The Cleveland Utilities Board of Directors voted to approve a 20-year contract with the Tennessee Valley Authority, which will result in distributing a 3.1% monthly credit to local power …
The Cleveland Utilities Board of Directors voted to approve a 20-year contract with the Tennessee Valley Authority, which will result in distributing a 3.1% monthly credit to local power companies.
TVA also announced this week it will cease yearly wholesale base-rate increases for the next decade.
CU President and CEO Tim Henderson said it was a welcome change after five years of increases.
He said TVA’s new President and CEO Jeff Lyash had indicated several months ago that the federally owned corporation’s financial plan was likely to change, benefitting 154 local power companies.
“He indicated he had a different financial plan, and that it was going to be good news to local power companies,” Henderson said.
There is a caveat to the new agreement, he said.
“They are asking for a 20-year contract," Henderson said. "What Lyash wants to add is security in the membership."
CU currently has a 10-year contract with TVA.
TVA public relations officer Jim Hopson told the Cleveland Daily Banner the long-term partnership agreement the TVA board approved on Thursday, is an “optional 20-year agreement made available to our local power company partners designed to better balance the risk associated with long-range planning and provide a greater degree of flexibility and collaboration within the Tennessee Valley public power model.”
Hopson said the monthly 3.1% credit on TVA’s wholesale base rate, representing the savings reflected in the reduced financial risks associated with the longer-term plan, will be offered to participating local power companies.
He said the agreement is separate from the board’s decision to not increase the base wholesale rate for fiscal year 2020, which “applies to all local companies regardless of their participation in the new long-term partnership agreement.”
In a press release, Lyash said TVA's focus on slashing costs during the past several years has resulting in early returns.
“Since 2013, we’ve been focused on strengthening our financial foundation to allow us to better meet future needs,” he said. “Through hard work and dedication to that goal, we’ve achieved many of our 10-year goals in only six years, which allows us to keep our wholesale rates steady.”
Since 2013, TVA has decreased its debt from more than $28 billion to $23 billion, with further declines expected over the next decade. Its 10-year debt reduction goal was to pare down its debt to some $22 billion by 2023.
Board member Eddie Cartwright asked if there was a way TVA could exit the contract due to unforeseen circumstances.
“I’m not opposed to it, but is there a provision to get out of it?”
Henderson said if TVA changes course and raises rates, CU can fall back to its current contract.
“There is a case if rates increase and TVA has to adjust and rates reach a certain tier level, then we can fall back to the 10-year level,” Henderson said.
CU Vice President and CFO Marshall Stinnett told the Banner the utility can fall back to the 10-year agreement if TVA has “5% in increases over the next five years or 10% in 10 years.”
Henderson told the board that signing the long-term contract will enable TVA to focus on long-range goals.
“We are asking for the long-term commitment so they know they are secure with their customer base that they have so they can move forward with their financial plan,” he said.
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