A previously approved rate increase for Tullahoma Utilities Authority electric customers will be reduced, thanks to a new agreement with TVA.

On Tuesday, the TUA board of directors approved a new 20-year purchasing contract with the Tennessee valley power supplier that will mitigate a rate increase approved earlier this year.

According to TUA President Brian Skelton, TVA is in the process of securing its local power customers into long-term, 20-year contracts for power purchasing in order to perform “better longer term power-generation planning.”

As a “consequence” of the long term contract offer, Skelton said TVA is offering a rebate of approximately 2% of TUA’s retail rates, which would benefit the electric company.

The TUA board approved a 2.6% electric rate increase back in April, scheduled to take effect Oct. 1, but this rebate would significantly reduce that rate increase, Skelton said.

“The net of all of that is that a 2.6% rate increase would be reduced to 0.63%,” Skelton said. That reduced increase would mean the average electric customer would see an increase of less than $1 on their monthly bill.

The board unanimously approved the contract at the meeting.

 

Contract benefits

In addition to the retail rebate, Skelton said the new contract offers more benefits to the utility authority and its customers.

According to Skelton, the contract includes rate caps through the first 20 years.

“If [TVA] got into a situation where they were making what we felt like were bad decisions and the power rates went up at excessive rates,” Skelton said, “there are options to get out of the contract.”

He added that the current president of TVA has indicated rates should be stable for the next 10 years, so increases are not a concern at the moment.

“They are not anticipating very much if any power cost increase in that 10 year period of time,” Skelton said.

The contract also allows for a 5% load flexibility, Skelton said, which means the utility company can use up to 5% of its purchased power on alternative fuel sources, such as solar.

According to Skelton, that gives TUA an added incentive to focus more on the solar farm it opened earlier this year.

Currently, all solar energy generated by the farm must be sold back to TVA, Skelton said. The new contract, however, would allow the company to put the solar energy onto its own grid to offset the power it purchases from TVA.

“If we ever would just put it on our grid,” he said, “we will not only offset the cost of power we buy from TVA [but] it will offset the demand that it gets rid of.”

In fact, TUA could exponentially expand the solar farm and still be under the 5% threshold, according to Skelton.

“We could probably make that farm 10 times the size it is today and be safely under 5%,” he said, “maybe even 20 times.”

‘A good deal’

Because of the flexibility of the contract and the rebate option, Skelton said he felt the new contract was the best option for the authority.

Other power systems have already started accepting the terms of the new contracts, Skelton said to the board.

“I know three municipal systems that their boards have already passed the contract,” he said. “This is moving forward.”

Some of the larger utility companies have reservations, he said, but they are still studying the contracts.

Skelton also acknowledged the limited power provider options available to his company within the TVA service area.

“There’s not really a choice,” he said, adding that TVA has been a “good power partner” for the authority thus far.

Board Chairman Steve Cope said he understood TVA’s goal in setting up long term contracts like these. If the board of TVA is asking the company to look into long-range planning, it’s only logical to want customers invested for the same amount of time.

“It makes perfect sense to me to ask for a 20-year contract,” he said. “We’re going to get a rebate that helps offset any increase to our rate payers. I think it’s a good deal.”

According to Skelton, TUA should start receiving the rebate within the month.

Erin McCullough may be reached at emccullough@tullahomanews.com.