BY SARAH R. GREGORY
Changes to the Greeneville Light & Power System's (GL&PS) rate structure could be coming in 2014 as the utility looks to put an end to operating losses related to demand charges paid to the Tennessee Valley Authority (TVA).
GL&PS General Manager Bill Carroll told the utility's Board of Directors Monday that the utility is financially sound with strong reserve funds and that the losses had been projected.
"There's no cause for alarm really," Carroll said, adding that GL&PS expenses have been "in line" and that the utility has been able to absorb the losses so far, instead of passing the cost along to its customers.
"We're financially very solid," he said. "We've got the money to float this right now."
However, members of the Board of Directors agreed informally during discussion at the meeting, GL&PS cannot afford to lose money forever.
Directors took no action on a possible rate change Monday, and did not discuss the matter in-depth.
In 2011, TVA changed its rate-structure -- the wholesale rate it charges utilities such as GL&PS for power. TVA began increasing charges based on certain peak energy-use periods of the year, like winter and summer. TVA said at the time its goal was to encourage energy efficiency and decrease power use at peak times of the day and year. That rate change has increased GL&PS's overall costs.
The topic was brought up as part of a regular monthly report regarding the prior month's financial statements.
For November, GL&PS Controller Paige Mengel reported total operating revenue of $7,540,296.
On the operating expense side, power purchased from TVA totaled $6,552,415, leaving a gross positive margin of $987,881.
In addition, operating expenses and maintenance expenses for the month totaled $1,476,490.
The combination of the cost of TVA power purchases, operating expenses and maintenance expenses brought total expenses for November to a total of $8,028,905.
That expense total left operating income at a net loss of $488,608, an amount which had to be absorbed by the utility from its reserves.
The problem GL&PS is experiencing with its current rate structure, Carroll explained, is that the utility is not bringing in enough revenue from power sales to fully recover the "demand charges" paid to TVA.
Like many other utility companies in the Tennessee Valley region, GL&PS buys electricity at wholesale rates from TVA and re-sells it to GL&PS customers at retail rates.
Also included in costs paid by GL&PS to TVA is what is called a "demand charge" that takes into account TVA's being able to provide enough electricity to the local utility not only for its periods of normal demand but also for the utility's periods of peak demand.
For example, last month, the greatest period of customer demand for electricity from GL&PS came during the 7 a.m. hour on Nov. 15. Carroll noted that that time of peak demand came on a morning following a particularly cold night.
The amount of power the utility "demanded" from TVA during that particular hour is figured into the calculation of how much the local provider must pay TVA to buy electric power.
Demand for GL&PS service peaks in the winter months, Carroll said, noting that the utility's sales are driven primarily by weather.
"We knew this [operating loss] was going to happen [when we changed the rate format]. We just didn't know when or to what extent," Carroll said.
"Our retail rates are not designed to appropriately cover our wholesale costs right now," he added.
In the coming months, directors will be asked to act on new rates to be put in place before next winter.
"We do have plans to recommend retail rates that match the current wholesale format. We hope to do that next October," he said.