The largest customer of the Tennessee Valley Authority has decided against entering into a long-term agreement to buy power from TVA as most other local power companies the Tennessee Valley have done over the past couple of years.
After years of debate and studies on the issue, the governing board of the municipally owned utility Memphis Light Gas and Water voted unanimously Wednesday against signing a 20-year power purchase contract with TVA.
The Memphis utility, which buys more than $1 billion a year in electricity from TVA and accounts for nearly 10% of TVA's sales, will continue to buy its wholesale power from TVA under its current contract with a five-year exit. But Memphis directors objected to signing the long-term contract with TVA, which they complained would lock the local power company into having to rely upon TVA regardless of what happens in the future.
"I would never sign a 20-year agreement like this with anybody," Michael Pohlman, a director at the Memphis utility and CEO of engineering company Pickering Firm, said during a board meeting Wednesday.
Pohlman and other directors at the Memphis utility noted that the 20-year term continually renews itself so the utility or any local power company signing such an agreement must give TVA 20 years' notice that they are departing from the TVA fold. Critics of the long-term contract claim it amounts to everlasting agreement that limits the ability of local utilities to shop around or switch suppliers when events warrant.
"For the future, we can't be locked into a 20-year agreement," Memphis Light Gas and Water Chairman Mitch Graves said during Wednesday's meeting.
All five of the Memphis utility's directors voted against the 20-year contract agreement with TVA, although utility director Carl Person urged the power company and TVA try to negotiate a different agreement.
"I am voting no (to the 20-year agreement), but I think we should work with TVA for an agreement that works for the ratepayers and for TVA," Person said.
Because TVA must provide similar contracts to all 153 of the municipalities and power cooperatives that buy TVA power, negotiating a different deal for the Memphis power company could be difficult, Graves told his fellow directors.
Memphis Light Gas and Water is among only a handful of TVA's 153 local power companies that have not signed the 20-year rolling contracts for power with TVA across the utility's seven-state region.
To entice local power companies like EPB in Chattanooga to sign the 20-year contracts, TVA is providing a 3.1% credit each year for local power companies that agree to what TVA calls "a long-term partnership." By not signing the 20-year agreement, the Memphis utility is giving up the 3.1% credit from TVA and having to keep the typical residential customer price of power in Memphis about $3 a month above what it would be if the utility signed a 20-year agreement, according to a consultants' study done for Memphis Light Gas and Water.
But directors said those short-term savings offered by TVA could be offset by higher costs from the federal utility over time, especially if renewable and distributed energy continues to become much cheaper and undermines the cost of TVA power.
In September, the staff led by then utility president J.T. Young recommended that the Memphis utility sign the 20-year agreement with TVA. After suggesting the company sign the long-term agreement, Young decided to leave Memphis and take another job with Florida Power & Light.
Memphis Light Gas and Water sought proposals last year from other power suppliers to price the market and determine if there might be a better source of long-term electricity supply other than TVA.
Chris Dawson, a principal with the Marietta, Georgia-based consulting firm GDS Associates that was hired to solicit the offers, said turning to other suppliers would cost Memphis ratepayers at least $70 million a year more than what they now pay for electricity provided by TVA.
"Today's information tells us that if we were to pursue other options, we would have higher costs, and we would still have all of the other risks of leaving TVA," Dawson told the Memphis board in September.
In June, GDS Associates said it would cost $1.2 billion and take up to eight years to build transmission facilities to cross the Mississippi River and connect to new power suppliers.
Wednesday's vote by Memphis utility's directors follows years of debate over whether Memphis should sign the long-term agreement with TVA. The company began exploring its options when former Chattanooga developer Franklin Haney approached Memphis about buying power from the Bellefonte Nuclear Power Plant, which Haney tried unsuccessfully to buy from TVA. Haney said he could deliver power to the Memphis utility cheaper than TVA, but TVA terminated its sales agreement for the Bellefonte plant after Haney didn't obtain the regulatory permits necessary to continue building Bellefonte.
"It's been a painful two to three years to get to this point to stay with business as usual," Graves said during Wednesday's meeting. "But you need to check your vendors ... . This was a great exercise to see where we can go and we have that knowledge base for us so it was not for naught."
In a statement Wednesday, TVA said it will continue to serve Memphis Light Gas and Water and make investments in Memphis.
"TVA has been respectful and supportive of the process (of deciding the power purchase agreement) and we are glad to see it come to a successful resolution," TVA spokesman Scott Brooks said.
TVA President Jeff Lyash told the Times Free Press earlier this year that the 20-year agreements with local power companies make long-term planning better for TVA, but he stressed that no municipality or coop is required to sign the 20-year pacts.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340. Follow him on Twitter @DFlessner1.
Staff Photo by Angela Lewis Foster / The Tennessee Valley Authority building is seen in 2016.