The Tennessee Valley Authority has ceded practically no ground to local power companies seeking more contract flexibility to manage increased demands for renewable energy from customers, despite requests from the local power companies (LPCs). 

The Tennessee Valley Authority (TVA) spent the latter half of 2019 locking LPCs into lopsided evergreen contracts that require a twenty-year termination notice largely in exchange for a 3.1% “wholesale credit” and a small amount of undefined “flexibility”. Huntsville Utilities, TVA’s largest local power company in Alabama, compared the wholesale credit to the biblical story of Jacob and Esau whereby Esau traded his birthright for a bowl of stew. 

One hundred and thirty-two local power companies had signed the contract as of October 31, 2019, according to records obtained by the Energy and Policy Institute. Some of the largest local power companies, including Knoxville, Chattanooga, Memphis, and Huntsville, have not signed as of the time of publication, according to a source with direct knowledge of the situation. Memphis Light, Gas, and Water, TVA’s largest single customer, is currently studying the option to leave TVA altogether, which could raise rates by as much as 7.5% on the remaining LPCs. 

Wholesale Credit Loses Value in Face of High Power Prices 

TVA’s latest version of its long-term partnership proposal further decreased the true value of its so-called 3.1% wholesale credit. EPI previously characterized the wholesale credit as a prisoner’s dilemma, because in the event that all utilities signed the new contract, TVA would have 3.1% less revenue, and would thus be forced to raise revenue elsewhere or to eliminate planned rate decreases to compensate for the newly lost revenue. TVA admitted as much when it disclosed that the wholesale credit payments would increase TVA’s debt by $1.6 billion, based on the signatories as of October 31, 2019. 

TVA revised the contract in November, 2019 to exempt “revenue neutral” fees and fuel costs from counting toward the wholesale credit. In other words, TVA could provide LPCs with a wholesale credit but raise fuel or other fees to make up the difference. In May 2019, TVA instituted a flat “grid access charge” it claimed was revenue neutral by lowering the energy rate by an equal amount to the new flat rate. Five clean energy and environmental groups have challenged TVA’s proposal in federal court and the case is currently pending.

TVA acknowledged to LPCs in a November 2019 presentation that its ability to keep rates flat over the next decade was heavily dependent on gas prices. Despite its high exposure to gas price volatility, TVA plans to build 3,700 megawatts of new gas-fired power plants. New gas plants are already more expensive than clean energy portfolios in 90% of cases, according to a 2019 report from the Rocky Mountain Institute. 

Financial risks from building new gas plants notwithstanding, TVA’s high power prices devalue the wholesale credit’s attractiveness compared to cost savings potential from neighboring power systems.

Three LPCs – Huntsville Utilities, Cullman Electric Membership Cooperative, and Joe Wheeler Electric Membership Cooperative – retained the consulting firm EnerVision to study wholesale power options outside of TVA. EnerVision found that TVA’s wholesale power prices were significantly higher than all of the utilities it studied. Further, it found that TVA’s wholesale power prices were almost double power prices in the Midcontinent Independent System Operator (MISO). 

Because TVA is exempt from federal regulations that require utilities to allow fair access to their transmission systems, LPCs would be forced to construct their own transmission lines to access cheaper power from neighboring utilities or markets like MISO. For some LPCs, the investment in transmission could pay for itself in five to fifteen years, according to a 2019 analysis performed by the Cooperative Finance Corporation (CFC), which provides credit and financial products to customer-owned electric cooperatives.

TVA Deploys “Union-Busting Strategy”

An August 2019 discussion among some local power companies bemoaned TVA’s tactics and the precarious situation in which they found themselves. Greg Fay of Clinton Utilities Board worried that LPCs had “lost the collective ability to shape TVA’s policy on these issues”. Rody Blevins of Volunteer Electric Cooperative said, “We all know how much the power generation business is changing and where will it be ten years from now we don’t know. TVA’s current rates are significantly above the current market rates in the Southeast.”

Huntsville Utilities’ Wes Kelley outlined TVA’s work as a classic “union-busting strategy” that sought to alienate LPCs from the Tennessee Valley Public Power Association, the trade association that historically represented LPCs in negotiations with TVA. Kelley also expressed concern over TVA offer’s prohibition of even the “facilitation” of power consumption from a source other than TVA. It is unclear whether TVA’s definition of facilitation would prohibit LPCs from providing basic electric or customer service to its retail customers who independently choose to install their own generation. Kelley expressed concern that TVA’s offer might prohibit LPCs from selling gas to customers for onsite generation such as a backup generator.

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Posted by Daniel Tait

Daniel Tait is a Research and Communication Manager for the Energy and Policy Institute.