GLASGOW – Kentucky's attorney general is asking three members of Kentucky's congressional delegation to get involved with a dialogue between his office and the Tennessee Valley Authority, a federal agency, regarding the rate structure for electricity from the Glasgow Electric Plant Board.
The letter from Attorney General Andy Beshear to U.S. Sens. Mitch McConnell and Rand Paul and 2nd District U.S. Rep. Brett Guthrie dated Aug. 8 concludes, “As the regulator, TVA is uniquely positioned to recommend and approve modifications to the rate schedule and help alleviate the unfair burden imposed upon the Glasgow residents. I am asking for you to work with the Attorney General's office and TVA throughout this process, so we can find a way to remedy this situation that is changing the lives of Kentucky Citizens.”
The steps by the Office of the Attorney General, particularly the Office of Rate Intervention, were spurred by the OAG's receipt in recent days of “numerous significant complaints from citizens” served by EPB, the letter states.
The letter summarizes the EPB's rate structure that went into effect Jan. 1 and focuses on how much customers use during certain times of the day when demand for energy is the highest. Charges for the EPB's cost of delivering the electricity – from installing and maintaining poles and lines to building substations, for example – are separate. For the electricity itself then, EPB passes along the wholesale rate it is charged by TVA, from which it purchases the power, for peak and off-peak times but then also a “coincident demand” peak charge, which is based on how much power each customer uses during the one hour in each month that demand is highest. It costs TVA more to generate power during that time, because it has to use increasingly more types of energy sources and more expensive types of energy sources.
That coincident demand charge, though, is only predictable to a point, just like the weather that plays the largest role in creating the demand. In the summer, it typically occurs in afternoon hours; in the winter, in early morning hours. EPB has recommended cutting out unnecessary usage for things like cooking or laundry during peak hours and adjusting thermostats by just a few degrees to reduce power consumption during those times. Some customers, however, don't have as much control over their heating and cooling systems, and some have health issues that make it difficult for them to adjust to being warmer or cooler than normal.
The AG letter calls this a “mandatory rate structure applicable to the residential class unlike any other presently utilized by other utilities within this state. In fact, although only a handful of rate structures similar to the GEPB schedule exist across the United States, to my knowledge they are all voluntary. This rate structure penalizes those who are unable to be flexible with their electricity consumption while benefitting those who can afford to purchase and install energy efficient and state of the art appliances.”
The letter says that such demand charges are frequently and customarily applicable to commercial and industrial customers, but are rarely applied to residential customers.
It discusses the EPB's attempts to predict possible times when the coincident peak could be, saying it is “frequently incorrect.” According to information presented by EPB Superintendent Billy Ray at his board meetings, June has been the only month when a coincident demand peak occurred that was not predicted as a possible date. The hours predicted have been off more than once, but as it happened, on those occasions so far, a higher coincident demand peak time occurred later in the month.
“Most regulators and consumer advocates view residential demand charges as a blunt instrument, described as a 'gotcha' rate with unpleasant surprise impacts,” Beshear's letter says, “even if the residential ratepayer is able to take advantage of using modern (but much more expensive) low-power consumption appliances during critical peak demand periods.”
Examples of the nature of some of the complaints are listed, ranging from elderly persons turning off their air and sitting in their homes in temperatures up to 92 degrees to business owners stating the new costs will likely cause them to close.
“Per the enabling statute and pursuant to its contract with GEPB,” the letter says, “TVA ultimately regulates and approves all rates and rate structures of Glasgow.”
The OAG's Office of Rate Intervention contacted TVA in an attempt to brainstorm for ways the rates could be restructured to minimize the impact on the residential class, yet still yield the necessary revenue to compensate TVA for power usage.
At first, TVA officials were reluctant to discuss particulars, the AG letter says, “even though we are aware, based upon correspondence between them and GEPB they had reservations about the rate structure prior to approving it …. We have since had somewhat fruitful discussions with the legal staff at TVA and hope to continue that dialogue in the near future.”
That's where Beshear's request of the involvement of the congressmen came into play, with the hope of a meaningful dialogue among all interested parties regarding regulatory options that exist from TVA's perspective and position.
A copy of the letter was given to the Daily Times and others on Friday from Glasgow City Councilman Jake Dickinson. Dickinson, who has gone to far in his effort to get different rates as to ask the city attorney to find out whether the city could sell EPB, said he had heard the Attorney General was looking into the rate structure and that one of the staff members was seeking input, so he contacted her. She is the one who provided him with the letter, Dickinson said.
