Aug 25 - The Knoxville News-Sentinel

By Larisa Brass, The Knoxville News Sentinel, Tenn.

Aug. 21--While energy prices have climbed incrementally in the last couple of years, there's nothing like a 20 percent spike to affect budgets and bottom lines throughout the Tennessee Valley.

Local utilities say they must pass on the rate increase, part of the 2009 budget approved by TVA on Wednesday, to their customers, and they're trying to prepare them as best they can.

"One hundred percent of this increase will go to TVA," said KUB spokeswoman Pam Jordan. "There's no way we can absorb any of that."

The local utility "pays TVA 86 cents of every dollar" and has continued to trim operations costs even as energy rates have climbed during the past several years, she said.

"We've only increased our own rates ... once in the last 17 years," Jordan said.

KUB is planning education and outreach efforts for customers connected to the rate increase. The utility's September/October newsletter will offer tips to customers on how to trim energy consumption, such as adjusting the thermostat a few degrees warmer or cooler -- depending on the season -- and investing in more energy-efficient heating and air systems and appliances.

At the Athens Utilities Board, spokesman Wayne Scarbrough said the utility is drafting a letter to customers who pay a specific amount each month based on last year's usage.

With prices going up, they could face an extremely large bill at the end of the budget period next June, Scarbrough said.

"We are urging them to pay extra each month to cover the raise," he said. "I don't think this is going to get any better for several quarters."

For lower-income customers, the impact is even worse, said Cecelia Waters, energy and community services director for Knoxville/Knox County's Community Action Committee. The CAC manages local distribution of federal dollars through the Low Income Home Energy Assistance Program.

"Most of our lower-income households pay a higher percentage of their income toward home heating and cooling," she said. "Where you and I may spend 2 to 3 percent of our total income, they may spend upwards of 14 or 15 percent. So almost any increase has an impact on their resources."

The program, which provides $400 to $450 per year in utility bill assistance as well as other energy-related services, expects to aid about 3,299 qualifying customers this year based on current funding projections, Waters said. Last year, thanks to extra funding, the agency helped more than 4,000 households -- and still had 1,300 applicants they could not assist because of lack of funding, she said.

The program is taking applications for the coming year, and Waters said she's seen a 10 percent to 12 percent increase in the number of requests.

"A lot of the families, some of them are laid off, they have fewer hours of work and just the rise in food costs, the rise in the transportation costs, the water and wastewater charges ... it's almost like a perfect storm," Waters said. "It's just hitting the pocketbook at all kinds of levels."

Residential customers aren't the only ones feeling the pinch. Knox County Schools, for example, already was exploring ways to save energy before TVA warned of hefty increases, said Zane Foraker, energy manager for the school system. Those measures include simple steps such as closing windows and doors to potential participation in a TVA demand response program that would allow the system to get special discounts in exchange for cutting back power usage on days of high demand.

With the latest rate increase, the schools now will consider further measures, such as using natural gas rather than electricity for heating, Foraker said.

"You have to try to figure out what fuel is most efficient that you can use at any given time," he said. "Really, there's not much you can do about electrical rates. We can just control our consumption."

Bobby Glenn, general manager of a Panasonic electronics facility at Forks of the River Industrial Park in East Knox County, showed up at a public hearing prior to the TVA board meeting Wednesday morning to register his complaint about higher energy costs.

Three local Panasonic facilities employ 300 people. One of those facilities is the aluminum foil division Glenn manages. The plant consumes 90 percent of the electricity needed for all three plants in a high-voltage electroplating operation to process foil for use in aluminum capacitors made in Knoxville and other plants overseas.

The recent pattern of increases in electric rates threatens the company's continued local presence, Glenn said. Previous base rate and fuel related increases this year already have added $3 million per year to the company's electricity costs, Glenn said, making the plant less competitive among the Japanese company's international operations.

"We, as an internationally headquartered company, have to give our top management some view of the future operational costs and profitability at this location, but TVA has not put forth a plan that gives a road map for the future or that gives us any hope that the situation will ever change," Glenn said.

On the health care side, the University of Tennessee Medical Center -- at 1.5 million square feet of heated and air-conditioned space -- is facing a significant increase in utility expenses, Senior Vice President and Chief Administrative Officer Norman Majors said.

The hospital, which operates 24 hours a day, seven days a week, made some budget adjustments this year, but incremental monthly increases and TVA's announced 20 percent rate increase are "significantly more" than anticipated, he said.

Majors estimates that UT Medical Center's costs will increase by about $750,000 annually.

The hospital will look for ways to conserve, including the use of energy-saving lights and energy-efficient equipment.

"We certainly will look for other areas where we might offset the increase in cost in utilities," Majors said.

Kevin Lowery, director of corporate communications for Alcoa Inc. in Pittsburgh, said the TVA rate increase could spell bad news for the manufacturer, which basically is a smeltering operation.

To supply power for a smelter, which basically burns 60-80 years without stopping to produce aluminum, "We say you have to bat three for three," Lowery said.

The power source has to be globally economical, reliable and long-term, he said. Aluminum is a global market, and power accounts for about 30 percent of the cost of the light-weight metal. If Alcoa loses its competitive position, that could hurt the East Tennessee economy, too, he said.

"Any kind of power increase in Tennessee would impact competitiveness, which is something you do not want to do to a leading economic contributor," Lowery said.

For Athens manufacturer Dynasty Spas, it's about the little things.

"For some time, we have encouraged employees to turn out lights when they leave and unplug computers," Dynasty Spas spokesman Sam Matter said. "We are also trying to do more of the heaviest work with equipment during morning hours."

He said the company doesn't like passing increases on to its suppliers. But even with the electrical rate increases, much of Dynasty's product is made from petroleum products.

"We will just have to bite the bullet," he said.

Dave Nowiski, chief financial officer for Mercy Health Partners, said he estimates utility costs for Baptist and St. Mary's hospitals to go up by about $1.6 million a year.

"The burden on us is how do we come up with the additional money," he said. "It's not a surprise, but it doesn't make it any easier to swallow."

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