Friday, February 22, 2008

TVA February 15, 2008 Board Meeting

TVA Board Meeting February 15, 2008


TVA’s CEO Tom Kilgore at their board meeting in Chattanooga on Friday, February 15 (five board members present, one on the telephone and three members short), led off the main discussion with his progress report on the federal agency. See www.tva.gov

There was not a whole lot of good news to report, in fact, in addition to the 7 percent rate increase later approved by the board, he only alluded to the additional 5 percent “FCA” fuel cost adjustment announced five days later.

The only logical reason for not revealing the total rate increase at the board meeting, I believe, was to try to somewhat mitigate the grief of a double-digit increase. Certainly, both figures could have been released at the time of the board meeting. Was deception involved or just bad management?

The handling of the 7 percent rate increase and the 5 percent “fuel cost adjustment” typifies why utility rate increases should be under the purview of the seven public service commissions in Mississippi, Alabama, Tennessee, Georgia, Kentucky, North Carolina, and Virginia. These organizations representing the people have no say in how much TVA increases rates and there is no appeal to TVA’s edicts. TVA talks very little about cutting costs.

You may complain to a federal senator or representative about TVA rates but they are helpless to do anything about it, likewise your governor or state representatives or mayor, all unable to do anything about TVA rate increases. TVA is law over these matters in an 80,000 square mile territory locked in by a 2,500-mile fence.

And as usual, TVA is “behind the curve” in anticipating not only this FCA but also probably very large increases in coming months if the drought does not significantly relent. It is as if TVA saw the train coming ‘way down the track (the drought) but decided only at the last minute to jump out of the way (resulting in the FCA) but hoping it would shift to another track.

The plight and the action (insufficient planning) has now placed millions of people dependent on electricity in jeopardy not only for their utility needs but also for their health. The problem, of course, is water and plenty of it to cool every operating plant of the TVA, even the hydro plants.

Nuclear plants need enormous amounts of water for cooling and if it “dries up” not only would 30 percent of TVA’s generating capacity, nuclear, be in peril but also so would the basic human need for water. There was no indication at the meeting, which would come first – water for power plants or water for people.

In last November’s meeting it was discussed that some sort of water priority plan would be devised by the time of this meeting, however, Kilgore said there would be no change from present policy which is that he would determine the smaller cases and the board the larger ones such as Georgia’s request for water if there is one.

Kilgore did not state what TVA’s policy would be on the prioritization of water.

Lacking much in specificity about costs, Kilgore went on to explain about the payment of “taxes” (which is not true – it leaves the wrong impression that TVA actually pays taxes).

“We pay taxes on the top line; we don’t get to deduct anything before we pay those taxes”, Kilgore said, as if he were talking about a regular taxpaying corporation and not a federal agency that cannot pay taxes.

“Delivered cost of power” was above the Plan estimate primarily because of lower sales volume and increased cost of purchased power. Because of the amount of hydro being less, tax equivalents “and those kind of things” did not paint a positive financial picture at the board meeting.

“Debt-like obligations” are “down where they need to be”, said Kilgore, but because of the lack of earnings, the earnings to asset value are in the red, he continued. I cannot find where TVA defines a “debt-like” obligation. Common English would define it as a debt or not a debt, not fuzzing up the term such as saying it was a “power outage” instead of a “power failure”.

For the “equivalent availability” of power, “about three” large plants have had major power outages (failures) during January “that have hurt us”, said Kilgore.

One nuclear plant is running code “yellow” at reduced output because of five non-scheduled shutdowns since last May according to the Nuclear Regulatory Commission.

Ken Breeden, who is handling the Energy Efficiency and Demand Response effort of the TVA, said “69 percent of homes in the Valley heat hot water with electricity which accounts for about 20 percent of a typical monthly bill. And 46 percent of homes heat with electricity.” The average home electricity bill will be going up to about $117 a month April 1, including the added fuel cost adjustment of 5 percent.

“This is education”, said Breeden. “Some of this will require programs”, he said, without specifying anything about the “programs”.

A consultant is collecting data; meetings have been held with distributors and key stakeholders; “working groups” on automated metering and load control have been established with the Tennessee Valley Public Power Association (TVPPA), Breeden said.

Over 4000 self-audit kits, which contain two each CFLs (compact fluorescent lights) have been distributed since January.

“You’ll see a lot more in the April Draft Plan”, said Breeden. (We’re “working on it” is a familiar phrase often heard in reports about the TVA.)

Skila Harris, a board member, asked Tom Kilgore about water temperature.

One of the nuclear units had to be shut down last summer, “The temperature coming downstream was hotter than what we were allowed to put out so we had to stop”. “That’s even with cooling towers at Browns Ferry”. “It will continue to be a problem”, said Kilgore.

How do we cool these power plants with less water? He asked rhetorically. “Probably will be putting capital projects in the budget, he said, to reduce our dependence on water for cooling.” All the plants need to be cooled including hydro plants, he said.