The answer to the question about selling the city-owned but separately governed utility was that the process would have to be initiated by the utility's board of directors, per state law. Dickinson and other council members have also asked about getting different rates set to help elderly, disabled and certain other classes of customers or giving people the choice of going back to the old type of rates. The answer they received to that request was that EPB, per its contract with state and federal law and its contract with TVA, cannot set one rate for only some groups of people, because that would be the very definition of discrimination.
The Beshear letter, when discussing that possible “brainstorming” attempt, specified a goal of lowering the impact on “the elderly, low-income, fixed income and others who lack the ability to significantly curtail their usage.”
Dickinson on Friday said the letter from the OAG sums up the issue perfectly and emphasizes his fears about what's going to happen when wintertime comes. He sees it as a “very positive occurrence” to those of us that have been fighting with this rate increase.”
“The AG put this in better terms than I ever could have imagined,” he said. “If the TVA was reluctant in the first place, then certainly they should be open to renegotiating the rate contract with EPB to this fiasco over with.”
Terry Sebastian, communications director for the OAG, said the Office of Rate Intervention has regulatory authority over utility rates for municipalities under the Kentucky Consumer Protection Act, but the letter was written to the federal legislators because of TVA's also having regulatory authority as a federal agency with EPB.
Part of that office's role is to help consumers and utility companies come together to help alleviate any unfair burdens.
He said the dozens of complaints were mostly from seniors and/or disabled individuals who were especially concerned about the coincident demand cost, which is $11 per kilowatt in the summer, $10 in the winter, and the situation it presents to them in this hot weather.
They are “nervous about the situation,” Sebastian said.
He said ORI and OAG's office will continue to move forward to try to find a resolution.
Jim Hopson, manager of public relations for TVA, said late Friday afternoon that he was not personally familiar with any dialogues between the OAG/ORI and TVA officials, but he said the TVA takes very seriously its role in ensuring fair and equitable treatment of all citizens as a service agency also charged with being a regulatory agency.
“Within TVA's service territory, TVA is the electric regulator; that is part of the TVA Act,” Hopson said. “We are very respectful of stat and local authority, but we are required by federal law to maintain regulatory oversight.”
He said TVA would welcome a dialogue among federal and state officials and the local agency.
TVA has a congressional mandate to keep its rates as low as possible, Hopson said. He reiterated, though, that to establish a special series of rate classes for individuals based on any particular criteria would be considered discriminatory under the concept of being fair and equitable. TVA does recognize that some customers may need assistance paying their bills, and its goal to encourage local utilities and organizations to find ways to help them, but it does not dictate to them what those measures should be.
Ray, who had not seen the letter Friday when talking with the Daily Times, said EPB had received a smaller records request from the OAG in May and then another request within the past two weeks, “asking for a litany of information.” The records compiled in response totaled thousands of pages, he said, and they were just provided Thursday.
With regard to potential reservations TVA was said in the letter to have had, Ray said EPB had crafted a rate design it had worked on for years prior.
“We implemented the rate in the fashion TVA told us to. … They didn't like the first several iterations and wanted changes,” he said, adding that his indications were that if it were done the way TVA wanted, it would support the EPB in its implementation. “It wasn't that they didn't like the overall architecture; they didn't like the fine mechanics of how we were doing the math and wanted us to use their math. That's how it went down through the whole multimonth process.”
Regarding helping those with trouble paying their bill, EPB has a program that allows customers to round the amount of their bills to the next whole dollar amount; the difference between the actual bill and the rounded amount paid goes to Community Relief Fund, which helps local residents in need with housing, utility and other bills. Ray said his staff spends a number of hours every day working with charitable organizations to get help for customers and making payment arrangements with them.
“We've been doing that for 52 years,” he said. “We've never not done that.”
Ray said there is no set amount of time for which the structure has to be in place, but EPB would have to review it annually to see whether the numbers are working. TVA is expected to adjust its rates in November, and those would be passed along wholesale as they have been, he said, but any other local adjustment within the current structure would only be to the customer charge.
This change in the way EPB charges was brought about by the fact it now has all electronic meters that can document how much each customer uses each hour of the day, and it proved that averaging out the charge just based on the total usage isn't fair, because some customers were paying for more than they were using and some were paying for less than they were using.
“Once you know that, how do you unknow it? … We think we've found unfairness and replaced it with fairness,” Ray said. “To alter that format, we'd get right back to that basic issue that if anyone is going to be allowed to pay less than their actual cost, some other group would have to catch the brunt of that,” Ray said. “Someone would have to convince our board and TVA that there would have to be another class that would be forced to pay more than their fair share.”