Tupelo, Mississippi — A new deposit policy for industrial and commercial users served by the Tombigbee Electric Power Association has caught many of them off-guard.
The new policy will be implemented Thursday for new customers, but the policy also affects current customers.
Businesses now face paying deposits several times over what they paid.
For example, a business that paid $90 as a deposit to Tombigbee two decades ago now must pay more than $30,000.
The policy was approved by the electric cooperative's board in July, and notices were sent in November. Those receiving the notices had until Dec. 15 to choose one of two options: paying the total upfront or spread the cost over 48 months.
State Rep. Steve Holland, a Democrat from Plantersville and chairman of TEPA's rate committee, understands and sympathizes with the businesses that have voiced their concerns and frustration about the hike.
He said it was a policy that had to be implemented, given the circumstances.
"It's about risk management, and the main thing is the $575,000 hit we took when Lane Furniture went bankrupt," Holland said.
In September 2013, the former Furniture Brands International, Lane's parent company, filed for Chapter 11 bankruptcy protection. Lane, then with manufacturing plants in Saltillo and Tupelo, owed Tombigbee $510,000 under 13 accounts, according to court documents. Lane was on a 30-day billing cycle, which meant it had two months of usage outstanding at any given time. That left Tombigbee EPA with a exposure of about $400,000, as its monthly usage at that time had been about $200,000.
"We knew we had to change our risk-management policy, which frankly, should have been done before now," Holland said.
The new commercial deposit policy, according to the association, became "necessary with the recent trends in relation to economic conditions and the increasing frequency of the failure of commercial and/or industrial accounts, causing losses beyond deposits historically held.
"A tiered approach is being adopted with the intention of recognizing the risk involved based upon the size of the customer's average month kilowatt demand, which is directly correlated to the amount of the customer's monthly bills and, therefore the risk to the association as a whole."
The rate committee started talking about the new deposit policy in January, and Holland said members agonized over how to develop and implement it. The group looked at the three tiers of customers being served residential, commercial and industrial to see if the policy could or should be implemented across the board.
They also looked at usage those using 50 kilowatts to 400 kilowatts a month and those using more than 400 kilowatts and up to 8,000 kilowatts. The committee decided that the largest users of electricity would fall under the new commercial deposit policy initially.
"We don't have a perfect policy," Holland said. "We think we came up with not a non-controversial, but a livable policy."
Holland said Tombigbee EPA's finances are in good shape, given its "well-managed, conservative approach" over the years.
"But it doesn't take long for one, two or three Lanes to happen, and then you're no longer in good shape," he said. "Let's be honest businesses come and go, and then we're left holding the bag."
Holland said many businesses had no deposits at all with the co-op and paid only a $10 membership fee.
He also said Tombigbee EPA operates on a slim margin roughly 2.75 percent over what it pays for electricity from the Tennessee Valley Authority and what it charges to its customers.
That leaves little wiggle room for the association to absorb big financial hits. The policy was outdated and needed to accurately reflect electric usage, Holland maintained. Essentially, the more you use, the more you pay. Thus, the commercial deposit policy had to be updated.
"We wanted the policy to be fair and as broad-based as possible," Holland said.
The policy will affect less than 1 percent of the 50,000 Tombigbee customers, but that small group affects about half of the association's electricity retail sales. The largest users of electricity number around 60.
Exemptions for churches and schools might be considered, but Holland said that providing exemptions for some and not others could be problematic.
Holland also said that in retrospect, Tombigbee EPA should have had a public meeting to inform customers of the plan.
"It's probably not convenient for some for them to get the notice now," Holland said. Some companies were in the midst of planning their budgets for the next year when they received their letters.
"But it wasn't convenient for us to get hit with Lane's bankruptcy, either."
Holland also said that the new deposit policy was not implemented to pay for the co-op's new headquarters.
"That had been budgeted before all this and pretty much paid for," he said.
