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Staff Photo by Robin Rudd / VEC Chairman/CEO Rody Blevins explains the electric and broadband functions at the cooperative's Spring Creek Substation in McMinn County on June 2, 2020. Volunteer Energy Cooperative is considering obtain it's power from another source rather the Tennessee Valley Authority.

Note: This story was updated at 10:08 a.m. on Tues., Feb. 9, to correct a name to Eric Newberry Jr. A previous version incorrectly stated him as Eric Dewberry Jr.

After relying on the Tennessee Valley Authority for more than 80 years, a handful of local power companies in Tennessee are looking for a new and cheaper source of power.

Before such a split could occur within the Tennessee Valley, four of the local utilities say they need TVA to open up its transmission lines to bring the outside power into the region. Although such electricity transfers are allowed in most of America, TVA is balking, setting up a power battle that could shape the future of TVA and electricity prices in its seven-state region.

Volunteer Energy Cooperative and Athens Utilities Board in East Tennessee and the Gibson and Joe Wheeler electric membership corporations in West Tennessee are asking the Federal Energy Regulatory Commission to order TVA to transmit the outside electricity to them on TVA lines. They have not specified which alternative provider they might want to use.

In a 55-page petition to the commission, attorney William DeGrandis said TVA is charging "excessive bundled rates" and using "draconian" measures in its power contracts to block open access to cheaper power.

TVA President Jeff Lyash says the local power companies are free to leave TVA with the proper notice, but they should not be able to use TVA transmission assets paid for by all TVA customers to get power from another wholesale supplier.

"If this were allowed to happen, outside power suppliers will cherry-pick the attractive power loads around the edges and leave stranded costs that would have to be picked up by the other local power companies in the valley," he said.

The local power companies must give TVA a five-year notice to switch to another wholesale electricity supplier under their contracts, and they claim they can reduce their electric rates collectively for more than 200,000 of their customers if they turn to another power source.

"TVA's wholesale power rates are just not competitive with others in the region at this point," said Rody Blevins, president of Volunteer Energy Cooperative, which provides electric service in parts of Hamilton, Bradley, Polk, McMinn, Meigs, Bledsoe, Rhea and 10 other counties in East Tennessee.

At the neighboring Athens Utilities Board in Athens, Tennessee, utility president Eric Newberry Jr. said TVA prices aren't reflective of the wholesale bulk-power market and do not meet the "least feasible rate" requirement under the TVA act.

A 2018 rate comparison by the Atlanta-based energy consulting firm EnerVision for Volunteer Energy found that TVA wholesale rates were 28% higher than the average of 10 other neighboring utilities at that time. Although TVA has reduced its prices over the past five years through fuel cost adjustments and rebates to local power companies — and the utility has pledged to avoid any rate hikes for the next decade — Blevins said he thinks many local power companies can get better deals elsewhere.

 

Power split in the Valley

Other TVA distributors such as Memphis Light Gas & Water — TVA's biggest customer — and North Georgia Electric Membership Cooperative — the largest distributor of TVA power in Georgia — are also considering splitting from TVA. As local power companies on the edge of TVA's service territory, Memphis Light and North Georgia EMC are not as dependent on TVA transmitting power from other suppliers, and they did not join in the effort to force action by the federal energy regulator.

If all of the municipalities and power co-ops considering splitting with TVA actually break their contracts and go elsewhere for power, it will mark the biggest exodus of local power companies from the fold since TVA was created in 1933. If all of the local power companies looking at alternative suppliers ultimately decide to leave TVA, the federal utility could lose nearly 15% of its sales at a time when TVA is already expecting flat or even declining power consumption as consumers switch to more energy-efficient appliances, air conditioners and machines.

Other distributors in Paducah, Kentucky, and Bristol, Virginia, have previously left TVA and gone to other power suppliers, but they did not need to continue to use TVA transmission lines since they were both on the edge of TVA's territory and could connect with other wholesale suppliers without having to use TVA transmission lines.

Most of the 153 municipalities and power cooperatives in the TVA fold, including Chattanooga's EPB, have agreed in the past year to sign 20-year contracts with TVA to get most of their power from the federal utility under contract terms set by the TVA board of directors. TVA is allowing local power companies to get up to 5% of their power from their own generation or other suppliers, but TVA remains the primary source of electricity and the regulator for all local power companies in its seven-state region.

A dozen local power companies have refused to sign the long-term power contracts with TVA because they don't want to lock themselves into a single supplier for the next 20 years that may not be price competitive.

 

Powerful choices & access

Last year, TVA rejected requests to grant access to its transmission lines for outside power suppliers to sell electricity to customers within the Tennessee Valley, a decision that the TVA board reaffirmed at its last board meeting in November.

"The board concluded that providing transmission service to deliver power to departing LPCs [local power companies] would spread TVA's fixed costs across a diminishing customer base, increasing rates in some of the most economically challenged areas of the country," TVA said in a letter to Gibson Electric, rejecting its appeal to use TVA power lines to bring in electricity from other suppliers.

But DeGrandis urges the federal commission to overrule TVA's decision against transmission access, arguing that TVA's position is one of a monopoly, limiting competition and keeping prices higher for consumers.

"Short of taking the very expensive and duplicative step of constructing its own transmission lines, no local power company can feasibly reach an external supplier without service across TVA lines," he said. "In other words, TVA has created a supply monopoly within its considerable footprint that stifles all competition. TVA has taken advantage of this arrangement to charge unreasonably high bundled rates, with no incentive to efficiently manage the costs it imposes on its captive wholesale customers."

The local power companies proposing to buy from other wholesale suppliers say they would still pay TVA to use its transmission lines at prices similar to what TVA itself charges in its bundled power rates to recover TVA's investments in its 16,000 miles of transmission lines in the Valley.

 

The TVA fence

TVA says it can't allow such transfers of power in and out of the valley on its power grid under the terms of the so-called "TVA fence" that Congress established in 1959 at the urging of TVA's investor-owned neighbors worried about the federal utility undercutting their prices and taking their customers.

The 1959 amendments to the TVA act effectively block TVA from selling power outside of its 7-state service territory, other than for short-term emergency situations for power reliability. Other power utilities are also prohibited from selling power on a regular wholesale basis within the TVA region.

The amendments were adopted by Congress and signed by then-President Dwight Eisenhower in the 1950s in response to Cold War fears that TVA was a type of "creeping socialism" that needed to be restricted. Critics of TVA at the time said it was unfair for a government-owned agency like TVA to compete against investor-owned power utilities using TVA's cheaper power generated at federally funded hydroelectric dams.

TVA no longer receives direct federal appropriations, and it has repaid the federal government for the cost of its original power plants.

"Congress established their intent through legislation to provide two balanced principles," Lyash said. "TVA cannot compete to serve load or customers outside of its footprint, but TVA cannot be compelled to wheel power from outside suppliers to serve customers inside that footprint."

Lyash contends that TVA provides the greatest benefits for its local power companies, noting that more than 92% of TVA's distributors have agreed in the past year to long-term power contracts with TVA after studying all of their alternatives. Lyash said many of the rate studies done among wholesale suppliers in the Southeast don't consider future trends in power rates and ignore the value of what TVA provides in economic development assistance, recreational and environmental stewardship and collaborative, public decision making.

"At the end of the day, I believe the public power model in the Tennessee Valley delivers the best overall value," Lyash said.

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

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