TVA meeting without substance
November 24, 2009
With some anticipation, live streaming of TVA’s board meeting on November 19th in Bowling Green, Kentucky started, or non-started, with a “technical difficulties” notice. The difficulties must have been very severe because none of the “live” meeting was available and it was three days before the taped version came on line.
Because of TVA’s past history of tending to cover up its mistakes, the question is raised of whether the board proceedings were edited before becoming available on the Internet. I’d like to hear from TVA that it was not edited, changed, or modified from the original in any way.
In a slap in the face to the Board, only seven of the seventeen TVA distributors in Kentucky bothered to show up. And this had to be a very expensive affair. Travel for the six board members and TVA staff, technical crew for the video and their lodging and food must have cost a bundle. I’m sure TVA ratepayers are curious about how much this little excursion cost them. Mark that one up in the “waste” column.
Board Chairman Mike Duncan began by warning of a “(P)otential for profound changes and major challenges ahead for TVA and the entire industry” in the coming year.
With that sobering thought in mind, he proceeded to explain how TVA was helping keep rates down by amortizing (stretching out) debt for the Kingston disaster, now estimated at $1.2 billion and rising, and extending $1 billion for payments to TVA’s retirement system.
This means that TVA while incurring substantial debt plus interest will just be kicking the can down the road and will end up paying about twice the amounts now owed. That may be a good way to buy a house but a poor business-like transaction. The only advantage to ratepayers is their electricity rates for these two items will increase more slowly but the amount owed probably will double because of interest charges.
TVA is committed to spending billions more and that can only boost rates much higher in the shorter term.
Power sales are down about 7 %, according to CEO Tom Kilgore. But almost by magic, TVA’s sales can dramatically increase simply by increasing rates. The TVA board has the unchallengeable and unaccountable authority to do so at their own will with a vote of four of the six present members. After January 1st, it will take only three members to vote in a rate increase.
Investor owned utilities, on the other hand, must struggle to reduce costs to cope with declining sales in order to stay profitable, something TVA never has had to do. That is why it is laughable when TVA tries to justify its compensation rates for managers. There is nothing comparable in the United States to justify their executive salaries. To try and use industry comparables is not only impossible, it is disingenuous for the TVA board to try to do so.
TVA is a federal agency and there is nothing in the private sector to compare it with.
Expenses
Using percentages is somewhat misleading when they do not clearly relate to the dollars they represent. By adding actual dollar figures to the percents the relationships become more meaningful, less obscure. And these amounts are huge and should be better represented.
For example, Kilgore says 2009 expenses were “84% of planned expenses”. Starting from the beginning, Planned Expenses for 2009 were $12.5 billion, the actual was $11.3 billion or a little over $1 billion less. This is not a significant amount when major cuts are demanded in all areas of TVA expenses.
At least a 25% cut would be appropriate in times like these and even that may not be enough. Of course, this assumes that the “planned expenses” were justified and appropriate to begin with. This is a matter that must be reviewed in the 2010 budget context.
Is the 2010 budget already bloated? Does it contain items that easily could be “cut” later to show how diligent the TVA is in “cutting expenses to the bone”? That’s the old trick in government, build the strawman and later cut him down. The resulting action is that nothing was changed; it is a clever enough ploy to fool a lot of people. That’s why it’s called “smoke and mirrors”.
Revenues
This is an area that budget planners can use to their own advantage and TVA seems to have inflated planned revenues substantially in excess of more realistic figures available at the time of budget setting for 2009. The “metrics” were there without trickery. Already two years into the recession it should have been obvious that revenues would be considerably lower even without sophisticated econometrics which, if used, were way off base.
Projecting revenues, however, is not nearly as important as planned for expenses and it allows for more wiggle room. In TVA’s case, leaving off percentages and dealing in real dollars, TVA’s actual Operating Revenue for 2009 was $11 billion while the planned revenue for the year was $13.5 billion, a significant drop of over $2 billion.
While forecasting could be called more of an art (guessing) than dealing with actual figures, it tries to give somewhat of a mirror into the future. At TVA, the parameters are so tight that there is not much leeway unless the figures have been jiggered.
Fuel and purchased power
There is a discrepancy between what Kilgore stated at the November 19 meeting and the actual fuel and purchased power costs as stated on TVA’s 2009 Statement of Operations.
Fuel expenses (nuclear, fossil, not including gas which is a minor amount) were $4.5 billion for 2009 while Kilgore’s chart on “Financials” shows this amount to be $3 billion, a $1.5 billion difference. If these figures actually are in error, TVA’s ratepayers could significantly be shorted in their “fuel cost adjustments”.
Purchased power likewise showed a half-billion dollar difference. TVA’s Statement of Operations reported $2 billion in purchased power while Kilgore’s chart showed $1.5 billion. The significance of this difference is a matter of “profit” to the TVA. It is presumed that purchases of outside power are more expensive than electricity produced by TVA.
This may not be necessarily so in TVA’s long term purchase of power from the Dakota’s. If those costs are significantly less than what it costs TVA to produce the same amount of electricity, it may bode ill for TVA in the long run.
A personal experience in “outsourcing” of work by the Post Office may be analogous. I managed a hauling contract with the PO for transporting mail to a number of distant cities from the bulk mail center in Atlanta. They made no bones about it that contractors could do the same job at far less expense. And speaking of waste, the bulk processing center had installed an automated mail sorting device that cost millions of dollars. But they couldn’t figure out how to make it work.
Ultimately, TVA probably will go the same route as the PO because they simply cannot as a government agency operate as efficiently and economically as private industry.
On fuel rate adjustments, Kilgore said, “There will be a time when all of this credit stops so we’re enjoying it while its here.” The question to TVA is why should the fuel rate credits stop if fuel costs continue to decline? If they stop, at what point do they stop? Has this already been determined?
99% reliability for the 10th year. It would be helpful to know the data inputs that make up the “reliability” of TVA electricity. Does that include all 17,000 miles of transmission wires? Are there weak spots in the system that overall do not lower the transmission reliability rate of 99%?
Although Sequoyah 1’s “capacity factor” was rated 6th of 439 nuclear power units in the world, where did the remaining TVA nuclear units rate?
Overall, this board meeting was mostly self-aggrandizement of the board and the CEO Tom Kilgore. It appears that this was the last meeting with Bill Sansom as a member. He served the remainder of the year in which his appointment expired. He chose, with two opportunities, not to make any comments about his tenure on the TVA board.
The meeting closed without giving the public a chance to speak either before or after the meeting; all votes were unanimous and there was no discussion about any of the motions. This seems to be a very disturbed management and policy making team that has no idea where TVA will be in a year.
With the profundity of silence neither the CEO nor the board chairman dared broach what would be the “major challenges ahead for TVA”.
Ernest Norsworthy
emnorsworthy@earthlink.net
http://norsworthyopinion.com