TVA distributors looking to expand into owning generation facilities

The debate over building new generation in the Tennessee Valley could take a significant turn with the passage of legislation currently being considered in the Tennessee legislature. This legislation would give the green light to TVA’s distributors to pool their resources to purchase electricity generation equipment.

Entitled the “Electric G&T Cooperative Act”, the legislation authorizes Seven States Power Corporation, a newly formed nonprofit corporation organized for the purpose of owning and operating electricity generation facilities within the Tennessee Valley. Currently, 147 of TVA’s 159 distributors have signed on as members of Seven States Power Corp., raising speculation that their collective financing capabilities could give TVA a way around its federally mandated $30 billion debt ceiling. TVA currently has about $25 billion in debt on the books, but this new financing avenue could pave the way for expensive, high-risk generation such as new nuclear plants that could cost in the tens of billions of dollars. No matter how you finance it, however, building new generation costs money and those costs are ultimately born by ratepayers.

The decision to build new generation, at a minimum, requires a transparent integrated resource planning process that evaluates all the power options, including supply side and demand side resources, and makes decisions based on this comprehensive evaluation. This process should allow for public participation and be completely transparent so that the public can ensure that decisions are made in their best interest. Typically, TVA and its distributors do business behind closed doors, and the public is often left to wonder exactly how decisions that affect our energy future are made. If this bill passes, and Seven States Power Corporation grows into the generation ownership position that it’s leaders envision, transparency and comprehensive integrated resource planning must be the minimum requirements to ensure proper decision making.Jack Simmons, President and CEO of both Seven States Power Corporation and the Tennessee Valley Public Power Association, a nonprofit organization that represents TVA’s 159 distributors, has said that he is committed to an integrated resource planning processes that allows for public involvement and oversight. However, the G&T Cooperative Act makes no reference to this process. Nor does the legislation mandate the implementation of cost-effective energy efficiency solutions or the development of renewable energy resources.  Without these minimum requirements, TVA and its distributors could commit tens of billions in ratepayer money to building new nuclear or coal plants without exploring the cheaper, cleaner options available to the Southeast through energy efficiency and renewable energy resources.

Historically, generation equipment in the Tennessee Valley is owned by TVA, and therefore by the federal government. This doesn’t sit well with TVA’s distributor community. Ownership of generation equipment would give distributors leverage over TVA as their regulator and protect them and their ratepayers in the case that TVA is privatized or becomes insolvent. Traditionally, TVA, as the regulator of its distributors, has not allowed distributors to own generation equipment, requiring them instead to purchase all of their needed electricity from TVA.

Under a new agreement, however, Seven States can now own up to 5% of the generation in the Valley. The corporation was created to do just that, and they currently own, or have secured financing to purchase, their full allotment of generation in the form of combined cycle gas facilities in Alabama and Tennessee. This initial arrangement is a pilot program to determine the feasibility of Seven States owning a much larger portion of the Valley’s generation equipment.

However, TVA distributors, made up of municipal utilities and electric cooperatives, have little or no experience owning and operating generation equipment. Despite this concern, the G&T Cooperative Act specifically exempts Seven States Power Corp. from oversight by the Tennessee Regulatory Authority, the entity responsible for regulating Tennessee’s gas utilities. Therefore, decisions to build new generation in the Valley would be subject to no oversight other than that conducted by TVA in its role as regulator of its distributors.

Outside of the Tennessee Valley, a state utility commission typically regulates utilities operating within that state. However, under federal law, TVA acts as the regulator of its distributor community. This relationship has been ineffective in recent years due to inherent conflicts of interest between TVA’s role as power provider and that of regulator. If distributors decide to discontinue their contracts with TVA and purchase their power from outside the system, TVA is prohibited from seeking new customers outside the Tennessee Valley. This means that TVA must keep its current customers happy so they continue to purchase TVA power. This arrangement gives TVA distributors enormous leverage over the entity charged with their regulation.

Another reason to proceed with caution is a history of public power missteps. Throughout the Southeast, there are numerous instances where public power has gone awry, including instances of funds misappropriation and ill-advised investments that have cost ratepayers money and confidence. Congressman Jim Cooper of Tennessee has written extensively on the failures of public power to maintain the public trust and has called for more, not less, oversight of public power entities. In his article, Electric Co-operatives: From New Deal to Bad Deal?, Congressman Cooper specifically highlights TVA distributors as an example of poor management of public power entities. Other instances of public power mismanagement have occurred in recent years in Alabama and Georgia.

