TVA cuts “flexibility” promises to local power companies by 80%, enters into questionable contracts

Key Points:

• The Tennessee Valley Authority promised its local distribution utilities the ability to self-generate up to 5% of their own electricity, what it termed “flexibility”, as an incentive to get the local utilities to sign a twenty-year, evergreen contract with the federal agency.
• After local power companies signed the contract, TVA changed the way it calculated the 5% “flexibility”, reducing local generation potential by as much as 80%. TVA’s CEO had previously told local leaders the 5% limit was a “floor” not a “ceiling”, expecting the number to increase over time.
• TVA did not complete environmental reviews for its long-term partnership contract, which contains the up to 5% “flexibility” provision, despite apparent requirements to have done so from the TVA board of directors. More than 100 local power companies subsequently signed the contract.

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After the Tennessee Valley Authority promised its local distribution utility customers the “flexibility” to generate as much as 5% of their own electricity to entice them onto new longer-term contracts, the federal agency now has quietly backtracked on that aspect of its offer, using sleights of hand that would limit the local power companies’ ability to self-generate. TVA CEO Jeffrey Lyash previously called the 5% number “a floor”, not a ceiling.

TVA’s new long-term partnership contracts doubled the contract lengths for most LPCs, which include municipal and cooperative utilities, to twenty years. The new contracts also require any LPC that signs it to provide a twenty-year notice should it decide to leave TVA’s service territory. In exchange for those large concessions, TVA would allow the LPC to generate 3-5% “of Distributor’s energy” and to provide LPCs with a small “wholesale credit” on its monthly bill. TVA has now quietly restricted LPCs, after they signed the contract, to the equivalent of 1-2% of an LPC’s energy, practically eliminating a large portion of the benefit for an LPC to sign.

TVA’s efforts to lock the LPCs into twenty-year evergreen contracts is at least in part a response to pressures from customers’ demand for renewable energy options that are increasingly cost competitive with TVA’s fossil fuel heavy electric mix. Memphis Light Gas and Water, TVA’s largest LPC, is exploring options for leaving the system. Volunteer Energy Co-Op in East Tennessee and North Georgia Electric Membership Corp. are also looking at options to leave TVA, according to reporting from the Chattanooga Times Free Press.

Sleights of hand hamstring local renewable energy potential

TVA unilaterally rewrote the guidelines for how it defines the up to 5% “flexibility,” and it did so only after it executed the long-term contract with more than 100 local power companies. When pitching the agreement to local leaders, however, TVA CEO Jeffrey Lyash said the 5% limit was a starting point that would likely go higher, not lower. He told the Huntsville City Council at a February 2020 meeting, “We also don’t think of this as a ceiling. We think of this as a floor. […] I see this extending beyond the 5%.” (quote begins at 34:07)

As reported by the Southern Alliance for Clean Energy, TVA used a novel measure it calls “average hourly capacity,” to measure the 5% “flexibility” rather than the typical energy value, despite the contract reading 3-5% “of Distributor’s energy”. (emphasis added)

“Capacity” refers to the maximum output a generation facility is physically capable of producing. “Energy” typically refers to the amount of electricity that the facility produces over a given period of time. A generating facility’s “capacity factor” is a ratio, usually in percentage terms, that measures “the actual energy delivered by a generator compared to the maximum amount it could have produced at the nameplate capacity,” according to TVA. 

Renewable energy, when not paired with battery storage, typically operates at a lower capacity factor than fossil fueled power plants, due to the nature of renewable fuel sources. 

The lower the capacity factor of a generation source, the less an LPC can install under TVA’s new “flexibility” rules.

“Average hourly capacity,” the new term TVA is using, is not a term typically used in energy circles.

Distributor	TVA’s new Flexibility Limit (MW)	Local Solar Potential under TVA’s Flexibility Limit (kWh)1	Local Solar Potential under 5% “of Distributor’s Energy” Limit (kWh)2	Local Solar Restricted by TVA’s Use of Flexibility Limit (kWh)
Chattanooga	34 MW	59,568,000 kWh	298,663,895 kWh	239,095,895 kWh
Huntsville	31 MW	54,312,000 kWh	269,201,052 kWh	214,889,052 kWh
Knoxville	32 MW	56,064,000 kWh	280,748,855 kWh	224,684,855 kWh
Memphis	81 MW	141,912,000 kWh	705,604,272 kWh	563,692,272 kWh
Nashville	70 MW	122,640,000 kWh	616,364,603 kWh	493,724,603 kWh
Total All LPCs	796 MW	1,394,592,000 kWh	6,862,570,377 kWh	5,467,978,377 kWh

In order for an LPC to achieve its full 5% “flexibility” allotment, it would need to operate a local power plant 24 hours a day for an entire year, or at 100% capacity factor, without any scheduled maintenance or downtime. No power plant in TVA’s fleet or any utility fleet in the country is capable of such a technical feat. In order to fulfill its local generation allotment, LPCs would be required to achieve a more stringent performance standard than TVA itself.

TVA has not specified whether storage technologies are considered part of an LPC’s “flexibility” allotment or if the determination is based on whether TVA supplies the energy charging the storage. 

TVA signs contracts without environmental review completed

The long-term partnership contracts also appear inconsistent with requirements approved by the TVA Board of Directors. On August 22, 2019, TVA’s Board of Directors authorized management to enter into the long-term partnership agreements with LPCs, “contingent upon the satisfactory completion of any required environmental reviews.”

TVA, however, did not release a draft environmental assessment of the proposed 3-5% “flexibility” portion of its new long-term contracts until April 3, 2020. TVA claimed the full long-term contract was exempt from a National Environmental Policy Act (NEPA) review, even though the 3-5% local generation option offered to LPCs was contained within the long-term contract. 138 LPCs had agreed to the long-term contract, and consequently the 3-5% “flexibility” provision, before TVA released its environmental assessment.

As of publication, TVA has yet to finalize its environmental assessment for the “flexibility” portion of its long-term contract.

1.  Based on an average solar capacity factor of 20% as used by TVA in its 2019 Integrated Resource Plan.
2.  Based on average annual kWh sales from TVA to LPC calculated over the most recent five-year period.

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