The next topic, “Renewable Portfolio Compliance”, deals with federal legislation that has not yet been passed that would require utilities to attain a certain percent of energy from renewable sources, e.g., wind, bio, etc., by a date certain which is very uncertain at this time. No one knows what the final version of such legislation, if any at all, would pass both the House and Senate but the TVA distributors wanted some kind of assurance from the TVA that they would not be stuck with any penalties for non-compliance.

In a policy decision, the Board agreed that TVA would be responsible for any penalties. This is but an indication that the 159 some-odd distributors are uneasy about their relation with the TVA about who ultimately would be responsible for TVA’s bonded indebtedness since the federal government explicitly states that the full faith and credit of the United States will not cover TVA debt.

Anyway, how can the TVA posit a policy without knowing what renewable requirements the federal government might enact into law and any subsequent penalties?

Enter the Seven States Corp., a customer-owned generation scheme headed by Jack Simmons, head of SS Corp and the TVPPA.

What happened was that the TVA board authorized CEO Tom Kilgore to “enter into arrangements” with TVA’s distributor customers where TVA can jointly own a power plant or plants with them through the SS Corp.

156 of 159 TVA distributors (three of them are leaving the TVA) committed over a million dollars in working capital to SS Corp. to capitalize it to be used for business planning, studies, consultants, and attorneys.

The partnership is claimed to be a ‘win-win” situation for distributors which will put equity in the hands of Valley stakeholders rather than in the hands of the U.S. Treasury, which is where all of TVA’s assets lie today, i.e., the federal government averred Simmons.

Belief that the partnership between the SS Corp. and the TVA ultimately could bring lower cost of electricity to the Valley also drives the plan. The idea is to bring some funds to the table to help TVA in their ambitious expansion program, to bring more debt to the table in the name of SS Corp. and keeping it off the balance sheet of TVA.

The big question – who will repay the debt owed by the SS Corp.?

It seems to me the only source of funds will come from users of TVA electricity. There is no blood in a turnip so the only way under this shaky and risky scheme is for the ratepayer to cough up even more dollars in addition to any other TVA rate increases.

I do not believe it is possible for the U.S. Government to share ownership of anything including the joint equity ownership of power plants in TVA’s territory. If this were possible, the federal government could reduce a lot of its debt by selling ownership by bits and pieces of many national treasures.

Overall, the TVA board meeting on February 15, 2008, left me with the feeling that the new management is no better than previous bad managements, that TVA’s financial condition is so precarious that plans need to be developed now for the dissolution of its assets to try and pay off as much as possible the $25 billion debt that continues to rise as the water levels fall in its reservoirs.

The failure of the Senate to “advise and consent” to the re-nomination of three board members, an extremely simple and appropriate thing to do, tells me there are other forces at play. At the least, it shows a lack of support of current TVA management and perhaps of the TVA itself.

Ernest Norsworthy

emnorsworthy@earthlink.net http://norsworthyattheshoals.blogspot.com/ and http://norsworthyopinion.net

Saturday, February 9, 2008

Improvement from Hard Work

Visalia, California
February 9, 2008

Subject: Improvement from hard work
Occasionally, good writers intentionally or not hit one out of the ballpark. The article by Dennis Sherer in Florence, Alabama’s Times Daily is one of those. And it really has nothing to do about fishing.

What Sherer subtly pointed out is that it is fine for government to help, to provide seed money or technical guidance in just about any undertaking. And then for the government, all levels of government, to get out of the way and let the magic of entrepreneurship, innovation thrive.

For too long, Shoals residents and those in the Tennessee Valley have relied on the government to take the lead in economic development, cultural growth and the responsibility for the area’s economic wellbeing.

Once, I lived on a small Alabama farm and got to know a lot about the way animals act and react. We had one mule called “Crip” with a lame right hoof and some “free range” chickens. Dad wanted me to train a billy goat to pull a small cart for my brother. Good idea, but the goat kept butting in and bleating “no”.

The mule and I, however, got on famously. After “geeing” and “hawing” in a day of plowing when it was time to head back to the barn, he needed no directions and usually at a good pace.

Cattle on the old farms without a call or urging usually would come clanking their cowbells back to the barn in the evening for feed and milking. They always used the same cow path and all the cattle docilely joined the queue. Simple, non-thinking, but effective for everyone.

Now big government for three-quarters-of-a-century has told the people in the Tennessee Valley what was good for them and expected obedience to their calls for more and more rate increases for their anti-competitive product – in this case, for electricity.
Instead of providing an atmosphere for the seeds for entrepreneurs to grow and thrive in, the TVA jealously guarded its prerogatives of total government control thereby snuffing out the incentives naturally borne of opportunities.

And for many people, always doing what the federal government says is comfortable enough and anyway don’t they get a “refund” of sorts from that same government depending on their usage of electricity? (That “payment” should be more for those who use less electricity rather than a payment for more and more use).

The TVA budget this year includes $22 million to help users “conserve” electricity when the CEO has said that TVA needs to sell more electricity!

So the example Sherer has given us is one of hard work, independence of action calling on governments not to lead but to offer assistance they can and should provide. In other words, throwing off the shackles of stultifying government.

Ernest Norsworthy
Visalia, California

http://norsworthyattheshoals.blogspot.com/
http://norsworthyopinion.com