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Sunday, August 10, 2008

Electric Power Demand and Electric Bills on the Rise

Later this week the news that we have been warning our customers about for the last couple of months will finally become official -- TVA will announce that the cost of electric power in Glasgow will again increase sharply on October 1. I am still forecasting something in the 15% range. Of course, everyone will be upset over this announcement, but what no one will likely mention is that another increase of this magnitude is likely to occur again on January 1, 2009. Instead of quoting what this increase will cost some imaginary "average" homeowner, let's just make it easier. Drag out your most recent electric bill and look at the electricity portion of the bill. Add 15% to that cost and you will see the sort of impact this is going to have on your budget.

The real shame about this is that the regular person, who is already challenged by the rapidly increasing cost of everything they need to survive, had little, if anything, to do with the real causes for these rapid increases in the cost of electric power. While it is true that TVA is facing upward pressure on their rates due to drought conditions that have limited their hydroelectric power capacity and sharp increases in the cost of coal and natural gas (both items that they purchase and burn to produce electricity), the real cause of this pain is a wholesale rate policy that has existed for the last twenty years. This rate structure has given the signal to everyone that there is an infinite supply of energy and that we should use all of it that we possibly could.

Additionally, TVA's economic development team has continued to pursue new development and has begged new industries to locate in the TVA region, even when they knew that they did not have the native generation capacity to serve those new loads. As a result, each new celebration for the announcement of a new factory locating in the region has been followed by a frenzy of telephone calls to TVA's neighbors in which TVA's power supply planning folks had to make deals to purchase energy from those neighbors to serve the new factory. The really nutty thing about that is the fact that TVA has had to pay much more for the energy purchased from those neighbors than what they are charging the new factories for that energy. Most thinking folks would see that such a "buy high - sell low" philosophy will not work without the rest of the existing customers being willing to pay more so the new loads can be subsidized. When December and January roll around, and you are staggered by the bill for the electricity you are using, try to remember how good you are supposed to feel about the new Toyota plant in Mississippi and the recently announced Volkswagen plant which is locating in Chattanooga. You are helping purchase the electric power for them!

It is too late now, but if only our leadership could have read this article back in 1990, and if they had the guts to follow its advice, we could be living in an energy "garden of eden" by now. It is a shame, because, as a result of a lack of leadership and our lack of demanding it, we are now about to be cast out of paradise, doomed to walk in the equivalent of energy purgatory for the foreseeable future. As I have said before, the energy cost options look more promising in Glasgow than those of most of the other TVA cities, but even here, things are going to get worse before they start getting better.

2 comments:

Mike Wallace said...

Billy,

Should we at all be concerned that the current Senior Vice President involved with the "contractor bonuses" mess is a guy whose name I'm not even going to try to pronounce?

Mike

Billy Ray said...

Mike,

I don't think anyone's name has anything to do with it. I guess you are talking about the article I am posting below.

I have a lot of opinions about many things about TVA, but how they handle relations with their contractors is not an area I have any knowledge on. I, like you, am upset and embarrassed that they seem to throw money around like it was worth less than the paper it is printed on, and I am particularly upset that companies like Bechtel and Stone and Webster (famous for the great job they are doing soaking us all in Iraq) are the ones getting these bonuses, but that is not based upon anything buy emotion. Maybe they deserve it, I just don't know.

Here is the article:

Article: Tennessee Valley Authority contractors get bonus despite budget overruns


By: Dave Flessner
(Contact)

The repair and restart of TVA’s oldest nuclear reactor cost $90 million more than what the agency budgeted, but the federal utility will still pay the primary contractors on the project an extra $42 million in bonuses and other fees, TVA officials said Monday.

TVA directors last week voted to pay Bechtel Power Corp. and Stone and Webster Construction Inc. $15.5 million each, plus another $11.3 million in fees, to settle a legal dispute with the contractors over “team incentive payments” for their nuclear work in Alabama from 2002 to 2007.

Bechtel was the engineering contractor and Stone and Webster was the construction contractor for the five-year project to restart the Unit 1 reactor at the Browns Ferry Nuclear Power Plant, which was restarted after a 22-year outage.

The contractors initially said they were due $76 million in performance bonuses for their work at Browns Ferry, in addition to their original payments as part of the $1.8 billion restart project. TVA initially said the contractors were due only $24 million in bonuses, but the $42 million was reached through mediation and “is a fair settlement,” TVA Senior Vice President Ashok Bhatnagar told the TVA board last week.

The Browns Ferry reactor was repaired on time and restarted in May 2007. But the cost of the repair ended up being $90 million more than TVA originally forecast.

Last year during the first six months of the Unit 1 restart, the reactor had five unplanned shutdowns, which caused the Nuclear Regulatory Commission to assign extra staff to assess the condition of the restarted reactor.

Louise Gorenflo, a leader in the anti-nuclear group known as the Bellefonte Efficiency and Sustainability Team, on Monday questioned the payment of bonuses to contractors whose work was overbudget and may have helped lead to an unusually high number of outages last year.

“Certainly, the nuclear trough they are feeding in is deep and wide,” she said. “It really doesn’t make sense for TVA to be paying out bonuses when it doesn’t look like they gave TVA quality work.”

But the Unit 1 reactor at Browns Ferry has operated much better during 2008 and has had no unplanned outages since last fall, although the unit was idled to repair problems on the nonnuclear side of the plant, TVA officials said.

During last week’s TVA board meeting, TVA Chairman Bill Sansom said the restart of Browns Ferry Unit 1 has proven to be a better deal than TVA originally projected when the board voted in 2002 to reactivate the unit.

At the time, TVA estimated the benefits of the power generated from the reactor would pay for the cost of its repair in six to eight years. But with the cost of other power generation from coal and natural gas up significantly, Mr. Sansom said TVA should pay off for its investment in Browns Ferry in about two and a half years.

“Browns Ferry has proven to be a very good investment for TVA,” he said.

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