EPB’s budget keeps electric rates unchanged

TVA rebates help offset virus, storm costs and aid new local power storage

EPB expects to save nearly $10 million in what it pays the Tennessee Valley Authority for its power in the next year due to the 3.1% discounts TVA will pay back to EPB for signing a long-term power purchase agreement with the federal utility.

That will help EPB avoid any rate increase in its electricity prices and absorb unanticipated hits to its bottom line from recent storms and the fallout from the coronavirus. Under the budget plan for the fiscal year that begins July 1, EPB also plans to use some of its savings from TVA to explore building more of its own power storage or generation.

EPB directors Friday approved a $552 million electric system budget for the next year that projects revenues to be up only about 2% from this year’s depressed level and still 2.1% below the sales of two years ago when the weather and economy were more normal.

With the coronavirus expected to slow the economy this year, EPB has trimmed its expectations for new business hookups and is not providing any across-the-board wage increases for its 633-employee staff.

EPB Chief Financial Officer Greg Eaves said base electric rates will not increase in the next year and EPB’s internet and phone rates will remain the same, although

prices of video or cable TV options by EPB are expected to increase in November similar to previous years to absorb increased costs from its television content providers.

“We do not have an electric rate increase budgeted for 2021, but our projections are for a very low level of net income so we are watching that for the future,” Eaves said. “It’s been five years since we did an electric rate increase [outside of automatic pass through of TVA rate hikes]. One of the main reasons we’ve been able to avoid any rate increase so far is that we’ve received so much from our fiber optics system through cost sharing and access fees [on shared utility poles and line].”

Eaves said the fiber optic system paid fees and joint expenses to the electric system of about $53 million this year, which has helped reduce EPB’s local electric rates by about 8% from what they otherwise would have been.

EPB’S HIGH-FIBER DIET

EPB, a city-owned utility formed in 1938 to distribute TVA electricity, began building a smart grid in 2008 and has added ever-faster internet, telephone and video services over the past decade using the fiber optic lines installed for the electric system upgrade.

EPB Fiber Optics, which is a separate, independently funded operation for EPB, has attracted about 110,000 customers, or nearly 70% of the households and businesses served in EPB’s 600-square-mile service territory.

Both the electric system and the telecommunications services offered by EPB use the fiber optic lines laid throughout EPB’s service territory to build its smart grid with automatic meters for immediate usage data and IntelliRuptors to automatically reroute power and limit electricity outages.

EPB’s Fiber Optics division is projected to generate more than $175 million in revenues from internet, telephone and video services this year, up from $173.4 million last year. After a decade of rapid growth, Eaves said telecom revenue growth is expected to flatten as the market is largely saturated by EPB and a growing share of its customer using other streaming services.

EPB’s video services, which once attracted about 80% of all of those buying internet service from EPB, now represent only 49% of all EPB Fiber Optic customers. EPB President David Wade said that share is projected to continue to drop as more consumers turn to video streaming services such as Hulu, Prime Video, YouTube and others to replace EPB’s video options. But the number of EPB’s internet customers continues to grow.

EPB continues to offer the largest citywide high-speed internet service to any U.S. city with available speeds up to 10 gigabytes per second, and over the past decade the municipal utility has displaced Comcast as the biggest cable TV and internet provider in EPB’s footprint.

VIRUS, TORNADOES HIT EPB

For all its success, EPB’s revenues dropped and its expenses increased this spring due to the Easter night series of tornadoes that ripped through the area. At the same time, the coronavirus has hurt the economy, delayed some EPB payments and forced additional safety measures to be adopted for EPB crews.

The April 12-13 tornadoes initially cut power to 106,00 EPB customers and more than 60,000 of those remained out of power for several days and some for up to three weeks. EPB brought in work crews from other utlities and companies to help rebuild much of EPB’s power distribution network. Eaves estimates the tornado damages will ultimately cost EPB about $35 million.

The utility expects to recover at least $25 million of that amount from the Federal Emergency Management

Agency after Chattanooga was declared a federal disaster area in April.

The coronavirus pandemic continues to be another crisis for EPB to cope with this year and next. Due to the record-high unemployment caused by the business shutdowns ordered to limit the spread of the COVID-19 virus, EPB suspended disconnections and waived late fees and instituted new payment plans to give customers more time to pay.

The business slowdown and tornado damages, combined with milder weather this spring, have produced two of the lowest power sales months in the past decade for EPB this spring, Eaves said.

But with power demand slowed, TVA is not having to build any new baseload generation capacity and has vowed to keep its base wholesale rates constant for the next decade, even with the 3.1% rebates paid back to its distributors that sign 20-year power purchase agreements.

TVA does continue to adjust its rates for fuel expenses. But fuel costs have also trended lower in the past four years, helping to lower the delivered price of electricity today below where it was four years ago.

The new contract EPB signed with TVA in January locked EPB into buying most of its power from TVA for at least the next 20 years. But local power companies like EPB may generate or buy up to 5% of their power from other sources. So EPB has budgeted about $10 million to pursue additional solar farms, battery storage or other energy options to generate its own power.

Even with the recent drop in electricity prices and TVA’s pledge to avoid further rate increases in the next decade, some local power companies such as Memphis Light Gas & Water have found they can either generate or buy power from other wholesale power sources cheaper than TVA.