SOME FACTS AND MYTHS ABOUT UTILITY
RATES & PRACTICES
We would like to take this opportunity to respond to some of the comments and questions that we hear concerning utility rates and practices. Since the electric portion of the utility bill is typically the highest and we have more electric customers than gas, water or sewer, most of our comments will focus on electric rates and practices. However, many of the points that we make will apply to gas, water and sewer, as well. Some examples of typical questions and comments are:
“Why are our electric rates so high?”
To respond to this question you must first understand the factors that influence the rates. Electricity is a commodity just like gasoline, food products, clothing, etc. In general, the retail price is set by the cost of the product from the wholesale supplier plus a margin to cover overhead expenses plus a profit margin. In the case of a public non-profit utility company such as the Harriman Utility Board, the profit margin is zero (we reinvest any net income back into our system), and the overhead margin must cover all of our operations and maintenance expenses.
In our case, TVA is our wholesale supplier and we must pay whatever price it sets. Under the present rate schedules, we must return 75 cents of every dollar we collect from our customers to TVA to pay for the power used. This leaves us 25 cents per dollar to pay our employees, purchase and maintain an office and warehouse, purchase all material for line construction and maintenance (poles, wire, transformers, etc.), purchase equipment (bucket trucks, digger-derrick trucks, pickups, backhoes, dump trucks, etc.), build substations, purchase computers and software, generate and mail bills, etc.
The Board takes its rate setting authority very seriously. The board will not increase rates unless it is necessary to support programs and capital improvements that enable us to provide quality service to our customers. In fact, when TVA announced a 3 percent rate increase plus 17 percent fuel cost adjustment to go into effect last October, our Board took action which effectively negated the 3 percent increase, even at a loss in revenue of 3 percent to HUB.
“Our bills are so high because of high pay rates of HUB employees.”
HUB’s payroll is approximately 14 percent of its total expenses. Since we are operating on 25 cents of each dollar received, that means that 3 1/2 cents of every dollar we collect is paid to employees. To put this in perspective, that means that even if we cut employee pay in half (not realistic) the savings to our customers would amount to only 1 3/4 cents per dollar. For example, if a customer’s bill was normally $100, it would be reduced by only $1.75.
Each year, the Tennessee Valley Public Power Association does a salary survey of all TVA distributors and determines average pay rates for different classifications and for different size utility companies. We use the average pay rates for classifications in our utility size (10,000 to 20,000 customers) to determine what our employees should be paid. We do not try to match our pay with the highest nor the lowest of those surveyed. We feel that this allows us to be competitive in the job market for skilled, qualified personnel. We recognize that there are utilities that pay more and might hire employees away from us. However, at the same time there are utilities that pay less, from which we might hire qualified employees.
“Why is my bill so much higher than my brother’s, who’s a Rockwood customer?”
In reality, HUB’s current electric rates are lower than Rockwood’s. First, let us make it clear that we don’t intend to pick on Rockwood Electric Utility (REU). If you look at utility rates of all comparably sized utilities in the Tennessee Valley, you will see that they are all very close. For example, HUB’s residential energy rate is 9.096 cents per kilowatt-hour (kWHr) while Rockwood’s is 9.187 cents, a difference of 91/1,000 of a penny. Plateau Electric Cooperative, our neighbor to the north, has a rate of 9.314 cents, while the Knoxville Utility Board’s (KUB) rate is 8.506 cents. We use the KUB rate to demonstrate that utilities with larger customer bases can spread fixed costs over a greater number of customers, resulting in lower rates. They can also use the funds collected from a large industrial customer base to help subsidize their residential rates. We don’t have these luxuries. Other factors that affect rates among similarly sized utilities are age of system, number of substations required to serve the customer base, capital invested to improve system reliability, customer density, etc.
A common error when comparing bills is not taking into account the amount of energy used. For example, a person with a large family and a large home would obviously be expected to use more energy that a small family in a small home. Be sure that you are comparing the price per kWHr, not the total bill. Another common misconception takes place when you just look at the bill total. For example, a customer getting a bill from REU is receiving a bill for electric service only. A bill from HUB might represent billings for electric, gas, water, sewer and garbage.
“I want to pay my bill but I don’t have the money right now. I guess HUB will just come cut me off.”
First you must understand that we are a business, not a charity (In fact, we are one of the largest businesses in Roane County with an annual operating budget of almost $30 million). We do not have the option of forgiving debt because we must pay TVA for the power we use regardless of whether or not we collect payment for that power. When customers are unable to pay their bills, that money has to be made up by the rest of the utility’s customers (an obviously unfair situation). Also, unlike the car dealer who can repossess a vehicle if payments are not made, the electricity (gas, water) has already been used and cannot be repossessed. The only way we have to mitigate our losses and control the debt our paying customers absorb is by discontinuing services so that additional debt is not incurred.
With all that said, the last thing HUB wants to do is cut off one of our customers. When that meter is not in service, we are not selling any electricity, gas or water, and our chances of recouping the amount past due (arrears) becomes less and less. Customers who find themselves in a temporary cash-flow bind need only contact our Customer Service Manager or his assistant. We are ready and willing to make arrangements to allow our customers to catch up these arrears while keeping their future bills caught up, to allow them time to work through their temporary setbacks. However, for those customers who keep getting further and further behind or who do not live up to the arrangements they agreed to with us, there comes a point when we must discontinue service to protect our other customers. We make every effort to collect these debts through all means available including such methods as legal liens and collection agencies. Even with these measures, HUB wrote off more than $241,000 (for all departments) in uncollectible debt last year.
“The Harriman Utility Board should show preference to citizens of Harriman whose taxes support it.” (An example is the belief that during a power outage, we should get the power back on in Harriman before we venture outside the city limits.)
First, HUB receives no tax money from the City of Harriman. Conversely, HUB makes in-lieu-of-tax payments each year to the City of Harriman, which then distributes portions of this money to the City of Oakdale as well as Roane and Morgan Counties. Secondly, the City of Harriman represents only a very small part of our service territory. For example, HUB has facilities that extend to the Rockwood Airport, White Oak, Wartburg Sewer Plant, Frozen Head State Park, Coalfield, Patton Lane, Westshore Estates and up to Oliver Springs. Our electric system has more than 600 miles of line with just a few of those within the city limits of Harriman. A lot of our customers have the misconception that we serve just the city of Harriman rather than a large part of two counties. When we do have widespread power outages, we start working in areas that will get the most customers back on in the least amount of time, regardless of whether they live in the county or in the city.
In general, the utility business is a heavily regulated business with many of its policies, practices and expenditures dictated by local, state and federal mandates. For example, we have spent almost $10 million in less than 10 years to upgrade our 50+ year-old sewer system. This work has been done under a sewer moratorium and agreed order from the State, which left HUB no choice in the matter. While we will reap benefits from the upgraded system, the large sums of money spent have to be borne by a small customer base (about 2,500), so the rate impact is significant.
HUB is dedicated to the mission of providing the highest level of quality service and reliability at the lowest possible cost with consideration for both our customers and our employees. We seek to hire quality trained professionals in all areas of our operations in order to achieve this mission.
If you have any questions about our operation or any of the services we provide, don’t hesitate to call us. We are ready and willing to meet with you to attempt to resolve any issues you might have. You may contact us at (865) 882-3242 or through our web site at www.hub-tn.com.