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VOL. 35 | NO. 18 | Friday, May 6, 2011

TVA increasing electric rates June 1

Plan pushed conservation

By Bill Lewis

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Nashville residents and businesses already coping with rising prices at the gas pump are about to get another energy shock – higher electricity prices this summer.

TVA is raising its rates during the months when demand for power is at its highest, and Nashville Electric Service is passing along the new seasonal rate to its 320,000 residential customers and 33,000 business customers. Another 6,500 large commercial customers have a separate rate structure.

A $100 monthly residential bill will go up about $3 during summer – June through September – and winter – December through March. The rate will go down during the other four months of the year, says NES President and CEO Decosta Jenkins.

That may not sound like much, but some customers who heat and cool large spaces or whose homes or businesses are not energy efficient could pay substantially more, he says. The seasonal rate will be in addition to TVA’s fuel cost adjustment that already adds to monthly bills.

“It will be a sizeable increase” for some customers, Jenkins says.

The rate change also will impact the 15 percent of NES’ residential customers who have difficulty paying their bills, Jenkins says. That number is up from 10 percent before the recession.

TVA’s goal is to get people to use less energy. Renters will have few options other than resetting their thermostat. Home owners can reduce their bills by signing up for Nashville Energy works (NEW), launched last month by Mayor Karl Dean’s office in partnership with TVA and NES.

The program provides a free home energy evaluation and up to $1,000 in incentives to make energy-saving improvements. In addition, the Metropolitan Development and Housing Agency offers home weatherization assistance for low-income households.

It’s hard to tell how TVA’s new rate structure will affect individual businesses. Those that own their spaces can insulate or take other energy-saving measures. Some office leases may include provisions that require landlords to absorb a rate increase up to a certain amount. Beyond that, the tenant has to pay. In other cases, the tenant may have to pay the full amount.

Either way, someone has to pay, says Tom Frye, managing director of the commercial real estate firm CB Richard Ellis.

“It’s not going to be good. It’s like a tax. Nobody’s going to like it,” he says.

It’s unclear what impact the rate change will have on the city’s office real estate market as it recovers from the recession. Rents were mostly flat last year, and landlords might have difficulty raising rents for tenants who may also be paying higher electric bills if they do not successfully reduce their consumption.

The rate change has not created a “red flag” among property owners and tenants, but it will raise the cost of doing business, says Hollie Cummings, executive director of NAIOP, the Commercial Real Estate Development Association.

“The reality is that it does get passed down to the people leasing space,” she says. “It’s not a good time in a down economy to tell people they are going to have to pay more.”

Jenkins emphasized that NES is not raising its rates. The power company is passing along a new rate structure that TVA hopes will reduce demand by about 3,600 megawatts, or nearly 10 percent of capacity, during seasons when high demand forces TVA to bring additional power plants on line or buy electricity from other generators.

Saving electricity would also reduce the need for TVA to build expensive new power plants, said Jenkins. To achieve that goal, the federal utility is sending “price signals.”

The goal is “behavior modification,” says Jenkins, “We want people to conserve in the summer and winter. Then the price signals don’t have to be so strong.”

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