This is not to say that all public power is out to get us. However, it does highlight the need for caution moving forward. History has taught us that we cannot rely on TVA to properly regulate itself or its distributors. TVA and its distributors have been working behind closed doors for too long, and allowing distributors to own and operate generation facilities without proper oversight will likely lead to less energy efficiency, delayed development of renewable energy resources and a rapid move towards financial commitments in prohibitively expensive and dirty forms of energy such as coal and nuclear. An integrated resource planning process would provide the public oversight necessary to ensure these decisions are made in the best interests of the customers who will ultimately bear the financial and environmental costs.

A new player may be entering the game with regards to new generation resources in the Tennessee Valley.  Only a transparent integrated resource planning process can ensure they are playing by all the rules.

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5 Comments

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This post included a very important statement: “The decision to build new generation, at a minimum, requires a transparent integrated resource planning process that evaluates all the power options, including supply side and demand side resources, and makes decisions based on this comprehensive evaluation. ”

I will extend this statement to say that the integrated resource plan (IRP) should be conducted for the region as a whole rather than for specific companies, groups, or local areas. After completion of the regional IRP, then specific projects can be evaluated in the context of thier fit into the IRP. The problem is that there is no entity charged with energy planning responsibility for the entire region. On second thought, maybe there is………..SACE.

I suggest that SACE consider performing an IRP for the region. I have some experience with the IRP process and I would be happy to be a participant.


Comment by Roger A. Babb on May 2, 2009 3:24 pm


Roger,

Your comment is well received. An IRP that encompasses the entire SE region of the US would be a significant undertaking that would yield very useful analysis about how best to approach our energy future. While SACE has put significant resources over the past years into demonstrating the potential of the SE region to develop energy efficiency and renewable energy resources, this also is not true IRP. However, and possibly most important, what our evaluation lacks, no matter how comprehensive, and what true IRP includes, is the force of obligation. Quite simply, neither TVA nor any of the region’s utilities would be required to consider an IRP conducted by SACE in its decision-making process. This force of obligation is an important element to the IRP process.

For example, in the Pacific Northwest, the Northwest Power and Conservation Council is mandated by federal law to undertake an IRP process that prioritizes cost-effective energy conservation and renewable energy over traditional generation resources. The Council is then required to make decision about the Northwest’s energy future based on that plan. Further, the plan is reviewed every 5 years to allow for the integration of new programs and technologies or unexpected changes in forecasts.

While a SACE led, IRP process for the Southeastern United States would be a worthwhile endeavor, it would not bind the TVA or other SE utilities to making decisions based on that plan. On the other hand, if TVA were to formally adopt the planning process, then it would, at least in theory, be bound by the findings of the IRP process in making decisions on how best to meet electricity demand into the future. This binding IRP process is what SACE will continue to advocate for.

Thank you for your comment.


Comment by Sam Gomberg on May 6, 2009 5:04 pm


Is there a way to contest this legislation? Which legislators should be contacted?


Comment by kallen21 on May 11, 2009 10:54 am


Kallen

The most important legislator to call is your own. If you go to the Tennessee General Assembly website, you can put your address in and find out who you legislators are and then e-mail or call them with your concerns. Also on the General Assembly home page is a “bill search” link. Type in HB1518 and it will take you to the bill’s summary page. From there you can see the bill’s sponsors, get the exact language of the bill and follow it through committee and onto the House and Senate floor.

When I speak with legislators, they continually stress the impact of just a few comments from their constituents. So, you can make your voice heard. Other people to contact would be the sponsors of the bill (Representative Fitzhugh and Senator McNally) and the members of the committee that is voting on it next.

This bill has already passed in the Senate, but it is still up for debate in the House Budget subcommittee in the Finance Ways and Means Committee. Click on the “Committees” link on the upper bar and you can find a listing of the members of these committees. They would also be good legislators to contact and voice your concerns.

Thanks for you comment and being involved.

Sam


Comment by Sam Gomberg on May 13, 2009 9:46 am


For anyone else who reads this article and wants to contact the legislature, here are the numbers I used (now you don’t have to go look them all up):
For Knoxville: 6157411766 and Rep. Armstrong 6157410768

FWM Committee: 6157411326

Sen. McNally: 6157416806
Rep. Fitzburgh: 6157412134


Comment by kallen21 on May 22, 2009 9:52 am


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