really between TVA and the distributor. We are working to cause as little effect to our members as possible.”
The biggest difference residential members will see is in the “Customer Charge” component of the bill. This monthly charge, which is a charge all electric utilities have, is to cover the electric cooperative’s fixed monthly costs. It is changing from $9.79 to $13.75 a month.
“We, and most distributors in the Valley, have had very low Customer Charges historically,” Jennings said. “Our Customer Charge is not sufficient to cover our fixed costs. One thing TVA’s rate structure change has made us do is to pay more attention to that, as the cooperative is more at risk if we do not appropriately cover our fixed costs.”
Jennings said a cost-of-service study performed by an independent consulting firm suggested MTEMC’s Customer Charge could appropriately be more than $20. “Think of it this way,” he said. “For every dollar the cooperative takes in, 80 cents goes straight to TVA to pay for power, and we operate on the other 20 cents.”
But while the Customer Charge is going up, MTEMC’s residential energy charge is going down.
“From March to April, these changes will mean slightly higher costs for those using less than 1,500 kilowatt-hours a month and slightly lower for those using more,” Jennings said. “The 1,500-kwh mark is about average for our residential members.
“I would want our members to know three things about the changes. First, this change is revenue neutral, which means the cooperative will earn no extra money. Second, this will help our members a little in the summer and winter months when consumption and TVA’s rate are higher. Third, we’re making the changes in the best interest of the membership as a whole…to better protect our rate stability.”
TVA’s Fuel Cost Adjustment, a line item on MTEMC member bills since 2006, will remain.
“The FCA will continue to fluctuate monthly,” said Jennings. “Everything we collect for that charge goes straight to TVA. TVA uses that money to cover changes in their costs for fuels to make electricity – coal, natural gas, power purchased on the open market.”
QUESTIONS AND ANSWERS
Beginning in April, TVA is implementing a new rate structure for distributors across the Valley. MTEMC member’s will not see a lot of difference initially on their bills. As a result of this rate structure change, the residential customer charge is increasing slightly and the per kilowatt-hour energy charge is going down.. Below are a series of questions and answers about the rate structure change.
Questions and Answers about the TVA rate structure change…
What will be the impact to members’ bills? The rate structure change begins with bills MTEMC members receive in April. Members will see little difference initially. Here’s a comparison of March vs. April kilowatt-hour usages and costs for residential members:
kwh cost kwh cost
1000 - $99.31 1000 - $99.84
1500 - $144.07 1500 - $142.89
2000 - $188.83 2000 - $185.93
2500 - $233.59 2500 - $228.98
Why is TVA changing its rate structure? It’s about managing costs and power demand – both for TVA and the end-use consumer. TVA’s rates will be higher during seasons when their costs to generate electricity are higher. Their costs are higher because consumer demand is higher. Facing higher costs, it is hoped consumers will lessen their demand during these times…which will save consumers money, stabilize TVA’s costs and ultimately keep rates more stable.
Will TVA or MTEMC make more money as a result of these changes? The changes by both organizations are designed to be revenue-neutral, meaning they are designed to provide no additional revenue overall. Of course, both TVA and MTEMC are not-for-profit organizations.
What will be the effect on bills for MTEMC residential members? The biggest difference MTEMC members might notice on their bills right away is a change in the Customer Charge. It is moving from $9.79 to $13.75. However, MTEMC is also reducing the charge for energy, so the effect will balance out in most cases.
What is the Customer Charge? This charge aims to cover “fixed costs” for the electric company. MTEMC has always had a Customer Charge, and all other electric utilities do as well – whether or not they display it on their bills.
What are fixed costs? These are unavoidable monthly costs for the utility, such as those costs associated with meter reading (including equipment, employee and vehicle costs), bill rendering (including purchase, operation and maintenance of billing computer systems) and bill delivery (bill printing and mailing). A recent independent cost-of-service study suggested MTEMC’s residential Customer Charge, which covers fixed costs, could justifiably be well more than $20.
