TVA, Knoxville Utilities Board Agree to New, More Flexible Contract
April 18 , 2002
TVA and the Knoxville Utilities Board have agreed to a new, more flexible
contract that is a first step toward greater contract flexibility between
TVA and all of its distributor customers.
“We are very pleased to reach an agreement with KUB that offers the flexibility and services needed to succeed and prosper in a new energy marketplace,” said TVA Chairman Glenn McCullough Jr. “TVA is committed to providing customer choice that provides value to the 158 local utilities that distribute TVA power, as we work to be their preferred supplier. We are taking actions now that will generate future success for our company and customers.”
TVA earlier announced its intent to work with distributors to provide a range of contract options. The new contract with KUB reflects provisions of the TVA Title, a consensus agreement between TVA and its customers on how both will operate in a restructured energy market.
Starting
with the new KUB contract, TVA has agreed to make these options available
to all distributors before federal restructuring legislation occurs:
- KUB has the authority
to set retail rates for its customers. TVA will no longer regulate these
rates for KUB.
- TVA will not collect
stranded costs from KUB after 2007. Stranded costs are expenses that
will remain with TVA after its customer chooses another supplier.
- KUB has the right to cancel its contract with TVA after five years’ notice instead of the previous 10-year notice period.
KUB President and CEO Larry Fleming worked closely with TVA and other
large distributors of TVA power to negotiate the new contract. “This
agreement is a major milestone for KUB and TVA, and it lays the foundation
for us to build stronger, more competitive companies going forward,”
said Fleming. “I commend TVA’s leadership for partnering with
us on a mutually beneficial contract that responds to our request for
more options.”
“I'm very pleased to see this important step in more flexible business relations between TVA and our customers,” said TVA Director Bill Baxter. “KUB is one of our largest customers, and listening to them and all our other customers will be the key to our future success in a competitive marketplace. We intend to earn KUB’s business for many years to come.”
Like KUB, some distributors have asked for short-term contracts, while others prefer long-term contracts with more price certainty. Other distributors have asked for contracts that would give them flexibility to purchase part of their power from other suppliers.
TVA and distributors are negotiating a variety of other contract options, including partial requirements that will adjust their partnership to reflect changes in the power industry. Partial requirements contracts would give distributors the right to purchase some of their power needs from another supplier or self-generate up to 10 percent after a two-year period. Current distributor contracts require that 100 percent of their power be purchased from TVA. Once negotiations are complete, a distributor could sign up for any combination of the new options for different percentages of its power demand.
“Offering various contract options will further strengthen our longstanding positive relationships with our customers,” said McCullough. “Contract flexibility supports TVA’s strategic objective to meet customers’ needs with affordable, reliable electric power.”
TVA is the nation’s largest public power producer, and its power system is self-financed. It provides power to large industries and 158 power distributors that serve 8.3 million consumers in seven southeastern states. KUB, a municipal utility serving Knox and parts of seven adjacent counties, provides reliable electric, gas, water, and wastewater services to 390,000 customers. KUB’s annual budget exceeds $490 million.
Media Contact:
B. J. Gatten, Nashville (615-232-6076) or TVA News Bureau (865-632-6000)
