Bills and Rates

TVA releases environmental assessment tied to rate proposal

The Tennessee Valley Authority on March 9 released a draft environmental assessment that reviews a proposed TVA rate change and the potential environmental and economic impacts of the change.

Among other things, the draft environmental assessment said that the proposed changes will lower upward rate pressure by mitigating the effects of uneconomic distributed energy resource development.

TVA notes that it is proposing to revise the structure of its wholesale electric power rates through pricing that better aligns wholesale rates with the underlying costs to serve wholesale customers.

As outlined in an August 2017 rate change letter to local power companies, TVA wants to reduce standard service energy rates and establish a grid access charge to recover an equivalent amount of revenue.

TVA proposes to refine the structure of its wholesale electric power rates through pricing that better align wholesale rates with underlying costs. "In addition, TVA proposes several administrative changes associated with its rate structure, including simplifying the rate schedule language and improving processes for approving and publishing rates,” TVA said in the draft environmental assessment.

Utility industry ‘facing competitive and technological changes’

“The electric utility industry is facing competitive and technological changes that will impact the traditional electric utility business model through distributed generation, energy efficiency, technological advances, shifts in customer behavior, and regulatory requirements,” TVA said.

“This complex interplay of factors creates a need for self-funded electric utilities such as TVA to adjust their pricing structures and their management of generation and transmission assets. Identifying and appropriately apportioning costs of providing electric service is an important factor in equitably addressing this ongoing need,” the draft assessment said.

In 2015, TVA, the Tennessee Valley Public Power Association and the Tennessee Valley Industrial Committee agreed on a direction to incrementally improve pricing signals and fixed cost recovery, as well as to encourage technology investment, according to the draft environmental assessment.

The rate change TVA implemented in 2015 focused on better aligning pricing with underlying cost drivers.

TVA is discussing next steps with local power companies and directly served customers, proposing a rate change to be implemented starting this year.

The primary objectives of this proposed rate change are to continue to improve the alignment of wholesale rates with their underlying costs to serve and to facilitate measured, managed changes in local power companies’ retail rate structures.

The draft environmental assessment said that the proposed changes will reduce upward rate pressure by mitigating the effects of uneconomic DER development and lessen weather-based fluctuations in bills.

The intent is to implement changes concurrently at wholesale and retail and to reduce the risk for both TVA and local power companies by diminishing cost shifting among consumers and among local power companies. “The proposed changes will ensure that rates remain as low as feasible for all consumers, consistent with TVA’s mission to serve and to improve the quality of life in the Valley,” the draft environmental assessment said.

TVA’s current energy prices “over-incentivize consumer installation of DER, leading to uneconomic results for the people of the Valley as a whole. Over the next decade, forecasted load is expected to be flat or declining, resulting in little need for new energy sources,” the document said.

“At the same time, consumer interest in renewable energy continues to rise. The imbalance created by uneconomic DER investment means that costs are shifted to consumers throughout the Valley who do not invest in DER.”

TVA said in the draft environmental assessment that its proposal to implement such changes is consistent with guidance on rate design for DER issued by the National Association of Regulatory Utility Commissioners in 2016.

In the guidance, NARUC recommended that utilities take action to address DER in rate design before DER becomes widespread, the draft assessment noted.

Rate change alternatives

In the assessment, TVA considers a broad range of three potential rate change alternatives.

In addition to reviewing its proposal (1 cent per kWh), TVA reviewed an alternative that would apply a smaller energy charge reduction and grid access charge (0.25¢/kWh) and an alternative that would apply a larger reduction and grid access charge (2.5¢/kWh).

Each of the rate change alternatives under review in the environmental assessment would be revenue neutral for TVA, TVA said. In addition, TVA proposes to make several other changes in rates.

TVA said that while the proposed rate change would not affect the total revenue it collects, the allocation of revenues across customer classes and among local power companies would change slightly.

The draft environmental assessment will be made available for public review and comment until April 9, 2018 and, if approved by the TVA Board of Directors, the rate change would be implemented Oct. 1, 2018.

Additional details are available here.

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