TVA fights to keep its biggest customer as Memphis and other distributors eye split with utility

Staff file photo / TVA employees dispatch power across the utility's 7-state region, including Memphis Light Gas & Water, in the utility's Regional Operations Center in Chattanooga. MLGW is studying whether to split with TVA and generate or buy its power elsewhere.

In the past year, more than 90% of the local power companies that distribute electricity generated by the Tennessee Valley Authority have signed new long-term power purchase agreements with TVA, linking their future with America's biggest government utility as both their supplier and regulator.

But TVA's biggest customer and more than a dozen smaller distributors are moving in a different direction and studying whether to split from the TVA family and turn to other utilities and producers for cheaper power.

With power demand stagnating or even declining and solar, wind and natural gas getting cheaper due to new technologies and abundant fuel supplies, some local power companies in the Tennessee Valley think they might do better than TVA. Some local power companies are now actively looking for alternative power suppliers to TVA, threatening one of the biggest shakeups since TVA's creation in 1933.

Memphis Light Gas & Water, the largest of the 154 municipalities and power cooperatives that distribute TVA-generated electricity across the seven-state Tennessee Valley, will release a study Friday that is expected to suggest that the city-owned utility may be able to get cheaper power by splitting with TVA.

MLGW, which has 421,000 customers and accounts for nearly 10% of TVA's power load, is likely to solicit power supply proposals and, depending upon what is offered, Memphis could then give TVA the required five-year notice of its intent to buy power from other sources or generate more power itself.

Memphis City Councilman Frank Colvett Jr. calls TVA "a great partner to us," but insists the market should be tested for better offers.

"Like all things, in every family budget and every family business, if you can get the same exact product for less, why are you not taking it?" he said.

Memphis is not alone in looking for another power supplier. Volunteer Energy Co-Op in East Tennessee and North Georgia Electric Membership Corp. have also made requests for proposals to price the market and are studying whether or not to stick with TVA as their long-term supplier. Laney Colvard, chairman of the Volunteer Energy board, said TVA's wholesale rates are no longer the cheapest in the South.

But TVA officials insist the public power model has served the region well and TVA rates remain well below the U.S. average and are projected to be stable for at least the next decade. In the past year, power prices charged in the Tennessee Valley have actually dropped by about 4% due to TVA rebates and lower fuel cost adjustments.

Since he joined TVA as president last year, Jeff Lyash has pledged to keep TVA rates stable for the next 10 years and is even offering a 3.1% rebate to any local power company that signs a 20-year power purchase agreement with TVA, which EPB and the other major local power companies - other than MLGW - have already signed.

photo Staff file photo / J.T. Young, president and CEO of Memphis Light, Gas and Water, talks about role models during the American Association of Blacks in Energy panel at the TVA Missionary Ridge Auditorium Friday, February 8, 2019, in Chattanooga, Tennessee.

Even without the discount being offered by TVA to sign the long-term agreement, Memphis ranked as the third lowest major city for electricity prices (cost of 1,000 kilowatts of power) among America's 41 biggest cities, according to a 2019 study.

"We are currently very competitively priced when you look across our region and country so we are not on any plank where we have to make a rash decision," MLGW President J.T. Young said Wednesday in an interview with WREG-TV in Memphis. "I think we'll have some good options to consider and we're excited about making some decisions about the future working with our board."

Low rates but high energy burden

While Memphis power rates are low, the energy burden faced by many residents is still relatively high because the typical Memphis household uses more electricity than most U.S. homes. With lower average household incomes and less efficient heating and cooling systems, Memphis residents pay the highest share of their income for electricity of any major U.S. city, according to a study by the American Council for an Energy Efficient Economy.

In Memphis, where 39% of city residents live below the poverty line, the typical household spends more than 25% of the income in each home every month on energy costs, nearly double the U.S. average.

"Housing stock in the city is old and poorly insulated, leading to disproportionately high bills concentrated in the lowest-income neighborhoods, where often people are forced to carry large balances year-round as they struggle to keep their power on," said Sandra Upchurch, former energy justice manager at the Southern Alliance for Clean Energy.

photo Staff photo by C.B. Schmelter / Tennessee Valley Authority President Jeffrey Lyash

Lyash is determined to help Memphians reduce their energy burden, especially in low- income neighborhoods, by expanding TVA initiatives to promote energy conservation and efficiency.

"In the Tennessee Valley, we deliver some of the lowest energy rates in the country," Lyash said. "But in a lot of communities, the energy burden is still too high."

