TVA distributors looking to expand into owning generation facilities

Guest Blog | April 23, 2009 | Energy Efficiency, Energy Policy, Nuclear, Utilities

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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