What is a cost-of-service study? A study of costs, rates and revenues that attempts to verify the utility is adequately and fairly charging for its services across its rate classes.
Who performed the cost-of-service study? Jackson Thorton, an accounting firm headquartered in Montgomery, Ala., that specializes in utility auditing and consultation.
What did the cost-of-service study say the Customer Charge should be? It suggested MTEMC’s residential Customer Charge could justifiably be well more than $20.
Why is the cooperative more at risk if fixed costs are not covered? Under the old TVA rate structure, weather and timing did not make as much of a difference as they will under the new rate structure. MTEMC is at greater risk of not having adequate funds on hand to pay its obligations to TVA, which can result in penalties. With fixed costs being more adequately covered, this risk is reduced.
But the charge for energy is going down…why? Yes, the “Energy Charge” line item on the bill will be a smaller charge per kilowatt-hour in April. The change is to balance out the increase in the Customer Charge. Again, this is a revenue-neutral move for MTEMC.
How will the reduced Energy Charge affect seasonal rates? Bills from higher usages in the summer and winter will not be as high as they otherwise would.
What are seasonal rates? This indicates different rates depending upon the season of the year. The seasons TVA has designated breaks down as so…
Spring – April and May
Summer – June, July, August and September
Fall – October and November
Winter – December, January, February and March
The rates for fall and spring will be the lowest. The rates for summer and winter will be a bit higher.
Why is TVA initiating seasonal rates? It costs TVA much more to provide power in the summer and winter. So, for TVA, it comes back to managing costs and power demand – both for TVA and the end-use consumer. TVA will charge more in the summer and winter because it costs more to produce power. Consumers will pay more in the summer and winter, so it encourages them to better manage their demand for power.
Why does it cost TVA more to produce power in the summer and winter? During a nice fall day, TVA can get by using its hydroelectric dams, coal units and nuclear units to meet the demand. These are all among the cheapest ways to generate power. On a hot day, however, TVA must use its natural gas-fired power plants and even purchase power on the open market to meet the demand. These are among the most expensive ways to produce power. Adding to the dilemma is a need for TVA to move away from coal as a resource to generate power. That’s because many of its coal units are getting old and need to be retired.
Will there still be a TVA Fuel Cost Adjustment? Yes, the FCA remains. MTEMC sends 100 percent of the revenue it collects for the FCA to TVA. This is a variable charge TVA uses to help account for fluctuations in the costs of fuels it uses to generate power, especially coal, natural gas and purchased power.
Does this rate change have to do with “time-of-use” rates I’ve been hearing about? Time-of-use rates are in the longer term plan, but this is not part of what is taking place this year for MTEMC.
What are time-of-use rates? While this will not affect MTEMC in the next couple of years, time-of-use rates refer to different rates for different times of the day. Just as it costs TVA more during certain seasons of the year, it also costs TVA more to generate power during different times of the day. Consumers in the Tennessee Valley have had little reason to consider this reality before, but if time-of-use rates come to be, they will certainly have a reason. For one, with time-of-use rates, consumers can plan some energy consumption to match up with times when rates are lower.
When will time-of-use rates be available to MTEMC members? The quick answer is not sooner than 2015. It is a complicated matter, because MTEMC will have to have the appropriate technologies in place…and these technologies are both expensive and not yet mature.
What can MTEMC members do about this rate structure change? The chief advice MTEMC staff suggests for members is to think “efficiency.” You can find lots of information on this site to help you with energy efficiency and conservation ideas.
What will the future hold? It seems inescapable that electric rates will continue to increase over the next several years. The reasons are complex and multiple – political, environmental, technological, the age of industry infrastructure, prices of fuels and commodities. MTEMC reiterates is long-time promise to its members to keep rates reasonable while delivering best-of-class reliability. MTEMC has operated not-for-profit for 75 years, boasting among the lowest rates in the nation. However, MTEMC also strongly encourages each of its members to take a closer look than ever at their own energy usage and efficiency.