1. Retail Rate Design & Administration
Grid Access Charge
Louie Smith
Retail Rate Design & Administration
May 16, 2019
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2. Grid Access Charge What? Why? How? Tips:
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3. TVA Products TVA Sells Two Products: Capacity
To meet instantaneous demand across the valley
Costs are largely fixed in nature – our assets
Energy
To meet hourly energy requirements every hour of the day
Costs are primarily fuel, purchase power, and are variable in nature
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4. Small Commercial & Industrial
TVA Electric Service
Standard Service
Residential
(4 Million)
Small Commercial & Industrial
(700,000)
Wholesale
Large Customers (B C D)
Local Power Companies
(154)
Large Commercial
(~100)
Large Manufacturing
(~400)
Large Customers (B C D)
Retail
Directly Served
(~56)
Federal
(~6)
Large Manufacturing
(~50)

5. Rate Authority
Local Power Company (LPC) Standard Service – 154 Local Power Companies (residential, small commercial and industrial) 1
Wholesale and retail rate authority established within the Power Contract
Directly Served Customers - ~56 direct serve customers (large manufacturing and federal) 2
Retail Rate Regulator – according to TVA Board approved process
Retail rate approver for 150 LPCs
Non-discriminatory oversight for 4 LPCs 3

6. The Market is Changing
The utility industry is entering a world of enhanced competition and choice, which presents opportunities for utilities that embrace and adapt to the change.

7. Long Term Pricing Direction
Improve Fixed Cost Recovery
Appropriately value infrastructure investment
Increase fixed cost recovery at wholesale/retail
Improve Pricing Signals
Improve pricing structure and program/product pricing to provide signals more reflective of embedded and marginal cost
Move toward more dynamic pricing
Encourage Technology Investment
Interval metering and data management
Load control and load shaping technology
Provide rates as low as feasible, ensure fairness

8. Rate Design Guiding Principles
Rates must cover costs
GUIDING PRINCIPLES
“The guiding principles developed for the 2011 rate change (amended to include a principle dealing with rate competitiveness) continue to inform the 2018 rate change”
Rates track cost of service
These guiding principles are true at wholesale & retail
Rates must send pricing signals
Rates must balance precision with simplicity
Rates must be stable
Rates must be competitive & affordable

9. Incorporation of Technology
Rate Design
According to cost causation principles
Matching revenues with costs incurred
Least cost objectives
Change Management
Pace of Change
Customer Bill Impacts
Mandatory
Vs.
Voluntary
Incorporation of Technology
Outreach & Education
Cost to Achieve

10. Recognizes value and cost provided by grid service
Pricing
Pricing aligned to cover cost while adding value to the customer and the system
Rates better aligned to reflect costs
Shift from energy to fixed
Develop long-term pricing strategy
Fixed
Demand
Energy
Recognizes value and cost provided by grid service

11. Bill Comparison: Electricity vs. Cell Phones
Electric Bill
Cell Phone Bill
While an electric bill is driven by customer usage, cell phone bill charges are fixed

12. Terms of Wholesale Rate Structure
Reduce Energy Charges by 1/2 cent
Grid Access Charge Rate of 1/2 cent
Application
Applied to LPC energy for previous 5 most recent years
Reset
Reset each year on a rolling basis
Deferral Option
Option to defer Grid Access Charge implementation to October 2019

13. TVA New Wholesale Rate Structure
- 1/2 cent
+ 1/2 cent
~6% of TVA revenue
Reduce Energy Charge
Grid Access Charge (GAC)
Recognizes value and cost provided by grid service

14. Improving Pricing 30% 90% 70% Cost to Serve a Residential Customer
What a Residential Customer Pays
90%
70%
VARIABLE
Future:
Pricing That Better Reflects Costs
30%
BEST FIXED COST RECOVERY
VARIABLE
COSTS
INDIVIDUAL IMPACTS
FIXED COSTS
Managed, incremental improvements over time

15. Grid Access Allocation

16. Default Rate Design (Residential)

17. Optional Rates - Risk Premium Calculation

18. Optional Rates - Residential