After reaching its final decision, Fayetteville Public Utilities (FPU) has announced this week that it will increase local electric rates by 2 percent at the same time TVA increases its wholesale and Fuel Cost Adjustment to 8 percent. The combined adjustment the average electric rate payer will see is 10 percent rate effective on April 1.

In the March 5 issue of The Elk Valley Times, it was reported that FPU had received approval from its board of directors to enact up to a 3 percent local rate increase on electricity, the amount allowable by TVA. FPU has determined, however, that a 2 percent rate adjustment is necessary at this time.

“After reviewing the increases in costs of materials and system upgrades which FPU has absorbed over the past few years, we are in a position where a local rate increase is vital to maintaining our level of service and recovering operational costs,” says Britt Dye, FPU’s CEO/General Manager.

According to Dye, TVA’s rates are established based on the cost of producing and distributing electricity across the Valley. FPU’s local rates are increased based on the need to cover operational and maintenance costs here.

FPU’s last rate increase was in 2003. At that time, TVA also increased its wholesale rate. Since that time, FPU has not raised electric rates on a local basis.

“In 2006 TVA passed a rate reduction, a unique situation,” says Dye. “Rather than passing the full 3.6 percent retail rate decrease along to our customers, FPU elected to lower rates locally by .5 percent and retain the remaining 3.1 percent reduction in order to offset our increases in materials, operations and maintenance costs.”

FPU reports that since 2003, its materials costs have set unprecedented increases. Utility officials have recorded a 40% increase in the cost of a standard 15 kva transformer from Nov. 2003 to Dec. 2007. Over the same four-year period, FPU’s costs for 3” PVC conduit increased as much as 41%, underground triplex service wire by 45%, copper wire an astounding 264%.

“For several years, FPU and other electric utilities have controlled local operational and maintenance costs internally,” he says, “but as we continue to see these levels of increases in our everyday material purchases, FPU is in a position where we must do something to offset these costs without affecting the quality of service we provide.

All electric power distributors across the Tennessee Valley, including FPU, will receive a 7 percent wholesale rate increase from TVA. TVA officials say that the wholesale rate adjustment is incorporated into its long range plan to fund new power generation and energy efficiency initiatives needed to meet the growing power demand for the area. The TVA rate increase will provide an estimated $300 million in additional revenue to TVA during fiscal year 2008.

In addition to the wholesale rate adjustment to power distributors, TVA has also announced its second quarterly Fuel Cost Adjustment for 2008. On April 1, the FCA will increase to .589 on the retail rate. As a direct affect of the lingering drought and its continued impact on reduced hydro generation - TVA’s least expensive generation source – and continued increases in costs associated with purchasing power from other generation facilities during peak times to supply the Valley, the FCA will be increased April 1.

The quarterly, variable amount of the TVA Fuel Cost Adjustment is added to FPU’s base rate to offset the direct costs of providing electricity to the Valley over the previous 3-month period. This quarterly adjustable fuel cost mechanism was set in place in 2006 to allow TVA quicker recovery of its changing costs of producing energy rather than to adjust rates at a much higher percentage annually.

“Things are different today,” says Dye. “We’ve reached a point where we must do something to maintain the level of service we provide, not just here in our community, but this is also a national concern. The electric industry has felt the effects of rising costs from purchasing materials to build new services for our growing communities and the costs of maintaining our systems for reliability and safety. The true costs of providing service are increasing everyday, and even what we’ve put into place internally to control costs is not enough to maintain the level of service we provide.”

An average residential household using 1,330 kilowatts of electricity will see their energy charge change from $114.99 to $127.03 which includes the new TVA rate, FPU rate and the FCA for the next quarter.

Approximately 75 percent of the electric rates local consumers pay is the cost of producing electricity. This means that 75-cents of every dollar paid to FPU is paid back to TVA for the energy we use here. The remainder is used locally to maintain your electric system.

“We have managed our costs of operation strategically over the past several years,” says Dye. “We don’t know what the future holds for electric rates. According to our long range study and ten-year financial forecast, we predict an annual 2% rate increase over the next 10 years to keep pace with community growth and system upgrades necessary to maintain system reliability.”