Bill Johnson leaves leaner, greener utility, but critics say he took the public out of TVA

Bill Johnson leaves leaner, greener utility, but critics say he took the public out of TVA

Changing of the guard at TVA - Jeff Lyash takes helm as CEO of TVA today

April 8th, 2019 by Dave Flessner in Local Regional News

Bill Johnson, president and CEO of TVA, talks to the media about Watts Bar Nuclear Plant reaching full power.

Photo by Tim Barber /Times Free Press.

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Bill Johnson admits he has had trouble retiring from work, but he is convinced he is leaving the Tennessee Valley Authority at an opportune time and in better shape that when he became its leader six years ago.

At age 65, Johnson is preparing this month to head west to lead his third major power utility since the former football lineman and attorney entered the electric power industry 27 years ago. He will turn over the CEO role at TVA today to one of his former colleagues and move to San Francisco to head California's largest electric utility.

Johnson accomplishments

* Cut TVA debt by $3.5 billion

* Reduced the effective price of TVA wholesale power by 2 percent from 2013 levels

* Added $48 billion of business investment in the Valley with projects that will add 420,000 jobs

* Completed Watts Bar Nuclear Unit 2, and improved the performance of TVA’s six other reactors

* Completed the Paradise combined-cycle natural gas plant ahead of schedule and $220 million under budget.

* Completed $1 billion of clean-air improvements at Gallatin Fossil Plant

* Started $300 million multi-year initiative to upgrade the power system’s fiber-optic telecommunication system

Source: Tennessee Valley Authority

PG&E Corp., the parent company of Pacific, Gas & Electric, hired Johnson to help lead the company out of its bankruptcy caused by two seasons of deadly wildfires sparked in part by its equipment. After a brief transition time at TVA with his successor — former Ontario Power CEO Jeff Lyash who joins TVA today — Johnson will join PG&E later this month.

"I'm from the old utility school which taught that when someone needs help, you go help them," Johnson said of his decision to join PG&E.

It's the second time that Johnson thought he was about to retire as CEO only to be recruited by another company.

In 2012 after he helped engineer the merger of Progress Energy with Duke Energy, Johnson was fired by the new combined board after the merger closed, allowing him to walk away with a $44 million severance payment for one hour's work.

Johnson said he planned at the time to retire from daily management since he was approaching 60 years old and serve as a board member for another utility.

"But in the middle of one of the interviews for one of those board seats, I said to myself, "why would I watch the game when I could still play the game?'" he recalled.

With three or four CEO offers, Johnson said he ultimately decided to come to TVA, the nation's biggest government-owned electric utility. A former high school history teacher before he became an attorney and later a utility manager, Johnson said he was always intrigued by TVA — the New Deal agency which Franklin Roosevelt created in 1933 to help the then-impoverished Southern Appalachia region.

Over most of its 86-year history, TVA has built hydroelectric dams, coal plants and nuclear reactors to meet the growing power demands of its 7-state region. It has pioneered fertilizer and weapons research for American farmers and the U.S. military.

But since Johnson became TVA's CEO in January 2013, TVA has become a leaner and greener utility with less debt, staff and coal-fired generation. Amid relatively flat sales of electricity, the agency has managed to pare $3.5 billion in debt while investing more than $15 billion to finish America's last completed nuclear reactor, clean up many of its coal ash piles and plant emissions, and upgrade its transmission network.

"Financially, Bill [Johnson] helped put TVA in the best financial shape it has been in decades and positioned the business to be able to hold power rates in a competitive position for many years to come," said Doug Peters, president of the Chattanooga-based Tennessee Valley Public Power Association that represents the 154 local power companies that buy and distribute TVA electricity across its 7-state region.

Scaling back jobs, plant construction

Johnson's leadership at TVA has focused as much on cutbacks as construction.

Johnson said he quickly realized when he came to TVA that changes were needed to pare its debt and spending, since electricity demand was no longer growing in the region.

Within five months of his arrival at TVA, one of its biggest customers — U.S. Enrichment Corp., in Paducah, Kentucky — announced that it was closing its uranium processing plant and quit buying TVA power.

"I also learned early upon coming to TVA that our customers were not happy because their rates had been going up consistently over time, and industrial customers were convinced they were paying an unfair share and we were not as competitive with other utilities as we needed to be," Johnson said.

