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Wednesday, September 2, 2009

October 1, Rates Go Up, Yet Bills Go Down

On October 1, the base rate you pay for electric power from Glasgow EPB will go up by about 8.3% but your net rate will go down by 2.2%. Is that confusing enough? I’m telling you. There is just no way to make this stuff up!

Here is the underlying reasoning for any of you willing to plow through it. First, TVA’s financial goose is pretty well cooked. Due to the economy, sales of electric power have taken a nose dive. TVA will sell about 8% less electricity this year than they did the year before. In the world of planning for electric power generation, this sort of result is not even considered, but, since it happened anyway, the financial impact on TVA is earth shaking. Additionally, TVA is facing the one billion-dollar cost (estimated) of cleaning the coal ash spill at Kingston and the two and one half billion dollar projected cost of expedited clean up of the coal plants in east Tennessee which have been found to be polluting the air over North Carolina. Any way you slice it, these matters add up to real money.

So, TVA is turning to additional cost cutting measures, borrowing additional money, and to increasing the rates they charge for electricity sold to distributors like Glasgow EPB. On October 1 our wholesale rates from TVA will increase by about 8.5%. However, the rates we pay, and the rates we pass along to you, are made up of several components. Two of the components are the base rates and the FCA (Fuel Cost Adjustment). We just explained the increase to the base rates, but there is also a coming decrease to the FCA. That is how you are going to wind up with a net decrease on October 1.

The FCA is designed to allow wholesale and retail electric rates to vary depending on what TVA has to pay for fuels which often sell for prices that vary greatly from month to month. Over the last several months the FCA amount charged by TVA has actually dramatically over collected for fuel costs compared to the actual recent trends, which, not surprisingly given the pitiful state of the economy, have gone down. So, TVA is drastically reducing the FCA amount in order to refund that over collection to the customers. While the base rate is going up by 8%, the FCA is going down an amount which results in an 11% reduction to our power costs. Adding these two together creates the roughly 2.2% reduction to your power bills, which will take effect on October 1.

We would be less than fully open if we did not advise you to refrain from celebrating this short term rate reduction too much. The thing to remember here is that the base rate is being increased dramatically. Base rate increases very seldom go away. Meanwhile, the FCA is about to change from being adjusted quarterly to being adjusted monthly. So, it is highly likely that the FCA adjustments over the next several months will erase the warm memory of the October 1 net reduction rather quicky. Like so many wonderful things about October: apples, colorful leaves, and Halloween candy, the rate reduction will come and go quickly. Try to enjoy it while it lasts!