How the Tennessee Valley snagged $35 billion in business in just five years

I've worked in this area for about 25 years, and I can say this is probably the most effective program that I have seen."

The Tennessee Valley landed an extra $35 billion of business investment over the past five years with the help of TVA rate discounts and economic development assistance, the utility says.

TVA counts an extra 300,000 jobs from such investments and calculates that the lower power rates it has offered for new and existing businesses have cost, on average, less than $1,600 per job.

"I've worked in this area for about 25 years, and I can say this is probably the most effective program that I have seen," Tennessee Valley Authority President Bill Johnson said.

In fact, cost-of-service studies indicate that had TVA not retained or captured the major power users through its incentives, other customers would have had to pay more to absorb the fixed costs of the agency's operations not covered by the expanded industrial load.

"It doesn't really cost any of the other customers of TVA anything," Johnson said of the nearly $500 million of discounted rates offered since TVA adopted its Valley Investment Initiative in 2008. "Our new cost-of-service study showed that TVA is right where it needs to be and this [Valley Investment Initiative] has put us in the right place."

But it's a place that TVA and the local power companies don't want to detail with any specificity, especially for particular businesses awarded the more favorable power rates. TVA has rejected requests for information about what rates are charged or incentives offered to individual businesses to encourage them to stay or expand in the valley. To do so, the utility claims, would harm TVA's economic development and scare away industrial prospects.

Johnson says he doesn't want to kill "the golden goose" that has brought so much investment to the region. As a result, TVA turned down a Freedom of Information Act request for information about TVA incentives provided to a Korean automotive equipment maker in Clinton, Tenn.

But advocates of public disclosure insist that as a federal corporation, which both sets and regulates electric rates for more than 9 million people, TVA should make public the rate breaks and other incentives offered to its customers. Such disclosure, they contend, is both legally required and economically beneficial.

"The public wants to know what incentives and price breaks this federal corporation may be offering and whether the cost of these programs is worth it," said Deborah Fisher, executive director of the Tennessee Coalition for Open Government, an alliance of citizens, journalists and civic groups that seeks to improve citizen access to public information in Tennessee. "Making this information publicly available ensures accountability and helps make better public policy."

Fisher noted that Tennessee's Department of Economic and Community Development discloses the incentives provided by the state and tracks the company's job and investment performance after the business has agreed to come or expand in the state.

"We would hope that TVA would be at least as forthcoming about this information as the state has been," she said.

Disclosure of TVA's pricing information also would help ensure that the agency doesn't discriminate in its rates between customers -- a practice prohibited under the TVA Act -- and help the public judge the effectiveness and fairness of TVA's rates, Fisher said.

"When TVA doesn't disclose this information the public is left to wonder how much money is being given to corporations and whether or not such awards or investments are effective," she said.

But Johnson insists that releasing any information about what TVA charges for electricity or what loans or technical assistance it provides to a business might discourage the business from growing or relocating in the valley and encourage the business to locate where such information is not publicized.

"We have lost economic development prospects simply because their names became public in the process," Johnson said. "This is a highly competitive activity where we compete with our neighboring utilities to keep jobs here and to get new ones."

Last month, TVA rejected a request from the Knoxville News Sentinel under the federal Freedom of Information Act to disclose what incentives and rates the agency offered last year to lure a South Korean company to East Tennessee. SL Tennessee plans to build an $80.5 million auto-parts manufacturing complex in Clinton, Tenn., that will create 1,000 jobs.

TVA said it provided incentives for the expansion as part of $2.8 billion in projects TVA helped recruit during the first three months of its current fiscal year. Last year, TVA said it worked to retain or add 60,500 jobs from $8.5 billion of new investment, including the $600 million expansion of the Volkswagen plant in Chattanooga projected to add 2,000 jobs.

Bill Johnson speaks as the TVA board of directors hold a public meeting at TVA's Chattanooga Office Complex.

TVA's success in exceeding its job targets for economic development helped agency executives and employees get extra pay in each of the past couple of years through TVA's Winning Performance program.

Jack McElroy, editor for the Knoxville News Sentinel, said the newspaper is preparing a request to the Office of Government Information Services, a federal ombudsman for the Freedom of Information Act, to urge TVA to reconsider its denial of the requested information.

"We think it is premature to begin a court fight that would be wasteful to the News Sentinel and to TVA ratepayers," McElroy said. "We do believe that it is outrageous that a government agency would refuse to tell the public what special subsidies it is bestowing upon private businesses, especially given that these grants are among the tools that TVA executives use to achieve their personal bonus goals."

Incentives for five-year contracts

TVA adopted its Valley Investment Initiative in 2008 to offer price breaks for major industrial customers that agree to stay or expand in the valley and signed a five-year contract to buy power from TVA. The amount of the credit varies based upon the company's jobs, wages and power load. On its website, TVA says "most companies can expect a 15 to 30 percent savings annually over a five-year period."

TVA declined to give specific spending figures for the program, but Johnson said the rate discounts have averaged less than 1 percent of TVA's annual revenues, or about $100 million a year.

The utility adopted the rate discounts after it increased its base rates by more than 30 percent from 2005 to 2010 and it began to lose some of its industrial load, especially during the Great Recession.

"A lot of what we did [with the rate incentives offered through the Valley Investment Initiative] was retain what was here," Johnson said. "There was a competitive threat that they might leave unless the rates were cut."

The loss of industrial load, such as the shutdown of the U.S. Enrichment Corp., plant in West Paducah, Ky., last year, forces other customers to pay more to absorb the two-thirds of TVA overall costs that are fixed.

Industrial customers have welcomed the Valley Investment Initiative, which they say has helped TVA become more competitive with its prices.

"TVA rates are not as competitive as they once were or where we would like them to be, but TVA is doing better and moving in the right direction and this program [Valley Investment Initiative] has helped," said Peter Mathias, chairman of the Tennessee Valley Industrial Committee.

Rates not negotiated

Johnson said TVA does not negotiate rates with customers and tends to have less flexibility with its rates than do neighboring investor-owned utilities in the South that are regulated by state public service agencies.

"If you get into a situation where you have to build a lot more capacity and you increase the marginal costs of power, you have to think about this differently," Johnson said. "But that's not where we are."

Beyond its rate discounts, TVA and its power distributors also help local and state governments with technical assistance, loan programs and investments in economic development programs, including the "Can Do" economic development initiative by the Chattanooga Area Chamber of Commerce.

Less than $25 million a year is spent on TVA's staff and direct assistance programs, Johnson said.

TVA's cheapest power source -- the hydroelectric power generated from its 29 power-producing dams on the Tennessee River and its tributaries -- is allocated to residential customers under TVA's board policy and provisions of the TVA Act that call for TVA to use its federally funded dams to the benefit of the most consumers in the valley.

But even with the hydro preference allocated to residential electric users, TVA's industrial rates remain competitive and below the national average, Johnson said.

"The results of the past two years and what we're seeing already in fiscal 2015 for new investment and jobs, I think, verifies that we remain attractive and are competitive," Johnson said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.