With power demand stagnant or declining, Johnson trimmed more than 3,000 jobs from TVA's employment rolls, primarily through retirement incentives and attrition. He said only about 100 employees had to be involuntarily laid off to achieve the staff reductions, and TVA ultimately succeeded in cutting more than $800 million in operating costs by cutting programs, closing plants and rolling back incentives for energy efficiency and premium rates for renewables.

Johnson was able to keep wholesale rates down by about 2 percent over the past six years even while cutting TVA's debt from $27.8 billion in 2013 to $24.3 billion at the end of 2018. TVA is on pace this year to earn more than $1 billion in net income for the the fourth time in the past five years.

But much of the gains came simply from natural gas getting cheaper, which drove down the fuel cost portion of power bills to offset TVA's 10-year plan for annual rate hikes averaging about 1.5 percent a year.

"TVA benefited by cheaper natural gas, but Johnson did very little to promote renewable energy and [he] cut the budget for energy efficiency," said Stephen Smith, executive director for the Southern Alliance for Clean Energy and a frequent critic of Johnson's leadership.

Highest-paid federal employee

Smith and other environmental and consumer groups also complained about the pay and benefits for Johnson, which topped $8 million in one year and averaged more than $6 million a year over his term, making Johnson the highest-paid federal employee in America.

The TVA Act requires the utility pay competitive salaries in the industry, and the agency's executive compensation ranks in the bottom 25 percent of U.S. utilities. Johnson was paid more than $9 million in his last year at Progress in 2011, more than he was ever paid at the larger TVA.

TVA Chairman Richard Howorth, who said he tried to talk Johnson last year into not retiring from TVA, said Johnson's pay is still well below that of comparable executives at investor-owned utilities and most of his compensation is based upon his performance, not his base salary.

"Bill Johnson has done a terrific job," Howorth said. "He improved TVA's financial health and operational performance, engaged TVA employees and established better relationships with our customers, elected officials, industry regulators and community leaders."

In the announcement of its new CEO, the PG&E board praised Johnson's leadership at TVA and said he "is the right leader as we work to strengthen our safety culture and navigate a complex and challenging period in our company's history."

Nuclear costs, challenges

TVA's operational performance did improve under Johnson. But his career has shown mixed results, especially in nuclear plant safety and operations.

David Lochbaum, a former TVA nuclear worker and NRC inspector who previously worked for the Union of Concerned Scientists, thinks PG&E could have picked a better candidate.

At Progress Energy, where Johnson worked with Lyash overseeing five reactors, the utility's nuclear unit was top rated by the Nuclear Regulatory Commission when Johnson became CEO. But the rating fell a year later and improved after Johnson left.

Despite recent improvements, TVA's nuclear performance also struggled during part of Johnson's tenure, including a red-flag finding when Johnson first came to TVA.

"So it seems like the opposite of the Midas touch," Lochbaum told San Francisco television station KGO. "Under his tutelage, reactor safety performance drops."

As CEO, Johnson did finish construction of the last U.S.-built nuclear reactor at the Watts Bar plant near Spring City, Tennessee in 2015. But that project was revived a decade ago before Johnson arrived when TVA estimated it could be finished for $2.5 billion. The project ultimately cost $4.7 billion.

Johnson said every nuclear power project he has been involved with in the Carolinas, Florida and Tennessee have been over budget and behind schedule.

"You'd have to be a very brave person," Johnson said about those who pursue new nuclear power projects.

So Johnson was skeptical of those pushing to have TVA finish the Bellefonte nuclear power plant in Jackson County, Alabama, which his predecessor Tom Kilgore had tried to keep alive. Ultimately, Johnson gave up on the $6 billion investment in the unfinished twin-reactor complex and agreed in 2016 to sell Bellefonte at auction for only $111 million — less than 2 percent of what TVA had invested in the project over the past 45 years.

Cutting coal and carbon

Johnson has presided over the phasing out of more than half of the coal units TVA once operated, including the shutdown of the John Sevier, Widows Creek, Colbert and Johnsonville coal plants. In February, over the objections of President Trump and Senate Majority Leader Mitch McConnell of Kentucky, Johnson pushed a divided TVA board to also shutter the last coal unit at the Paradise plant in Kentucky and close Bull Run in Tennessee by next year.

As a result, TVA is on pace to cut its carbon emissions from its 2005 levels at least 60 percent by 2020. Coal-fired generation, which supplied nearly two thirds of TVA power at one point in the 1980s, is expected to generate only 17 percent of the utility's power next year.

