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Cherokee Electric fighting perception

Aug. 15, 2011 – By Scott Wright

CENTRE — For the past few months, Cherokee Electric Cooperative employees have been spending a lot of time trying to explain to customers why their monthly fuel costs have shot up since April.

 Here’s the rub: They haven’t.

The facts are difficult to explain, according to Chief Executive Officer Randal Wilkie. To put it simply, Cherokee Electric’s monthly rates haven’t increased in over two years.

What has changed, said Wilkie, is the way the Tennessee Valley Authority bills the Cooperative – and, ultimately, customers in Cherokee County – for charges related to the fuel it purchases to generate electricity.

Wilkie explained that in 2006, federal officials approved a TVA request to streamline its method for recouping fluctuations in fuel costs.

 “Fuel was so volatile at that time,” Wilkie said. “So TVA was allowed to establish a baseline rate for fuel costs in 2006 and charge any increase over that. They could also adjust that charge either up or down every quarter, in order to capture all their expenses.”

By 2009, Wilkie explained, TVA realized its new policy wasn’t capturing expenses as efficiently as intended.

“It didn’t work too well, because they were collecting either too much or too little money over a three-month period,” Wilkie said. “So in 2009 TVA asked for a monthly instead of a quarterly adjustment.”

Two years later, TVA once again decided to alter its accounting method for determining fuel costs. In the process, TVA also created a big headache for local cooperatives.

“Now they take every bit of any cost that is considered fuel-related – coal, nuclear and natural gas, along with any costs for buying electricity on the open market during peak times when resources are limited – and categorize all of it as fuel costs,” Wilkie said.

In changing to the new accounting formula earlier this year TVA effectively eliminated the 2006 baseline. Now, all the pre-2006 fuel charges, along with any fuel cost fluctuations in the future, are itemized separately from the base rate on customers’ monthly bills.

“There was suddenly this perception that fuel charges shot up, but they didn’t,” Wilkie said. “It’s kind of like they took the fuel cost amount from one bucket and put it into another bucket.”

Wilkie said there is a good reason behind the TVA policy change even though on the surface it seems to do little more than create confusion. He explained that an across-the-board rate increase is never a desirable option, partly because getting one approved would require navigating a massive pile of government red tape.

“Also, we all want to keep rates as steady as possible,” Wilkie said. “If what TVA defines as fuel is the expense that fluctuates month-to-month, then they want to be able to adjust just that amount.”

As proof, Wilkie offered an example using a pair of bills from an anonymous Cherokee Electric customer — one statement from July 2011 and the other from the same period a year earlier.

At first glance, the 2011 fuel charge appears over four times higher. But closer examination shows a significantly higher base charge on the 2010 bill. Add together the separate columns on the individual bills, along with other charges such as taxes, and the two totals come to within a few percentage points of each other.

Wilkie said that slight discrepancy is easy to explain.

“Fuel costs are about 3-4 percent higher this year than they were last year at this time,” he said. “That’s the difference.”

Another major factor in the billing confusion at Cherokee Electric since April has been that many TVA-supplied cooperatives have since removed the monthly fuel cost adjustment from customer statements. Wilkie said in some cases, that omission has made it appear that Cherokee Electric is still charging a monthly fee when other cooperatives are not.

“We’re one of the few left who still have it on the bill, but we’re going to remove it,” Wilkie said. “We will indicate on the bill that customers can go to our website (www.cherokee.coop) and see what portion of their monthly bill, per kilowatt hour, is made up of fuel costs.”

 

This entry was posted on Friday, October 2nd, 2009.