During a visit to Memphis last week, Lyash said "Memphis should take a lead" because the need for promoting more energy efficiency to aid local communities is greatest in Memphis and he hopes to expand such programs across the valley.

Pushing a break with TVA

But environmental groups and outside power producers insist there is a cheaper alternative for supplying power to Memphis than the Tennessee Valley Authority. Friends of the Earth and the Southern Alliance for Clean Energy want MLGW to turn to the sun and wind for more power and insist Memphis is well positioned to both build and buy such power at cheaper rates than TVA. To ensure reliability, the regional transmission organization known as the Midwest Intercontinental Service Operator could supply power to Memphis as needed.

Herman Morris Jr., who headed MLGW from 1997 to 2004 and previously considered splitting with TVA nearly two decades ago, is now working for Friends of the Earth to encourage Memphis to build and buy power apart from TVA.

"MLGW can do better with wholesale power costs than the deal it is getting from TVA and they should look for other alternatives, including solar, wind and other green renewable power sources," Morris said.

The environmental groups have joined in an odd political alliance with former Chattanooga developer Franklin Haney in pushing Memphis to split with TVA.

Haney wants Memphis to buy the power he thinks he could cheaply produce if he is able to complete the purchase and construction of the unfinished Bellefonte Nuclear Power Plant in Hollywood, Alabama. Haney has employed several lobbyists on his behalf to push for MLGW to consider buying Bellefonte power if he can finish the twin- reactor facility, which TVA quit building more than three decades ago.

Haney, Friends of the Earth and others have commissioned four studies on the power supply options for MLGW and all of them suggest Memphis could save anywhere from $100 million to $450 million a year by leaving TVA.

But Lyash says those supposed savings would not come for at least five years and have no guarantee of working. Lyash said the studies estimating such cost savings "are not inaccurate but are incomplete" since they fail to consider up to $8 billion in expenses MLGW would have to incur to back up its power and connect with other sources.

To stay with the federal utility, TVA is offering Memphis annual rebates worth an estimated $22.5 million a year under its long-term contract rebates already adopted by 140 other TVA distributors.

photo Staff file photo / The Tennessee Valley Authority building in downtown Chattanooga is the power headquarters for the federal utility.

Lyash also is offering more flexibility than TVA has ever granted for municipalities and power co-ops to get 5% of their power from sources other than TVA and is encouraging more solar and other renewable generation under its Green Invest Program. To supply renewable power to a growing number of customers such as Google, Facebook, General Motors and Vanderbilt University that want only renewable power, TVA has commissioned outside suppliers of new solar farms to supply those wanting green power and selling that power to such customers for the cost of delivering such power to participants in the Green Investment program.

Lyash also has pledged to engage more TVA employees in local initiatives in Memphis, similar to how TVA employees aid community projects where the utility has more employees in Knoxville and Chattanooga. TVA has already employed a handful of consultants in Memphis to help advise the utility on how to improve its operations.

Lyash insists such consultants are not lobbying on behalf of TVA, which is prohibited for federal agencies and their employees. But the hiring of the consultants and TVA's advertising of its programs across the Valley has drawn fire from TVA critics at the Southern Alliance for Clean Energy who claim they are simply spending ratepayer money to promote themselves.

Lyash concedes that TVA hasn't done enough in the past to promote economic development and energy efficiency, especially for low-income households in Memphis. Although MLGW accounts for nearly $1 billion a year in sales, Memphis has only a tiny share of the staff and resources TVA has invested in its power headquarters in Chattanooga, its corporate headquarters in Knoxville or its marketing offices in Nashville.

"We really turned up the focus last year on economic development in Memphis last year and we specifically targeted low-income and underserved areas," Lyash said.

TVA helped support efforts last year to land a 4 million square-foot warehouse for the Raleigh neighborhood near Frayser north of Memphis. The $200 million announced in January will add 1,000 jobs. TVA has also invested $1 billion to build a new combined cycle natural gas plant at the site of the former Allen Steam Plant which TVA shut down in 2018.

Lyash said TVA will be keeping Allen and operating in Memphis, even if MLGW splits with TVA. Lyash also said TVA remains committed to cleaning up the coal ash at the shuttered Allen coal plant.

But Lyash said TVA hopes to work with Memphis- Shelby County Port Commission to also use part of the 500-are site as a port that could help pump billions of dollars into the Memphis economy.

"We want to keep Memphis as a customer because we think the public power model is in the best interest of Memphis and the Tennessee Valley," he said.

Contact Dave Flessner at or at 423-757-6340.