Last year for the first time in a half century, TVA generated more than half of its power from non-carbon sources, including its seven nuclear reactors, 29 hydroelectric dams and its purchase agreements and pilot projects for solar and wind generation.

Debate over renewable power

Johnson has overseen the addition of one gigawatt of solar power and 1,400 megawatts of wind energy. But his critics claim most of that was done to supply those either paying for such power through the Green Power Switch or demanding such renewable power as a condition of locating in the Tennessee Valley. Google and Facebook were lured to Alabama and Tennessee to build major data centers and support operations with the guarantee that all of their 675 megawatts of power would be generated by renewable sources through TVA.

Under Johnson, TVA scrapped what could have been America's biggest wind energy project.

The Houston-based Clean Line Energy had proposed building a $2.5 billion transmission line to carry 3,500 megawatts of wind energy generated in the windy parts of Oklahoma and Texas to the Tennessee Valley and other parts of the Southeast.

But the developers ultimately had to give up on the 700-mile-long project when TVA refused to agree to buy the power, even though Clean Line claimed it would be priced lower than TVA's rates.

"Bill Johnson killed what could have been one of the biggest and most important renewable energy projects in America," Smith said. "TVA used to be a leader in solar and wind energy, but now it is trailing behind other utilities in the South."

Johnson said TVA is investing more than ever in new renewable energy, but only when it makes economic sense. He said TVA would have had to spend more money to back up the wind generation for the Clean Line project when the wind didn't blow, and that made the project too costly.

Under Johnson, TVA also has cut its incentive rates offered for buying small-scale solar and wind generation and has reduced the budget for energy conservation programs to help consumers reduce their energy consumption and power bills.

He said those installing solar and wind generators, many of whom tend to be from above-average households, shouldn't be subsidized by others who can't afford such power. Johnson, a lawyer by training, points to the TVA Act as a critical part of his decisions.

"We continue to offer our customers programs to promote energy efficiency, but the TVA Act says we must focus on keeping rates low and that is what we have tried to do," he said. "Appliances, water heaters, furnaces and electric motors are getting more energy efficient, so the market is responding to this demand."

Indeed, TVA doesn't expect to get back to the power peaks it reached before the Great Recession of a decade ago for many decades to come, if ever.

But backers of energy efficiency claim that focusing on rates, instead of customer bills, is a mistake and serves to help TVA but not its customers.

"Industrial rates have gone down, but residential and commercial customers are paying higher fixed costs on their monthly power bill and that hurts the economics of putting in your own renewable source of power or installing more efficiency measures, since a lesser share of your bill is not related to how much energy you use," Smith said.

High-flying criticism of TVA

Consumer groups claim Johnson "has taken the public out of public power" while at TVA, blasting the outgoing CEO for his private-sector-like compensation package and for buying two Citation jets to replace cheaper turboprop planes and a Mercedes-Benz-style executive helicopter formerly used by Dallas Cowboys owner Jerry Jones. TVA's own inspector general said the purchases were not adequately justified.

"The use of these jets and this luxury helicopter should not be acceptable to anyone and this is just further evidence that the self-regulated TVA monopoly is out of control, and CEO Bill Johnson needs to be replaced," Debbie Dooley, a tea party co-founder and president of Conservatives for Energy Freedom, said when the aircraft was bought.

Johnson said the jets were purchased to gain safer and quicker travel around the Tennessee Valley for TVA executives to be in direct contact with more workers and customers. The helicopter has allowed TVA to show off the region to industrial prospects that have made a record $48 billion of investments in the region over the past six years.

Johnson's record was praised by members of Congress, which revamped TVA in the 1980s to allow the agency to pay compensation rates above other government agencies and to operate in a more businesslike manner.

"Bill Johnson took the helm at a very important time for TVA and has exceeded all expectations," former U.S. Sen. Bob Corker, R-Tennessee, said when Johnson announced in November he would leave TVA.

"Those of us in the Tennessee Valley owe a big thank you to Bill Johnson — he and the board of directors have provided sound management and set TVA in the right direction for the future," said U.S. Sen. Lamar Alexander, the Tennessee Republican who is chairman of the energy subcommittee that oversees TVA in the U.S. Senate. "Electric power is reliable, rates are competitive, the debt is smaller and the air is cleaner thanks to the leadership of Bill Johnson and TVA's board."

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