FERC rejects bid by local utilities to force TVA to grant open access to its power grid

Staff file photo by Jeff Guenther / Transmission lines like TVA's high-voltage lines near Chickamauga Dam are getting increased demand as more power is sold across the country.

The Tennessee Valley Authority won a power battle with three of its customers Thursday and will not have to bring outside power supplies to local utilities in Tennessee on TVA transmission lines, a federal agency ruled Thursday.

In a 3-1 vote, the Federal Energy Regulatory Commission rejected a petition by two municipalities and a power cooperative that sought to require TVA to grant open access to its power grid to transmit electricity from outside power suppliers that the local power companies say would give them cheaper power than TVA now provides.

In one of the biggest power battles in TVA's 88-year history, Volunteer Energy Cooperative, Athens Utilities Board and Gibson Electric Membership Corp., appealed to FERC to order TVA to wheel power to the three local power companies on TVA transmission lines so the local utilities could buy cheaper wholesale power they say is available from other utilities and power suppliers.

TVA said its public power model is unique and allowing local power companies in the Tennessee Valley access to its transmission grid without buying TVA power would undermine the integrated power system in the region and force other local power companies to have to pay more.

"FERC's action is consistent with our view that the public power model Congress created best serves the overall public interest and has done so over nearly nine decades," TVA General Counsel David Fountain said. "This allows us to focus on the future and move forward together in the 7-state region that TVA serves in a way that is best for the entire region."

Unlike much of the country that has separated the generation and transmission of electricity, TVA and its 7-state region maintain an integrated power model that FERC commissioners said they are limited to control. At the urging of investor-owned utilities worried about having to compete with the government-owned TVA, Congress established a so-called fence in 1959 to limit most power shipments in or out of the Tennessee Valley.

Despite the FERC ruling in favor of TVA, the chairman of the federal agency that helps oversee America's power grid said it is time to tear down TVA's territorial fence and deregulate what he called "an anachronism."

"While Congress may have had its reasons for erecting the fence in 1959, there does not appear to be any legitimate rationale for having the fence today," FERC Chairman Richard Glick said. "Even if the utility in a vertically integrated state chooses to self supply its own power needs, the potential for access to alternative suppliers acts as an important check against imprudent, costly decisions. In addition, the fence prevents TVA's distribution customers from making their own power purchase decisions based upon a price or based upon whether they want a cleaner energy mix."

Environmental groups eager to encourage local power companies to directly buy more solar, wind and other renewable power blasted the FERC ruling and also urged Congress to remove the TVA fence.

"This is a deeply disappointing decision and a slap in the face to millions of TVA customers," said Gaby Sarri-Tobar, a campaigner at the Center for Biological Diversity. "FERC just blew an opportunity to set an important precedent and give TVA power companies options for cheaper, renewable power and lower rates for customers, and begin breaking our fossil-fuel addiction."

Rody Blevins, president of Volunteer Energy Cooperative (VEC), said he was disappointed by the FERC decision and will consult with the other local power companies and attorneys to decide whether to appeal the FERC decision to federal court. In the meantime, Blevins said VEC will consider whether it makes sense to build its own transmission system to deliver cheaper power from other utilities to serve its 122,000 customers in East Tennessee.

"It's interesting that the (FERC) chairman was very clear that he thinks there ought to be transmission access in the Tennessee Valley and the TVA fence ought to come down, but then they decided they can't do anything because it is up to Congress," Blevins said.

Among the 153 municipalities and power cooperatives that distribute TVA, 145 have signed 20-year power purchase agreements to buy most of their power from TVA and maintain what TVA President Jeff Lyash calls "a partnership" between TVA and its distributors. TVA Communications Vice President Buddy Eller said TVA' record of delivering reliable, relatively low-cost power since 1933 proves its success and shows it shouldn't be broken up or disrupted.

"The public power model works," Eller said. "We look forward to continuing to work with all of the local power companies to advance our unique, shared mission of service."

The Chattanooga-based Tennessee Valley Public Power Association (TVPPA), the trade group that represents the local power companies that distribute TVA electricity, urged FERC to reject the petition from the three local power companies wanting to split from TVA.

"The relationship between TVA and its distributor customers is unlike any other in the nation, and it has served to build the economy and fuel life in the Tennessee Valley," said Doug Peters, president of the TVPPA. "At the same time, we support our members' local decisions, as each is governed by leaders from the communities in which they serve."

Peters said he hopes the eight local power companies that have yet to sign 20-year contracts with TVA will now "begin anew in their effort to reach a point of consensus that would enable those local leaders to commit to a long-term contract with TVA."

But some local power companies, including TVA's biggest customer - Memphis Light Gas & Water - are considering splitting with TVA and buying wholesale power from other utilities and electricity suppliers which they claim could offer cheaper power than TVA. To do so with Thursday's FERC ruling, however, will require the local power companies splitting with TVA to build their own transmission lines to get outside power.

While no local power company has yet given TVA the required notice of its intent to end its power purchase contracts with TVA, several have solicited offers from other power suppliers. Blevins said previous requests for proposals showed that VEC could get wholesale power at prices as much as 45% below what TVA charges, although some of those savings will now have to be spent on building transmission to carry that cheaper power.

TVA, TVPPA and the state of Tennessee all filed objections to the petition to FERC to grant any local power companies in the Tennessee Valley open access to TVA's transmission lines. Granting transmission access to Tennessee Valley utilities that leave TVA, Fountain said, would shift costs to existing TVA customers and is contrary to the "anti-cherry picking" provisions of the 1959 amendments to the TVA act.

Initially, four local power companies petitioned FERC to order TVA to grant open transmission access, but Joe Wheeler Electric Membership Cooperative in North Alabama dropped its filing this summer.

The remaining three local power companies said in a filing last week that TVA was threatening to limit investments in power delivery and connections to the three utilities because of the potential split with TVA.

Glick directed FERC's Office of Enforcement to investigate the claims of retaliation by TVA against the local power companies.

TVA denies it has restricted transmission improvements to the local power companies. TVA has spent $2 billion on transmission upgrades in the past five years and is currently building a $300 million operations center in Meigs County in the Volunteer Energy Cooperative service territory, Eller said.

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