TVA boosts rates, pension payment as staff shrinks

Utility rates still below 2013 levels

KNOXVILLE — With staffing already at its lowest level ever, the Tennessee Valley Authority expects to continue trimming workers and consolidating its headquarters here into a single office as the demand for its power stagnates.

TVA directors Thursday approved a $10.37 billion spending plan for next year that continues to trim the 84-year-old utility’s staff and operating expenses, even as it boosts electric rates by an average 1.5 percent and pumps an extra $500 million into TVA’s underfunded pension plan. The rate increase, effective Oct 1, will cost the typical Chattanooga homeowner nearly $2 more a month. Across TVA’s seven-state region, the 1.5 percent wholesale rate hike will generate another $195 million to help TVA pay down its debt and improve the financial status of its retirement plan.

The fiscal 2018 budget marks the third consecutive year in which TVA has held its base rate increases below the inflation rate. Combined with a drop in fuel costs over the past five years, TVA’s retail electric rates still average 2 percent less than they did in 2013 when TVA began a program to cut its operating expenses and its debt.

Among America’s 100 biggest utilities, TVA has the ninth-lowest industrial rates and the 26th-lowest residential rates, TVA President Bill Johnson said.

“This modest rate increase recognizes the need for TVA to continue to build on the financial and operational performance improvements we have made over the past three years,” Johnson said.

Since Johnson became CEO in 2013, TVA has cut its staff by more than 20 percent and trimmed its annual operating expenses by $800 million.

“While this is very difficult on the workforce, this has been done almost entirely through voluntary retirements and resignations.” – TVA CHIEF FINANCIAL OFFICER JOHN THOMAS

SELLING OFFICES IN KNOXVILLE

With a leaner staff, the federal utility is preparing to consolidate its remaining Knoxville staff into one of its three major office buildings and sell or lease one of its twin towers and the Summer Place office building to another business.

TVA directors authorized the conveyance of TVA’s East Tower and the Summer Place buildings and parking garage as part of a plan to consolidate remaining TVA employees here into the West Tower, which will be renovated over the next five years.

TVA made a similar consolidation and is also undergoing a renovation of its Chattanooga Office Complex that houses its Office of Power in downtown Chattanooga

The TVA office towers in Knoxville, built in 1976, and the Summer Place office building, added in the 1990s, house the corporate headquarters for America’s biggest government-owned utility.

TVA Executive Vice President Mike Skaggs said TVA wants to stay downtown and support Knoxville but it no longer needs so much office space. Skaggs said each of the towers has about a half million square feet.

“We are still negotiating on the deal,” Skaggs said, declining to identify who might move into the largely vacant TVA offices.

TVA President Bill Johnson said, “We have some great interest in these buildings now.”

“I’m hoping we can do something to the outside of these buildings to make them more attractive,” Johnson added.

SHRINKING STAFF

From its employment peak in 1981 when TVA had 51,709 employees, the utility has cut its staff by nearly 80 percent, although some of its work has been shifted to contract workers. In the past year, TVA cut its staff by 650 employees and the utility is projecting to trim its workforce by another 14 net jobs next year and an additional 114 jobs in fiscal 2019.

The staff of TVA, once the biggest employer in Southeast Tennessee, is projected to fall below 10,000 for the first time ever within a couple of years as TVA completes most of its capital construction and looks for additional productivity gains.

“While this is very difficult on the workforce, this has been done almost entirely through voluntary retirements and resignations,” TVA Chief Financial Officer John Thomas said. “We continue to build momentum by figuring out how to eliminate work by focusing on what is the critical part of the mission of what we do.”

POWERFUL SHIFTS

Through most of its history, TVA continued to build new dams, coal plants or nuclear reactors. But Thomas said TVA for the first time is now forecasting the demand for electricity to decline in the future after watching power sales slip from the peak levels reached more than a decade ago. Thomas said TVA now projects power consumption to drop by 0.1 percent each year into the future “and he said there is more risk that TVA’s forecasts for sales are too high than there is that they are below actual sales.”

Improved energy efficiency of lights, appliances and machines and more self-generation by customers from solar panels, wind mills and co-generation is cutting consumption of TVA-generated power, Johnson said.

“Demand is declining and there are new entrants in the market and customers have different preferences,” he said. “We’re working hard to deal with that future to make sure we are prepared when it comes.”

BOOST FOR PENSION

To tackle one of its biggest challenges for the future, TVA directors voted Wednesday to make an extra one-time contribution to the employees’ pension fund of $500 million above the $300 million the utility has committed to put into the plan each year.

The one-time contribution is designed to help TVA improve its retirement fund, which the U.S. General Accounting Office said earlier this year was $6 billion short of what it needs to meet all of its future obligations for more than 25,000 TVA employees, retirees and their families.

TVA’s pension fund is only 54 percent funded since it adjusted downward its expected rate of return, but Thomas said better earnings in the past year and the extra contributions planned in fiscal 2018 should boost the funding status to nearly 65 percent of the required level by the end of next year.

“I believe this will put us in a better position to implement the 20-year improvement plan (for the pension) that we adopted last year,” said TVA Director Eric Satz, a member of the finance and rates committee.

TVA also expects to reduce its long-term debt under the new budget, which reduces capital spending after TVA completed its Watts Bar Nuclear Plant near Spring City, Tenn., last year and a new natural gas combined cycle plant in Paradise, Ky.

Thomas said TVA’s debt and long-term financial obligations, which was more than $26 billion in TVA’s most recent financial report, should drop below $20 billion in another five years. Thomas said.