Alternative TVA future
An investor group that includes former TVA Chairman Dennis Bottorff and Chattanooga financier Franklin L. Haney proposes to:
• Retire all but the Cumberland and Kingston coal plants to save $8 billion that would otherwise be spent to scrub and maintain other plants
• Finish Watts Bar Unit 2 and both reactors at Bellefonte using $10 billion of outside financing backed by TVA and funds from fossil savings
• Use cash savings to cut industrial rates by 30 percent and cancel across-the-board 1.5 percent rate increase for next year.
KNOXVILLE — The Tennessee Valley Authority could avoid a scheduled rate increase next month and cut industrial rates by 30 percent if it scraps its oldest and dirtiest coal plants and finishes its incomplete nuclear plants using outside financing.
At least that's how one investment group sees the future for America's biggest government utility. In a proposal outlined Friday to Tennessee's U.S. senators and the TVA board, an investment group backed by energy experts from Credit Suisse suggested TVA shut down, rather than clean up, all but two of its coal-fired power plants. The $8 billion savings from that, combined with $10 billion in outside financing, could pay to finish three nuclear reactors to replace that power and also cut electricity rates.
The proposal is in sharp contrast to the 2014 spending plan of $10.3 billion TVA directors adopted last month, which will raise consumer power bills by 1.5 percent next month and leave industrial rates above many of TVA's neighboring utilities.
"We have a unique opportunity in time with these half-finished nuclear plants and the potential of alternative financing to better meet the goals we established of having clean, reliable and low-cost power," said Dennis Bottorff. He's the former TVA chairman who is working on a financing deal being pushed, at least in part, by former Chattanooga financier Franklin L. Haney.
The outside financiers are eager to finish the twin-reactor Bellefonte Nuclear Power Plant in Alabama by 2021 to help qualify for up to $2 billion in production tax credits available to private investors, but not TVA. The alternative financing plan also would help TVA finish the estimated $11 billion construction job without having to bump up against the agency's $30 billion debt ceiling, Bottorff said.
Bottorff brought top energy and finance managers from Credit Suisse here to back up the proposal, but TVA President Bill Johnson questioned the plan projections.
"This is the first time we have seen all of these numbers, but they don't match what we have calculated," he said.
Johnson said TVA estimates that coal plants, even with the extra expense of pollution controls, are less expensive than new nuclear power. The price of natural gas now is allows power generation at less cost than new nuclear plants, although that could change if gas prices rise again in the future.
As a federally owned utility with a top triple-A rating, TVA is able to borrow money as inexpensively as any U.S. utility.
Johnson also questioned the need to finish Bellefonte, saying the utility won't match 2007 peak demand until 2023. TVA's power demand is projected to grow just 0.4 percent, half the pace of the previous decade, over the next decade. Revenues have declined in each of the past four years, and the agency is trying to adapt as consumers conserve more energy and install more energy-efficient machines and appliances.
"That is a significant shift and will allow us to reduce our debt over time," Johnson said.
Bottorff and experts from Credit Suisse said TVA is uniquely positioned because of the status of its nearly complete Watts Bar Unit 2, which is expected to be finished in two years, and its half-complete Bellefonte plant, which is projected to take about five years to complete.
If Bellefonte is complete by 2021, any private financiers of that project could qualify for production tax credits that over time could be worth up to $2 billion.
Bill McCollum, the former chief operating officer for TVA who is consulting for the investment group, said he is confident that Bellefonte can be finished for less than the cost of building a brand-new nuclear plant.
"This is the most studied nuclear plant in America, and we have a good handle on what is needed to finish that plant," McCollum said.
Steven Greenwald, senior adviser of global project finance at Credit Suisse, said investors are ready to invest as much as $1 billion as part of a $10 billion plan to finance the nuclear units and keep TVA beneath its debt ceiling.
The plans "would dramatically reduce TVA's carbon footprint and would provide a low-cost source of power and money to keep rates lower," Greenwald said.
The group presented its proposal to U.S. Sens. Bob Corker and Lamar Alexander, and U.S. Rep. Jimmy Duncan, all Tennessee Republicans. The lawmakers said any decision must be made by TVA's nine-member board, whose members attended Friday's meeting.
Chairman Bill Sansom said the board had studied and rejected such alternatives because they didn't make economic sense.
Alexander, who led Friday's meeting, said his chief concern is not where the power or money comes from, but what keeps rates the lowest.
"Nothing has been more important to the rising economic health of the Tennessee Valley in the past 80 years than the Tennessee Valley Authority," Alexander said. "As a former governor who spent a lot of my time recruiting new businesses to Tennessee, I know how important keeping electricity rates low is to helping businesses get our economy moving again."
Corker said he and Alexander aren't pushing for one plan or another, but they wanted to offer a public hearing of the alternative financing plan for the board to consider.
TVA, which once boasted some of the lowest power rates in the country, is now priced about average among utilities in the Southeast. From 2001 to 2011, TVA industrial rates rose 78 percent, or more than twice the U.S. average of 35 percent.
"Power rates are not as competitive as some other utilities, but we have been encouraged lately by the direction of TVA's current management and the attention they are giving to this issue," said Peter Mattheis, an attorney for Nucor Steel, who is chairman of the Tennessee Valley Industrial Committee.
Contact Dave Flessner at email@example.com or at 757-6340.
Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...